Blockchain Blog

SEC Director Sheds Light on Digital Asset Policy; West Virginia, First US State to Allow Voting by Blockchain; Indonesian Regulators Rule that Cryptocurrencies are Commodities

By Freeman Lewin, Marina Fyrigou-Koulouri, and Alexandra Levin Kramer


On May 21, 2018, the North America Securities Administrators Association (“NASAA”) announced a coordinated international crypto crackdown by state and provincial securities regulators in the U.S. and Canada.[1] This “Operation Cryptosweep” included “more than 40 jurisdictions throughout North Americas…[and]  to date has resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions related to [token sales] or cryptocurrencies since the beginning of May.” Additional investigations are still being conducted and could result in further enforcement actions. As Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission stated, “[C]ryptocriminals need to know that state and provincial securities regulators are taking swift and effective action to protect investors from their schemes and scams...The actions announced today are just the tip of the iceberg... Not every [token sale] or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution.”

Following this announcement, the Texas State Securities Board[2] and the Tennessee Department of Commerce & Insurance[3] issued separate statements expressing their support to this international crackdown on fraudulent token sales and cryptocurrency-related investment products. 



On June 14, 2018, the U.S. Securities and Exchange Commission’s (“SEC”) William Hinman, stated in prepared remarks on his own behalf that current sales and offers of bitcoin and the token which powers the Ethereum network, "Ether," are not securities transactions and that applying the "disclosure regime of the federal securities laws...would seem to add little value."[4] The prepared speech is notable because Mr. Hinman is the Director of Corporation Finance at the SEC, which is the department generally responsible for policy related questions. At the outset of his speech, Mr. Hinman sought to answer the question of whether "a digital asset offered as a security can, over time, become something other than a security." To that question, the answer was "no." Mr. Hinman went on to clarify that a more appropriate question is "Can a digital asset that was originally offered in a securities offering ever be later sold in a manner that does not constitute an offering of a security?" Here, just like the oranges in Howey are not themselves securities, Mr. Hinman appears to answer in the affirmative, in highly limited instances where there is no longer a central enterprise being invested in and where the asset is only being sold to end users who will purchase a good or service through a network. However, where the digital assets sold represents a set of rights that gives the holder a financial interest in the enterprise, the answer to that question continues to be "no."  

Mr. Hinman’s remarks came on the heels of a June 6, 2018 statement by Jay Clayton, Chairman of the SEC, who made it clear that the agency will not be bending the rules when it comes to defining what is or isn't a security, just because it is cryptocurrency. Mr. Clayton told CNBC "we are not going to do any violence to the traditional definition of a security that has worked for a long time."[5] Accordingly, Mr. Clayton stressed that the $19 trillion securities market that it oversees, is the "envy of the world," and that there is no need to change the definition of a security. To that effect, the agency will not be adjusting its rules for the fundraising process of initial coin offerings (“ICOs”) either.

Mr. Clayton further reiterated his March assertion that tokens or digital assets used in the fundraising process are securities.[6] "A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say 'you can get a return' that is a security and we regulate that," Clayton said.[7] "We regulate the offering of that security and regulate the trading of that security." Mr. Clayton did extend a proverbial olive branch to those interested in raising money through an ICO, inviting those who want to do an initial public offering (“IPO”) with tokens to "come see us…we're happy to help you do that public offering." Those who have an ICO or a stock and wish to sell it in a private placement should "follow the private placement rules," he said. [8]

Additionally, on June 6, 2018, Valerie A. Szczepanik, the lauded assistant director for the SEC’s cyber enforcement unit and head of the SEC’s Distributed Ledger Technology Working Group was tapped to work as the senior advisor for Digital Assets and Innovation, a newly created advisory position.[9] Ms. Szcepanik was also named Associate Director of the Division of Corporation Finance in the same announcement. This appointment is a long time coming for Szcepanik, who is well known in the Blockchain and Digital Currency sector, being a part of virtually every major SEC announcement on the subject over the past few years. In a statement, Ms. Szczepanik said, “I am excited to take on this new role in support of the SEC’s efforts to address digital assets and innovation as it carries out its mission to facilitate capital formation, promote fair, orderly, and efficient markets, and protect investors, particularly Main Street investors. I look forward to working closely with staff across the agency, our regulatory partners, and the public as we provide a coordinated and strategic response to developments.” [10]

