DOJ Seizes $1 Billion Worth Of Silk Road Bitcoins

November 5, 2020 – The U.S. Department of Justice has seized over a thousands Bitcoins valued at over $1 billion that were associated with now-defunct dark web marketplace Silk Road. Specifically, 69,370.22491543 Bitcoin, Bitcoin Gold, Bitcoin SV, and Bitcoin Cash were seized as part of a judicial forfeiture action filed by the DOJ in the U.S. District Court for the Northern District of California. In the Complaint For Forfeiture, the DOJ alleges the cryptocurrency were proceeds from the sale of unlawful goods and services on Silk Road, but had been stolen by an unnamed individual. Two days prior to the DOJ action, the unnamed individual entered into a Consent and Agreement to Forfeiture with the U.S. Attorney’s Office of the Northern District of California. This is the largest seizure of cryptocurrency in the history of the Department of Justice.

**********

Securities Clarity Act Introduced To Provide Regulatory Certainty For Digital Tokens

October 1, 2020 – Representatives Tom Emmer (R-MN) has introduced the Securities Clarity Act, H.R. 8378, which is intended “to provide a path to regulatory certainty for digital assets and other emerging technologies under securities law.” If passed, the legislation would amend U.S. securities laws to exclude investment contract assets, such as digital tokens, from the definition of a security. It would clarify that a digital token “is separate and distinct from a securities offering it may have been a part of,” and “would allow companies that have complied with current securities registration requirements, or who have qualified for an exemption, provide for the distribution of their assets to the public without fear of additional regulatory uncertainty.” Congressman Emmer is the Ranking Member of the House Financial Services Committee’s Task Force on Financial Technology. The bill has been referred to the House Committee on Financial Services.

**********

 

Digital Commodity Exchange Act of 2020 Introduced To Regulate Digital Asset Markets

October 1, 2020 – Representative Michael Conaway (R-TX) has introduced the Digital Commodity Exchange Act of 2020, H.R. 8373, to provide for orderly and secure digital commodity exchange markets (cryptocurrency exchanges), and for other purposes. A cryptocurrency exchange, also referred to as a digital currency exchange or a digital commodity exchange market, is an online platform or website where people can buy, sell, or exchange various cryptocurrencies for other digital currency or traditional fiat currency like the US dollar or Euro. Cryptocurrency exchanges typically take a transaction commission or charges a fee for its services, and for purchases of digital coins and tokens, generally accept credit card payments, wire transfers, and other forms of payment. If passed, the Digital Commodity Exchange Act would “fill in the regulatory gaps that exist between the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) in digital asset markets.” Essentially, the bill would attempt to bring cryptocurrency exchanges under one federal regulatory framework. According to the summary provided by House Committee on Agriculture, the bill would also:

Create a framework to regulate trading venues which list emerging digital commodities, such as Bitcoin, Ether, their forks, and other similar digital assets, for public trading;

Provide a regulated process for presold digital commodities to become publicly available for trading without sacrificing protections for retail consumers;

Provide authority for the CFTC to register and regulate Digital Commodity Exchanges as a new type of registered entity with requirements which closely parallel the requirements for existing intermediaries in commodity derivatives markets;

Simplify the spot market for digital assets by providing trading venues an alternative to the cumbersome state-by-state money transmitter regulations; and

Build on the work done in many states by relying on state and federal banking regulators to license and supervise cryptocurrency custodians.

**********

 

SDNY Grants SEC Summary Judgment In Lawsuit Against Kik For Unregistered Sale Of Crypto Securities

October 1, 2020 – The U.S. District Court for the Southern District Of New York has granted the U.S. Securities and Exchange Commission’s (SEC) motion for summary judgment in its lawsuit against Kik Interactive Inc. (Kik) for the unregistered sale of securities. The Court denied Kik’s competing summary judgment motion. The SEC filed its lawsuit against Kik in June 2019, alleging Kik offered and sold one trillion digital tokens called “Kin” over a five-month period in 2017, in violation of Section 5(a) and (c) of the Securities Act of 1933. The SEC’s lawsuit against Kik was the agency’s first official enforcement action involving an initial coin offering (ICO). First, the Court determined Kik’s public sale of Kin was a sale of securities which required a registration statement. To make its ruling, the SDNY determined Kik’s sale of Kin was an investment contract, after applying – for the first time ever – the test set forth in SEC v. WJ Howey Co. in the context of cryptocurrency. Then, the Court held that Kik’s private “pre-sale” of Kin using Select Agreements for Future Tokens (SAFTs) and the public offering of Kin were part of the same integrated offering, which “constituted an unregistered offering of securities that did not qualify for exemption under Rule 506(c).”

