Cryptocurrencies are one of the fastest growing asset types worldwide. Cryptocurrencies, as an asset class, total over $1.5 trillion in market capitalization. With the rapid growth of this asset type, SEC Chair Gary Gensler shared his views for the SEC in this area. At a recent conference, Chair Gensler continued to broadly characterize most digital assets as “investment contracts,” placing cryptocurrencies within the scope of the SEC’s enforcement powers. During his remarks at the Aspen Security Forum on August 3, Chair Gensler stated, “many of these tokens are offered and sold as securities” because they meet the definition of an “investment contract.” As established by the U.S. Supreme Court under the “Howey Test”, investment contracts are defined as agreements in which a person invests money in a common enterprise, expecting profits based on the efforts of others. Investment vehicles that satisfy the “Howey Test” definition for investment contracts are securities that fall within the jurisdiction of the SEC.
Chair Gensler further stated that the cryptocurrency area currently “lacks the typical investor protection guardrails” and that he has asked Congress for additional authority to “prevent transactions, products and platforms from falling between regulatory cracks.” Chair Gensler’s views appear supported by the SEC’s Division of Enforcement having brought 75 enforcement actions over the last decade. However, others are not convinced that the SEC has clearly defined jurisdiction.
Partners Peter Baldwin and Bob Mancuso published “Cybersecurity Enforcement Trends: A Fraught New Reality for ‘Victims’ of Cyberattacks.” This article in the New York Law Journal discusses how regulators have shifted their focus from data breach notifications to overall cybersecurity preparedness.
Continue reading “Cybersecurity Enforcement Trends: A Fraught New Reality for ‘Victims’ of Cyberattacks”
In the spirit of our previous Holiday film blogs, we present for your viewing pleasure (and background research) the following Independence Day films for your (re)viewing pleasure. Both deserve renewed attention in light of:
- The SEC’s recent Solar Winds-Cybersecurity-related events, regarding disclosure of material weaknesses or material cyber security risks related to the Solar Winds compromise;
- The re-opening of offices and recent announcements of certain businesses explaining employees should be back in the office or else.
We offer the following Independence Day Weekend themed film streaming recommendations that relate to each of the above and therefore count as background research.
Continue reading ““Independence-Day” Malware and Managing the (Beach) Risks of Jaws”
On Tuesday, the U.S. Securities and Exchange Commission (“SEC”) announced that Gurbir Grewal will be the Director of the Division of Enforcement, effective July 26, 2021. Grewal has been the Attorney General of New Jersey since 2018.
Grewal’s appointment follows the previous appointment and abrupt resignation of Alex Oh for the same role. In contrast to Oh, Grewal has spent most of his career in government. Prior to his current role, Grewal was an Assistant United States Attorney in the Eastern District of New York and the District of New Jersey. From 2014 to 2016, Grewal led the Economic Crimes Unit for the District of New Jersey.
Continue reading “Chair Gensler Appoints NJ AG SEC Enforcement Director”
U.S. District Court for the District of Massachusetts has granted the IRS leave to serve the “John Doe summons”. The summons requires the administrators of a cryptocurrency exchange called Poloniex to release documents and information on U.S. taxpayers who conducted transactions in cryptocurrency totaling over $20,000 in any calendar year from 2016 through 2020. Individual account-holders may face enforcement activity in the future.
Continue reading “IRS Is Cleared to Serve John Doe Summons on Cryptocurrency Exchange”
Perhaps it is in the spirit of March Madness and bracketology, but the Commodity Futures Trading Commission (CFTC or Commission) recently acknowledged consideration of a proposal by a sports gambling company to allow state-licensed sportsbooks and certain NFL-stadium owners and vendors to trade future contracts tied to NFL game outcomes.
The proposal, submitted by Eris Exchange, LLC (ErisX), seeks to list three types of NFL futures contracts on ErisX’s Regulated Sports Book Index Exchange (RSBIX). The contracts under review are tied to three common NFL game bets: money lines, point spreads, and total points scored in an individual game (over/unders). ErisX’s proposal would limit exchange participants to “eligible contract participants” and would allow only licensed sportsbooks, stadium owners and vendors, and qualified market makers to trade on the exchange—i.e., not individual investors or other investment funds with no connection to NFL stadium operations.
Continue reading “A Proposal to the CFTC for a New Way for “Bets” to Be Hedged”
On January 8, 2021, Judge Richard Seeborg of the United States District Court for the Northern District of California issued an Order denying a motion to dismiss in S.E.C. v. NAC Foundation, LLC, et al. The U.S. Securities & Exchange Commission (SEC) had previously filed a civil complaint against blockchain development company NAC Foundation, LLC (NAC) and NAC’s CEO, Marcus Rowland, alleging that NAC’s and Rowland’s sale of “stand-in” digital tokens constituted a fraudulent and unregistered sale of digital securities. The Department of Justice (DOJ) brought a parallel criminal proceeding, alleging violations of federal wire fraud and money laundering statutes. DOJ also filed a separate criminal case against former high-profile lobbyist Jack Abramoff in connection with his role in the promotion of NAC’s digital assets.
Continue reading “U.S. District Judge Rejects Argument that Sale of “Stand-In” Tokens Was Not a Sale of Unregistered Securities”
As the cannabis industry continues to evolve and generate capital raising and investment opportunities, the SEC Division of Enforcement will continue to closely keep watch and target the bad actors that new market opportunities such as this inevitably and unfortunately attract. Along those lines, investors looking to purchase stock in supposed cannabis company, Covalent Collective, may have found vindication in the recent judgment against Geoffrey Thompson, of Frankfurt, Illinois. Thompson is now permanently barred from engaging in the issuance, purchase, offer, or sale of any security, except in connection with his own personal account. On January 20, 2021, the United States District Court for the Northern District of Illinois (Case No. 1:20-cv-05205), ruled in favor of the United States Securities & Exchange Commission (SEC), in connection with its complaint targeting Thompson. Although Thompson did not admit or deny the allegations, he consented to the entry of the final judgment against him, which also ordered him to pay over half a million dollars collectively in disgorgement, prejudgment interest and civil penalties.
Continue reading “SEC Enforcement Victory in its Efforts to Police Cannabis Industry Investments”