In enforcement news, in the matter of SEC v. Titanium Blockchain Infrastructure Services, Inc., et al., Civil Action No. 18-4315 (C.D. Cal.),[11] the SEC obtained an emergency court order to halt the defendant’s ICO, which had thus far raised up to $21 million dollars in cash and digital assets. The complaint alleges that Michael Alan Stollery aka Michael Stollaire ("Stollaire"), a self-proclaimed “Blockchain Evangelist,” lied about business relationships with the Federal Reserve, PayPal, Verizon, Boeing, and the Walt Disney Company, among others in order to funnel money through two companies that he controls: the defendant, Titanium Blockchain Infrastructure Services, Inc. and EHI Internetwork and Systems Management, Inc. aka EHI-INSM, Inc.           

In a statement, Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit, decried Stollaire’s ICO endeavors and use of social media as a way to deceive investors saying “this ICO was based on a social media marketing blitz that allegedly deceived investors with purely fictional claims of business prospects.”[12] Perhaps, it is time for Facebook to include a “Fake ICO” button on their platforms. Blockchain evangelists take note, comparing an investment to “Intel or Google,” as the complaint alleges, is never a good idea, nor is it a good idea to fraudulently claim relationships that do not exist. The SEC’s complaint charges the defendants with violating anti-fraud and registration provisions of the federal securities laws, charges that, if guilty, could result in significant fines for Stollaire, if not worse.


On May 21, 2018, the U.S. Commodity Futures Trading Commission (“CFTC”) issued a joint advisory from the agency’s Division of Market Oversight (DMO) and its Division of Clearing and Risk (DRC) giving exchanges and clearinghouses guidance and regulatory clarity with respect to virtual currency derivative product listings.[13] The advisory focuses on “certain key areas that require particular attention” and include enhanced market surveillance, coordination with CFTC surveillance group, large trader reporting, outreach to stakeholders and risk management. As DCR Director Brian Bussey stated, “CFTC staff is providing this information, in part, to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products. In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.”[14]

The Wall Street Journal reported on June 8, 2018, that the CFTC has subpoenaed Bitstamp, Coinbase, ItBit and Kraken over an investigation into whether market manipulation is distorting prices in markets linked to bitcoin futures traded on CME Group Inc.’s exchange.[15] The investigation shows how regulators are pursuing virtual-currency exchanges that have thus far resisted government oversight. The CFTC has been adamant in its assertion that BitCoin is a commodity and is therefore under the regulatory authority of the CFTC.[16]


On May 30, 2018, Governor Phil Scott signed bill S.269[17] allowing for the creation of so-called "blockchain-based limited liability companies." The bill, sponsored by Senator Alison Clarkson, allows for companies organized for the purpose of operating a business that utilizes blockchain technology for a “material portion of its business activities,” to form a Blockchain Based Limited Liability Company (“BBLLC”) and pay taxes in the state. Ingeniously, the bill provides, among other things, that “a BBLLC may provide for its governance, in whole or in part, through blockchain technology,” also known as a consensus protocol.

In other Vermont news, the green mountain state issued a cease and desist order[18] to the California based LevelNet, for "violations related to the Vermont Uniform Securities Act."[19] LevelNet has thus far raised $752,000 through its on-going ICO. This action came amidst the above mentioned crackdown on cryptocurrency on the part of the North American Securities Administrators Association.

West Virginia:

West Virginia became the first U.S. state to allow internet voting by blockchain in primary elections. The pilot test, made possible by Boston start-up Voatz, which recently raised $2.2 million in venture-backed financing, was made available to the deployed and overseas military families of Harrison and Monongalia Counties.[20] For the time being, voting via blockchain will be limited to members of the military and their families. The stated goal of the project is to "offer and manage a secure military mobile voting solution that is verifiable, transparent, and more secure and accessible than currently available mobile voting systems."[21] This is not the first time West Virginia has been at the forefront of voting innovation.  In 2010, West Virginia managed a web-based remote military voting pilot with five counties. The current project, according to the pilot documentation, is "blockchain-based and more secure and auditable than the system used in 2010." [22]

