Blockchain Legal Resource

As reported on the Hunton Privacy & Information Security Law blog, on June 28, 2018, the Governor of California signed AB 375, the California Consumer Privacy Act of 2018 (the “Act”). The Act introduces key privacy requirements for businesses, and was passed quickly by California lawmakers in an effort to remove a ballot initiative of the same name from the November 6, 2018, statewide ballot. We previously reported on the relevant ballot initiative. The Act will take effect January 1, 2020.

In the race to develop blockchain technology, companies are increasingly devoting capital to creating proprietary blockchain solutions. A search of the U.S. Patent & Trademark Office (“USPTO”) as of today returns 343 patent applications that contain either “blockchain” or “distributed ledger” in the abstract. Patents are being filed related to a wide variety of industries and applications, including supply chain management, autonomous deliveries, energy networks, electronic health records, 3D printing, travel itinerary management, data security and securing rights to digital media.

While ICO issuers have understandably been focused recently on the latest pronouncements from the Securities and Exchange Commission (“SEC”) and other regulators, a second group of potential litigants has largely avoided notice. Seeing a potential bonanza, private plaintiffs law firms have become aggressive in soliciting disgruntled investors as clients and filing lawsuits against issuers of digital tokens.

The Securities Exchange Commission (“SEC”) and Commodities Futures Trading Commission (“CFTC”) are not the only U.S. government agencies exerting regulatory jurisdiction over initial coin offerings (“ICOs”) and cryptocurrencies. In an article written by Hunton Andrews Kurth lawyers in Crowdfund Insider, Richard Garabedian and Shaswat Das discuss the Financial Crimes Enforcement Network's (“FinCEN's”) guidance, enforcement actions and related compliance issues. In 2013, FinCEN, a bureau of the U.S. Department of Treasury, began issuing guidance on virtual currency, explicitly stating that virtual currency exchangers and administrators are money transmitters and must comply with the Bank Secrecy Act (“BSA”) and related regulations. Most recently, on February 13, 2018, FinCEN sent a letter to U.S. Senator Ron Wyden that sought to clarify its role as a regulator of virtual currencies and ICOs. In the letter, FinCEN asserted that individuals involved in certain ICOs must register as money services businesses (“MSBs”) and consequently comply with the corresponding BSA and anti-money laundering (“AML”) compliance requirements. The FinCEN letter notes that ICOs that are otherwise regulated by the SEC or CFTC should comply with the AML and related requirements imposed by those agencies. Despite this attempt at clarifying the state of regulatory play for ICOs and virtual currencies, federal and state MSB registration requirements remain fluid and should be evaluated on a case-by-case basis for ICOs and those issuing cryptocurrencies.

On June 14, 2018, Bill Hinman, Director of the SEC’s Division of Corporation Finance, delivered a speech to an industry conference providing additional insights into how SEC staff analyze crypto assets under the Supreme Court’s Howey test. Since issuing the DAO Report nearly one year ago, the SEC has largely avoided providing additional guidance on the rapidly evolving world of ICOs. Hinman’s remarks represent a welcome departure from this position and provide critical insights into several areas of interest to the crypto community. 

Last week, SEC Chairman Jay Clayton gave an interview during which he provided his thoughts on initial coin offerings (“ICOs”) and cryptocurrencies. He applauded the “incredible promise” of distributed ledger technology as a driver of efficiencies, and also attempted to clarify the SEC’s position on its role in regulating ICOs and token offerings.

Enterprises around the world are actively implementing a wide variety of blockchain solutions to improve efficiencies, enhance user experiences and lower transaction costs.  But the private sector’s development of distributed ledger technology is often outpacing the legal and regulatory regimes that impact it.  In the United States, numerous regulators have asserted jurisdiction over blockchain applications, frequently in redundant or even contradictory ways.  With the Blockchain Legal Resource blog, we at Hunton Andrews Kurth plan to keep track of the most notable legal ...