There has been lots of talk about #uniswap front end interfaces blacklisting #tokens that might be #securities. This is not an attack on #DeFi or regulation of #DeFi specifically, but instead a logical example of how existing regulation applies to legally addressable entities /1
including those that facilitate the use of #decentralized systems- in this case, legally addressable interface providers. And this isn’t new. Quietly, many front end providers are also engaged in #sanctions compliance. While laws obviously apply to legally addressable actors, /2
this does not mean that regulation has applied or will be applied directly to protocol code, at least not yet. This is b/c code itself is not legally addressable. It has its own rule-set governing its environment, & law cannot change code, although law can act on people /3
These ventures use code to enable groups of people to act collectively to affect rights to #digital assets. We call these “decentralized ventures.” These decentralized ventures enable transactions among their participants in accordance w/rules created and enforced by their code;
human participants in these decentralized ventures interact with the venture, & sometimes with each other, using #smartcontracts. Smart contracts may break, or behave in unexpected ways. What happens when a smart contract defect /error harms a decentralized venture user?
We've got a new proposed #SEC#token#safeharbor that would let issuers offer tokens in the US. It's big. But, what's new? How is it different from the prior proposal? What's new? You guessed it. It's unavoidable, It's inevitable. It's a #THREAD. Let's dive in/1
Right off the top, we have the elimination of the "good faith" provision that was previously implied upon the issuers in a(1) & of a(4) which required the issuer to act in good faith to "create liquidity for users." /2
New section a(5) includes reference to the new "Exit report" which is a new requirment defined and explained further down but tldr; its a report issued by the issuer's counsel that asserts whether the tokens will be a security or not after the 3 year period. Good inclusion /3
3 most significant changes: mandatory semi-annual updates to the plan of development disclosure and a block explorer; exit report requirement with analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will
Is #FINCEN coming for #NFT#Art markets? A thread about the #NDAA, Anti-Money Laundering Act of 2020 (AMLA), its expansion of BSA coverage to include “dealers in antiquities,” & what it might mean for the #crypto art world: (link to notice here: fincen.gov/sites/default/… ) /1
Why regulate transactions of antiquities (&maybe art)? The concern is that art & antiquities can be used for money laundering, to violate sanctions, & “have been linked to ...criminal networks, ...terrorism, & the persecution of individuals or groups on cultural grounds.” /2
On Jan. 1, 2021, Congress passed the NDAA, which expands existing anti-money laundering (AML) requirements on a variety of fronts, including the addition of “dealers in antiquities” to the definition of “financial institution.” /3
First, establish an government wide-policy. What do we want? Are we pro -innovation? Do want to protecting consumers? Do we want to strike a balance in the middle?Do we want to facilitate experimentation? How much control will the govt take over these experiments? /2
Do we want to make it easier or harder to launch businesses/reach consumers? To make an effective policy, we either need an interagency group, or a new freestanding group focused on the subject. Whoever tackles it, step 1, what do we want? /3
OFAC settlement w/@BitGo for apparently failing to prevent users accessing their online hot-wallet service via Crimea, Cuba, Iran, Sudan, & Syria IP addresses; service appears to be a non -custodial online wallet. Violaton of OFAC regs, NOT BSA . Let's look at the regs: /1
31 CFR 515.201, (i.e. Cuban Assets Control Regulations) prohibits transactions by foreign countries and their nationals including "...transfers, withdrawals, or exportations of, any property," /2
31 CFR 560.204 regarding Iran (defined as the Territority of Iran) also prohibits "exportation, reexportation, sale, or supply, ....from the United States....of any goods, technology, or services to Iran or the Government of Iran" /3
🚨🚨🚨BREAKING: clarity on how broker dealers should handle non-custodial digital asset securities transactions on ATS. 🚨🚨🚨 THREAD coming atcha /1
/1 since the Joint Staff Statement (July 8, 2019) which addressed BD custody & handling of trades of digital asset securities (sec.gov/news/public-st…) which emphasized consumer protection, it has not been clear how transactions on ATS should be conducted:
/2 The Joint Statement did not make clear how BDs should conduct these trades. Today's letter provides no action relief (i.e. if you do this specific thing, the SEC will not enforce against you) for a specific process flow for digital asset securities transactions by BDs
Should #smartcontract code execution always be dispostive? Can code execution actually bind participants if litigation is always available? Does extrinsic goverance of #blockchains that may alter #consensus governance weaken, or strengthen a protocol? Who should care? /1
Short answer- everyone. #Developers#investors & #lawyers all need to understand #blockchain & #smartcontract governance to understand what it means to build on top of others' tech. Can you patent new art built on a blockchain? Will your software work if the underlying chain /2
upgrades its code? What if the underlying blockchain forks? How can a #smartcontract advocate for or against software changes to underlying #blockchain system functionality? Is it worth investing in a project built on a frequently shifting foundation.... /3
Another place where #bitcoin tends to show up in litigation is in divorce, when married couples divvy up assets. In DeSouza v. DeSouza, a spouse was held to violate his fiduciary duty to his spouse by concealing #bitcoin. /1
Here, the divorcing spouse had some #bitcoin tied up in #MtGox and some held on private wallets. One spouse did not disclose the holdings until after the divorce, and the other spouse immediately sought an award of 1/2 and attorney's fees. Court agreed, noting that divorcing /2
Spouses owe statutory fiduciary duties, & failure to disclose the existence of the #bitcoin, payments to Mt. Gox, some bitcoin's ties to #MtGox & the forks of #bitcoincash and #bitcoingold amounted to breaches of duty; Court disagreed that capital appreciation mitigated /3
Court ruled that there was no agreement to give Plaintiff #Bitcoingold; there was no "contractual obligation to support or provide services for any particular cryptocurrency." Merger clause barred parol evidence & there was no contractual duty. That's breach of contract /2
Conversion of crypto is a pet issue of mine because it requires the Court to determine that the thing that is allegedly converted (i.e. the civil version of theft) is legally recognized property. Fun Fact- property rights are mostly created by state law. Only 1 state (Wyoming)/3
@CQRollCall reports the Boston Options Exchange (BOX) reworks its plan to use #Ethereum to record ownership of securities, says it resubmitted plan after meeting with regulators; would use #blockchain as an "ancillary method of recordkeeping" with official data kept by DTCC /1
New proposal limits trading on exchange to listed items, not to provide unlisted trading privileges, which would allow transactions in securities whose home is on another exchange.