When the twitter-sphere caught wind of West Virginia's blockchain pilot there was no shortage of critics. Matt Blaze, noted cryptography researcher and director of the distributed systems lab at the University of Pennsylvania decried the pilot project, tweeting that "Voting is not a testbed application for your too-clever-by-half startup idea."[23] This sentiment was retweeted by the creator of Ethereum, Vitalik Buterin,[24] yet detractors targeted Professor Blaze, leading him to snidely coin their attempts to explain blockchain to him as "blocksplaining," a clever play on the term “mansplaining”.[25]


On June 6, 2018, San Francisco-based cryptocurrency exchange Coinbase announced that it is "on track to operate a regulated broker-dealer, pending approval by federal authorities."[26] This announcement was made possible due to its acquisition of SEC-regulated broker-dealer Keystone Capital, of an alternative trading system license (ATS), and a registered investment advisor (RIA) license. In a peek into its future business direction, Asiff Hirji, President & COO at Coinbase, highlighted that the acquisition may ultimately allow them to  "work with regulators to tokenize existing types of securities, bringing to this space the benefits of cryptocurrency-based markets — like 24/7 trading, real-time settlement, and chain-of-title."[27]


On May 15, 2018, Senate Bill 300[28] was introduced by Senator Matt Dolan aiming to define records and contracts secured by blockchain technology as electronic records and to allow the use of smart contract terms. The bill defines “blockchain technology” and “smart contract” and incorporates in the existing definition of “electronic record” and “electronic signature,” record or contract and signatures that are secured through blockchain technology. Additionally, it states that “[n]otwithstanding any other law, a person that…uses blockchain technology to secure information that the person owns or has the right to use retains the same rights of ownership or use with respect to that information as before the person secured the information using blockchain technology. This division does not apply to the use of blockchain technology to secure information in connection with a transaction to the extent that the terms of the transaction expressly provide for the transfer of rights of ownership or use with respect to that information.” Finally, it establishes the legality of smart contracts proclaiming that “[s]mart contracts may exist in commerce,” and that “[a] contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation or because the contract contains a smart contract term.”

South Carolina:

 On May 21, 2018, the Securities Division of the Office of the Attorney General of the State of South Carolina (the “Division”) issued an Administrative Order to Cease and Desist[29] against ShipChain, Inc. (the “Respondent”) alleging violations of the state’s securities laws. According to the order, Respondent offered tokens that were investment contracts. As it specifically states, “At all times relevant to this Order, Respondent ShipChain continuously offered investment opportunities in the ShipChain platform and the corresponding tokens to South Carolina residents through its website and in-person events held in South Carolina. At no time relevant to the events stated herein was Respondent ShipChain registered with the Division as a broker-dealer, and no exemption from registration has been claimed by Respondent ShipChain.”  


On May 2, 2018, an order[30] was entered against Extrabit Ltd, a crypto mining company (“EXB”) and its Chief Executive Officer, Mack Deacon. The order alleges that EXB tokens fall under the definition of “security,” which include investment contracts and profit sharing agreements. Under the Code of Alabama 1975, “it is unlawful for any person to offer or sell any security in this state unless it is registered or exempt from registration.” Accordingly, EXB violated the state’s securities laws as its tokens “were neither registered nor subject to a perfected exemption from registration in Alabama at the time of solicitation or sale.” Moreover, the Alabama Securities Commission (“ASC”) alleges that EXB failed to disclose material facts and made materially misleading statements deceiving the public. 

 On the same date, the ASC issued a Cease and Desist Order[31] against Leverage which claims to be a lending platform for cryptocurrencies. The agency states the same allegations as in the first order supporting that the company’s investment plans are “securities.” The same claims were made against Platinum Coin and its team in a similar Cease and Desist Order[32] issued on May 18, 2018.


