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

This past week, we received further evidence that U.S. federal regulators will continue to scrutinize potential compliance issues in virtual currency trading and initial coin offerings (“ICOs”) under existing law. However, the key takeaway is that the U.S. regulators, so far, are doing so under established interpretations of their existing authority. In our view, none of these events should be construed either as establishing a new regulatory framework or as a significant expansion of prior regulatory authority.

Please click here to read the full alert memorandum.

Further to its consultation on potential legal framework of Initial Coin Offerings (“ICOs”) (the “Consultation”), the French Autorité des Marchés Financiers (“AMF”) published on February 22, 2018 a summary of the responses received.[1]

The majority of respondents favor an optional authorization regime for ICOs, which is seen as a balanced and pragmatic approach.

  • Initiators of ICOs targeting French investors would obtain a visa from the AMF subject to satisfying certain conditions and providing guarantees to investors.
  • An offer launched without visa would not be illegal but would contain a warning informing potential investors that they have not received an authorization and that is a risky transaction. Failing such warning, tokens offers would give rise to sanctions.

Continue Reading AMF Consultation on ICOs – Initial Feedback

On October 26, 2017, the French Autorité des Marchés Financiers (“AMF”) launched a consultation on Initial Coin Offerings (“ICOs”) and the potential regulation of such offerings (the “Consultation”). The Consultation was opened as of October 26, 2017 until December 22, 2017. It is expected that responses to the Consultation will be published during the first quarter of 2018 and a final position will be issued thereafter.  In addition, the AMF advises all market participants contemplating an ICO offering to inform and liaise with the AMF with respect to the ICO project and white paper in advance of the launch.

In parallel with the launch of the ICO consultation, the AMF announced the launch of a new sandbox called UNICORN (for “Universal Node to ICO’s Research & Network”), which is a support and research program focusing on digital asset fundraising and, specifically, financing based on blockchain technology. The program aims to provide a framework allowing initiators to develop transactions while ensuring the protection of buyers and other market participants.  The AMF will meet with initiators (French or foreign entrepreneurs and their advisors) as well as academics and intends to publish an initial impact analysis of these new forms of financing by the end of 2018. Continue Reading The AMF Consults on Potential Legal Framework for ICOs and Launches Digital Asset Fundraising Sandbox

Following the December 2017 listing of futures contracts based on Bitcoin by two exchanges regulated by the Commodity Futures Trading Commission (CFTC), several fund sponsors and securities exchanges applied to the Securities and Exchange Commission (SEC) to list exchange-traded funds (ETFs) that would invest in those futures contracts.[1]  By investing in futures contracts regulated by the CFTC, instead of Bitcoin itself, these ETFs seemed designed to address concerns that had previously led the SEC to deny applications to list ETFs linked to Bitcoin.  This change was not sufficient, however, as the SEC raised new concerns in early January that led to the withdrawal of these new applications.[2]   Exchanges, ETF sponsors and investors are now left wondering:  what will it take for an ETF linked to Bitcoin to pass muster with the SEC? Continue Reading SEC Requests Withdrawal of Bitcoin Futures ETFs

Part I: The Basics

Everyone is talking about “ICOs” or “initial coin offerings.”  Celebrities are tweeting about them.  You cannot open the Wall Street Journal or Financial Times on any given day without at least one story about ICOs.  Prominent CEOs of financial institutions have taken to the bully pulpit to fulminate about ICOs and cryptocurrencies, using words such as “bubble” and “fraud.”  Parallels are drawn to 17th century tulip mania.  And securities and financial regulators around the world are taking notice, with varying degrees of reactions.

But why have ICOs elicited such attention?   In this series of posts, our aim is to shed light on this innovative way of raising funds, the regulatory responses (thus far), the challenges to regulation in various jurisdictions, the factors motivating regulators and possible future actions by regulators. Continue Reading Around the World in ICOs: A series examining regulatory responses to ICOs

On Monday, December 4, 2017, the U.S. Securities and Exchange Commission (SEC) obtained an emergency order from a U.S. District Court in New York to enjoin an allegedly fraudulent initial coin offering scheme.  The SEC’s complaint alleges that Dominic Lacroix, a recidivist securities law violator, and his company PlexCorps violated the anti-fraud and registration provisions of the U.S. federal securities laws in collecting up to $15 million in investor funds purportedly in exchange for digital tokens and promised returns in excess of 1,000% in 29 days.  The complaint also charges Lacroix’s partner Sabrina Paradis-Royer with securities fraud.  Among other relief, the district court has granted the SEC’s request to freeze the defendants’ assets. Continue Reading Newly Created SEC Cyber Unit Takes First Action Against Allegedly Fraudulent ICO

Last Friday, December 1, 2017, the U.S. Commodity Futures Trading Commission (CFTC) announced that three futures exchanges—the Chicago Mercantile Exchange Inc. (CME), the CBOE Futures Exchange (CBOE) and the Cantor Exchange (Cantor)—self-certified that they will be listing futures contracts (CME and CBOE) and options (Cantor) referencing bitcoin.  Trading in bitcoin futures will commence at the CBOE on December 10 and on CME on December 18, with Cantor’s options trading to follow.  Listing these contracts will allow both institutional and retail investors to obtain long or short exposure to bitcoin without buying or selling the underlying bitcoin itself. Continue Reading Bitcoin’s Future: CME and Other Exchanges Self-Certify Bitcoin Futures and Options with the CFTC