On July 25, 2017, the U.S. Securities and Exchange Commission (“SEC”) issued a report (“Report”) detailing its investigation into whether the DAO (an unincorporated “decentralized autonomous organization”), Slock.it UG (“Slock.it”), Slock.it’s co-founders, and intermediaries violated the federal securities laws. The SEC determined that the tokens issued by the DAO are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), and advised those who would use a distributed ledger or blockchain-enabled means for capital raising to take appropriate steps to comply with the U.S. federal securities laws. However, the SEC decided not to pursue an enforcement action at this time. Continue Reading
The SEC has opined that, depending on the facts and circumstances of each individual ICO, the virtual coins or tokens that are offered or sold may be securities. If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws. Continue Reading
In August 2016, the Department of Homeland Security proposed an “International Entrepreneur” parole rule that would allow qualifying foreign entrepreneurs to develop and grow their start-up companies in the United States. After public comment, the rule was finalized and released in the closing days of the previous Administration. Continue Reading
Two amendments have been proposed to the Delaware General Corporation Law (the “DGCL”) to permit corporate record keeping utilizing blockchain databases (the “Blockchain Amendments”). Specifically, “stock ledger” is to be defined in Section 219 of the DGCL to include ledgers “administered by or on behalf of the corporation,” in order to permit a record keeping system utilizing blockchain databases. Section 224 of the DGCL is to be similarly amended regarding all corporate records, and provide that such records may be kept on “one or more electronic networks or databases (including one or more distributed electronic networks or databases).” Continue Reading
The pro-bitcoin legislation trend continues. This month New Hampshire passed legislation that exempts persons using virtual currency from registering as money transmitters. Specifically, the law amends existing RSA 399-G, which deals with licensing of money transmitters as follows. Continue Reading
Nevada has passed a pro-blockchain law that recognizes blockchain technology as a type of electronic record for the purposes of the Uniform Electronic Transactions Act and prohibits taxation and regulations regarding the use and implementation of blockchain technology. Continue Reading
Corporate lawyers and software developers have been watching eagerly as the State of Delaware takes steps to enable Delaware corporations to issue shares of their stock as digital tokens. Instead of recording shares on paper ledgers, corporations will record ownership using “Blockchains”: ledgers that are secured by cryptographic keys that can be distributed around the world without fear of tampering. Continue Reading
A recent federal district court decision denied a motion to dismiss a complaint brought by Artifex Software Inc. (“Artifex”) for breach of contract and copyright infringement claims against Defendant Hancom, Inc. based on breach of an open source software license. The software, referred to as Ghostscript, was dual-licensed under the GPL license and a commercial license. According to the Plaintiff, those seeking to commercially distribute Ghostscript could obtain a commercial license to use, modify, copy, and/or distribute Ghostscript for a fee. Otherwise, the software was available without a fee under the GNU GPL, which required users to comply with certain open-source licensing requirements. The requirements included an obligation to “convey the machine-readable Corresponding Source under the terms of this License” of any covered code. In other words, under the open source license option, certain combinations of proprietary software with Ghostscript are governed by the terms of the GNU GPL. Continue Reading
On April 5, 2012, President Obama signed into law the landmark Jumpstart Our Business Startups Act (JOBS Act), for the purpose of encouraging the funding of startups and small businesses throughout the United States. Title III of the JOBS Act, otherwise known as Regulation Crowdfunding or Reg CF, received the most attention because it legalized investment crowdfunding. The purpose of Reg CF was to make it easier for startups and small businesses to access capital, to give more people the ability to participate in investment opportunities, and ultimately, to create jobs and stimulate economic growth.
On October 26, 2016, the Securities and Exchange Commission amended its existing safe harbor rule for intrastate investing, Rule 147, and added a new intrastate safe harbor, Rule 147A in an effort to reflect the realities of modern business. While these changes could provide a useful tool for small businesses, the SEC’s evolving stance on nationwide crowdfunding and lack of coordination with existing state law may hinder their usefulness to any business beyond those looking for local or niche investors.