Blockchain Legal Resource

Recently, a group of central bankers issued a report entitled “Central Bank Digital Currencies:  Foundational Principles and Core Features.”  Released on October 9, 2020, the report lays out common foundational principles and core features of a central bank digital currency, or CBDC.  It is a joint product of the Bank of Canada, European Central Bank, Bank of Japan, Swedish Riksbank, Swiss National Bank, Bank of England, the US Federal Reserve and the Bank for International Settlements.

PayPal released a press release on Wednesday, October 21, 2020, announcing the launch of a new cryptocurrency service that will enable its users to buy, hold and sell cryptocurrencies. The press release comes on the heels of the New York Department of Financial Services (NYDFS) announcement that PayPal was granted the state’s first “conditional BitLicense.”

On Monday, October 19, the Financial Crimes Enforcement Network (FinCEN) announced a $60 million civil money penalty against Larry Dean Harmon, the founder, administrator and primary operator of unlicensed convertible virtual currency “mixers” for alleged violations of the Bank Secrecy Act (BSA) and its implementing regulations. Mr. Harmon allegedly operated and administered two separate convertible currencies from 2014 to 2020 without completing required registration with FinCEN.

On October 8, 2020, the Department of Justice’s Cyber-Digital Task Force released an 83-page report entitled “Cryptocurrency: An Enforcement Framework.” In an accompanying press release, Attorney General Barr remarked, “Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society.  Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.” The DOJ report highlights many of the legal and enforcement risks posed in the burgeoning crypto marketplace, and includes various enforcement case studies as well as informative graphics.

In a closely-watched case, on September 30, 2020, federal judge Alvin Hellerstein ruled that Kik’s $100 million two-phase coin offering resulted in a sale of unregistered securities in violation of Section 5 of the US Securities Act of 1933.  Kik raised approximately $50 million through an initial private pre-sale effected via a Simple Agreement for Future Token, or SAFT, and the remainder through a subsequent public offering of the Kin token.  Concluding that the two-phase offering constituted a single offering, Judge Hellerstein found that Kik’s offering created a security subject to federal securities laws.  Specifically, the court found that Kik met the so-called Howey test because Kik planned to use the proceeds from the offering to fund Kik’s operations and buyers of Kin had a reasonable expectation of profit from their purchase.