Blockchain Blog

Blockchain & The Law: 03/09/2018 Update

By Marina Fyrigou-Koulouri, Claude Baum and Alexandra Levin Kramer

One more week, ended March 9, 2018, that the blockchain industry reported a number of legal news.


- SEC: On March 7, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued a statement on Potentially Unlawful Online Platforms for Trading Digital Assets.[1] According to the SEC, “[o]nline trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold” in token sales. A number of such trading assets meet the definition of a “security,” and therefore “[i]f a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.” The SEC statement also offered considerations for token investors using online trading platforms, advising them to use ones that are registered with the SEC in order to benefit from the applicable investor protections offered by the U.S. securities laws. According to the statement, “many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not [and] [m]any platforms refer to themselves as ‘exchanges,’ which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.” Moreover, an SEC-registered exchange is required to “have rules designed to prevent fraudulent and manipulative acts and practices,” and “rules and procedures governing the discipline of its members,” as well as comply with federal securities laws.

During an interview on Fox Business[2] on March 6, 2018, SEC Chairman Jay Clayton stated that the agency is looking into several tokens sales. Chairman Clayton stated that token sale issuers seem to think they can have “the best of both worlds; a limited disclosure from a private placement and public trading and public offering of the[ir] token.” He referenced situations “where companies seem to have had trouble raising money in a traditional private placement and then have switched to a [token sale] in order to raise the money,” characterizing such instances “troubling” as “the business has not changed substantively but it is a form-over-substance way to raise money.

- CFTC: On March 7, 2018, during a Keynote Address[3] at the D.C. Blockchain Summit, U.S. Commodity Futures Trading Commission (“CFTC”) Commissioner Brian Quintenz supported the idea of self-regulation in the cryptocurrency sector. Commissioner Quintenz re-asserted his agency’s authority over virtual currency contracts reasoning that the underlying crypto-currencies are “encompassed in the definition and properly defined as ‘commodities’” under the CFTC’s statutory mandate. He continued that new cryptocurrency futures contracts need time before they may be listed for trading on exchanges as their “financial integrity” must first be ensured.

Finally, the CFTC Commissioner spoke about the agency’s Technology Advisory Committee (“TAC”), which aims “to provide actionable advice regarding cryptocurrencies, [distributed ledger technology] DLT, cybersecurity, and the modern trading environment” and also expressed support for industry self-regulation, similar to the FINRA model in the securities world. stating that “a new, private independent organization could perform an oversight function for U.S. cryptocurrency platforms.” Noting the emergence of a cryptocurrency self-regulatory trade association in the United Kingdom and a self-regulatory body in Japan, Quintenz suggested that a U.S. cryptocurrency self-regulatory body could have particular significance in the early phases of the market’s development. “I believe that a private, cryptocurrency oversight body could help bridge the gap between the status quo and future government regulation.”

- New Jersey: On March 7, 2018, the State of New Jersey Bureau of Securities (“Bureau”) issued a Cease-and-Desist Order[4] against a planned Bitcoiin token sale of its B2G, alleging that it constituted an illegal unregistered sale of securities to New Jersey residents. The order pointed out that Bitcoiin sought to capitalize on the popularity of Bitcoin (with one “i”) in adopting the names for its tokens. The Bureau also pointed out that in their offering materials the company stated that a certain Hollywood celebrity endorsed the offering but made no disclosure with respect to the “expertise, if any, Steven Seagal has to ensure that the Bitcoiin investments are appropriate and in compliance with federal and state securities laws,” or “the nature, scope, and amount of compensation paid by Bitcoiin in exchange for Steven Seagal’s promotion of the Bitcoiin investments.” The Order claims that these and other disclosure lapses constituted “omission[s] of material facts and untrue statements in connection with the offer of securities” in further violation of New Jersey state securities law.

