Conference Report – Blockchain and the Law: Towards a Responsible Blockchain Sector

By Anthony R. G. Nolan and Julien E. F. Barbey

On June 14, Cardozo Law School in New York City held a conference entitled “Blockchain and the Law: Towards a Responsible Blockchain Sector.”  The conference was led by a panel consisting of current and former commissioners and staff members of the SEC and the CFTC including Rob Cohen, director of the SEC’s enforcement division.

Among topics discussed was SEC Director William Hinman’s recent speech in which he stated that Ethereum is not a security.  Panelists suggested this may indicate that the SEC would regard a token as being able to change its character over time, such that a token that was once a security can morph into one that is not a security.   This would have important implications for market practices, potentially including the utility of SAFTs.

In light of SEC Chairman Jay Clayton’s gatekeeper speech there was a panel consensus encouraging lawyers to seek consultation with the SEC staff through the fintech@sec.gov email address.  The panelists explained that such consultation could be a way to vet a client’s intentions since a fraudster likely would not want its lawyers talking with the SEC even on a no-names basis.

Cohen said that 90% of ICOs involve fraud and that this prevalence of boiler rooms and Ponzi schemes may have contributed to the SEC’s not being in a rush to push structural changes to securities laws to accommodate ICOs.  There was a spirited discussion of the need to address the regulatory status of intermediaries involved with securities tokens.   One audience member commented that smart contracts are being drafted in a vacuum because there is no certainty as to what practices would be considered adequate.  Panelists indicated the SEC may consider it too early to proceed with full notice-and-comment rulemaking on these issues but that it will probably rely on no-action letters to provide safe harbors from enforcement, similarly to how the SEC used the Wit Capital no-action letter to help move securities offerings into the internet age.