There are endless debates currently about which tokens are in fact ‘securities’ and therefore subject to SEC oversight. The SEC presently deems all token/coins besides Bitcoin as securities; though the status of Ethereum is uncertain, it likely leans towards not being a security, legally speaking. The definition of a security is defined and discussed on this blog in other places at length, and other tangential matters such as litigation regarding some particular token’s legal status can also be reviewed here. To summarize: a security is an investment of money in…
The summary judgment in favor of the SEC was issued on November 7, 2022 and the only issues addressed were whether LBRY did offer its LBC token in violation of securities laws (as an unregistered security without asserting any exemption from registration), and whether they received fair notice that registration with SEC was required prior to the SEC action. The case, as any other such case, hinges on the Howey test, which requires a security to be issued for an in exchange for something of value for a stake in…
There is an endless array of social media personalities all over every media outlet possible discussing every facet of the crypto industry and the nascent roiling markets. Many of them are sincere, honest, and well-meaning, while probably just as many are unscrupulous, unethical, and highly untrustworthy. How to spot the fraudsters, the scammers, and the pump and dumpsters? There is no easy way, except that there are certain mandatory disclosures required from paid sponsors, which is a good way to gauge conflicts of interest. The track record of a given…
Federal DOJ criminal charges and a Commodities Futures Trading Commission civil complaint have recently been filed against Mr. Alexandre for the alleged operation of a ponzi-like commodities pool where investors received weekly interest in the nature of 5%-10% from the profits generated by a non-existent trading bot. The allegations include operating an unregistered commodities pool, fraud, material misrepresentations, embezzlement, wire fraud, and other similar charges. There were approximately 62k investors globally who invested around $250mn and about $35mn has been repaid to some investors. The appointed temporary receiver is currently…
The Department of Justice recently charged former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi and friend Sameer Ramani with wire fraud and insider trading. The Securities Exchange Commission followed suit with a filing of its own alleging violations of securities laws and to enjoin the defendants’ activity, disgorge ill-gotten gains, and for any other relief to which they may be entitled. The SEC’s actions are curious since the DOJ already filed its own complaint against these three individuals which would presumably obtain the legal relief necessary to obtain…
Is the Solana (SOL) token a security and was it issued in violation of US securities laws? This is exactly what the class action lawsuit filed July 1st, 2022 claims, to include violations of California securities laws. All Solana principals were named defendants. Including personal claims against the Founder Anatoly Yakovenko, hedge fund manager Kyle Samani which marketed and received SOL for issuance, and FalconX LLC, an OTC trading desk which sold SOL through secondary exchanges. How strong are the claims? Having reviewed the complaint, the claims are substantial and…
On June 19, 2022 a second vote was held by the governance board through its voting protocol to invalidate the previous days’ vote which permitted the board to seize control of and liquidate through the OTC markets, a certain whale account which apparently poses a systemic risk to the Solana protocol in the event that it is liquidated, which action may cause a catastrophic collapse in SOL price. The question we are asking here is; is this actually legal and or advisable from an issuer’s point of view? The second…
A Senator from NY and a Senator from WY have recently presented Congress with a draft proposal for a crypto regulatory scheme which is a mixed bag from this Firm’s perspective. Wyoming is possibly the best state for crypto ventures and banking, and for good reason, hence one of the senators (Lummis) has been and remains definitively pro-crypto. Nonetheless the bill could have been much better. Firstly, crypto-assets would, for the most part, be under the regulatory imprimatur of the Commodities and Futures Trade Commission; as mentioned in other posts, this is a positive development as crypto-assets are, for the part closest in their nature to commodities and should reasonably be under the CFTC’s control. The SEC has done a decent job of bringing enforcement actions against some of the largest fraudulent players, rug pulls, and pyramid schemes, to date, numbering about 80; though this is just a tiny part of the total fraudulent activity in this market. The SEC is not the proper agency to regulate crypto and forcefully shove some crypto assets under the ‘securities’ definition, when such an interpretation is unwarranted. CFTC may be a smaller and lesser funded agency, but congress can certainly provide additional funding or mandate that its expansion into crypto regulation be funded by various crypto industry actors. It appears the SEC will share some regulatory control with the CFTC over crypto-assets when it is clear that a particular digital asset is acting as a security; this is totally reasonable, as digital assets such as crypto token, coins, and NFTs can act as commodities and securities, though the top 10-20 crypto-assets are almost certainly more akin to commodities. Crypto transactions below $200 will be exempt from tax reporting/payment obligations. This is a start; however, this amount is far too low. $1k would be […]