The Canadian Securities Administrators (“CSA”) released a Staff Notice on June 11, 2018 detailing securities law implications for offerings of tokens.[33] Notable in the notice was the CSAs commentary on the popular Simple Agreement for Future Tokens (“SAFT”). The CSA notice bifurcated the SAFT offering into two steps, wherein the first step is a purchase of a right to receive tokens at a future date, and the second step being the token delivery. The CSA indicated that they have concerns with a multiple step SAFT transaction when it is "used in an attempt to avoid securities legislation." Specifically, the CSA highlighted that if "the first step is made without complying with securities laws requirements," such as dealer registration requirements, then "the issuer will remain in default of securities law requirements, even though subsequent steps may have occurred." Another notable item in the CSA notice was a helpful table which highlighted "examples of situations," that may have an implication on the presence of one or more of the elements of an investment contract. Among the situations and implications, the CSA highlighted in row nine that where there is a continuous or unlimited supply of tokens, there may be a reduction in the probability that purchasers are buying with an expectation of profit.   


On May 29, 2018, the Austrian Financial Market Authority (“FMA”) barred cryptocurrency mining firm INVIA GmbH aka INVIA World ("INVIA"), from operating.[34] The agency is alleging that INVIA was "offering financial services in conjunction with the mining of cryptocurrencies," as an unauthorized investment manager, and thus violating portions of the Alternative Investment Fund Managers Act. According to the press release, INVIA is not registered, nor does it have a license to offer financial products like alternative investment funds. As reported by CoinDesk, INVIA claims to mine the most profitable cryptocurrencies using a proprietary algorithm.[35] Subsequently, INVIA claims, that the mined tokens are converted to Bitcoin or Ethereum, which are then paid out to investors.[36] 


The South Korean National Assembly, the legislative branch of government, has displayed a considerable interest in reversing the decision by its regulator, the Financial Services Commission, to outlaw token sales in September 2017.[37] At that time, the regulatory agency had said that token sales constituted a “violation of capital market law.”[38] The National Assembly officially made a legislative and policy proposal to permit domestic ICOs in the country, conditioned on proper investor protection provisions and preparations. A special committee on the fourth industrial revolution under the National Assembly stated that it would be establishing a “legal basis for cryptocurrency trading,” including allowing ICOs through the National Assembly Standing Committee.[39]In the criminal context, South Korea’s Supreme Court ruled on May 30, 2018, that cryptocurrencies can be seen as property with value that can be subject to forfeiture in criminal cases. This comes as a result of a child-pornography cybercrime case, and the verdict gives way for the South Korean government to receive the 191 bitcoins seized by the prosecution in this case. The decision is important because there are several ongoing criminal cases in South Korea involving cryptocurrencies.[40]


 In Indonesia, Bappebti, the Futures Exchange Supervisory Board, has ruled that cryptocurrencies are commodities, and thus they can be traded on the country’s futures exchange.[41] However, as the Jakarta Post reported on June 4, 2018, Bank Indonesia still does not recognize such currencies as payment instruments. Dharma Yoga, head of the Bappebti market supervision and development bureau said that the decision to make cryptocurrency a tradable commodity was made after a four month long study that concluded that cryptocurrencies should be considered commodities. To that effect, Dharma said that the government would soon issue supporting regulation on topics such as taxation, currency exchange, money laundering, and terrorist financing.[42]  


On May 22, 2018, the Monetary Authority of Singapore (“MAS”) issued a Consultation Paper on Review of the Recognised Market Operators Regime[43] which proposed changes to the existing regulatory framework in light of “the emergence of new business models in trading platforms, including trading facilities that make use of blockchain technology, or platforms that allow peer-to-peer trading without the involvement of intermediaries.” Currently, MAS regulates market operators under two categories, approved exchanges (“AEs”) and recognized market operators (“RMOs”), with the first being “systematically-important market operators…[that] are subject to a higher level of statutory obligations.” As the paper states, “it is timely to review to the regulatory framework for market operators to ensure that it continues to meet the demands of the changing landscape.” Accordingly, MAS proposes the expansion of the current single-tier RMO regulatory framework to a three-tier structure, which “would better match regulatory requirements to the risks posed by different types of market operators.” Under the proposed framework, RMO Tier 1 will target market operators with limited access to Singapore-based investors, RMO Tier 2 will represent the current single-tier regime and RMO Tier 3 will target significantly smaller market operators compared to the established ones. “This category of market operators could include operators of alternative markets, new entrants that develop solutions for wholesale market participants but do not have an established track record, or market operators that have reached the end of their sandbox tenure and are commercially viable, but whose businesses are not yet developed enough to meet the requirements of the existing RMO regime.” 

