Blockchain Legal Resource

US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the US Department of Commerce’s (Commerce) Bureau of Industry and Security (BIS) and the US Department of Justice (DOJ), collectively issued guidance regarding the obligations of non-US based companies and persons to comply with US sanctions (Tri-Seal Compliance Note: Obligations of foreign-based persons to comply with US sanctions and export control laws) (Compliance Note).

On February 6, 2024, by a 3-2 vote, the US Securities and Exchange Commission adopted new rules that expand the definition of “dealer” under the federal securities laws. Ostensibly adopted to provide the SEC with greater oversight over the market for Treasury bonds, the new rules are not limited to any particular asset class, and may impact the operations of firms that regularly trade in cryptocurrencies or other digital assets that are securities.

On December 22, 2023, President Biden signed the Foreign Extortion Prevention Act (FEPA) into law as part of the fiscal year 2024 National Defense Authorization Act. Although bribery always requires a giver and a receiver, US anti-corruption efforts have traditionally focused almost exclusively on those who pay bribes because of the way the Foreign Corrupt Practices Act (FCPA) is written. The FCPA criminalizes the act of giving bribes to foreign government officials, but until now, the US has not had a statute that criminalized the receipt of bribes by foreign government ...

2023 was a year filled with remarkable AI-related legal developments in legislation, litigation, and regulation. Recent headlines indicate that 2024 will be noteworthy as well. In our AI and Emerging Technologies Year in Review, we take a look at what happened over the past year and predict how key AI issues and trends in the law will continue to progress.

Read the 2023 Year in Review

On January 12, 2024, FinCEN updated its Beneficial Ownership Information Frequently Asked Questions (“FAQs”) to include new information and clarifications about reporting companies, beneficial owners, company applicants, and other reporting requirements. We discuss these developments in our post.

Read the Alert

FINRA, the self-regulatory organization overseeing the US broker-dealer industry, recently announced two items of interest for broker-dealers offering crypto asset securities. On January 9, 2024, FINRA published its 2024 Annual Regulatory Oversight Report, which includes a detailed section for broker-dealers conducting a crypto asset business. Then, on January 23, 2024, FINRA published a report detailing the results of a targeted sweep examination on customer communications involving crypto assets, finding potential substantive violations of FINRA Rule 2210 in approximately 70 percent of surveyed communications.

In a reversal of a policy that has spanned two administrations, on January 10, 2024, the SEC approved applications for 11 Bitcoin spot exchange traded funds, or ETFs. The SEC approved the order by a 3-2 vote, with Chair Gensler forming a majority with the two Republican commissioners, and the two Democratic commissioners voting against the action.

On January 8, 2024, the CFTC’s Technology Advisory Committee issued a detailed report on decentralized finance, or DeFi. The report, which was authored by the Subcommittee on Digital Assets and Blockchain Technology, notes that DeFi offers both promising opportunities and complex, significant risks to the US financial system, consumers and national security.

On December 12, 2023, the Centre for Information Policy Leadership at Hunton Andrews Kurth LLP (“CIPL”) released a white paper on Privacy-Enhancing and Privacy-Preserving Technologies: Understanding the Role of PETs and PPTs in the Digital Age.

Welcome to the inaugural edition of Hunton Andrews Kurth LLP’s AI and Emerging Technologies Newsletter, a resource focused on multidisciplinary, current topics affecting businesses in the industry. Inside, we cover a bit of what you need to know about AI in the context of contract terms and conditions, US privacy laws, insurance, employer use monitoring and workforce management, and copyright law, as well as the rise in crypto class actions. Please do not hesitate to reach out to the authors or others in our AI and Emerging Technologies practice with questions regarding these ...

On October 30, 2023, the G7 leaders announced they had reached agreement on a set of International Guiding Principles on Artificial Intelligence (AI) and a voluntary Code of Conduct for AI developers, pursuant to the Hiroshima AI Process. The Hiroshima AI Process was established at the G7 Summit in May 2023 to promote guardrails for advanced AI systems at a global level.

On October 13, 2023, California Governor Gavin Newsom signed into law AB39, the Digital Financial Assets Law (the Act). The Act provides broad authority to California’s Department of Financial Protection and Innovation (Department) to license, regulate and examine certain businesses transacting in digital financial assets in California.

On September 18, 2023, the New York Department of Financial Services (“DFS”) announced new proposed guidance for BitLicense holders and certain limited-purpose trust companies (“VC entities”) seeking to list virtual currencies on their platforms. The proposed guidance would replace existing DFS procedures and establish new protocols for listing virtual currencies that are not subject to the DFS greenlist.  

The proposed guidance seeks to provide a framework under which VC entities may seek DFS approval to self-certify the listing of new coins. In order to self-certify ...

