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On April 3, 2019, the U.S. Securities and Exchange Commission (SEC) took their first step towards providing greater clarity on the key question of how to evaluate whether transactions involving issuance or sales of digital tokens are sales of securities subject to U.S. securities laws and regulations. The guidance was released in two parts: First, the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) published the “Framework for ‘Investment Contract’ Analysis of Digital Assets”…
Following the sudden death of its co-founder and CEO, Gerald Cotten, in December 2018, Quadriga, Canada’s largest cryptocurrency exchange, is unable to gain access to about $145 million of bitcoin and other digital assets. Quadriga reports that Cotton stored the digital assets in a “cold wallet” on his encrypted laptop and repeated attempts by his widow to gain access to the laptop have proven unsuccessful. Quadriga has been forced to stop trading on its platform,…
On November 28, 2018, the U.S. Securities and Exchange Commission’s (SEC) request for a preliminary injunction against Defendants Blockvest, LLC (Blockvest) and Blockvest’s founder and chairman Reginald Buddy Ringgold, III (Ringgold) was denied by United States District Court for the Southern District of California. Blockvest and Ringgold were offering and selling unregistered securities in the form of digital assets called BLV tokens, per allegations by the SEC. Blockvest sold the tokens in an initial coin…
The U.S. Securities and Exchange Commission (SEC) recently settled two initial coin offering (ICO) enforcement actions grounded on the sale of unregistered securities. The two settlements, one with CarrierEQ Inc. (or AirFox) and the other with Paragon Coin Inc., are the first time the SEC has imposed civil penalties on companies solely for offering digital tokens in an ICO. Notably, the settlements signal the SEC’s intent to enforce the securities laws against sellers of cryptocurrencies,…
On November 20-21, 2017, Tether, the company behind USDT, a digital token backed by fiat currencies like the dollar and euro, disclosed that a hack resulted in the loss of $30.95 million worth of tokens. The Tether hack illuminates the privacy, reputational, financial and recovery risks associated with issuing, owning and storing digital currencies. These risks and events are likely to repeat themselves as more initial coin offerings (“ICO”) come to the market and the…
Digital tokens, which used to be considered an unregulated “wild west”, are now facing Federal and State regulations. Over two weeks, the SEC suspended trading in company securities of three publicly-traded blockchain-related businesses.  The SEC followed up the suspensions with releasing an Investor Alert advising investors to be cautious of companies that have been subject to a trading suspension.  Companies that intend to issue digital tokens through an ICO need to be vigilant in ensuring…
Digital tokens are now being incorporated into federal and state regulatory regimes.  Over the past two weeks, the Securities and Exchange Commission (“SEC”) has suspended the trading of company securities of three publicly-traded blockchain-related companies The first company to be suspended was CIAO Group, Inc. (“CIAU”) due to questions regarding the accuracy of statements pertaining to its Initial Coin Offering (“ICO”) plans.  On August 23rd, the SEC suspended Canadian company, First Bitcoin Capital Corp. (“BITCF”)…