**********

 

Unikrn Settles SEC Unregistered Initial Coin Offering Charges, Will Pay $6.1 Million Fine

September 15, 2020 – The U.S. Securities and Exchange Commission has announced Unikrn Inc. has settled with the SEC over charges Unikrn conducted an unregistered initial coin offering (ICO) of digital asset securities. Unikrn, an operator of an online eSports gaming and gambling platform headquartered in Seattle, Washington, agreed to settle the charges by paying a $6.1 million penalty. As set out in the SEC’s settlement order, between June and October 2017, Unikrn conducted a securities offering in two phases – a pre-sale and an initial coin offering – in which it raised $31 million through the sale of UnikoinGold, a digital token. Unikrn told investors “they would be able to access a variety of products and services with their UKG tokens, including placing bets on professional eSports and video game matches, and that over time Unikrn would make more features available.” Based on the facts and circumstances, the SEC concluded the tokens were offered and sold as investment contracts, and therefore securities, pursuant to SEC v. W. J. Howey Co., 328 U.S. 293 (1946) and its progeny. The SEC concluded “Unikrn violated Sections 5(a) and 5(c) of the Securities Act by offering and selling the[] securities without having a registration statement filed or in effect with the Commission or qualifying for an exemption from registration.”

**********

 

Cryptocurrency: Portion Of Digital Taxonomy Act Of 2019 Passes Full House Committee On Energy And Commerce

September 9, 2020 – A portion of the Digital Taxonomy Act of 2019 has been approved by the U.S. House of Representatives’ Committee on Energy and Commerce. Introduced in April 2019, the Digital Taxonomy Act, H.R. 2154, would have authorized funding for the Federal Trade Commission to prevent unfair or deceptive acts or practices relating to digital tokens and digital token transactions, and required the FTC to report to Congress on efforts to carry out that mission. During a full Energy and Commerce Committee markup session, an amendment in the form of a substitute was made to the bill, which added part of the original legislation to H.R. 8128, the AI for Consumer Product Safety Act. Specifically, only the portion of the Digital Taxonomy Act requiring the FTC to report to Congress on actions taken to prevent unfair or deceptive acts or practices relating to digital tokens was included. The amendment also added H.R.8153, the Blockchain Innovation Act, and renamed H.R. 8128 the Consumer Safety Technology Act. The bill was passed by the full committee and can now be sent to the full House for consideration.

**********

 

IRS Memo Says Virtual Currency Received In Crowdsourcing Labor Market Is Taxable Income

September 1, 2020 – The Internal Revenue Service has issued a memorandum on Taxation of Virtual Currency Received in the Crowdsourcing Labor Market. The memo addresses the question of whether convertible virtual currency received by an individual for performing a microtask through a crowdsourcing or similar platform is taxable income. IRS says the answer is yes – a taxpayer who receives convertible virtual currency in exchange for performing a microtask through a crowdsourcing platform has received consideration in exchange for performing a service, and the convertible virtual currency received is taxable as ordinary income.

**********

 

Over 10,000 Cryptocurrency ATMs Have Been Installed Worldwide

September 23, 2020 – According to the website coinatmradar.com, the number of cryptocurrency ATMs installed worldwide has surpassed 10,000. This is a significant increase in total crypto ATMs over the last nine months. The number of crypto ATMs in the world at the beginning of the year for the last four years is as follows:

• 2017 – 966

• 2018 – 2,069

• 2019 – 4,107

• 2020 – 6,366

Among other things, consumers can use crypto ATMs to buy or sell bitcoins and other cryptocurrencies for cash. Individuals also can send cash-to-cash payments to other individuals in other countries by using two bitcoin ATMs.