On August 28, 2023, the SEC settled enforcement charges against a Los Angeles-based media and entertainment company for conducting an unregistered offering of non-fungible tokens (NFTs). The case represents the SEC’s first foray into the NFT space.

What Happened: 

As reported in a Hunton Client Alert, the US Department of Justice (DOJ), the US Department of Commerce’s Bureau of Industry and Security (BIS), and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently issued guidance regarding the voluntary self-disclosure by US businesses of violations of US sanctions and export control laws to these agencies (Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations) (Compliance Note).

Last week, the FTC announced its long-awaited finalization of updated Endorsement Guides. These guidelines come after the FTC initially voted to publish revised guidelines in May 2022. The new Guides were approved by a unanimous vote and make a significant number of updates to the 2009 version.

As reported in a Hunton Client Alert last week, on June 6, 2023, the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (“FRB”) and the Office of the Comptroller of the Currency (“OCC”) (collectively, the “Agencies”) issued final guidance on managing risks associated with third-party relationships, including relationships with fintechs (the “Final Guidance”).¹ Effective as of the June 6, 2023 issuance date, the Final Guidance replaces each of the Agencies’ existing guidance on third-party risk management and provides consistency in the Agencies’ supervisory approaches.² The Final Guidance is directed to all banking organizations supervised by the Agencies and advises such organizations to consider and account for the level of risk, complexity and size of the institution, as well as the nature of the third-party relationship, when conducting sound risk management.

On June 8, 2023, Judge William H. Orrick of the U.S. District Court for the Northern District of California granted a default judgment in favor of the CFTC against Ooki DAO, a cryptocurrency decentralized autonomous exchange. The court also permanently enjoined Ooki DAO from operating its website and awarded the CTFC $643,542 in monetary damages. The court found that Ooki DAO’s lack of participation in the litigation and refusal to appear in court contributed to the default judgment. This decision brings to a close the closely-watched case that establishes new precedents for the legal liability of decentralized autonomous exchanges.

On May 30, 2023, the Commodity Futures Trading Commission Division of Clearing and Risk (DCR) issued a staff advisory (CFTC Letter No. 23-07) on the risks associated with the Derivatives Clearing Organization (DCO) clearing of digital assets. DCR will emphasize compliance with the DCO core principles related to system safeguards, conflicts of interest, and physical delivery.

On May 22, 2023, the Federal Trade Commission (FTC) announced its first monetary settlement with celebrity endorsers for a combined $1.7 million.

The complaint filed by the FTC and the Utah Division of Consumer Protection (DCP) against Response Marketing Group, LLC and its principals, also named two real estate celebrities as defendants—Scott Yancey, star of the home-flipping show Flipping Vegas on A&E, and Dean R. Graziosi, author of Millionaire Success Habits. The complaint alleged that defendants used false promises to sell consumers expensive real estate investment training programs, which Yancey and Graziosi promoted. Yancey and Graziosi were also allegedly involved in efforts to bury online customer complaints that said Response Marketing was a scam and cost consumers more than $400 million.

On May 5, 2023, New York Attorney General Letitia James released proposed legislation that seeks to regulate all facets of the cryptocurrency industry. Entitled the “Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act,” if enacted the draft bill would substantially expand New York’s oversight of crypto enterprises conducting business in the Empire State.

What Happened

As we reported in yesterday's client alert, the US Bureau of Economic Analysis (BEA) has announced that it is conducting a survey of all US businesses whose voting interests are 10% or more owned, directly or indirectly, by a foreign person.  Responses to this survey are mandatory for every such US business enterprise, as described more fully below.  These responses are due May 31, 2023 (or June 30, 2023 if submitted via the BEA’s electronic filing portal).

What Happened

The US Department of Justice (“DOJ”) made several recent announcements expanding on its expectations for corporate compliance programs and unveiling new guidance on executive compensation structures, consequence management and business communications and ephemeral messaging.

DOJ also announced a new enforcement push focused on the intersection of corporate crime and national security.

Hunton Andrews Kurth LLP continues to assist clients and monitor developments in the financial markets arising from the liquidity challenges and market volatility currently facing the banking industry. Late Tuesday brought the first inevitable wave of lawsuits and government investigations. There will be many more in the days ahead.

As we stated in our March 13, 2023 Client Alert, the Federal Reserve issued a press release on March 12, 2023, announcing the creation of the new Bank Term Fund Program (“BTFP”). The Federal Reserve established the BTFP to make available additional funding to eligible depository institutions in order to help assure that banks have the ability to meet the needs of all their depositors.

We have linked three client alerts that highlight the key events that occurred over this past weekend in the wake of the failure of Silicon Valley Bank. We will continue to monitor events and send updates as major developments occur. Hunton Andrews Kurth LLP has assembled a cross-disciplinary team consisting of attorneys from various practices to assist clients with the evolving situations involving Silicon Valley Bank, Signature Bank and any similarly situated banks.

