A New York appellate court stayed all legal proceedings by the Office of the New York Attorney General against companies associated with the management of Bitfinex, a cryptoasset exchange, and its associated stablecoin, tether. The Supreme Court, Appellate Division, stayed the lower court proceeding pending a hearing and determination on the defendants’ appeal. In April 2019, the NY AG obtained an ex parte order from a New York State court prohibiting companies associated with Bitfinex and tether from accessing, loaning or encumbering in any way US dollar reserves supporting tether digital coins. The NY AG claimed that the same individuals ultimately own and operate all the companies. The NY AG applied for such order without giving respondents notice or an opportunity to object, claiming such emergency action was necessary because of the potential danger of respondents compromising tether’s supporting balances to help fund Bitfinex’s operations. (Click here for background in the article “NY Attorney General Sues Stablecoin Issuer and Related Companies for Purportedly Misusing Tethered Fiat Currency Without Customer Disclosure” in the April 28, 2019 edition of Bridging the Week.)
In additional legal and regulatory developments regarding cryptoassets:
- Swiss Regulator Publishes Guidance on Stablecoins: Switzerland’s Financial Market Supervisory Authority issued guidance indicating that Facebook’s Libra project would require a payment system license under its financial market infrastructure regulation and be subject to anti-money laundering requirements. In a supplement to the guidance FINMA indicated that stablecoins generally would be subject to different regulatory requirements in Switzerland depending on their specific purposes and characteristics. A stablecoin that provides a fixed redemption claim to a specific fiat currency would be subject to the country’s banking rules while a stablecoin providing a redemption claim linked to a basket of fixed currencies could be subject to banking laws or requirements related to collective investment vehicles depending on whether the underlying assets are managed for the account of token holders or for issuers. A stablecoin based on commodities is likely to not be a security if it “merely” evidences an ownership right; however, if the digital token solely evidences a contractual claim, it is more likely that the banking rules would apply (if underlying metals are involved) or securities or derivatives (if other commodities are involved).