Law of the Ledger

We have previously posted about the SEC lawsuit against LBRY. In that post, we noted that while the crypto community is rightfully focused on the Ripple case to see how the SEC will fare in court on enforcements alleging cryptocurrency offerings are a security, a lesser-known case may provide clarity first. And today that came to be. The federal district court in the LBRY case granted summary judgment in favor of the SEC. In so ruling, the Court found no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not
Continue Reading Federal Court Rules LBRY Offered Security and Rejects Arguments SEC Did Not Provide Fair Notice

We previously blogged about the NFT insider trading case against Nathaniel Chastain. He was charged with wire fraud and money laundering in connection with a scheme to commit “insider trading” in Non-Fungible Tokens (“NFTs”) by using confidential information about what NFTs were going to be featured on a marketplace homepage for his personal financial gain. Despite referring to this case as insider trading, there was no allegation that the NFTs at issue were securities. This caused many in the NFT community to question whether this activity could be illegal if the NFTs were not securities. In fact, there was a
Continue Reading NFT Insider Trading Charge Doesn’t Require the NFT To Be a Security

On September 26, 2022, New York Attorney General Letitia James (the “NYAG”) took definitive action in the wake of her warning last year that crypto lending platforms must register with her office or face legal action, filing a complaint against Nexo Inc. and Nexo Capital, Inc. (collectively “Nexo”) alleging that Nexo violated New York’s Martin Act and Executive Law by acting as an unregistered securities and/or commodities broker-dealer within the state. Specifically, the complaint alleges that Nexo improperly offered and sold securities and commodities by allowing users to purchase, sell, deposit, trade, borrow against, and earn interest on virtual currency,
Continue Reading NYAG Delivers on Promise to Rein In Unregistered Crypto Lending with New Suit

In October 2021, San Francisco crypto currency exchange Coinbase made waves after releasing a proposed regulatory framework for digital assets entitled Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership (“dApp”). The proposal generated significant discussion during the House Financial Services Committee meeting with blockchain industry leaders on December 8, 2021. It resonated with many key players supportive of industry-friendly legislation. The dApp policy proposal highlighted two significant challenges currently facing the digital asset industry and regulators: (1) the lack of a specialized regulator leaves a void that the various regulators attempt to fill despite questionable jurisdictional authority to cover all
Continue Reading Digital Asset Policy: Aspirations, Reality and Regulation

U.S. state and federal lawmakers, as well as federal regulators, are increasingly focusing on the role of blockchain and distributed ledger technology in ongoing efforts to combat climate change and to facilitate the transition from carbon-based fossil fuels.

There have been several key developments in the recent weeks at the state and federal level, covering two broad categories:

(1) Initiatives targeting carbon emissions associated with data mining operations, including New York State legislation to temporarily halt certain carbon-powered cryptocurrency mining operations and a U.S. Senate bill calling on federal agencies to report on the impact of such mining operations on
Continue Reading Lawmakers and Regulators Examine Role of Blockchain Technology in Energy Transitions

We have previously addressed the recent indictment against Nathaniel Chastain, a former executive of a major NFT marketplace, for insider trading involving NFTs. The indictment charges Chastain with one count of wire fraud and one count of money laundering. It does not allege that the NFT is a security. It does not allege violation of the insider trading laws under securities law. Since then, as we have reported, that SEC has been investigating lack of insider trading policies for NFT/crypto exchanges.
Continue Reading NFT Insider Trading – Can There Be A Crime If It’s Not A Security?

It is well known that insider trading—the practice of buying and selling stocks, bonds, or other securities based on material, non-public information—is unlawful. For that reason, many companies have compliance programs and policies that restrict trading by officers, directors, employees or other “insiders” with access to such information. 
Continue Reading NFT Insider Trading Compliance Policies – What They Cover and Why You Need One

A class action lawsuit filed by users of a decentralized finance (“DeFi”) protocol managed by a decentralized autonomous organization, or “DAO,” may shed light on the potential legal liabilities of a DAO and its participants. The complaint in Sarcuni v. bZx DAO, No. 22-cv-0618 (S.D. Cal. May 2, 2022), highlights several issues related to DAO liability of which DAO participants should be aware. There is a common misperception that an unincorporated DAO is not subject to liability because there is no entity for regulators to pursue. The fact is that such DAOs may be deemed general partnerships and the
Continue Reading DAO Liability and the bZx Class Action

Sheppard Mullin is pleased to announce the launch of The Legit Ledger, a new podcast hosted by Sheppard Mullin’s Blockchain and Fintech industry team members (including partners Jim Gatto, Yasamin Parsafar, and associate Gabe Khoury) that focuses on blockchain-related legal issues and practical tips for keeping things legit. Various episodes of The Legit Ledger will feature interviews with a thought leader from the blockchain industry, including CEOs, leading attorneys, financial advisors, and technology professionals who have hands-on experience with this complex and evolving area of the law.

“The Legit Ledger is an innovative combination of legal analysis and practical advice from blockchain
Continue Reading The Legit Ledger Launches: New Podcast Provides Insights and Practical Tips on Blockchain-Related Legal Issues

In May, we saw a slower month for crypto enforcement actions by state and federal regulators. See our March 2022 Crypto Enforcement Actions Roundup blog here where we discuss the regulatory guidance and jurisdiction of federal and state agencies to enforce these matters.

Federal and State Updates

Securities and Enforcement Commission (SEC)

On May 3, the SEC announced “the allocation of 20 additional positions to the unit responsible for protecting investors in crypto markets and from cyber-related threats.” Accordingly, the Crypto Assets and Cyber Unit in the Division of Enforcement will be expanded to “50 dedicated positions.”The Crypto Assets and
Continue Reading May 2022 Crypto Enforcement Actions and Regulatory Guidance Roundup

On May 6, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated a cryptocurrency mixer, Blender.io, as a Specially Designated National (SDN). That sanction follows a series of enforcements and sanctions which we have previously discussed here and here.
Continue Reading The Crypto Enthusiast and The Regulator: What OFAC is, Could Be, and Should Be Doing to Regulate CryptoCurrencies

The United States Attorney for the Southern District of New York and the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging Nathaniel Chastain with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens, or “NFTs,” by using confidential information about what NFTs were going to be featured on [the marketplace] homepage for his personal financial gain.  Chastain was arrested this morning in New York.  
Continue Reading Former NFT Marketplace Employee Charged with Insider Trading

While the crypto community is rightfully focused on the Ripple case to see how the SEC will fare in court on enforcements alleging cryptocurrency offerings are a security, a lesser-known case may provide clarity first. The SEC’s suit against LBRY is scheduled for trial in September 2022.
Continue Reading Securities and Exchange Commission V. LBRY; Is Your Crypto Project Illegal?

The rise of blockchain, metaverse and Web3 technologies has lead to rapid adoption across all sectors of the economy. The government sector is no exception. Perhaps one of the most compelling examples is the recent announcement that the US military is building its own metaverse.
Continue Reading Blockchain and Metaverse Legal Issues for the Government and Government Contractors