Silicon Valley Bank: March 13, 2023 Updates on FDIC Receivership and Bridge Bank

Signature Bank: What to Know ...

The metaverse is brimming with multifaceted, thought-provoking legal issues. We can help you develop and execute strategies to traverse this modern frontier.

Hunton Andrew Kurth LLP’s Metaverse practice benefits from the skills of our lawyers across the firm. Many of our attorneys have been advising on related matters for some time, including blockchain, non-fungible tokens (NFTs), cryptocurrency, artificial intelligence (AI), machine learning (ML), data privacy, cybersecurity, and rights to digital assets. These lawyers have joined forces to seamlessly advise clients who are focused on the metaverse and other emerging technology issues. In this alert, they address some of the questions you may have as your company considers doing business in the metaverse.

On February 15, 2023, by a 4-1 vote, the SEC proposed new rules regarding an investment adviser’s obligation to custody assets. Unlike the existing rules, if adopted, the new rules would apply to all crypto assets.

On February 8, 2023, a jury in the Southern District of New York reached a verdict finding Mason Rothschild liable for trademark infringement of the Hermes BIRKIN mark when Rothschild advertised and sold a series of “MetaBirkin” non-fungible tokens (NFT or NFTs).¹ The verdict required Mr. Rothschild pay $110,000 for trademark infringement and dilution, as well as $23,000 for cybersquatting on the MetaBirkins domain name.²

On January 20, 2023, The Centre for Information Policy Leadership (“CIPL”) at Hunton Andrews Kurth published “Digital Assets and Privacy,” a discussion paper compiling insights from workshops with CIPL member companies that explored the intersection of privacy and digital assets, with a particular focus on blockchain technology. The paper includes recommendations for developing coherent, tech-friendly, future-focused, and pragmatic regulations and policies.

On December 16, 2022, the Financial Stability Oversight Council (Council) published its 2022 annual report. The report highlights a number of key policy recommendations for federal financial regulators, including four recommendations for further legislation or regulation in the digital asset space.

On December 1, 2022, the Consumer Financial Protection Bureau (Bureau) made public an administrative order denying Nexo Financial LLC’s (Nexo) petition to modify the Bureau’s civil investigative demand.  The order represents the first publicly known Bureau investigation of a digital asset company, in this case, over Nexo’s “Earn Interest” crypto lending product.

On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued final regulations (the “Final Rule”) implementing the comprehensive beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”), a critical part of the Anti-Money Laundering Act of 2020 (the “AMLA”).

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In a seven-part series delving into issues relating to insurance coverage for digital assets, we provide a comprehensive understanding of the types of loss that can be sustained, who can sustain them, the availability of coverage under traditional insurance policies, and the emergence of new insurance products.

On October 3, 2022, the Financial Stability Oversight Council (“FSOC” or “Council”) released a report outlining the risks posed by digital assets to the financial stability of the United States. The FSOC is charged broadly with identifying emerging threats to financial stability, and is comprised of the heads of each major federal financial regulator, chaired by the Secretary of the Treasury. The FSOC’s initial position in 2015 was that digital assets generally do not pose a significant financial stability risk due to limited use and a lack of ties to the traditional financial system. President Biden asked the FSOC to reconsider their position in his “Executive Order on Ensuring Responsible Development of Digital Assets.”

The SEC instituted settlement proceedings against Kim Kardashian on Monday, alleging that the reality television star and entrepreneur violated the SEC’s anti-touting statute when she failed to disclose compensation that she received in exchange for an Instagram post endorsing cryptocurrency tokens.  The promotion, which Kardashian posted to her Instagram account on June 13, 2021, encouraged her 225 million followers to visit a website operated by EthereumMax, an online company that offers and sells digital “Emax tokens.” Kardashian’s Instagram post included an ...

Following up on President Biden’s recent executive order on digital assets, the US Treasury Department recently announced the publication of three reports on digital assets.  The reports address issues relating to The Future of Money and Payments; Implications for Consumers, Investors, and Businesses; and an Action Plan to Address Illicit Financing Risks of Digital Assets.

In recent months, members of Congress have introduced a wide variety of bills seeking to create a new federal regulatory regime for digital assets. NASAA, which is an umbrella organization for state and provincial securities regulators in the US, Canada and Mexico, recently submitted a letter to Congress critical of one such bill that lays out a series of arguments more broadly against federal action.

On August 10, 2022, 3-2 majorities of the SEC and CFTC voted to propose amendments to Form PF reporting for certain investment advisers to private investment funds. Among the many proposed amendments to the form, the proposed rules would for the first time require covered investment advisers to report on certain digital asset investments.

