ICO – Page 2 – FinTech and Blockchain Law Watch

Metamorphosis: Digital Assets and the U.S. Securities Laws

Jun 28 2018

By Robert M. Crea, Anthony R.G. Nolan and Eden L. Rohrer

In the past year, the U.S Securities Exchange Commission (“SEC”) and Chairman Jay Clayton have repeatedly cautioned the cryptocurrency and initial coin offering (“ICO”) industries about the securities law implications for digital assets. On February 6, 2018, in testimony before the Senate Banking Committee, Chairman Clayton notably asserted that “[e]very ICO I’ve seen is a security.”

However, on June 14, 2018, William Hinman, the SEC’s Director of the Division of Corporation Finance, stated that, putting aside the fundraising that accompanied the creation of Ether, “current offers and sales of Ether are not securities transactions.” This statement was based on a novel theory of evolving decentralization that may very well have significant ramifications for cryptocurrency and ICO markets.

Please see our latest K&L Gates HUB article for a discussion about the context and implications for Director Hinman’s conclusions surrounding Ether. It also analyses the specific factors he suggests weighing in determining whether a given digital asset is a security.

ASIC updates its guidance on treatment of ICO’s

May 07 2018

By Jim Bulling and Felix Charlesworth

On 1 May 2018, the Australian Securities and Investments Commission (ASIC) released its revised Information Sheet 225 which provides an updated guidance on initial coin offerings (ICOs). The updated report expands its scope to include guidance dealing with other crypto-currency and digital token (Crypto-Asset) businesses.

ASIC: Australian laws still apply to ICOs created and offered overseas

Apr 30 2018

By Jim Bulling and Edwin Tan

On 26 April 2018, John Price of the Australian Securities and Investments Commission (ASIC) highlighted in a speech that Australian corporate and consumer laws might still apply to ICOs created and offered from overseas, so long as they were offered and sold to Australian consumers. Mr Price warned that there was an incorrect perception that Australian regulations did not apply to activities engaged from overseas.

Federal Court to decide whether tokens issued through an ICO are securities

Mar 07 2018

By Clifford Histed

In a criminal case in Brooklyn, New York, a federal court has been asked to decide for the first time whether tokens or coins issued through an initial coin offering constitute “securities” under U.S. securities laws.

On September 29, 2017 the SEC filed a civil complaint against Maksim Zaslavskiy, alleging that he had committed securities fraud and sold “illegal unregistered securities.” The instruments at issue were tokens that Zaslavskiy allegedly sold to the public through initial coin offerings of his companies RECoin Group Foundation LLC and DRC World, Inc. The lawsuit followed an investigation that apparently took less than 90 days to conduct, and that involved reviewing social media and online postings. The investigation appears to have been conducted parallel with a criminal investigation by the FBI, and a criminal complaint was filed 28 days after the SEC complaint. The SEC case was stayed pending resolution of the criminal case.

ASX Listings and Cryptocurrencies

Mar 01 2018

By Jim Bulling and Edwin Tan

The Australian Securities Exchange (ASX) has recently provided several comments in relation to entities that are listed or looking to list on the ASX that are involved in cryptocurrency-related businesses, such as developing cryptocurrency tokens, conducting Initial Coin Offerings and operating cryptocurrency exchanges.

FINMA publishes ICO guidelines

Feb 28 2018

By Rizwan Qayyum

The Swiss Financial Market Supervisory Authority (“FINMA”) have published guidelines on initial coin offerings, after receiving numerous requests for guidance from start-ups aiming to launch their own ICO and considering Switzerland as their jurisdiction. Having reviewed the document, its evident that FINMA have aimed to create a regulatory environment which balances the central tenet of consumer protection whilst existing in an ecosystem conducive to innovation. The guidelines can be found here.

FINMA CEO, Mark Branson commented: “The application of blockchain technology has innovative potential within and far beyond the financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework. Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system”.

FINMA notes that they have identified a sharp increase in the number of ICOs planned or executed in Switzerland, alongside the increased activity relating to enquiries about the current regulatory framework and its applicability.

AMF synthesis of the contributions received on ICO regulation in France

Feb 28 2018

By Claude-Étienne Armingaud

The French Autorité des Marchés Financiers has recently published a synthesis of the contributions it received in response to its public consultation on Initial Coin Offerings (ICOs) to obtain stakeholder views on how these new types of blockchain offerings might be regulated.

The consultation included a presentation of ICOs, a warning on the risks they present, a legal analysis of ICOs with respect to the rules overseen by the AMF and the regulatory options proposed by the AMF. Respondents were invited to give their views on all of these points.

The English version of the synthesis can be found here and our previous coverage of the consultation can be found here.

BaFin second notice on ICOs

Feb 28 2018

By Rizwan Qayyum

On February 20, Germany’s financial regulator, the Federal Financial Supervisory Authority (“BaFin”) published a letter of advice on ICOs. This is the second statement from BaFin on the matter and it provides more substance to how they expect to manage the growing interest in ICOs within Germany.

The letter (an English version is not available at this time) notes that BaFin will conduct a “precise case-by-case examination” of tokens issued via ICOs to determine their legal status and application under current regulations. As such they have stopped short from issuing any sector specific guidance.

The letter is available here

Wyoming Moving to Exempt Virtual Currency from its Money Transmitter Law

Feb 23 2018

By Dan S Cohen

With unanimous support, the Wyoming House of Representatives passed House Bill 19, which exempts virtual currencies from the state’s money transmission law. HB 19 defines virtual currency as a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and is not recognized by the federal government as legal tender. If enacted, the Wyoming Money Transmitter Act would no longer apply to the buying, selling, issuing, or taking custody of virtual currency, or receiving virtual currency for the purpose of transmitting that currency within or outside of the United States.

The proposed change comes almost two years after Coinbase announced its indefinite suspension of business in the state due to its belief that the Wyoming Division of Banking interpreted the Wyoming Money Transmitter Act to apply to entities offering hosted wallet services. Wyoming would become the first state to completely exempt virtual currency from its money transmitter law if the bill is adopted. To date, Illinois, Kansas, Tennessee, and Texas have issued guidance excluding some but not all virtual currency activities from their respective money transmitter laws.

HB 19 is one of several virtual currency and blockchain-related bills the Wyoming legislature is considering. Bills to exempt “utility tokens” from securities regulation, and to allow companies to store records and accept shareholder votes through blockchain technology are also under consideration. Wyoming political leaders are clearly moving quickly to adapt to the rise of virtual currency and blockchain technology.

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