As an expensive “slap on the wrist,” the Securities and Exchange Commission (“SEC” or the “Commission”) recently concluded that approximately $12.7 million worth of funds raised in a 2017 Initial Coin Offering (“ICO”) by Gladius Network LLC (“Gladius”) were part of an unregistered securities offering, and all proceeds must be returned to investors. However, the penalty to Gladius for their regulatory violations was zero. Continue Reading
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
This article was originally posted to the Corporate and Securities Law Blog on July 12, 2018.
On June 28, 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “smaller reporting company” which expand the number of companies that qualify as smaller reporting companies and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The amendments to the definition of “smaller reporting company” will be effective on September 10, 2018. Continue Reading
On June 21, 2018, the United States Supreme Court issued its decision in South Dakota v. Wayfair, Inc., overturning a 26 year-old decision holding that a retailer must have a physical presence in a state in order to have a sales or use tax collection obligation. The Wayfair decision has an immediate and major impact on retailers of all sizes, but also leaves open numerous unanswered questions.
On May 24, 2018, President Donald J. Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”). The Act, which primarily focuses on rolling back certain regulatory provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, also contained a significant change in the law for companies looking to undertake securities offerings in reliance on the revamped Regulation A (commonly referred to as “Regulation A+”) under the Securities Act of 1933. Continue Reading
On April 17, 2018, the New York State Attorney General (“NYAG”) sent a “Virtual Markets Integrity Initiative Questionnaire” to 13 companies operating virtual currency trading platforms. The questionnaire consists of 34 questions covering a number of topics, including ownership and control, operation and fees, trading policies and procedures, outages and other suspensions of trading, internal controls, and privacy and money laundering. Continue Reading
Taking further steps into the world of cryptocurrency, two entities of the federal government recently took legal action against BitFunder, a now-defunct Bitcoin exchange, and its founder, Jon Montroll. The Securities and Exchange Commission filed civil charges against BitFunder and Montroll, and the U.S. Attorney’s Office in Manhattan brought criminal charges of perjury and obstruction of justice against Montroll, who was arrested and taken into custody. BitFunder was an exchange that, among other things, empowered its customers to create and trade Bitcoin denominated shares of enterprises. The numerous allegations and charges against the defendants include: Continue Reading
Cryptocurrencies and blockchain technology are rapidly emerging as disruptive technologies. As has happened with many new technologies, particularly disruptive ones, a patent arms race is occurring. The number of patents being filed for these technologies is rapidly increasing.
The number of published applications shows roughly a tenfold increase over the number of issued patents.
Despite this increase in patent filing activity, many companies are unaware of what aspects of this technology can be patented and many myths and misconceptions exist. In addition to the usual misconceptions about patents (detailed below), the open source aspect of many blockchain-based inventions leads to greater confusion. The patentability of software and technology platforms does not cease just because some or all of the software is open source or built on a known protocol. Continue Reading
The U.S. Congress is currently considering legislation that would tap the brakes on foreign direct investment in the United States, particularly on investments in sensitive industries like artificial intelligence, robotics, and semiconductors. We know: you’re saying we already have that in the form of the Committee on Foreign Investment in the United States (known as CFIUS). Continue Reading
The SEC Munchee Order and Chairman’s Statement
On December 11, 2017, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (“Order”) against Munchee, Inc.’s (“Munchee”) $15 million Initial Coin Offering (“ICO”). The SEC determined that the tokens were investment contracts, and thus securities, primarily because a purchaser of the tokens would have had a reasonable expectation of obtaining a future profit based upon Munchee’s efforts, including Munchee revising its app and creating an “ecosystem” using the proceeds from the sale of the tokens. On the second day of sales of MUN tokens, the company was contacted by SEC staff. Munchee determined within hours to shut down its offering, did not deliver any tokens to purchasers, and returned to purchasers the proceeds that it had received. For a detailed description of the Order, please see our previous blog post here. The SEC chairman, Jay Clayton, concurrently issued a public statement (“Statement”) expressing his general views on the cryptocurrency and ICO markets. It should be noted that the Order does not have the weight of a federal court decision. Munchee consented to the Order without admitting or denying any of the findings therein. Furthermore, the Statement is personal to the chairman, and “does not reflect the views of any other Commissioner or the Commission.” That said, the Order and the Statement provide us with the SEC’s assessment and chairman’s perspective as to whether ICOs constitute the sale of securities, and how to conduct an ICO without running afoul of securities laws. Continue Reading