In a series of parallel actions announced on July 21, 2022, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) initiated criminal and civil charges against three defendants in the first cryptocurrency insider trading case.

In a June 9, 2022 letter to the Directors of the US Patent and Trademark Office (USPTO) and US Copyright Office, Senators Thom Tillis (R-NC) and Patrick Leahy (D-VT) requested that the agencies jointly undertake a study of intellectual property (IP) rights considerations with respect to non-fungible tokens (NFT or NFTs).

On June 3, 2022, House Energy and Commerce Chair Rep. Frank Pallone (D-NJ), Ranking Member Rep. Cathy McMorris Rodgers (R-WA) and Senate Commerce, Science and Transportation Committee Ranking Member Sen. Roger Wicker (R-MS) released a new comprehensive federal privacy bill, the American Data Privacy and Protection Act (“ADPPA”).

On June 8, 2022, New York’s Department of Financial Services released interpretive guidance on the “Issuance of U.S. Dollar-Backed Stablecoins.” The guidance applies to entities that issue stablecoins under DFS supervision, and addresses three broad topics—redeemability, reserve requirements, and monthly attestation by an independent CPA firm.

On June 1, 2022, the Department of Justice announced its first criminal indictment for insider trading of nonfungible tokens, or NFTs. The case opens yet another front in the Government’s efforts to police the burgeoning marketplace for digital assets and NFTs.

What Happened: 

On May 16, 2022, the US Department of State, US Department of Treasury, and the Federal Bureau of Investigation issued combined guidance (“IT Workers Advisory”) on efforts by North Korean nationals to secure freelance engagements as remote information technology (“IT”) workers by posing as non-North Korea nationals. The IT Workers Advisory provides employers with detailed information on how North Korean IT workers operate, highlights red flag indicators for companies hiring freelance developers and for freelance and payment platforms to identify these workers, and provides general mitigation measures for companies to better protect against inadvertently engaging these workers or facilitating the operations of the North Korean government in violation of US sanctions.

In one of the first criminal cases brought under US sanctions laws involving cryptocurrency transactions, a federal magistrate judge approved the Department of Justice’s criminal complaint. In the opinion unsealed on May 13, 2022, US Magistrate Judge Zia M. Faruqi ruled that the Department of Justice demonstrated probable cause in accusing an unnamed defendant of transmitting more than $10 million in bitcoin to a “comprehensively sanctioned” country.

On May 4, 2022, California Governor Gavin Newsom signed executive order N-9-22 regarding blockchain and crypto assets, with the objective to “spur responsible web3 innovation, grow jobs, and protect consumers.” According to the accompanying press release, the executive order “aims to create a transparent regulatory and business environment for web3 companies which harmonizes federal and California approaches, balances the benefits and risks to consumers, and incorporates California values such as equity, inclusivity, and environmental protection.”

On February 28, 2022, the Emirate of Dubai enacted Law No. 4 of 2022 on the Regulation of Virtual Assets (“VAL”) and established the Dubai Virtual Assets Regulatory Authority (“VARA”). By establishing a legal framework for businesses related to virtual assets, including crypto assets and non-fungible tokens (NFTs), this landmark law reflects Dubai’s vision to become one of the leading jurisdictions for entrepreneurs and investors of blockchain technology.

On March 31, 2022, the staff of the Division of Corporation Finance and the Office of the Chief Accountant of the SEC issued Staff Accounting Bulletin (SAB) No. 121 (SAB 121), which “adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.” SAB 121 highlights the enhanced technological, legal and regulatory risks associated with safeguarding digital assets, as compared with more traditional asset classes. Specifically, SAB 121 asserts that a company is subject to “significant increased risks... including an increased risk of financial loss” when that company controls the cryptographic keys associated with a user’s digital assets. As a result, the staff believes that reporting companies should quantify and disclose that obligation, and record a liability and corresponding asset on their balance sheets at fair value.

On March 24, 2022, the US Attorney for the Southern District of New York announced charges against two defendants and alleged an ongoing fraud involving the sale of nonfungible tokens (NFTs). The federal criminal case is among the first involving NFTs and foreshadows further regulatory scrutiny of the popular digital asset class.

On March 9, 2022, the Biden Administration released its much-anticipated “Executive Order on Ensuring Responsible Development of Digital Assets” (Executive Order). The White House describes the Executive Order as the “first whole-of-government strategy” on digital assets and attempts to strike a balance between encouraging innovation and US leadership in the digital asset space, while signaling an appetite to protect against a variety of stated risks through additional regulation and legislation.

