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Government Enforcement Exposed - "The GEE"
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19 Jul 2018 Cryptocurrencies — An Overview of the Legal Landscape, The Risks of Investing, and the Future of the Markets – Part 2

In my blog post yesterday, I gave an overview of the legal landscape of cryptocurrencies. Today’s post focuses on the biggest risks for people who want to trade cryptocurrency as well as a peek into what the future of this market looks like.   Trace Schmeltz recently spoke with Business First about crypto currencies and crime, taking a look at the legal side of bitcoins and other cryptos.   What are the biggest risks for people who want to trade cryptocurrency?   The most significant risks, each of which is discussed in turn below, are price manipulation and the lack of transparent pricing, fraud scams like so-called pump and dump schemes, cybersecurity issues and other custody problems, potential counter-party concerns, and liquidity issues.   Price…

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18 Jul 2018 Cryptocurrencies — An Overview of the Legal Landscape, The Risks of Investing, and the Future of the Markets – Part 1

In this two-part blog series, I will be giving an overview of the legal landscape of cryptocurrencies, touch on the biggest risks for those who want to trade cryptocurrency, as well as a look into what the future of this market looks like.   The current legal and regulatory environment for cryptocurrencies   Much has been said about the legal uncertainty around cryptocurrency.  Really, understanding what laws apply is quite simple.  Complying with multiple states’ laws is more difficult, of course.  As set out in the U.S. Commodity Futures Trading Commission’s (CFTC) “Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets”:   US law does not provide for direct, comprehensive Federal oversight of underlying Bitcoin or virtual currency spot markets. As a result,…

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06 Apr 2018 COULD THE SUPREME COURT’S LUCIA ARGUMENT BECOME A CAGE MATCH?

    On April 23, the U.S. Supreme Court will hear what may be one of the most impactful cases for the Securities and Exchange Commission, and perhaps other federal administrative agencies, in a long time.  In Lucia v. SEC, the Supreme Court will hear arguments – including from the U.S. Solicitor General – that the way that the SEC’s administrative law judges (ALJs) are appointed violates the U.S. Constitution’s Appointments Clause.  For prior posts, see [Jan 23, 2018; Jan 16, 2018, Jan 24, 2017, Sept 2, 2016].   The briefing is essentially completed, and as the Solicitor General’s recent request for divided argument suggests, the battle-lines here are untraditional.  In fact, the divergent positions staked out by the three parties that are arguing (to…

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23 Jan 2018 First-Time Supreme Court Advocate Appointed to Argue the SEC’s Case in Lucia

  To follow-up on our previous post, on January 18, the Supreme Court appointed Anton Metlitsky of O’Melveny & Myers to argue on behalf of the SEC in Lucia after the Solicitor General abandoned its defense of the SEC’s position in its response to Lucia’s petition for certiorari. This will be Metlitsky’s first argument before the Supreme Court.   According to the National Law Journal, Supreme Court tradition dictates that the Circuit Justice for the circuit that decided the case – here, the D.C. Circuit – picks one of his or her former clerks in these situations. Chief Justice Roberts (Circuit Justice for the D.C. Circuit) selected Metlitsky, one of his former clerks. The article also stated that, according to tradition, the appointment goes to…

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16 Jan 2018 SEC’s Appointments Clause Dilemma Gets Worse

  On January 12, the Supreme Court granted certiorari in SEC v. Lucia, which will decide whether the Securities and Exchange Commission’s (SEC) administrative law judges (ALJs) are appointed consistently with the Constitution’s Appointments Clause. Unfortunately for the SEC, at least right now, no one is arguing that the SEC’s process is constitutional. What the Court does in this case will potentially upend not only the SEC’s ALJ process but other agencies’ as well.   As this blog has explained here and here, there is a clear circuit split on whether the way that the SEC hires its ALJs comports with the Appointments Clause. The Appointments Clause provides:   [The President] shall nominate, and by and with the Advice and Consent of the Senate, shall…

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09 Nov 2017 SEC Scrutiny Brings Sanity to Hot ICO Market

  Initial coin offerings (ICO) originally became popular because they appeared to hold the promise of easy access to capital, in exchange for a virtual token with some desirable function. For example, Playkey—an online gaming company—is presently raising money by selling tokens that will allow holders to access high powered computer systems for gaming. ICOs have raised more than $3 billion in 2017.   The tokens from these offerings can appreciate in value either because they are limited in number or because they are tied to the growth of the issuer’s enterprise. The Securities and Exchange Commission (SEC) has deemed the later kind of token to be a security. Accordingly, any entity seeking to offer tokens reflecting the value of the enterprise needs to follow…

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25 Sep 2017 Who’s Watching the Watchdog? SEC Deals With Its Own Data Breach

  On Sept. 20, SEC Chairman John Clayton announced that Wall Street’s watchdog, the Securities and Exchange Commission (SEC), was the victim of a cyber hack in 2016. In what ironically amounts to the SEC’s first significant disclosure of its own cybersecurity risks, Clayton stated: “In certain cases, threat actors have managed to access or misuse our systems.” According to Clayton, “[i]n August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.”   Hackers apparently exploited a weakness in the SEC’s Electronic Data Gathering, Analysis and Retrieving (EDGAR) system. EDGAR houses financial records for all of the companies listed on stock exchanges in the United States – including domestic and foreign securities issuers and…

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06 Sep 2017 Don’t Let DOJ Defections Fool You: Corporate Conduct Still in the Crosshairs

  Authors: Michael Battle, Roscoe Howard and Patrick Miles   The early months of the Trump administration have brought about the resignations of the two most prominent lawyers behind the U.S. Department of Justice’s recent campaign against corporate wrongdoing. The departures of Deputy Attorney General and Acting Attorney General Sally Yates, and DOJ Compliance Counsel Hui Chen, coupled with the administration’s business-friendly rhetoric, might tempt corporate compliance officers to conclude that the DOJ is shifting its emphasis away from corporate prosecutions.   They shouldn’t. In fact, neither those high-profile defections nor the change in administration is likely to alter the mindsets of the working lawyers in the DOJ’s 94 U.S. Attorney offices. Those prosecutors will not only continue pursuing the same types of cases they…

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02 Aug 2017 Corporate Law Alert – SEC Issues Guidance on Initial Coin Offerings and Cryptocurrencies

  On July 25, the U.S. Securities and Exchange Commission (SEC) issued its most comprehensive public guidance to date on digital assets such as cryptocurrencies and tokens. Key points from the guidance are:   Initial Coin Offerings (ICOs) are required to be registered with the SEC if the digital assets are securities offered or sold in the U.S. Digital assets can be evaluated for securities status using traditional securities law criteria Automated functions through smart contracts or other code remain subject to securities laws Companies dealing in digital assets should consider seeking counsel as to whether the digital assets are securities Companies dealing in digital currencies may need to register as broker-dealers, securities exchanges, or alternative trading systems Companies investing in digital assets and advising on investment…

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31 Jul 2017 SEC Chairman Announces 8 Core Principles

  In his first public speech since becoming the U.S. Securities and Exchange Commission (SEC) chairman, Jay Clayton shared his eight core principles that he indicates will guide his oversight of the agency, with an emphasis on the “Main Street” investor. This speech is significant because it provides insight into how the agency may balance benefits to investors against costs to the markets under the commission’s enforcement and regulatory powers.   However, he also emphasized part of his plan to help individual investors is by increasing the public investments available to them. To that end, Clayton reminded companies considering IPOs that the JOBS Act benefit of submitting draft registration statements confidentially and gradually phasing in reporting obligations, previously available only to emerging growth companies, now…

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