Blockchain Legal Resource

On November 19, 2020, IMVU, Inc. (“IMVU”) received no-action relief from the Securities and Exchange Commission (the “SEC”) confirming that the Division of Corporate Finance will not recommend enforcement action against IMVU for selling its digital asset, VCOIN. IMVU intends to issue and sell VCOIN for immediate use within its online three-dimensional avatar-based social community, “IMVU.” IMVU will supply an unlimited number of VCOIN at a fixed price of $0.004 per VCOIN to replace its current system of providing in-platform “credits” for participants to use to purchase virtual goods and services within the platform. IMVU’s No-Action Letter Request to the…
Only a few states have issued guidance on the sales tax treatment of digital currency transactions. On November 2, 2020, Kansas joined this group, with Notice 20-04, Sales Tax Requirements Concerning Digital Currency Under the Retailers’ Sales and Compensating Tax Acts (the “Notice”), issued by the Kansas Department of Revenue (the “Department”). The Notice addressed three issues: Whether fees for digital currency transactions are subject to Sales Tax; The measure of gross receipts for sales of tangible personal property or taxable services, when the consumer pays the retailer with digital currency; and Whether the Department will accept digital currency…
The Wyoming Division of Banking issued a No-Action Letter (NAL) in October 2020 in response to a request from a Wyoming-chartered public trust company seeking the Division of Banking’s position on the ability of the company to custody digital assets as well as hold itself out as a “qualified custodian.” The NAL prompted the Staff of the Securities and Exchange Commission to issue a public statement seeking public comment on matters concerning the definition of “qualified custodian” under the Investment Advisers Act of 1940 (the “Advisers Act”) and Rule 206(4)-2 thereunder (the “Custody Rule”). As a leader in creating a…
Wyoming recently awarded its second special-purpose depository institution (SPDI) charter to Avanti Bank. Kraken was the first institution to receive the newly created SPDI charter in September. As Wyoming had likely hoped when it passed a flurry of blockchain legislation, it appears that it is starting to take hold as a digital-asset-friendly banking state. The state has now chartered two new banks in less than two months; before September, the last newly chartered bank in Wyoming was approved over a decade ago. Unlike Kraken, which is one of the largest cryptocurrency exchanges, Avanti appears to be focused on a more…
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. The report emphasizes that none of the central banks contributing to this report have reached a decision on whether or not to issue a…
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.” The conditional BitLicense is one of several recent developments in the New York virtual currency licensing framework. One of the “conditions” on the conditional BitLicense is the requirement to partner with an existing BitLicense holder. Here, PayPal has selected Paxos Trust Company as its NYDFS-licensed…
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. FinCEN issued guidance in 2013 clarifying that an administrator or exchanger is a money services business (MSB) under FinCEN’s regulations, unless a specific exception applies. The 2013 FinCEN guidance specifically addresses convertible virtual currencies…
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…
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…
Providing additional clarity on the role of an alternative trading system (ATS) in the settlement of digital asset security trades, the staff of the SEC’s Division of Trading and Markets issued a no-action letter to FINRA on September 25, 2020.  In brief, the SEC staff endorsed a three-step settlement process for digital asset securities held in a third-party’s custody if certain customer-protection conditions are met. As we previously reported, in July 2019 the staffs of the SEC and FINRA issued a joint statement on registered broker-dealers operating ATSs that trade digital assets. The 2019 joint statement described several non-custodial activities…
On Monday, September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) issued an interpretive letter on the authority of national banks and federal savings associations to hold stablecoin reserves (the “OCC Interpretive Letter”). That same day, the Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (“FinHub”) issued a statement on the OCC’s interpretive letter. While not an official joint statement, the federal agencies were clearly aligned as FinHub’s statement on the OCC Interpretive Letter was posted on its website before the OCC published its letter. In the OCC Interpretive Letter, the OCC’s Chief Counsel…
On Wednesday, September 16, 2020, the cryptocurrency exchange Kraken Financial became the first crypto company to obtain a bank charter. The Wyoming Division of Banking approved Kraken’s application for a special-purpose depository institution (SPDI) charter, which is a new type of bank charter that Wyoming specifically designed for crypto businesses. This makes Kraken the first de novo bank chartered in the state since 2006. The SPDI is not a typical bank charter, but does allow an institution to receive deposits and conduct a range of other traditional banking activities, including fiduciary asset management, custody and related activities. As stated on…
In a recent speech entitled “Reinventing the Wheel (with More Automation)”, Andrew Bailey, Governor and chief executive of the Bank of England, discussed the future of digital currencies. According to Governor Bailey, we have reached the point in the cycle of innovation in payments where it is essential that we set the standards and thus the expectations for how innovation will take effect. It should not, in his opinion, happen the other way round, with the standard setting playing catch up. Governor Bailey began his speech with a discussion of the recent history of cash, migration to electronic payments systems,…
As a show of continued interest in the development of cryptoasset solutions, Senator Mike Crapo (R-ID), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, recently sent a letter to Acting Comptroller of the Currency Brian Brooks. Chairman Crapo’s letter requested an update on findings of the Office of the Comptroller of the Currency (OCC) and information regarding next steps the OCC intends to take with respect to blockchain and distributed ledger technology. Referencing the OCC’s June 4 advanced notice of proposed rulemaking on digital activities in banking, Senator Crapo inquired of Acting Comptroller Brooks: What activities related…
Effective August 1, 2020, Louisiana has adopted a Virtual Currency Business Act. In doing so it becomes the second state after New York to require certain operators of virtual currency businesses to obtain a virtual currency license in order to conduct business in the state. According to the Act, no one is permitted to engage in a “virtual currency business activity,” or hold itself out as being able to engage in a virtual currency business activity, with or on behalf of any “resident” of Louisiana, irrespective of where the person is located, unless the person is either licensed by the…
The World Bank Group recently published a “FinTech Note” on Smart Contract Technology and Financial Inclusion in its “Finance, Competitiveness and Innovation” series. The note explores the potential of smart contracts to spur economic development and financial inclusion around the globe. The note explains the key technical and legal characteristics of smart contracts, delves into potential uses of the technology and, ultimately, raises important considerations for policymakers to weigh when implementing smart contract legislation. Below, we highlight a few of the key takeaways on the potential benefits of smart contracts and discuss how policy and legal decisions will impact the…