What Happened:

On March 8, 2022, President Biden issued an Executive Order (the “March 8 Executive Order”)¹ prohibiting the importation of Russian-origin oil, liquified natural gas (“LNG”), and coal into the United States and prohibiting US persons from making new investments in Russia’s energy sector.  The March 8 Executive Order also prohibits US persons from providing any approval, financing, facilitation, or guarantee to a foreign person seeking to import Russian-origin oil into the United States or make new investments in Russia’s energy sector.  The March 8 Executive Order follows on a series of significant US sanctions actions against Russia in recent weeks.  The US Department of Justice and Treasury Department also announced additional efforts and guidance intended to emphasize US sanctions efforts and to provide guidance on detecting and preventing efforts by blocked persons to evade sanctions, including through the use of cryptocurrency.  On March 9, 2022, President Biden issued an Executive Order (the “Executive Order on Digital Assets”) directing US government agencies to study and report on cryptocurrencies and other digital assets and consider, among other things, the use of digital assets to circumvent US sanctions.²

A series of recent statements by key financial regulators and US senators once again bring cryptocurrency regulation into the spotlight. In this post, we summarize several recent developments.

What Happened:

On February 28, 2022, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued further sanctions on Russia’s Central Bank, National Wealth Fund, and Ministry of Finance, and announced regulations to implement Executive Order 14024 under the Russia Harmful Foreign Activities Sanctions Program. On February 24, 2022, the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an immediate final rule implementing sanctions under the Export Administration Regulations (“EAR”).¹

The red-hot market for nonfungible tokens, or NFTs, continues to draw regulatory scrutiny. A Department of the Treasury report issued on February 4, 2022, is the latest to focus on potential regulatory issues associated with this digital asset class.

In connection with a December 14, 2021, hearing of the Senate Banking Committee focused on the topic of stablecoins, Ranking Member Pat Toomey (R-PA) released a collection of principles that he hopes will influence the development of a future legislative framework for the asset class. Senator Toomey’s principles offer a more flexible approach to stablecoins in contrast to the approach embraced in a recent report on stablecoins released by the President’s Working Group, which advocated for limiting stablecoin issuances to entities that are insured depository institutions under the oversight of federal banking regulators.

On December 6, 2021, the Biden administration released a first-of-its-kind, comprehensive US Strategy on Countering Corruption.  The Strategy addresses all angles of the fight against corruption: prevention, investigation, exposure, and prosecution.  To accomplish this, it relies on a whole-of-government approach resting on five “pillars”:

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “Infrastructure Bill”), which significantly expands tax information reporting for certain cryptocurrency transactions. The Infrastructure Bill includes an information reporting requirement for cryptocurrency asset exchanges and custodians on an IRS Form 1099, and an information reporting requirement for certain persons who accept large payments in cryptocurrency in such person’s trade or business on an IRS Form 8300. The effective date of these changes will apply to any information return required to be filed after December 31, 2023.

On November 23, 2021, the Senate Committee on Banking, Housing, and Urban Affairs sent a series of letters to prominent stablecoin issuers and cryptocurrency exchanges. Citing the recent President’s Working Group on Financial Markets report on stablecoins, the letters seek to clarify basic operational features of various stablecoins which the Committee believes is critical to improving its understanding of digital assets.

On 25 October 2021, the Dubai Financial Services Authority (DFSA), the regulatory body of the Dubai International Financial Centre (DIFC), announced that it implemented a regulatory framework for investment tokens issued or traded within the DIFC (Regulatory Framework for Investment Tokens), which follows from the Consultation Paper No. 138 (Regulation of Security Tokens) it issued earlier in March this year. Consequently, the UAE advances its status as a hub for technological innovation (and entrepreneurs); it fully embraces the global adoption of cryptocurrencies and blockchain technologies, as well as the demand for Investment Tokens, and the number of companies within the DIFC that are eager to issue, and trade in them, is steadily on the rise.

On November 8, 2021, law enforcement agencies in both the United States and European Union announced that a series of actions, including a number of arrests, were taken against the Russia-linked ransomware group, “REvil.” The U.S. Department of Justice (the “DOJ”) unsealed documents relating to an August indictment against two individuals in Dallas for alleged involvement in REvil ransomware attacks against several U.S. businesses. The European authorities, Europol, also announced that police in Romania and South Korea had arrested five people alleged to be REvil affiliates.

On November 1, 2021, the President’s Working Group (PWG) released a long-awaited report on stablecoins (the “Report”).¹ The Report outlines a number of significant legislative recommendations for Congress to consider as well as a number of interim measures that agencies should adopt under their existing authorities to protect against prudential risks in the near-term.

In 15 recent enforcement actions, the Commodity Futures Trading Commission (CFTC) announced charges against various digital asset exchanges for failure to register appropriately as futures commission merchants (FCMs). This series of actions is the latest in an ongoing regulatory crackdown across federal agencies involving cryptocurrency and other digital asset trading platforms.

