The New York Department of Financial Services (“NYDFS”) recently announced approval of significant new activities for FinTech-oriented businesses. Over the past week, NYDFS has granted the following approvals:

  • Additional virtual currencies available for trading through Paxos Trust Company LLC (formerly known as itBit Trust Company), a NY-chartered trust company; and
  • Approval of BitLicenses for Xapo, Inc. and Square, Inc. which would authorize them to offer custody and exchange services, respectively, for Bitcoin to residents of New York.

These announcements demonstrate the breadth of state regulation of virtual currency operations through expansion of exchange services to new emerging currencies and through custody and related services.  Continue Reading New York Department of Financial Services Approves Significant Expansions of State-Regulated Virtual Currency Businesses

On Thursday, June 14th, the SEC Director of Corporation Finance, William Hinman, stated his view that current secondary market trades of Ether are not now securities transactions as part of a speech on the treatment of digital assets under the securities laws.  While he expressly set aside the question of whether the capital-raising that initially accompanied the sale of Ether in 2014 was a securities offering, he confirmed previous suggestions that Ether is a prime example of a digital asset that may once have been offered as a security, but is now “something else” that is not  regulated by the securities laws.  While Hinman’s views are not binding on the Commission, his remarks strongly suggest the Commission’s willingness to consider whether certain digital assets that may be initially offered as securities over time can later lose their status as securities—a view that is shared by at least one CFTC commissioner.  Continue Reading SEC Director of Corporation Finance States That Secondary Market Sales of Ether Are Not Securities Transactions Now, but “Something Else”

This week the New York Department of Financial Services (“NYDFS”) announced approval of significant new activities for its two licensed FinTech-oriented state trust companies, Gemini Trust Company LLC and Paxos Trust Company LLC (formerly known as itBit Trust Company), engaged in blockchain and virtual currency activities.  Significantly, the approved activities demonstrate both the continuing importance of virtual currency trading and the expansion into permissioned blockchain trading and settlement services.  These announcements represent the first substantive expansions in the approved activities of the two trust companies since their formation in 2015.  Continue Reading NY Department of Financial Services Approves Expanded FinTech Activities for NY Trust Companies

On April 17, 2018, Cleary Gottlieb hosted a conference in the heart of the City of London to discuss key issues in the FinTech space. The conference was well attended, and a wide range of topics were discussed by industry leaders.  The quality and insight of both our speakers and attendees made our first FinTech Conference in London a very interesting afternoon.

Bob Penn, a partner in financial services regulation at Cleary Gottlieb, opened the conference (video here).  After the jump, we provide key takeaways from keynote speaker Ilyas Khan, the chief executive officer and founder of Cambridge Quantum Computing (video here), and from our two panels, “Beyond Bitcoin: Digital Ledger Technologies” and “Developments in the London FinTech Market.” Continue Reading London FinTech Conference: Key Takeaways

On March 19, 2018, President Trump issued an Executive Order prohibiting all U.S. persons and residents from transacting in digital currencies issued by the Government of Venezuela, including the country’s recently launched oil-backed cryptocurrency the “Petro” (PTR) or petromoneda.  The sanctions are in response to an emerging trend of sanctioned or rogue regimes experimenting with digital assets. Continue Reading U.S. Sanctions Venezuela’s “Petro” Cryptocurrency Amid Broader Trend of Sanctioned and Rogue Regimes Experimenting with Digital Assets

Following the success of Cleary Gottlieb’s Blockchain and FinTech Opportunities events in New York and California, we will be hosting our first London-based FinTech conference on April 17, 2018.

Sessions will cover Digital Ledger Technology and its use beyond cryptocurrencies, emerging trends, regulatory issues, and other challenges; as well as a session focusing on the London FinTech market and its current developments and focus. Confirmed participants include technology leaders from Cambridge Quantum Computing, London Stock Exchange Group, PayPal, Digital Asset Holdings, Blocksure, Issufy, and CME Group.

For more information, click here.

On March 27, 2018, Massachusetts Secretary of State William Galvin announced that the state had ordered five firms to halt initial coin offerings (“ICOs”) on the grounds that the ICOs constituted unregistered offerings of securities but made no allegations of fraud.  These orders follow a growing line of state enforcement actions aimed at ICOs.

This was not Massachusetts’s first foray into regulating ICOs.  On January 17, 2018 the state filed a complaint alleging violations of securities and broker-dealer registration requirements against the company Caviar and its founder for an ICO that sought to create a “pooled investment fund with hedged exposure to crypto-assets and real estate debt.”

Continue Reading Massachusetts Orders Five Companies to Halt ICOs as States Step Up Enforcement Efforts

Part 3: Developments in the United States and the Rising Tide of Enforcement

In 2017, the use of initial coin offerings (“ICOs”) as an alternative means to raise capital took off worldwide. By the end of the year, ICO sponsors raised over $5.6 billion globally through token offerings.[1] At the same time, U.S. regulators’ focus on ICOs has rapidly expanded as well. Since releasing the DAO Investigative Report in July 2017 (the “DAO Report”), the U.S. Securities and Exchange Commission (the “SEC”) has steadily increased its focus on ICO activity. As exemplified by numerous investor advisories, the creation of the Cyber Unit within the Enforcement Division with the purpose to halt and deter cyber-related misconduct in the securities markets, enforcement actions against ICOs, and the Office of Compliance Inspection and Examinations’ (“OCIE”) announcement that monitoring ICO sales will be one of its top 2018 priorities, it is clear that the SEC views ICOs as squarely within the scope of its mandate for regulation and enforcement. Unsurprisingly, state enforcement actions and private class action litigation targeting ICOs are also on the rise. Continue Reading Around the World in ICOs: ICOs in the United States

We are excited to announce that we are hosting our first FinTech Conference in London, following on from the success of our previous events in New York and San Francisco.

The event will take place on Tuesday, April 17, 2018 at Cleary Gottlieb’s London office. For more information please contact Alice Carr acarr@cgsh.com Continue Reading Cleary Event: Upcoming London FinTech Conference

The Directive states that “in light of modern advances”, it is important “for reasons of clarity and rationality” to “apply uniform rules that are as strict as possible”. Indeed, the regulatory regime established by the Directive is of considerable rigour: it contains detailed registration, disclosure and marketing requirements. We are, of course, referring to the EU Potatoes Directive (2002/56/EC). When it comes, however, to initial coin offerings (“ICOs”) of cryptographically encoded digital “tokens” to retail investors via distributed ledger technology – almost anything goes! At least, that appeared to be the case until recently, when a multitude of EU regulators issued warnings and statements on the application of EU regulations to ICOs.

In this post, we seek to decipher some of those statements and offer some practical observations to determine how EU securities laws might (or might not) apply to ICOs. Continue Reading Around the World in ICOs, Part 2: Catching up With Potatoes? The Regulatory Response to ICOs in the EU so Far