Strikeout for Bitcoin ETF
Another ETF bites the dust. On February 26th the SEC rejected the application of NYSE Acre for the approval of an exchange traded fund sponsored by the New York firm of Wilshire Phoenix to launch a bitcoin-based exchange traded fund ("ETF"). This rejection is consistent with the rejection by the SEC of all prior bitcoin related ETFs. Wilshire Phoenix was hoping that certain of its characteristics—that the fund would hold a mixture of U.S. government treasury bonds along with bitcoin and would automatically rebalance to counteract market volatility—would meet with the SEC's approval. However, the SEC remains concerned about general market manipulation of bitcoin pricing despite these features and ETF's backers.
CFTC Will Defer to the SEC on Telegram
We continue to focus the ongoing litigation by the Securities and Exchange Commission ("SEC") to block issuance of Grams, a security by Telegram. The Southern District of New York the Office of the General Counsel of the US Commodities Futures Trading Commission ("CFTC") to weigh in on whether the CFTC agrees with the contention of Telegram that Grams should be regulated as a commodity and not a security. (Bitcoin and ETH are not considered securities by the SEC and are regulated by the CFTC as a commodity.
The CFTC responded that its determination as to whether something is a commodity does not affect the SEC's ability to regulate the same asset as a security. In sticking to its path of not competing with the SEC for regulatory jurisdiction over digital assets, the CFTC noted that "any given digital asset may or may not be subject to the securities laws, but that does not depend on whether the asset is a commodity. It depends on whether the asset is a 'security' within the meaning of the '33 Act itself."
While the letter from the CFTC provides important information on how the CFTC looks at its role in this market, it does nothing to assist the court in determining if digital currencies such as the "Gram" should be subject to registration under US securities laws.
Sadly for Telegram, its attempt to convert the proceeds of up to $1.7 billion to Gram tokens remains subject to injunction.
Airing Out Helix Operator's Dirty Laundry
The US Department of Justice ("DOJ") has charged an Ohio man with money laundering conspiracy for operating a "mixer", which allegedly transferred over 350,000 bitcoin – an amount exceeding $300 million at the time of the transactions – allowing criminals to launder illicit narcotics proceeds and other criminal profits.
Larry Harmon, the allegedly criminal mastermind behind Helix, a Darknet-based cryptocurrency laundering service, helped customers send bitcoin to recipients in a manner that concealed the bitcoin owner's identity. Don't feel bad for Mr. Harmon. He knew what he was doing, advertising Helix as a place to conceal transactions from law enforcement.
GAO Report on Virtual Currencies – More Guidance, Please
The U.S. Government Accountability Office ("GAO") released a report to the House of Representatives' Committee on Ways and Means requesting clarified tax guidance addressing virtual currencies.
Among their findings, the GAO notes that the Internal Revenue Service ("IRS") does not have enough data on tax compliance for virtual currencies. The GAO report goes into great detail discussing additional ways in which the IRS can improve tax guidance regarding digital assets in 2020.
Mes que un Coin – FC Barcelona Launches Crypto Token
As one of the most illustrious franchises in sports, it has been a long time since soccer club FC Barcelona has celebrated anything for the first time. However, last week FC Barcelona celebrated the launch of its first crypto token, the Barça Fan Token, in partnership with the blockchain firm Chiliz.
The Fan Token will be used by Barça supporters to vote in polls and surveys on Chiliz' mobile app, with the reward of points exchangeable for merchandise and club experiences. However this isn't just a simple reward token—in order to use the Fan Token, the Barça faithful will need to first purchase Chiliz' own $CHZ token.
It remains to be seen of the Barca Fan Token would be considered a security by the SEC due to the need to purchase the $CHZ, so a word to the wise, FC Barcelona—don't let US citizens buy your fan token.
Under Siege – "Zen Master" Steven Seagal Loses to the SEC
The SEC has settled charges1 against action star Steven Seagal for failing to disclose payments he received for promoting an investment in an initial coin offering (ICO) conducted by Bitcoiin2Gen (B2G). The SEC's order finds that Seagal failed to disclose he was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his promotions, which included posts on his public social media accounts encouraging the public not to "miss out" on Bitcoiin2Gen's ICO and a press release titled "Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen.
Debtor Representation of Virtual Citadel, Inc
Polsinelli is pleased to be representing Virtual Citadel, Inc. (the "Company"), an Atlanta-based data storage and bitcoin mining company, in its Chapter 11 bankruptcy proceedings commenced on February 14, 2020 in the U.S. Bankruptcy Court for the Northern District of Georgia, along with several of its affiliates. The filing was precipitated by the unexpected death of its founder, Michael L. Oken on Oct. 30, 2019. Oken owned about 87% of the shares of the company. In the crisis following Oken's death, Marshall Glade of GlassRatner Advisory & Capital Group LLC was appointed receiver and later the Chief Restructuring Officer of the Company. Glade stated that he plans to pursue a sale of the Company to Block Data Processing Corp. Although the sale process has not yet been finalized, Block Data is already serving as third party Manager Virtual Citadel as an ongoing concern and will continue to do so during the Chapter 11 process.
Polsinelli's representation is being handled by David E. Gordon together with Gwendolyn J. Godfrey and Caryn E. Wang. This representation demonstrates the broad range of Polsinelli's Fintech and Regulatory Practice as we assist our client in all aspects of blockchain and crypto currency related matters.
Polsinelli's How to Survive an SEC Investigation or Enforcement Action Webinar - 3.17.20
BitBlog faithful, the time has come again for you to listen to some of your favorite BitBlog contributors from Polsinelli's FinTech and Regulation Practice, Richard Levin, Jason Nagi and Paul Roshka, discuss what to do when the SEC contacts your firm, requests information from your firm, and issues subpoenas for documents and testimony.
The Webinar will take place at 1:00 PM EST on March 17. Register at the link provided here.
1 Securities Act of 1933 | Release No. 10760 | Order Instituting Cease-And-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Improsing a Cease-and-Desist Order
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