On September 13, 2021, New York Attorney General (NYAG) Letitia James announced the entry of a default judgment against crypto platform Coinseed and its CEO. The default judgment includes broad injunctive relief against Coinseed’s future operations in New York state. The case is one of many that regulators have recently brought against crypto trading platforms.

On August 23, 2021, CFTC Commissioner Dawn Stump released a helpful primer on the CFTC’s regulatory authority over digital assets. The statement emphasizes that the CFTC does not typically regulate the spot market for cash commodities (including digital assets), and instead focuses on oversight of derivatives. But, Commissioner Stump cautioned that the CFTC does retain antifraud authority over the spot markets. Tracing through the CFTC’s authority (and that of other sister regulators) in ten steps, the statement concludes that “with respect to a digital asset, ask not ...

In a settled enforcement case announced August 9, 2021, the SEC fined Poloniex, LLC, a crypto trading platform, for operating an unregistered securities exchange. Then, on August 10, 2021, the CFTC and FinCEN announced a settled enforcement case against crypto exchange BitMEX for anti-money laundering violations and failure to register with the CFTC as a trading platform. The cases highlight US regulators’ increased focus on cryptocurrency exchanges.

On July 20, 2021, New Jersey’s Acting Attorney General announced that the State’s Bureau of Securities issued a Summary Cease and Desist Order to stop BlockFi, Inc. from selling unregistered securities in the form of interest-bearing cryptocurrency accounts. While commentators frequently focus on the enforcement activities of the Securities and Exchange Commission in the crypto space, New Jersey’s action against DeFi platform BlockFi serves as a reminder that state securities regulators also actively police this marketplace.

Mark Alexander Hopkins, known as “Doctor Bitcoin,” pled guilty in the Northern District of Texas on June 29, 2021, to illegally operating a cash-to-cryptocurrency conversion business. According to a press release from the Department of Justice (DOJ), Hopkins pled guilty to one count of operation of an unlicensed money transmitter business.

On May 28, 2021, President Biden released some of the legislative items that would be added by his American Families Plan, which includes a provision that could impact tax information reporting for cryptocurrency asset exchanges and custodians. If enacted, this proposal could require substantial effort to implement and administer.

Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, recently announced the organization of the Committee’s Digital Assets Working Group. At this time, the working group’s roster appears limited to Democratic Members.

On June 10, 2021, the Texas Department of Banking issued an industry notice addressing the authority of Texas state-chartered banks to provide virtual currency services to customers. This is a notable development as Texas has the most state-chartered banks of any state in the country.

In the past month, the Federal Reserve, FDIC and OCC have each detailed their upcoming focus on digital asset activities in the banking industry. So far, state banking regulators have often outpaced their federal counterparts in terms of issuing formal regulations and guidance around digital assets. Many banks are waiting to explore potential digital asset products and services until the functional federal bank regulators provide concrete guidance to complete the picture.

On May 20, 2021, the U.S. Department of the Treasury announced a proposal that would require any cryptocurrency transaction of $10,000 or more to be reported to the Internal Review Service. As a supplement to President Biden’s American Families Plan, which focuses on investments in American children and families, the Treasury detailed the cryptocurrency reporting requirement and other tax compliance initiatives in a new report titled The American Families Plan Tax Compliance Agenda.

On May 11, 2021, staff in the Division of Investment Management (IM) at the Securities and Exchange Commission issued a statement (the Statement) on “Funds Registered Under the Investment Company Act Investing in the Bitcoin Futures Market.” The Statement provides a series of warnings to retail investors about certain risks associated with investments in registered mutual funds whose portfolios include Bitcoin futures. But the Statement also provides further insight into the way SEC staff analyze the market for Bitcoin Futures more broadly.

In a wide-ranging hearing before the House Financial Services Committee on May 6, 2021, SEC Chairman Gary Gensler addressed a number of SEC regulatory priorities, including the recent short-squeeze on so-called “meme stocks,” gamification of securities trading, broker-dealer payment for order flow, and climate change disclosure. During his first testimony before Congress as SEC chair, Gensler also answered a series of questions on cryptocurrency and digital asset regulation.  The statements on crypto regulation begin to shed some light on his official approach to regulating the digital asset security ecosystem.

A recent rulemaking petition to the SEC requests that the agency issue a concept release on nonfungible tokens, or NFTs. The petition is hopeful that an SEC rulemaking paired with an opportunity for public input will resolve regulatory uncertainty for parties looking to create NFTs and facilitate their sale.

Texas is seeing considerable momentum with respect to a proposed digital asset law that is being considered in the 2021 legislative session in the form of House Bill 4474 (the “Virtual Currency Bill”). As the second largest economy in the United States, and the ninth largest economy in the world by GDP, the legislation could have one of the biggest impacts on digital asset industry since the New York BitLicense was introduced. In short, the Texas Virtual Currency Bill provides a basic legal framework for companies dealing with virtual currencies.

