New York Federal Court’s View on Cryptocurrency as Securities

On September 11, 2018, the U.S. District Court for the Eastern District of New York denied[1] a motion to dismiss an indictment of a Brooklyn real estate entrepreneur in relation to two virtual currency investment schemes and initial coin offerings (“ICOs”). The indictment, which charged securities fraud against Maksim Zaslavskiy, was based, in part, on the theory that the cryptocurrencies at issue were securities. In his motion to dismiss, Zaslavskiy argued that this premise was faulty and the ICOs offered by the two companies he owned, REcoin Group Foundation, LLC (“REcoin”) and DRC World, Inc. (“DRC”), were not, in fact, securities. The court, then, was called upon to consider whether the securities laws apply to cryptocurrencies. The court also considered Zaslavskiy’s argument that the securities laws are void for vagueness as applied to cryptocurrencies and token sales. Continue Reading

The Blockchain-based Supply Chain Adoption Tipping Point?

Blockchain has long been touted as having transformational potential. Yet, the commercial adoption has been slow. As with any cutting-edge technology, commercial adoption usually requires some tipping point. For adoption of blockchain-based supply chain, the tipping point may just have occurred.

According to a recent article, starting in September 2019, Walmart and its Sam’s Club division will require suppliers of fresh, leafy greens to implement real-time, end-to-end traceability of products back to the farm using a digital ledger. They plan similar mandates for other fresh fruit and vegetable providers within the next year. This will apparently require more than 100 companies to use this blockchain-solution. Continue Reading

Recent Development in Regulatory Enforcement of Digital Securities

In a flurry of activity and confluence of developments, the SEC, FINRA and a Brooklyn federal judge have commenced actions and made rulings that continue to define the regulatory framework and obligations surrounding the sale and trading of digital securities, whether they are labeled as cryptocurrencies or tokens. Continue Reading

Airdrop of Crypto Tokens Hits Regulatory Flak

On August 14, 2018, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (the “Tomahawk Order”) against Tomahawk Exploration LLC (“Tomahawk”) and David Thompson Laurance (“Laurance”) for their actions in connection with an initial coin offering of digital assets called “Tomahawkcoins” or “TOM” (the “Tomahawk ICO”). Tomahawk and Laurance’s actions were problematic for the same reasons cited by the SEC in other recent orders related to digital assets (e.g. the Munchee Order). Consistent with such orders, the SEC determined that Tomahawkcoins are securities because they constitute investment contracts under the “Howey” test. However, what makes the Tomahawk Order particularly noteworthy are the lessons to be gleaned regarding cryptocurrency “airdropping.” Continue Reading

Court Rules Cryptocurrencies Can Be Regulated By The CFTC As Commodities

The regulatory landscape surrounding cryptocurrency continues to evolve. Most of the activity to date has involved regulatory enforcement actions brought by the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) and focused primarily on exposing fraud rather than providing guidance. Some people have questioned whether the CFTC has jurisdiction in this space. A federal district court in New York has ruled that they do. Continue Reading

Is there a Unicorn Among ICO Issuers?

The United States Securities and Exchange Commission (“SEC”) has indicated that nearly all initial coin offering (“ICO”) filings they have seen are securities offerings. Based on this expansive view, it may be more likely to find a Unicorn than an ICO that is not a securities offering. Ironically, a recent lawsuit was filed against Unikrn, a block-chain based betting platform, primarily focused on esports betting. Continue Reading

10 FAQs About Blockchain and Life Sciences

Blockchain is a rapidly emerging technology and has the potential to bring transformative changes to many industries. As more companies become aware of and study this technology, many questions arise. These questions relate to what blockchain technology is, how it works and what about it is so different. Blockchain is often associated with the financial services industry, but it is applicable to all industries. Many people in the life sciences industry have been asking if blockchain is relevant to them and, if so, how is it applicable? This paper addresses these and other frequently asked questions about blockchain technology and its applicability to the life sciences. Continue Reading

Crypto-Collectibles Phenomena Continues as MLB Hopes for Home Run

The Major League Baseball Players Association (MBLPA) signed an exclusive deal with the crypto-collectibles startup, Player Tokens. This is believed to be the first professional athlete-based crypto-collectible offering. The partnership is intended to introduce baseball fans to blockchain technology and blockchain enthusiasts to Major League Baseball (MLB). The tokens will feature 73 All-Stars and players from all 30 MLB teams. Each Player Token has a unique ID that is recorded to the blockchain to prove the authenticity of each asset. Continue Reading

SEC Blockchain and Crypto Update

The SEC has been busy over the past couple of weeks addressing blockchain and crypto-related issues.

ETF Activity

The SEC rejected, for a second time, a request by the Winklevoss brothers for a Bitcoin exchange-traded fund. The primary reason given by the SEC was that the submission did not sufficiently explain how the ETF would prevent manipulation and fraud. The SEC has previously expressed additional concerns with crypto ETFs over liquidity, price manipulation and custody. Interestingly, the SEC Commissioner Hester M. Peirce voiced a strong dissent to the rejection, saying the rejection “sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin eTPES.” Continue Reading

Apple Updates Cryptocurrency Aspects of App Store Review Guidelines

Apple’s App Store Review Guidelines have been updated to address various aspects of cryptocurrency. Some of the relevant provisions include the following.

One of the provisions relates to prevents an app from including ads that run background processes such as crypto mining. This is a tactic that has arisen, unbeknownst to many users. The relevant provision recites:

2.4.2 Design your app to use power efficiently. Apps should not rapidly drain battery, generate excessive heat, or put unnecessary strain on device resources. Apps, including any third party advertisements displayed within them, may not run unrelated background processes, such as cryptocurrency mining. Continue Reading

LexBlog