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

The Securities and Exchange Commission (the “SEC”) recently sent a warning to the burgeoning market for initial coin offerings (“ICOs”): assets that exist only on the blockchain may be securities subject to registration, anti-fraud and other requirements under the U.S. federal securities laws.  The outcome of the SEC’s analysis was unsurprising, representing a reasonably straightforward application of longstanding securities law principles.  However, the SEC’s discussion left several key questions and potential paths forward for ICO issuers and other participants in the ICO marketplace to consider. Continue Reading Open Questions and Potential Paths Forward Following the SEC’s Analysis of Digital Assets as Securities

Overstock.com, Inc. (“Overstock”) recently filed a shelf registration statement with the Securities and Exchange Commission (the “SEC”) allowing for the issuance of “digital securities.”[1]  The SEC declared that registration statement effective on December 9, 2015.   The digital securities described in Overstock’s registration statement will be evidenced only by entry into a publicly distributed ledger and transfers of the digital securities can only be effected on that ledger.  They will not be evidenced by physical certificates or notes, recorded in book-entry system of the type typically used by issuers and transfer agents today, traded through a traditional securities exchange or cleared through an established clearing system.    Instead, ownership of digital securities and trades will be reflected in a publicly distributed proprietary ledger maintained by an alternative trading system (“ATS”) run by Pro Securities LLC using the technology of tØ, a subsidiary of Overstock.  In June 2015, Overstock completed the first placement of corporate bonds in the form of digital securities pursuant to Rule 506(c) of Regulation D using the technology of tØ. Continue Reading Bitcoins and Blockchain – The Use of Distributed Ledger Technology for the Issuance of Digital Securities