A recent Bloomberg article reported that average prices for nonfungible tokens, or NFTs, are down approximately 70 percent from recent highs.  NFTs are the latest innovation in digital assets and encompass digital representations of unique works of art, music, or other goods and experiences stored on blockchain.  Unlike other digital assets such as bitcoin, in which each bitcoin is the same as every other one (and thus “fungible”), each NFT is theoretically unique and different from every other one (and thus “nonfungible”).  A wide range of NFTs have begun to enter the marketplace over the past several months.  A digital work of art represented by an NFT recently sold at auction for over $69 million, and even a professional sports league has begun to issue NFTs.  A fascinating debate about the social and economic utility of NFTs has emerged, but what are some of the legal issues associated with this new digital asset class?

On March 9, 2021, a bipartisan bill was reintroduced that would, among other things, exclude digital tokens from the definition of a security under federal securities laws. As introduced, H.R. 1628, known as the Token Taxonomy Act, would define a “digital token” as a token that is created pursuant to rules for which the creation and supply are not controlled by a central group or single person, among other requirements. To qualify as a “digital token” under the bill, the transaction history must be able to resist modification or tampering by a single person or group or persons under common control. Moreover, the digital token must be capable of being transferred between persons without an intermediate custodian.

As we have previously reported, the New York Attorney General has been in protracted litigation to enforce an investigative subpoena under New York’s expansive Martin Act against cryptocurrency exchange Bitfinex and its affiliated companies that issue the Tether stablecoin. On February 23, 2021, the Attorney General announced a definitive settlement of the matter.

In some of her first remarks on the subject of digital assets since Senate confirmation, Treasury Secretary Janet Yellen sounded an alarm on Bitcoin. Her views on the regulation of digital assets more broadly are sure to influence policy in the coming years at the various offices and bureaus within the Treasury Department that oversee the asset class, including the OCC, IRS, OFAC and FinCen.

The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) settled with BitPay, Inc. for $507,375 to resolve 2,102 apparent violations of multiple US sanctions programs for allowing individuals located in sanctioned jurisdictions to use digital currency on its platform to transact with merchants in the United States and elsewhere.

In the past week, Canadian securities regulators approved the offering of the first two Canadian Bitcoin ETFs. By holding Bitcoin, the Canadian funds intend to provide investors with economic exposure to the US dollar and Canadian dollar price of Bitcoin through an ETF structure. For ETF investors, the structures have the potential to eliminate much of the friction associated with holding Bitcoin or investing in the asset directly. The ETF units have been conditionally approved for listing on the Toronto Stock Exchange. Additional details are available in the respective ETF prospectuses, which are publicly available here and here.

As has been widely reported, President Biden has nominated Gary Gensler to be the next chairman of the Securities and Exchange Commission.  After becoming one of the youngest partners at a leading Wall Street investment bank, Gensler transitioned into government service as a senior official in President Clinton’s Treasury Department and as the chairman of the Commodity Futures Trading Commission under President Obama.  While at the CFTC, Gensler was the principal architect of the sprawling Dodd-Frank Act’s provisions regulating the swaps markets, and he worked tirelessly to implement new CFTC rules regulating the space.  He has deep experience both in the financial markets and as a regulator.

The Office of the Comptroller of the Currency (OCC) issued a conditional approval last week for Anchorage Digital Bank to become the first federally-chartered crypto bank.

Amid the rise of digital currency services, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a cautionary tale on December 30, 2020, discussing a recent settlement with BitGo, Inc. (BitGo), a California-based technology company that facilitates digital currency transactions and provides non-custodial digital wallet management services. BitGo settled for $98,830 after the company faced, at a maximum, a $53 million civil penalty for 183 apparent violations of multiple US sanctions programs.

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The President’s Working Group (PWG), a federal interagency working group of financial regulators established by Executive Order in 1988, has issued a statement outlining key regulatory and supervisory considerations related to stablecoins and digital payment systems. Beginning with a declaration that the United States encourages responsible payments innovation, the statement outlines various high-level regulatory principles that participants in stablecoin arrangements need to account for. The statement may be interpreted as a sign of what is to come in terms of federal regulation and supervision of stablecoins and other digital assets in the new year.

As reported on the Privacy & Information Security Law Blog, on December 21, 2020, the European Data Protection Board released its 2021-2023 Strategy. This post reviews the four main pillars of the EDPB strategic objectives through 2023 and key actions to help achieve those objectives.

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Newly-proposed federal legislation would require all issuers of stablecoins and certain other digital asset companies to obtain a bank charter as a condition to operation. Referred to as the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, the draft legislation is intended to shift certain digital currency activities into the regulated banking framework.

