Welcome to Shearman & Sterling’s FinTech Blog, where we provide you with insight on key trends in the FinTech ecosystem. Here you can find relevant information with the latest on digital banking, FinTech regulation, digital assets, blockchain, AI, and more.
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Two Celebrities Charged in Connection with ICO Promotions
12/05/2018On November 29, 2018, the Securities and Exchange Commission (SEC) announced that it has filed and settled separate charges against professional boxer Floyd Mayweather Jr. and musical artist Khaled Khaled (known as DJ Khaled) for their failure to disclose payments they received in connection with promoting investments in initial coin offerings (ICOs). Without admitting or denying the charges, Mayweather agreed to pay $300,000 in disgorgement, a $300,000 fine and $14,775 in interest, while Khaled agreed to pay $50,000 in disgorgement, a $100,000 fine and $2,725 in interest. Mayweather also agreed not to promote “any securities, digital or otherwise,” for three years, and Khaled agreed to the same ban for a period of two years.
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SEC Settles Charges Against Two Companies that Sold Digital Tokens in ICOs
11/29/2018For the first time, on November 16, 2018, the Securities and Exchange Commission (SEC) sanctioned two companies with civil penalties for violating the securities laws in connection with issuing digital tokens in an initial coin offering (ICO). Interestingly, the Division of Corporation Finance, Investment Management and Trading & Markets issued a joint statement in support of the Division of Enforcement’s actions. Without admitting or denying the findings, the two companies consented to the SEC orders finding that they violated Section 5(a) and 5(c) of the Securities Act of 1933 for failing to register the tokens as securities. The companies agree to $250,000 penalties and to cease and desist from future violations.
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EU Supervisory Authority Reports on ICO and Crypto-Asset Risks and Potential Regulation
10/19/2018The European Securities and Markets Authority (ESMA) has published an own-initiative report prepared by its Securities and Markets Stakeholder Group (SMSG). The purpose of the report is to provide advice to ESMA on steps it might take to contain the risks of initial coin offerings (ICOs) and crypto-assets, on top of existing regulation.
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SEC Halts Fraudulent ICO that Claimed Regulatory Approval
10/17/2018On Oct 11, 2018, the Securities and Exchange Commission (SEC) announced that it halted a planned initial coin offering (ICO) and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the “Blockchain Exchange Commission.” Blockvest and Ringgold also allegedly used the National Futures Association (NFA) seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.
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Congressman Davidson Hosts Roundtable on Digital Asset Regulation
10/01/2018At a roundtable hosted lasted week by Ohio Congressman Warren Davidson, lawmakers sought feedback from market participants on flaws and inefficiencies in the current digital asset regulatory framework. The roundtable, titled “Legislating Certainty for Cryptocurrencies,” included 48 representatives from a variety of digital asset and financial services firms, who pressed Congress for greater regulatory clarity in respect of digital assets.
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UK Parliamentary Committee Calls For Urgent Regulation of Crypto-Assets
09/21/2018The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.
The Committee is also seeking the certain action be taken by the Government and the U.K. regulators.
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Agencies Issue Multiple Digital Asset-Related Enforcement Orders
09/20/2018The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) last week issued three digital asset-related enforcement orders, and the SEC also suspended trading in two securities that track the value of digital assets. The orders mark an uptick in digital asset enforcement from previous months and suggest that regulators and self-regulatory organizations are still keeping a close eye on the nascent digital asset investment industry.
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SEC Order Shows Free Tokens Do Not Get a Free Pass From Securities Laws
09/07/2018The Securities and Exchange Commission cracked down on another initial coin offering, despite the fact that the parties were unable to raise any money. The SEC found that the efforts to fund oil exploration and drilling in California through the issuance of digital tokens called “Tomahawkcoins” or “TOM,” by Tomahawk Exploration LLC and David T. Laurance constituted an illegal securities offering in which they made materially false claims about the exploration prospects, the firm and Mr. Laurance’s background.
