By Marina Fyrigou-Koulouri and Alexandra Levin Kramer
During the week ending January 26, 2018, the U.S. state of Wyoming made headlines in the blockchain industry, but a number of other items were reported as well.
A package of blockchain bills was announced and according to Rep. Tyler Lindholm and Caitlin Long, it will be introduced in the Wyoming Legislature in February. Wyoming was the first state to introduce the concept of a limited liability entity (“LLC”). The bills rely on two main elements of the state’s corporate law; “zero corporate income or franchise taxes and strict privacy law governing LLCs formed in the state.”
One of the bills, titled “Open blockchain tokens-exemptions,” focuses on token sales (“TS”) and refers to licensing exemptions from Wyoming securities and money transmitter laws. As the bill states, TS shall not be considered an offering and sale of securities if, “(i) The token has not been marketed…as an investment; (ii) [It]…is exchangeable for goods or services; and (iii) The developer or seller of the token has not entered into a repurchase agreement of any kind or entered into an agreement to locate a buyer for the token.” Additionally, the bill provides that “[a] person who facilitates the exchange of an open blockchain token shall not be deemed a broker-dealer or a person who otherwise deals in securities,” and therefore shall be exempted from the relevant laws. In any case, though, when determining whether a token is a security or should be exempted under the provisions of this bill, a facts and circumstances analysis is required.
A second bill proposes an amendment to the Wyoming Money Transmitter Act in order to create a virtual currency exemption.
According to Lindholm and Long, a third bill will create blockchain filing provisions similar to the ones enacted in the State of Delaware and “[i]t would cover filings made for corporations, LLCs and UCC financing statements.”
As announced on January 24, 2018, the Commodity Futures Exchange Commission (the “CFTC”) filed, on January 16, 2018, “a federal court enforcement action under seal…charging commodity fraud and misappropriation.” The complaint was filed against My Big Coin Pay, Inc., a Las Vegas-based corporation, Randall Crater and Mark Cillespie (collectively the “Defendants”) alleging that the Defendants “fraudulently offered the sale of a fully-functional virtual currency, My Big Coin (“MBC”), and solicited customers “by making false and misleading claim and omissions about MBC’s value, usage, and trade status, and that MBC was backed by gold.” Additionally, the complaint claims that Defendants, who had received approximately $6 million from MBC buyers in the period from around January 2014 through approximately June 2017, misappropriated these buyers’ funds. Accordingly, the complaint alleges violations of the Commodity Exchange Act based on fraud. The complaint seeks, inter alia, permanent injunctions, civil monetary penalties, full restitution and disgorgement of all benefits received by the Defendants.
On January 16, 2018, an ex parte temporary restraining order was issued by the United States District Court for the District of Massachusetts, freezing the Defendants’ assets.
According to Bloomberg, on December 6, 2017, the CFTC subpoenaed cryptocurrency exchanges Bitfinex and Tether. Tether claims that its coin is pegged to the dollar and backed by fiat currency reserves. Although there are not many disclosures about the firms, it is known that both have the same CEO, Jan Ludovicus van der Velde. According to Bitfinex and Tether, they “routinely receive legal process from law enforcement agents and regulators conducting investigations.” The CFTC has not commented on the case yet.
On January 26, 2018, the Texas Department of Banking (the “TDB”) issued a press release announcing that, on January 5, 2018, Charles G. Cooper, the TDB Commissioner, issued a Cease and Desist Order against AriseBank, aBank, Arise Foundation LLC, AriseCoin Foundation, Dotoji LLC, Jared Rice Sr., Stanley Ford, and Tony Caldevilla (collectively, the “Respondents”). The Respondents claim to operate a “cryptocurrency bank,” in Dallas, Texas and abroad without, however, being “chartered in Texas; authorized to engage in the business of banking in Texas; or supervised by or registered with any Texas or federal regulatory agency.” Under Texas Finance Code, the term “bank” cannot be used “in a manner that would imply to the public that the person is engaged in the business of banking in this state.” Accordingly, the TDB Commissioner claimed that Respondents violated Texas Finance Code and therefore has been performing “an unauthorized activity.”
On January 25, 2018, the Securities and Exchange Commission (the “SEC”) also filed a complaint against AriseBank and its founders Jared Rice Sr. and Stanley Ford (collectively the “Defendants”) seeking to halt the company’s TS alleging a “fraudulent, and unregistered offering of securities.” According to the complaint, Defendants have violated securities laws by failing to register with the SEC or comply with an applicable exemption from it. Additionally, their material false and misleading statements and omissions consist violations of the anti-fraud provisions of the securities laws.
On January 25, 2018, the Office of the Kansas Securities Commissioner issued a consumer alert urging caution with respect to cryptocurrency investments. The alert resembles previous relevant releases from other states, like Idaho and Alaska as well as the statement issued by the North American Securities Association.
On January 23, 2018, a Virginia House Joint Resolution, announced the creation of “a joint subcommittee to study the potential implementation of blockchain technology in state recordkeeping, information storage, and service and delivery.” The subcommittee will include legislative and non-legislative citizen members as well as one ex officio member and it will study, inter alia, the “opportunities and risks” related to the blockchain technology, its different types and applications as well as any required modification to the state’s current laws aiming to support this new technology.
On January 11, 2018, the Securities and Exchange Commission of the Republic of the Philippines filed a Cease and Desist Order against Black Cell Technology, Inc., Black Sands Capital, Inc., Black Cell Technology Limited and Krops (collectively, the “Defendants”), alleging the sale and offering securities to the public in the form of tokens “without the necessary license from the Commission.”According to the complaint, based on the “economic realities” underlying the transaction, the KROPS tokens and/or KropCoin satisfy the Howey Test and constitute securities. It is quite interesting that the country follows US case law. Indeed, as the Philippines Supreme Court has stated, “[In case of laws patterned after or adopted from those of the United States, decisions of United States courts construing similar laws are entitled to great weight.” Therefore, the Defendants offered and sold unregistered securities violating the Philippines Securities Regulation Code.
On January 25, 2018, during the World Economic Forum in Davos, Switzerland, the Premier of Bermuda David Burt announced that Bermuda is planning to transfer its “old school deeds-based property system” onto blockchain technology. As Premier Burt stated, the new system should “be transparent so people know what’s there and be secure, and that way we know who owns what at any point in time,” creating more efficiency in the country’s economy.
Please contact Alexandra Levin Kramer, the Chair of CKR Law’s Blockchain Technology & Digital Currency practice group if you have any questions. She can be reached at firstname.lastname@example.org or +1 (212) 259-7300.
 Supra note 1.