On May 24, 2018, MAS issued a statement[44] warning eight digital token exchanges and a token issuer concerning digital tokens that constitute securities or futures contracts under the Securities and Futures Act (“SFA”). Specifically, the authority cautioned the exchanges about the trading of such tokens stating that “[i]f the digital tokens constitute securities or futures contracts, the exchanges must immediately cease the trading of such digital tokens until they have been authorised as an approved exchange or recognised market operator by MAS.” Additionally, MAS directed a token issuer to cease digital token offerings to Singapore-based investors “as its tokens represented equity ownership in a company and therefore would be considered as securities under the SFA,” requiring, thus, compliance with SFA. Accordingly, the issuer stopped the offering and is now taking remedial compliance measures. As Lee Boon Ngiap, MAS Assistant Managing Director said, “The number of digital token exchanges and digital token offerings in Singapore has been increasing.  We do not see a need to restrict them if they are bona fide businesses. But if any digital token exchange, issuer or intermediary breaches our securities laws, MAS will take firm action.  The public should be aware that there is no regulatory safeguard if they choose to trade on unregulated digital token exchanges or invest in digital tokens that fall outside the remit of MAS’ rules.”

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.

[1] “State and Provincial Securities Regulators Conduct Coordinated International Crypto Crackdown,”

[2] “Texas Spearheads US-Canada Probe of Cryptocurrency Investments,” 

[3] “TDCI Securities Division Participates in Coordinated International Crypto Crackdown,”

[4] “Digital Asset Transactions: When Howey Met Gary (Plastic),”

[5] “SEC chief says agency won’ change securities laws to cater to cryptocurrencies,”

[6] See also,  

[7] Supra note 1.

[8] Ibid.

[9] “SEC Names Valerie A. Szczepanki Senior Advisor for Digital Assets and Innovation”

[10] Id.

[11] SEC v. Titanium Blockchain Infrastructure Services, Inc., et al., Civil Action No. 18-4315 (C.D. Cal.).

[12] “ SEC Obtains Emergency Order Halting Fraudulent Coin Offering Scheme,”

[13] “Advisory with respect to Virtual Currency Derivative Product Listings,” See also, “CFTC Staff Issues Advisory for Virtual Currency Products,”

[14] “CFTC Staff Issues Advisory for Virtual Currency Products,”

[15] “U.S. Regulatory Demands Trading Data From Bitcoin Exchanges in Manipulation Probe.”

[16] “CFTC Ruling Defines Bitcoin and Digital Currencies as Commodities,”

[17] Vermont State Senate Bill S.269,

[19]“Vermont orders cease and desist to cryptocurrency company,”

[20] “West Virginia Becomes First State to Test Mobile Voting by Blockchain in a Federal Election,”

[22] Id.

[23] mattblaze, (2018, June 2). So seriously, stop this crap. Elections matter. The requirements for elections have literally evolved over centuries of democracy. Voting is not a testbed application for your too-clever-by-half startup idea [Tweet].

[24] vitalikbuterin, (2018, June 5). Important thread. Online voting requires some very specific privacy and security properties and specific techniques to achieve them, and just shoving stuff onto a public ledger can often even be actively counterproductive [Tweet].

[25] mattblaze, (June 2, 2018). I am now, predictably, being aggressively blocksplained [Tweet].

[26] “Our path to listing SEC-regulated crypto securities,”

[27] Id.

[28] Ohio Senate Bill 300,

[30] Administrative Order NO. CD-2018-0004,

[31] Administrative Order NO.CD-2018-0005,

[32] Administrative Order NO.CD-2018-0007,

[33] “CSA Staff Notice 46-308,”

[34] “FMA prohibits business model of INVIA GmbH in conjunction with cryptocurrency mining.”

[35]“Austrian Regulator Freezes Crypto Mining Firm Amid Investigation,”

[36] “Invia World GmbH Mining 2.0,”

[37] “South Korea bans all new cryptocurrency sales,”

[38] “South Korean Regulator Issues ICO Ban,”

[39]“National Assembly Calls for Measures to Allow ICOs,”



[42] “Cryptocurrencies decided as future trading commodity,”