Read MoreCATEGORIES : Cryptocurrencies/Virtual Currencies , Enforcement , FinTech Regulation , ICOs , SEC , US Federal Regulation -
FINRA Requests that Firms Disclose Digital Asset Activity
07/24/2018Earlier this month, the Financial Industry Regulatory Authority called on its members to notify FINRA if they, or any associated persons or affiliates, engage, or plan to engage, in any activities related to digital assets. In the notice to members, FINRA also asked firms to inform their regulatory coordinators up until July 31, 2019, if they, or any associated persons or affiliates, begin to engage in activities related to digital assets that have not been previously disclosed.
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CFTC Issues Customer Advisory on Purchasing Digital Assets
07/19/2018On July 16, 2018, the Commodity Futures Trading Commission issued a customer advisory on the risks of purchasing digital assets. The advisory, titled “Use Caution When Buying Digital Coins or Tokens,” recommends that customers thoroughly research any potential purchases of digital assets without regard to how those digital assets are described (e.g., utility tokens or consumption coins).
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Senior SEC Official Clarifies Whether and When Digital Assets Are Securities
07/05/2018
In wide-reaching remarks at the Yahoo Finance All Markets Summit: Crypto on June 14, 2018, William Hinman, the director of the SEC’s Division of Corporation Finance, affirmed that lawyers and promoters should focus on to the economic substance of a digital transaction, rather than to the label in analyzing whether the U.S. securities laws apply.
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NASAA Cracks Down on Fraudulent ICOs and Enters into Information Sharing Agreement with the CFTC
5/30/2018At the North American Securities Administrators Association Conference on May 21, 2018, NASAA, an association of state and provincial securities administrators in the United States, Canada and Mexico, announced a joint effort among its members to halt fraudulent initial coin offerings and virtual currency-related investment products. The so-called “Operation Cryptosweep,” which was launched this past April, consists of NASAA members from 44 jurisdictions in the United States and Canada and has to this point led to nearly 70 inquiries and 35 pending and completed enforcement actions, with more expected in the coming months.
Read MoreCATEGORIES : CFTC , Cryptocurrencies/Virtual Currencies , Enforcement , ICOs , SEC , State Regulation , US Federal Regulation -
Federal Reserve Board Governor Speaks on Cryptocurrencies, Digital Currencies, and Distributed Ledger Technologies
5/18/2018On May 15, 2018, Federal Reserve Board Governor Lael Brainard delivered a speech at the Decoding Digital Currency Conference, sponsored by the Federal Reserve Bank of San Francisco, outlining some of her own thoughts on cryptocurrencies, digital currencies, and distributed ledger technologies.
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SEC Commissioner Pushes for Hands-Off Approach to Token Regulation
05/02/2018Securities and Exchange Commission Commissioner Hester Peirce spoke on the agency’s oversight of tokens and initial coin offerings before the Medici Conference on May 2, 2018. In her speech, she pushed for a hands-off approach to token regulation and noted the importance of regulators keeping an open mind when regulating the space.
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Senior SEC and CFTC Officials Support Balanced Approach to Token Regulation
04/26/2018
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Government of Gibraltar Publishes Outline of Forthcoming Token Regulatory Framework
03/14/2018On March 14, 2018, the Government of Gibraltar published a white paper outlining forthcoming proposals to regulate token sales, secondary token market platforms and token investment services.
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Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee
02/07/2018A cross-functional team of partners including Jay Baris and Nathan Greene of the Investment Funds group, Donna Parisi and Geoffrey Goldman of the Derivatives group, Lona Nallengara of the Capital Markets group, and Reena Sahni of the Financial Institutions Advisory and Financial Regulatory group authored an article entitled, “Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee.” The article highlights the February 6 SEC and CFTC discussion with a Senate committee regarding the role of their respective agencies in regulating virtual currencies and virtual currency-related activities.
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