The SEC has recently indicated that it will begin to study the NFT sector to determine if NFTs are being sold which are in fact securities and therefore are being sold illegally in the open markets. Other regulators, such as CFTC are sure to follow, if not involved already. Some states are also likely to dive into this pool as they are potentially missing out on significant tax revenues from regulatory licensing taxation. What is the correct regulatory scheme for NFTs is presently undetermined, and likely to remain so in…
Unfortunately there is no clear answer to this question at this time due to a lack of regulatory guidance and no such guidance forthcoming in the near future due to the slow movement of and disputed control over NFTs by various regulators. Put ten attorneys in a room and there will be 10 different opinions on what NFTs are. What we do know to a near certainty is the NFTs can act as securities, as intellectual property, as commodities, as personal property, as currency, and as debt, financial, and/or…
Fraud is endemic in the crypto markets as most participants and regulators are quick to admit, if they are honest, of course. “Rug pulls” are one form of fraud where an issuer of a given crypto-asset markets and sells the asset to buyers/investors through either an unregistered offering in violation of US securities laws, an offshore non-US offering, or a legitimate utility token offering (a token that fails the Howey test). Such issuer retains a substantial portion of this crypto-asset in its company wallet(s) and creates liquidity for the token…
Decentralized Autonomous Organizations (DAOs) are a new entity type only beginning to take hold as a governance mechanism for a business venture or non-profit project. Thus far two states have a legal entity that may be formed as a DAO (Vermont and Wyoming). Both states recognize an automated, blockchain-code governance which is effectuated by token holders of the DAO through a voluntary on-chain voting mechanism. Blockchain Based Limited Liability Companies (BBLLCs) as they are deemed, are a totally new and untested legal structure where regardless of current state law, a…
Recently a ‘Cease and Desist Order’ was issued against BlockFi by the securities bureau of New Jersey prohibiting any further business activity in that state for the illegal sale of unregistered securities which included its high interest paying crypto savings accounts. Texas and Alabama are additional states which have issued similar orders subject to hearings with BlockFi representatives, where BlockFi will be required to show cause why such orders should not be issued, and that they have not in fact been selling unregistered securities illegally within those states. How did…
As a result of the national urban sprawl and population growth, a number of firm clients are interested in investing in empty lots to hold for the long term and await what seems to be the inevitable expansion and development of the surrounding area and the concomitant capital gains that come with an increase in local economic development. The entry to such investments are almost certainly cheaper than purchasing developed real estate, particularly if investing in unincorporated lots with other burdensome hurdles that generally come with such assets, as discussed…
The public seems to be very confused about what formal demand letters are and what they are intended to do. Here we will clarify exactly what you can expect from having such letters issued to a counterparty by your lawyer. A demand letter is generally, but not always, drafted by an attorney requesting payment of money, warning of potential legal action, or seeking some type of action to be taken by the recipient (“cease and desist”), or all the above. Such letters are sometimes required by law to give notice…
The conclusion seems obvious: if there is a threat to the mail-in voting system then a public system of tracking should be implemented to allow voters to track their ballots directly to the election authorities. This would provide an immeasurable benefit to the electoral system. There are estimates that mail theft is up 600%, and filled out ballots are being found thrown away in random places on a weekly basis. Many are receiving multiple ballots, for former residents, for deceased person, for relatives… It can be concluded that many voters…
The process of obtaining an MTL begins with FinCen registration, then registration with NMLS, which is a national database where over 30 states participate to approve a MTL in their respective states. So, the NMLS system is national, but each MTL is reviewed and approved by each individual state’s regulators.
Crowfunding is as old as any other type of capital fundraising but the regulations were codified officially in the 2012 JOBS ACT. Some 40 billion dollars have flowed into the various types of projects since then, increasing each year. Reg CF of Title III allows a startup to raise up to $1.07mn from the public without restrictions as to investor type. There are limits on contributions which depend on salary, such as a percentage of one’s annual wages or a flat amount of $2200, whichever is greater. The public non-crowdfunding…
Simply put it potentially may be both. The SBA doesn’t make loans it only guarantees them. It’s up to their affiliated lenders to qualify, process and administer SBA loans. The lender will decide if the conditions have been met for the loan to be forgiven. Generally speaking banks hate making these loans because they lose money on them; no closing/admin costs, and the rate is 1% which is below inflation rate. So you can expect that they will enforce the terms strictly for qualification and forgiveness. Let’s look at the…
Do you have a business and the only time you reach out to legal counsel is when you have an actual legal problem? If so, you are probably a total dumb ass and you don’t actually understand how attorneys should be used.
