US – Page 6 – FinTech and Blockchain Law Watch

New SEC Cyber Unit Obtains Emergency Action Against ICO

Dec 07 2017

On December 4, 2017, the Securities and Exchange Commission’s (“SEC”) new Cyber Unit obtained an emergency asset freeze to halt a Canadian initial coin offering (“ICO”) called PlexCoin that had raised up to $15 million from thousands of investors. The SEC filed its complaint (“Complaint”) in the Eastern District of New York, alleging that the sponsor and his company, PlexCorps, marketed and sold securities to investors in the U.S. and elsewhere under a variety of false pretenses, including that PlexCoin would yield a 1,354% profit in less than 29 days. The complaint seeks permanent injunctions, disgorgement plus interest and penalties.

LabCFTC’s First Primer Covers Bitcoin, other Virtual Currencies, Virtual Tokens and ICOs

Dec 04 2017

By Anthony Nolan and Eric A. Love

The U.S. Commodity Futures Trading Commission’s (CFTC) New York-based LabCFTC has released a twenty-page primer (the “Primer”) about virtual currencies, virtual tokens and initial coin offerings (ICOs). It’s the first in a series of educational primers that LabCFTC will issue in the coming months about innovations in the FinTech industry.

The Primer answers important questions about how CFTC regulations apply to virtual currencies, virtual tokens and ICOs. Notably, the Primer reiterates that Bitcoin and other virtual currencies are appropriately categorized as commodities and also states that virtual tokens can in some instances be commodities or derivatives contracts even if they are also considered to be securities under the U.S. securities laws. The Primer notes that, in applying U.S. commodity futures laws to virtual tokens, the CFTC will look beyond form and examine the “actual substance and purpose” of particular activities.

Initial Coin Offerings “Horrify” a Former SEC Commissioner

Nov 30 2017

By Robert Crea

On Sunday, November 26, 2017, the New York Times published an interview with Joseph Grundfest, former SEC Commissioner and current Stanford law professor. Professor Grundfest is sharply critical of the posture of initial coin offerings under U.S. federal securities laws. Given his persuasive voice on securities law matters and his influence in Silicon Valley, this interview may very well serve as a sobering wakeup call to the ICO marketplace.

Some notable quotes:

“ICOs represent the most pervasive, open and notorious violation of federal securities laws since the Code of Hammurabi. . . .It’s more than the extent of the violation . . . . It’s the almost comedic quality of the violation.”
“These are not hard cases . . . . You don’t need teams of accountants poring over complex financing documents [to bring enforcement actions].”
“We’re waiting to see a whole bunch of enforcement actions in this space, and we wonder why they haven’t happened yet. . . .I hope what [the SEC is] doing is planning on a sweep of 50 ICOs.”

The article may be found here.

New Technology Targeting U.S. Loan Market in Attempt to Increase Liquidity

Nov 28 2017

By Vanessa Spiro and Susan Altman

Loan market participants may soon be able to use blockchain technology and tokenized cash to achieve swifter settlement of loan trades. Both Synaps Loans and Finastra plan to introduce new blockchain-based platforms next year. They join the platform created by ClearPar and HIS Markit, which plans to reduce or eliminate wire transfers by promoting tokens that can ultimately be exchanged for cash.

The main objective of the technology is to reduce settlement time. Long settlement times result in costly use of capital and render the market less liquid in the eyes of regulators. The time between the agreement on material terms of the trade and the trade settlement date for syndicated loans is much longer–the median recently was 12 days- than that for other asset classes, such as equities. Several processes, such as implementation of the “delayed compensation” rules to incentivize quick settlement, have attempted to reduce settlement time. However, market protocol requires an exchange of finalized assignment documents among buyer, seller and agent bank, collection of “know-your-customer” information by agent bank, borrower consent, receipt of underlying loan documentation, agent bank verification of loan ownership and transfer of ownership on the loan registry. Even under the best circumstances there are inadvertent delays, including those caused by blackout dates for amendments and absences by workers processing requests.

“True Lender” litigation heats up: small business sues marketplace lender and partner bank, alleging conspiracy to evade usury laws

Oct 30 2017

By David D. Christensen and Jennifer Janeira Nagle

Over the last several years, a number of U.S. state and federal government enforcement actions have challenged the viability of the bank partnership model that many marketplace lenders have used to fund consumer and small business loans. Specifically, regulators have argued that, in partnerships where the non-bank entity controls much of the funding process or the bank has little-to-no risk of loss, the non-bank entity is the “true lender.”

A U.S. BitLicense? OCC Acting Comptroller Sounds Open to It

Oct 26 2017

By Eric A. Love and Hilda Li

In remarks delivered during a recent FinTech conference at the Federal Reserve Bank of Philadelphia, U.S. Office of the Comptroller of the Currency (OCC) Acting Comptroller Keith Noreika signaled that he is open to cryptocurrency companies applying for an OCC-issued FinTech charter. According to the Acting Comptroller, part of the OCC’s role is to determine whether issuance of such a charter to cryptocurrency companies is consistent with the OCC’s “statutory obligations.” He cautioned that, “just because you get in the door, doesn’t mean you get out the door on the other side with a charter.” Video of the Acting Comptroller’s full remarks can be viewed here.

SEC’s Investor Advisory Committee Talks DLT, Blockchain

Oct 18 2017

By Eric A. Love

On October 12, the SEC’s Investor Advisory Committee (IAC) held a public meeting that included a panel discussion about blockchain and other Distributed Ledger Technology (DLT). The IAC advises the SEC on such regulatory issues as investor protection and securities market integrity.

The panel consisted of Nancy Liao of Yale Law School; Jeff Bandman, Principal at Bandman Advisors and previously Director of LabCFTC; Michael Bodson, President and CEO of DTCC; Fredrik Voss, Vice President of Blockchain Innovation at Nasdaq; and Adam Ludwin, Co-founder and CEO of Chain. Panelists largely focused on the potential benefits of blockchain and DLT for investors and the broader U.S. securities markets, as well as the accompanying risks that will likely require heightened regulatory oversight.

Meet us at Money20/20!

Oct 12 2017

K&L Gates is excited to be a part of Money20/20, the largest global event focused on payments and financial services innovation! Join us from October 22nd – 24th in Las Vegas, U.S.

We have several exciting events and programs taking place during the conference.

Federal Reserve Board outlines next steps for faster payments

Oct 11 2017

By Eric A. Love

The Federal Reserve Board (FRB) has released a paper entitled “Strategies for Improving the U.S. Payment System: Next Steps in the Payments Improvement Journey” (the Strategies Paper). The Strategies Paper builds upon the FRB’s “first steps” for enhancing the U.S. payment system (which were described in a 2015 FRB paper) and details the next phase of this work. It includes an assessment of ambitious proposals made by the Faster Payments Task Force and the Secure Payments Task Force.

Faster Payments Task Force issues Part Two of Final Faster Payments Report

Aug 29 2017

By Eric A. Love and Judith Rinearson

The Faster Payments Task Force (the Task Force) has issued part two of its Final Report that sets forth a blueprint for achieving faster and more secure payments in the U.S. by 2020.

Convened by the Federal Reserve Board (FRB) and comprised of a broad cross-section of over 300 industry, government and consumer group stakeholders, the Task Force released part one of its Final Report in January 2017 which outlined the Task Force’s goals and the many advantages of faster payments. Instead of championing a single method to achieving “ubiquitous faster payments,” the Task Force states in part two that it favors competition among a wide array of potential ways to achieve this goal and supports collaboration with industry stakeholders to ensure “broad adoption; safety, integrity and trust; and interoperability.”

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