Blockchain and E-Transactions Law Blog | Burr & Forman LLP

China Bans Crypto Currencies and Related Services

Thomas K. Potter, III — Fri, 24 Sep 2021 09:00:01 -0400

The People’s Bank of China (“PBOC”) announced this morning that it is banning crypto currencies and related services, including “trading, order matching, token issuance and derivatives for virtual currencies are strictly prohibited.” CNBC and other outlets reported that the ban also extends to overseas exchanges serving Chinese residents: “’Overseas virtual currency exchanges that use the internet to offer services to domestic residents is also considered illegal financial activity,” the PBOC said, according to a CNBC translation of the comments.” ...

DTCC Proposes Path to T+1 Settlement Cycle in Two Years

Thomas K. Potter, III — Thu, 25 Feb 2021 09:00:02 -0500

The Deposit Trust & Clearing Corp. (“DTCC”) released a February 24 roadmap for shortening the settlement cycle for US equities by half over the next two years. The proposal anticipates DTCC’s completion of its “Project ION” using distributed ledger technology (“DLT”) to integrate and speed clearing and settlement processes. Moving to a shorter settlement cycle would reduce industry costs, market risk, and lower margin requirements.

The clearing and settlement process was front and center at the House Financial Services Committee’s February 18, 2021 hearing ...

CFTC Final Guidance on "Actual Delivery" CEA Exemption for Cryptocurrency

Thomas K. Potter, III — Thu, 25 Jun 2020 09:00:03 -0400

The Commodity Futures Trading Commission’s (“CFTC”) Final Interpretive Guidance on the “actual delivery” exception to regulatory jurisdiction for digital assets became effective June 24, 2020. See 85 Fed. Reg. 37734. The CFTC unanimously adopted the Guidance in March: Retail Commodity Transactions Involving Certain Digital Assets, Rel. 8139-20 (Mar. 23, 2020).

The Final Guidance adopts the 2017 Proposed Interpretation with some minor changes. The “actual delivery” exception to CFTC regulatory jurisdiction still requires unencumbered physical ...

Paxos Starts Blockchain Settlement of US Equities

Thomas K. Potter, III — Wed, 18 Mar 2020 09:00:04 -0400

Paxos Settlement Service announced February 20, 2020, that it has commenced P2P settlement of US-listed equity trades over a private, permissioned blockchain with Credit Suisse and Instinet (a Nomura Bank subsidiary). Paxos expects Societe Generale will join soon.

Paxos is registered with the New York Department of Financial Services and regulated as a limited-purpose trust company.

Late last year, Paxos obtained SEC No-Action relief from clearing-agency registration, limited to a “Feasibility Study No-Action Phase” restricted to a maximum of seven participants for 24 ...

Social Media Crypto “Influencer” Not Above the Law

Thomas K. Potter, III — Tue, 03 Mar 2020 09:00:05 -0500

Former Louisiana deputy sheriff and Russian resident Steven Seagal agreed to a Cease and Desist (“C&D”) Order by the SEC, finding violations of the non-touting provisions of Securities Act § 17(b) and imposing civil penalties for acting as a Twitter and Facebook “brand ambassador” for cryptocurrency Bitcoiin2Gen without disclosing it was a paid endorsement.

The Order required Seagal to forego such opportunities for any issuer for three years, disgorge his endorsement fees and pay a civil penalty of a like amount over the coming year.

In 2017, the SEC’s Office of ...

Proposed SEC Rule 195 Token Incubation Safe-Harbor

Thomas K. Potter, III — Thu, 27 Feb 2020 09:00:06 -0500

SEC Commissioner Hester Peirce earlier this month proposed a draft SEC Rule 195 as a safe-harbor for developmental token offerings, providing a registration exemption for three years to allow the token’s network to achieve “maturity.”

Proposed Rule 195.

In proposing the Rule, Commissioner Peirce stressed that it is a developmental concept and welcomed direct input. She also said it might work better as a no-action position.

The Rule would provide a three-year non-exclusive exemption to allow Initial Development Teams (“IDT”) an “incubator” period during which a ...

Renegade Pandas, Competitive Regulation and a Token Safe-Harbor?

Thomas K. Potter, III — Fri, 02 Aug 2019 09:00:07 -0400

In a July 30 speech in Singapore, SEC Commissioner Hester Peirce compared renegade red pandas’ penchant for life “outside the fence” to the Fin-Tech innovation currently frustrating regulators’ efforts to keep up.

Eschewing calls for international regulation, she also compared the efforts of multiple national regulators to the oft-cited role of U.S. states as “laboratories of democracy.” Cataloging some to date, she cited:

Singapore’s regulatory “clarity”
Thailand’s 2018 regulatory framework
Japan digital asset offering legislation and 2017 ...

POQ No-Action Letter: DLT “Arcade Tokens” Aren’t Securities

Thomas K. Potter, III — Tue, 30 Jul 2019 09:00:08 -0400

Last week, the SEC’s Corporate Finance division issued its second no-action letter supporting a digital token issue. On July 25, 2019, the Staff agreed it would not recommend enforcement action over the issuance of Quarters tokens for online gaming.

The issuer, Pocketful of Quarters, Inc. (“POQ”), states its use case as addressing “in-game currency fragmentation” by creating a “universal gaming taken” to solve “the inability to use gaming credits, coins or other units of value purchased in, or earned playing, one online video game in other online games.”

The ...

IRS Sends Out 10,000 Cryptocurrency Tax Letters

Thomas K. Potter, III — Fri, 26 Jul 2019 09:00:09 -0400

The IRS announced this week that it is in the process of sending out 10,000 letters during the next month, reminding taxpayers with cryptocurrency accounts about their tax obligations arising from such transactions.

In March 2018, Coinbase was compelled by federal court order to reveal information on customers engaging in digital currency transactions of $20,000 or more during 2013-2015. The Service dropped the other shoe with this week’s announcement, presaging a more robust enforcement effort (expect some criminal tax prosecutions). The announcement, IR-2019-132 (July ...

State Law Fintech Roundup

Rachel R. Friedman — Wed, 10 Jul 2019 09:00:10 -0400

As fintech and blockchain transactions continue to grow in popularity, they are receiving increased attention at the state level, whether through fintech sandboxes, crypto-friendly legislation, or other initiatives aimed to encourage fintech innovation and economic development. Below is a roundup of just some of the recent fintech activity at the state level:

This week, New York entered into a Memorandum of Understanding with Israel on fintech cooperation. The agreement is intended to encourage fintech innovation in both New York and Israel by providing support to fintech ...