Have you ever wondered how blockchains can be considered secure even though hacks of cryptocurrency exchanges routinely make headlines? Or whether distributing a permanent ledger to every participant in a network might run afoul of privacy laws and regulations? Data security and privacy are frequently part of the conversation about blockchain and technology in general, and they raise complicated legal issues for practitioners and clients to consider. Continue Reading
Evan Abrams recently published an article on CIO Review titled “Blockchain and The Law: How a Simple Project can get Complicated Quickly.” In his article, Evan discusses a number of complex legal regimes that CIOs should consider when building enterprise blockchain applications. Companies should assess which legal regimes apply to their specific application from both a federal and state level and keep in mind the laws applying to blockchain technologies can change rapidly. At the federal level, oversight may come from the Department of Treasury’s Financial Crimes Enforcement Network, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Internal Revenue Service, among others. Companies seeking to enter the blockchain space should also look at state regulation, which varies widely. For example, New York has adopted a regulatory regime known as the BitLicense that covers a variety of virtual currency business activity.
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On December 17th, Alan Cohn hosted the 244th episode of The Cyberlaw Podcast. We took a deep dive into all things blockchain and cryptocurrency discussing recent regulatory developments and projections for 2019. Continue Reading
Sanctions compliance considerations have always been an important factor for cryptocurrency companies, but a number of recent US government actions suggest regulators are increasingly focused on the intersection between digital currencies and economic sanctions. This intensified focus highlights the importance of sanctions compliance for blockchain-related companies, particularly for those considered US persons.
This increased focus has been building for a number of months. For example, in March of 2018, President Trump issued an Executive Order imposing certain sanctions on the Venezuelan government-issued digital currency known as the petro.
Last week, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) took another step to ramp up sanctions against bad actors utilizing digital currency. Continue Reading
The Securities and Exchange Commission’s (SEC or Commission) November 16 announcement charging two cryptocurrency companies—CarrierEQ Inc. (d/b/a Airfox) and Paragon Coin Inc. (Paragon)—with conducting an initial coin offering (ICO) in violation of the securities registration rules should not come as a surprise to those in the industry. The SEC has repeatedly emphasized that issuers of securities—even those based on a blockchain or distributed ledger technology—must register such securities or comply with an applicable exemption from registration under the Securities Act of 1933 (the Securities Act). The Airfox and Paragon orders explain when the SEC will determine that a token offering constitutes a security, and the remedial measures that the SEC may require for token offerings that do not comply with the Securities Act. Following the announcement, the Commission’s divisions also put out a public statement outlining their views on digital asset securities issuance and trading. We view these actions as signals that the Commission is likely to ramp up its efforts to enforce the securities laws in the weeks and months to come. Continue Reading
In a recent Client Alert, Alan Cohn, Jason Weinstein, and Meegan Brooks discuss the impact of blockchain technology in the retail industry, which will likely see more disruption in the next few years than it has seen in decades. What role will blockchain technology play in that disruption?
Instead of completely disrupting the retail industry, blockchain technology could be used to aid compliance with new and evolving regulations. There are three specific applications within the retail industry where blockchain technology can be used to provide greater efficiency, effectiveness, transparency, and trust: (1) supply chain management and tracing the provenance of goods; (2) the resale market; and (3) automatic renewal and subscription services. While implementing any new technology, including blockchain, comes with its own challenges in terms of scalability and implementation, the benefits may outweigh the costs.
To read the full Client Alert, click here.
To learn more about Steptoe’s Retail Industry practice, click here.
On November 8, the SEC issued a settled order against Zachary Coburn, the creator of the smart contract that powers the EtherDelta decentralized exchange. In the settled order, the Commission found that Coburn’s EtherDelta smart contract, which enabled trading of Ether against any other ERC20 token, and the EtherDelta website through which buyers and sellers of ERC20 tokens met, operated as an unregistered “exchange” in violation of Section 5 of the Exchange Act. Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission’s order notes that Coburn’s cooperation was a consideration in not imposing a greater penalty.
This is the first case involving a so-called “decentralized exchange.” Continue Reading
On October 17, 2018, Alan Cohn participated in a panel discussion with Daniel Alter of Murphy & McGonigle and Scott Kimpel of Hunton Andrews Kurthen titled “Initial Coin Offerings: Can Securities Regulators Balance Market Growth and Investor Protection?” at the Washington Legal Foundation. Cohn lay the foundation for an in depth discussion on cryptocurrency and regulators approach to balancing market growth and investor protection. Cohn explained that there are a number of overlapping and interlocking regulatory structures that apply to this area of the law. To explain this concept, Cohn pointed to four regulatory lenses that apply to cryptocurrency and crypto-tokens: (1) currency regulation; (2) securities law; (3) commodities law; and (4) taxation. Mr. Alter and Mr. Kimpel highlighted principle actions taken by federal and state agencies to date and discussed how these agencies can evolve transparently to create balanced regulation.
A recording of the panel discussion can be found here.
On September 4th, Alan Cohn hosted the 229th episode of The Cyberlaw Podcast. We took a deep dive into all things blockchain and cryptocurrency discussing recent regulatory developments and best practices for users of exchanges. Our episode begins with Charles Mills discussing the landmark decision coming out of the New York Eastern District Court in favor of the Commodity Futures Trading Commission (CFTC) against Cabbage Tech, Corp. Claire Blakey presents a timeline of the US Securities and Exchange Commission’s (SECs) recent actions regarding ETFs. Evan Abrams highlights the four takeaways from the Department of Treasury’s Financial Enforcement Network (FinCEN) Director Kenneth Blanco’s, speech on cryptocurrency. In addition, Evan discusses the Office of the Comptroller of the Currency (OCC) proposed charter for online lenders and other FinTech companies in the coming months. Maury Shenk covers the recent reports about the EU finance ministers plan to discuss the possibility of cryptocurrency regulation. In addition, Maury discusses the European Blockchain Partnership, describing it as an integrated effort for a great blockchain future. The Steptoe team was joined by Sarah Compani, Legal Counsel at Bitfinex, who provides listeners with takeaways as she responds to Alan’s questions regarding the future of exchanges, the Bitfinex platform, and potential security challenges going forward.
You can read the full summary and listen to the podcast here.
Steptoe partner Jason Weinstein and of counsel Alan Cohn have been named to The National Law Journal’s list of Trailblazers in Cryptocurrency, Blockchain and FinTech. The list of 50 lawyers is featured in a special supplement in the September issue of the legal publication.
Weinstein and Cohn co-chair Steptoe’s global Blockchain and Cryptocurrency practice and are recognized for their leadership on the legal and regulatory issues surrounding cryptocurrency and blockchain technology. Together, they have represented nearly every type of participant in the blockchain ecosystem – including investors, funds, entrepreneurs, exchanges, transaction processors, retailers, and both early stage and more established companies.
See the full press release here.