Notably, @SIFMA is reported to have asked the SEC to "take its time to consider the proposal," /2
given its novelty. SIFMA did not oppose it, but "said the prospect raised many issues. For one, the plan would allow an options exchange to have an effect on the securities markets, it argued." also expressed concerns about security token technology and unlisted trading privs./3
Claim by Q3 v. Tran et al re: alleged #ponzi disguised as #crypto trading venture remanded to state court by M.D. Fla after being removed to Fed. Ct. under Securities Litigation Uniform Standards Act (SLUSA); issue is if investment was in "covered" or "uncovered securities" /1
"Covered security" (needed to trigger federal court jursidiction over the matter)= Traded nationally & listed on a regulated national stock exchange. If doesn't involve covered securities, no SLUSA, no federal court jurisidction on that basis. /2
Here, the argument was that the LP interests sold by Tran et al were not covered securities but the things to be owned by those LP interests described by Partnership Agmt. included crypto & covered securities, so SLUSA should confer Jurisidiction. /3
Court affirms terminating sanctions & default (aka, case over, you lose) against Ringgold for submiting false declarations to defend against the SEC’s case, finding the dec's were false, they were submitted willfully and that terminating sanctions were appropriate under Malone /1
Ringgold and #Blockvest marketed an #ICO selling BLV tokens falsely marketing them as “registered” and/or “approved” by the SEC, CFTC, NFA, and touting “partner[ship]” with Deloitte, and createda fictitious regulatory agency, the #Blockchain Exchange Commission
Defendants filed declarations in opposition to govt's motion for preliminary injunction; in later discovery, it was revealed that declarations were forged, included misrepresentations and false statements were made in Dorsey and Vaculik’s declarations.
BitClave raised $25.5 million selling 9,500 investors (called it a fundraiser), incl. to US persons. Issuer was a US entity operating via Singapore PTE LTD. to be used to pay people to watch ads, ICO (July 25, 2017 (date of #TheDao rule 21 report!) -Nov 29, 2017)
CAT sold directly & distributed via bounty program. Sold 680mm CAT, held 1.32bil CAT. Issuer emphasized expectation that CAT would appreciate in value in WP, on social media channels, youtube. Issuer arranged for CAT to be listed on exchanges.
Important thread for #crypto users, lenders, borrowers & intermediaries. Unsurprising result, given prior Singapore (Quoine) & UK (Robertson) authorities holding cryptocurrencies to be property; US has been there for (via twisty path) for a while now:
#Cryptopia like many other early #crypto trading platforms had quickly changing terms of service- i.e. it's contract with its customers. early T&C stated that the site took no ownership right over any customer's contributed #crypto.
later amended T&C's expressly appointed #cryptopia as the agent of its users, created expressly custodial accounts, gave the platform the power to close accounts, expressly states that the platform holds assets on the customer's account. This contract matters- a lot.
Bad def of "#blockchain technology": the use of a digital database containing records of financial transactions which can be simultaneously used &shared within a decentralized, publicly accessible network &can record transactions btwn 2 parties in a verifiable and permanent way/3
problems: a "technology" is defined as the use of technology? Limited only to financial transactions? What's "decentralized" mean? What's "publicly accessible" mean- read? write? "participate"? "Can" used in last part of sentence renders most of what comes after it meaningless.
US brings In rem forfeiture claim vs. 113 #cryptocurrency accounts based on an investigation by @IRSnews , @DHSgov & @FBI into money laundering/MSB violations; alleges "peel chain" (new term!) transactions used by North Korea to disguise funds; details NK hacks of exchanges/1
used to steal customer #crypto/funds, resulting in value ($234mm) transferred via other exchanges eventaully to NK, allegedly used to develop WMDs. Alleges altered photos used to game AML/KYC (both worse the same shirt, lol), /2
LOOK AT THIS DIAGRAM: If you are still using #crypto to commit crimes you're not very bright. /3
Appeal of summary judgment entered in favor of Coinbase in Archer v. @coinbase case regarding #bitcoin and @bitcoingold fork; complaint alleged conversion, negligence & breach of contract related to non-recognition of BitcoinGold fork; all claims dismissed on summary judgment/1
includes discussion about what a holder of someone else's cryptocurrency actually has- is it "ownership" "posession" or "control"? What rights are delegated to another under ? here it's a contract interp. issue. what rights were delegated to Coinbase?
the contract argument advanced is that if there's no agreement as to interpretation by the parties of their agreement, and parol evidence is admitted to help understand the meaning/intent, then it is not ripe for adjudication on summary judgment and has to go to the jury.
Take these Gents in the picture below. They are building #DeFi platforms which are systems and products that emulate existing centralized financial products and systems, but in a “decentralized” way. What kind of lawyer will they need in the future?
No one knows for sure, but they may need Transactional lawyers to receive investment, to buy other platforms, to license their products and services, to potentially register as companies, where to wind down. Even if they don’t incorporate, they still need help with governance.