Despite the minimal regulatory enforcement actions against blockchain game companies and NFT issuers, now is NOT the time to become complacent about regulatory issues. As indicated below, many U.S. agencies
Continue Reading NFT Regulatory Issues – a 2022 Review and 2023 Preview
We have previously posted about the SEC lawsuit against LBRY. In that post, we noted that while the crypto community is rightfully focused on the Ripple case to see how the SEC will fare in court on enforcements alleging cryptocurrency offerings are a security, a lesser-known case may provide clarity first. And today that came to be. The federal district court in the LBRY case granted summary judgment in favor of the SEC. In so ruling, the Court found no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked fair notice.
Continue Reading Federal Court Rules LBRY Offered Security and Rejects Arguments SEC Did Not Provide Fair Notice
We previously blogged about the NFT insider trading case against Nathaniel Chastain. He was charged with wire fraud and money laundering in connection with a scheme to commit “insider trading” in Non-Fungible Tokens (“NFTs”) by using confidential information about what NFTs were going to be featured on a marketplace homepage for his personal financial gain. Despite referring to this case as insider trading, there was no allegation that the NFTs at issue were securities. This caused many in the NFT community to question whether this activity could be illegal if the NFTs were not securities. In fact, there was a fair amount of misinformation circulated about this issue. To clarify the legal issues, we explained in a second blog about this case that there is Supreme Court precedent (Carpenter v. US) that found that mail and wire fraud charges need not be predicated on the underlying subject matter constituting a security. Nevertheless, Chastain moved to dismiss the indictment based on this and two other arguments. The Court refused to dismiss the indictment. The Court found that the Carpenter case “actually dooms Chastain’s argument.”
Continue Reading NFT Insider Trading Charge Doesn’t Require the NFT To Be a Security
On September 26, 2022, New York Attorney General Letitia James (the “NYAG”) took definitive action in the wake of her warning last year that crypto lending platforms must register with her office or face legal action, filing a complaint against Nexo Inc. and Nexo Capital, Inc. (collectively “Nexo”) alleging that Nexo violated New York’s Martin Act and Executive Law by acting as an unregistered securities and/or commodities broker-dealer within the state. Specifically, the complaint alleges that Nexo improperly offered and sold securities and commodities by allowing users to purchase, sell, deposit, trade, borrow against, and earn interest on virtual currency, while unregistered. The complaint further alleges that Nexo made various misrepresentations regarding its operations. The NYAG seeks an injunction, disgorgement, restitution, and a permanent bar prohibiting Nexo from purchasing or selling securities or commodities in New York.
Continue Reading NYAG Delivers on Promise to Rein In Unregistered Crypto Lending with New Suit
In October 2021, San Francisco crypto currency exchange Coinbase made waves after releasing a proposed regulatory framework for digital assets entitled Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership (“dApp”).
Continue Reading Digital Asset Policy: Aspirations, Reality and Regulation
U.S. state and federal lawmakers, as well as federal regulators, are increasingly focusing on the role of blockchain and distributed ledger technology in ongoing efforts to combat climate change and
Continue Reading Lawmakers and Regulators Examine Role of Blockchain Technology in Energy Transitions
We have previously addressed the recent indictment against Nathaniel Chastain, a former executive of a major NFT marketplace, for insider trading involving NFTs. The indictment charges Chastain with one count of wire fraud and one count of money laundering. It does not allege that the NFT is a security. It does not allege violation of the insider trading laws under securities law. Since then, as we have reported, that SEC has been investigating lack of insider trading policies for NFT/crypto exchanges.
Continue Reading NFT Insider Trading – Can There Be A Crime If It’s Not A Security?
It is well known that insider trading—the practice of buying and selling stocks, bonds, or other securities based on material, non-public information—is unlawful. For that reason, many companies have compliance programs and policies that restrict trading by officers, directors, employees or other “insiders” with access to such information.
Continue Reading NFT Insider Trading Compliance Policies – What They Cover and Why You Need One
For quite some time, we have been advising that marketplaces and NFT/crypto issuers consider developing an insider trading policy. The SEC is now investigating this issue. If you do not have a policy this is a good time to do so.
Continue Reading SEC Investigating Lack of Insider Trading Policies for NFT/Crypto Exchanges
A class action lawsuit filed by users of a decentralized finance (“DeFi”) protocol managed by a decentralized autonomous organization, or “DAO,” may shed light on the potential legal liabilities of a DAO and its participants. The complaint in Sarcuni v. bZx DAO, No. 22-cv-0618 (S.D. Cal. May 2, 2022), highlights several issues related to DAO liability of which DAO participants should be aware. There is a common misperception that an unincorporated DAO is not subject to liability because there is no entity for regulators to pursue. The fact is that such DAOs may be deemed general partnerships and the participants may each bear some liability for activities of the DAO. In some cases, a DAO includes a wrapper entity, in part, to shield participants from such liability. This issue highlights a tension between the aspirations of Web3 entities to be decentralized and community-governed on the one hand, and the challenges of accomplishing those aspirations given the current state of corporate law on the other hand.