**********

 

ArCoin Becomes First SEC-Registered Fund Issuing Digital Securities

July 6, 2020 – Investment firm Arca has announced that the Arca U.S. Treasury Fund, an SEC-registered closed-end fund, is available for investment. Shares in the Arca Fund are issued as ArCoins – digital securities that are transferable using blockchain technology. Each ArCoin is one share in the Arca U.S. Treasury Fund. Accrued interest is paid directly to ArCoin holders each quarter. Arca describes itself as “an institutional grade financial services firm building products utilizing and investing in digital assets.” Arca says the Arca U.S. Treasury Fund will invest a minimum of 80% of its portfolio assets in in interest-bearing, short-duration U.S. Treasury securities. The Fund will seek to combine the regulatory standards applicable to an SEC-registered closed-end fund with the efficiencies of blockchain technology.

**********

 

District Of Columbia Bar Association Oks Acceptance Of Cryptocurrency As Payment For Legal Fees

July 1, 2020 – The District of Columbia Bar Association has issued an ethics opinion stating it is not unethical for a lawyer to accept cryptocurrency in lieu of more traditional forms of payment, so long as the fee is reasonable. In Opinion 378, Acceptance of Cryptocurrency as Payment for Legal Fees, published in June 2020, the DC Bar concludes the following:

It is not unethical for a lawyer to accept cryptocurrency in lieu of more traditional forms of payment, so long as the fee is reasonable. A lawyer who accepts cryptocurrency as an advance fee on services yet to be rendered, however, must ensure that the fee arrangement is reasonable, objectively fair to the client, and has been agreed to only after the client has been informed in writing of its implications and given the opportunity to seek independent counsel. Additionally, a lawyer who takes possession of a client’s cryptocurrency, either as an advance fee or in settlement of a client’s claims, must also take competent and reasonable security precautions to safeguard that property.

Accordingly, attorneys in DC may accept payments for legal fees in the form of cryptocurrency as long as the fee is fair and reasonable. The DC Bar is now the fourth bar association to issue an ethics decision on the use of cryptocurrency as a form of payment for legal services.

**********

 

Telegram Settles SEC Lawsuit, Will Refund Over $1.2 Billion To Investors And Pay $18.5 Million Fine

June 26, 2020 – The U.S. Securities and Exchange Commission has obtained court approval of settlements with Telegram Group Inc. and its wholly owned subsidiary TON Issuer Inc. to resolve charges that Telegram’s unregistered offering of digital tokens violated federal securities laws. Under terms of the settlement, Telegram will return more than $1.2 billion to investors and pay an $18.5 million civil penalty. Telegram is further required, for the next three years, to give notice to SEC staff before participating in the issuance of any digital assets. The SEC filed a lawsuit against Telegram in 2019, alleging Telegram failed to register its offer and sale of digital tokens called “Grams,” which are securities, in violation of the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933.

**********

 

SEC Commissioner Outlines Regulatory Safe Harbor For Sale Of Digital Tokens

February 6, 2020 – U.S. Securities and Exchange Commission Commissioner Hester M. Peirce has outlined the details of a proposed regulatory safe harbor that would apply to the offer and sale of digital assets. Her safe harbor is intended to help address the uncertainty of the application of U.S. securities laws to the sale of digital tokens and initial coin offerings. Under the Commissioner’s proposal, the safe harbor would provide network developers with a three-year grace period within which they could facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws, so long as certain conditions are met. The proposal would exempt (1) the offer and sale of tokens from the provisions of the Securities Act of 1933, other than the antifraud provisions, (2) tokens from registration under the Securities Exchange Act of 1934, and (3) persons engaged in certain token transactions from the definitions of “exchange,” “broker,” and “dealer” under the 1934 Act. An entity seeking to avail itself of the safe harbor would need  to meet the following conditions: the entity must intend for the network on which the token functions to reach network maturity within three years of the date of the first token sale and undertake good faith and reasonable efforts to achieve that goal; the entity would have to disclose key information on a freely accessible public website; the digital token must be offered and sold for the purpose of facilitating access to, participation on, or the development of the network; the entity would have to undertake good faith and reasonable efforts to create liquidity for users; and the entity would have to file a notice of reliance.

**********