- North Carolina: On March 2, 2018, the North Carolina Department of the Secretary of State Securities Division (“Securities Division”) issued a Temporary Cease-and-Desist Order[5] against Power Mining Pool (“Respondent”), alleging an illegal offering of unregistered securities as well as material misstatements and fraud in connection with the offer or sale of securities in North Carolina. According to the order, Respondent claimed that its computer hardware and software “mining rigs” can “mine seven cryptocurrencies, 24 hours a day and seven days a week” tracking at the same time “the profitability of each of the seven cryptocurrencies and automatically ‘switch[ing] resources away from less profitable coins.’” Respondent offered to purchasers “mining pool shares” to fund Respondent’s mining efforts through the use of “affiliates” without ensuring that such affiliates are property registered to engage in such marketing activities under North Carolina securities laws. The Respondent is also accused of failing to disclose material facts relating to the offering, such as the identity of its principals, or information about its assets and liabilities, as well as the means by which it will be able to provide returns to “mining pool share” purchasers.

- Coinbase: On March 1, 2018, a class action complaint[6] was filed against Coinbase, Inc., Brian Armstrong and David Farmer (“Defendants”) on behalf of “all Coinbase customers who placed purchase, sale or trade orders with Coinbase or the Global Digital Asset Exchange (“GDAX”) in connection with Coinbase’s launch of Bitcoin cash (‘BCH)” during a two-day period in December 2017 within the offering period, alleging insider trading. According to the complaint, Defendants had originally claimed that they would not support BCH at least until 2018 but that “on December 19, 2017, Coinbase, without prior notice suddenly announced that it was opening access to [BCH] cash that day for trading.” The complaint further avers that “[Coinbase] employees had been tipped at least a month before” that support commenced and that those who had that advance knowledge immediately started trading after the Coinbase launch, resulting in liquidity constraints and allegedly artificial prices in the secondary market for BCH during the relevant period. The complaint alleges violations of California’s Unfair Competition Law, negligence in breaching the duty of reasonable care and failing to prevent insider trading as well as negligent misrepresentation.

- Illinois: On March 5, 2018, a bill[7] to amend the Illinois tax code to accept cryptocurrencies in payment of state income and other taxes payments was assigned to committee for deliberation. The bill provides that “in addition to any other method of payment provided for by law, the [State of Illinois] shall accept payment for any tax imposed by the State…by cryptocurrency.” The bill would also require the state tax department to convert any such cryptocurrency payment to U.S. dollars within 24 hours and credit the converted dollar amount to the taxpayer’s account.


On March 5, 2018, the Canadian Financial and Consumer Services Commission (“Commission”) issued an Investor Alert[8] warning about, a company claiming to be a “cryptobank” and offering investment opportunities in its BTCB coin. According to the Commission, the company had been advertising its token sale on a Canadian online classified site despite it “not [being] registered to trade in, or advise on, securities or derivatives” in violation of applicable provincial securities laws. Following an investigation using the company’s alleged address and team profiles, the Commission found that there was no company at that location and that the team member photographs were taken from other websites and combined with fake names.


On March 1, 2018, a new self-regulatory organization (“SRO”) was formed by two trade groups representing 16 cryptocurrency exchanges in Japan.[9] The new organization, which has not yet been publicly named, is intended with Japan’s Financial Services Agency (“FSA”) to establish safety standards for investors as well as guidelines for token sales. According to the SRO’s designated Chairman, Taizen Okuyama, “[t]he goal is to ‘bring the entire cryptocurrency sector to bear on self-regulation.’” Assuming government approval for its mandate, the SRO will have the power to approve virtual currencies for listing by exchange operators and enforce compliance.

On March 8, 2018, the FSA issued one-month business suspension orders to two cryptocurrency trading platforms, FSHO and Bit Station, and announced that these two and five additional exchanges  - Tech Bureau, GMO Coin, Mister Exchange, Bicrements and Coincheck- “must improve their security system measures and submit a written improvement plan by March 22.”[10]

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 or +1 (212) 259-7300.