On November 19, 2020, IMVU, Inc. (“IMVU”) received no-action relief from the Securities and Exchange Commission (the “SEC”) confirming that the Division of Corporate Finance will not recommend enforcement action against IMVU for selling its digital asset, VCOIN. IMVU intends to issue and sell VCOIN for immediate use within its online three-dimensional avatar-based social community, “IMVU.” IMVU will supply an unlimited number of VCOIN at a fixed price of $0.004 per VCOIN to replace its current system of providing in-platform “credits” for participants to use to purchase virtual goods and services within the platform.

The Wyoming Division of Banking issued a No-Action Letter (NAL) in October 2020 in response to a request from a Wyoming-chartered public trust company seeking the Division of Banking’s position on the ability of the company to custody digital assets as well as hold itself out as a “qualified custodian.” The NAL prompted the Staff of the Securities and Exchange Commission to issue a public statement seeking public comment on matters concerning the definition of “qualified custodian” under the Investment Advisers Act of 1940 (the “Advisers Act”) and Rule 206(4)-2 thereunder (the “Custody Rule”).

Wyoming recently awarded its second special-purpose depository institution (SPDI) charter to Avanti Bank. Kraken was the first institution to receive the newly created SPDI charter in September. As Wyoming had likely hoped when it passed a flurry of blockchain legislation, it appears that it is starting to take hold as a digital-asset-friendly banking state. The state has now chartered two new banks in less than two months; before September, the last newly chartered bank in Wyoming was approved over a decade ago.

On Monday, October 19, the Financial Crimes Enforcement Network (FinCEN) announced a $60 million civil money penalty against Larry Dean Harmon, the founder, administrator and primary operator of unlicensed convertible virtual currency “mixers” for alleged violations of the Bank Secrecy Act (BSA) and its implementing regulations. Mr. Harmon allegedly operated and administered two separate convertible currencies from 2014 to 2020 without completing required registration with FinCEN.

On October 8, 2020, the Department of Justice’s Cyber-Digital Task Force released an 83-page report entitled “Cryptocurrency: An Enforcement Framework.” In an accompanying press release, Attorney General Barr remarked, “Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society.  Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.” The DOJ report highlights many of the legal and enforcement risks posed in the burgeoning crypto marketplace, and includes various enforcement case studies as well as informative graphics.

In a closely-watched case, on September 30, 2020, federal judge Alvin Hellerstein ruled that Kik’s $100 million two-phase coin offering resulted in a sale of unregistered securities in violation of Section 5 of the US Securities Act of 1933.  Kik raised approximately $50 million through an initial private pre-sale effected via a Simple Agreement for Future Token, or SAFT, and the remainder through a subsequent public offering of the Kin token.  Concluding that the two-phase offering constituted a single offering, Judge Hellerstein found that Kik’s offering created a security subject to federal securities laws.  Specifically, the court found that Kik met the so-called Howey test because Kik planned to use the proceeds from the offering to fund Kik’s operations and buyers of Kin had a reasonable expectation of profit from their purchase.

Providing additional clarity on the role of an alternative trading system (ATS) in the settlement of digital asset security trades, the staff of the SEC’s Division of Trading and Markets issued a no-action letter to FINRA on September 25, 2020.  In brief, the SEC staff endorsed a three-step settlement process for digital asset securities held in a third-party’s custody if certain customer-protection conditions are met.

On Monday, September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) issued an interpretive letter on the authority of national banks and federal savings associations to hold stablecoin reserves (the “OCC Interpretive Letter”). That same day, the Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (“FinHub”) issued a statement on the OCC’s interpretive letter. While not an official joint statement, the federal agencies were clearly aligned as FinHub’s statement on the OCC Interpretive Letter was posted on its website before the OCC published its letter.

On Wednesday, September 16, 2020, the cryptocurrency exchange Kraken Financial became the first crypto company to obtain a bank charter. The Wyoming Division of Banking approved Kraken’s application for a special-purpose depository institution (SPDI) charter, which is a new type of bank charter that Wyoming specifically designed for crypto businesses. This makes Kraken the first de novo bank chartered in the state since 2006.

As a show of continued interest in the development of cryptoasset solutions, Senator Mike Crapo (R-ID), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, recently sent a letter to Acting Comptroller of the Currency Brian Brooks. Chairman Crapo’s letter requested an update on findings of the Office of the Comptroller of the Currency (OCC) and information regarding next steps the OCC intends to take with respect to blockchain and distributed ledger technology.

Referencing the OCC’s June 4 advanced notice of proposed rulemaking on digital activities in ...

Effective August 1, 2020, Louisiana has adopted a Virtual Currency Business Act. In doing so it becomes the second state after New York to require certain operators of virtual currency businesses to obtain a virtual currency license in order to conduct business in the state.