The crypto regulatory landscape is constantly evolving and requires careful monitoring of cases, investigations, regulator announcements, and media reports. Here’s a roundup of the most recent developments – from the busting of a World Cup crypto gambling ring to the first judicial finding that digital tokens are securities to the announcement of a new multi-agency task force targeting financial crime.
- First Judicial Finding that Digital Tokens Are Securities: On June 25th, a magistrate judge in Florida issued a report in a class action lawsuit – Rensel v. Centra Tech, Inc. – finding that tokens issued and sold by tech start-up Centra Tech were investment contracts. While the report and its recommendations are not final until approved by a district court judge, it appears to be the first judicial finding that a company’s issuance and sale of tokens through an ICO must comply with federal securities laws. DLA attorneys Deborah Meshulam, Benjamin Klein, and Richard Kelley explore the impact of this finding for the crypto industry in a July 11th Law360 article.
- Chinese Police Bust World Cup Crypto Gambling Ring: According to a July 13th article from the South China Morning Post, Chinese authorities have arrested six suspects responsible for a World Cup gambling ring that hosted more than 10 billion yuan (1.5 billion USD) in cryptocurrency bets. According to the Post: “The gambling platform ran on the so-called dark web, which isn’t indexed by traditional search engines, and only accepted cryptocurrencies such as bitcoin, ethereum, and litecoin . . . . During the eight months of the gambling platform’s operation, the site attracted 330,000 registered users from numerous countries, and built an army of over 8,000 agents who earned commissions for recruiting new members through a pyramid scheme[.]” Here’s the official statement by police in China’s Guangdong province.
- New Multiagency Task Force on Market Integrity and Consumer Fraud: On July 11th, the DOJ, SEC, and other regulators announced a new task force to address market integrity and consumer fraud, including cryptocurrency crimes. Expect more cross-agency coordination in the months to follow.
- FINRA Issues Notice to Broker-Dealers: On July 6th, the Financial Industry Regulatory Authority (“FINRA”) issued a notice encouraging broker-dealers to notify the regulator if they engage in activities related to digital assets. The notice states that “FINRA is monitoring developments in the digital asset marketplace and is undertaking efforts to ascertain the extent of FINRA member involvement related to digital assets.” Firms are “encouraged” to “promptly notify FINRA if it, or its associated persons or affiliates, currently engages, or intends to engage, in any activities related to digital assets, such as cryptocurrencies and other virtual coins and tokens.”
- Boston College Study: “Digital Tulips? Returns to Investors in Initial Coin Offerings”: According to the study, which examined thousands of ICOs, approx. 56 percent of crypto startups that raise money through token sales die within four months of their initial coin offerings. Bloomberg’s analysis of the study can be found here.