Welcome to Shearman & Sterling’s FinTech Blog, where we provide you with insight on key trends in the FinTech ecosystem. Here you can find relevant information with the latest on digital banking, FinTech regulation, digital assets, blockchain, AI, and more.
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SEC Pushes Bitcoin ETF Decision to February
12/12/2018On December 6, 2018, the Securities and Exchange Commission (SEC) announced that it is delaying a decision on whether to approve a proposed rule change requested by the Cboe BZX Exchange that would allow it to list and trade shares of an exchange-traded fund (ETF) issued by the VanEck SolidX Bitcoin Trust. The SEC said it would make a final decision on the proposal by February 27, 2019.
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Two Celebrities Charged in Connection with ICO Promotions
12/05/2018On November 29, 2018, the Securities and Exchange Commission (SEC) announced that it has filed and settled separate charges against professional boxer Floyd Mayweather Jr. and musical artist Khaled Khaled (known as DJ Khaled) for their failure to disclose payments they received in connection with promoting investments in initial coin offerings (ICOs). Without admitting or denying the charges, Mayweather agreed to pay $300,000 in disgorgement, a $300,000 fine and $14,775 in interest, while Khaled agreed to pay $50,000 in disgorgement, a $100,000 fine and $2,725 in interest. Mayweather also agreed not to promote “any securities, digital or otherwise,” for three years, and Khaled agreed to the same ban for a period of two years.
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SEC Settles Charges Against Two Companies that Sold Digital Tokens in ICOs
11/29/2018For the first time, on November 16, 2018, the Securities and Exchange Commission (SEC) sanctioned two companies with civil penalties for violating the securities laws in connection with issuing digital tokens in an initial coin offering (ICO). Interestingly, the Division of Corporation Finance, Investment Management and Trading & Markets issued a joint statement in support of the Division of Enforcement’s actions. Without admitting or denying the findings, the two companies consented to the SEC orders finding that they violated Section 5(a) and 5(c) of the Securities Act of 1933 for failing to register the tokens as securities. The companies agree to $250,000 penalties and to cease and desist from future violations.
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SEC Charges Digital Asset Trading Platform Founder for Operating Unregistered Exchange
11/12/2018On November 8, 2018, the Securities and Exchange Commission (SEC) accused the founder of a digital asset trading platform of failing to register as a national securities exchange. Without admitting or denying the charges, the founder agreed to pay $300,000 in disgorgement and a $75,000 penalty, and to cease and desist from future violations of Section 5 of the Securities Exchange Act of 1934 (Exchange Act).
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SEC Announces Launch of Strategic Hub for Innovation and Financial Technology
10/19/2018On October 18, 2018, the Securities and Exchange Commission (SEC) launched its Strategic Hub for Innovation and Financial Technology (FinHub), designed to engage investors and market participants on FinTech issues and initiatives.
Valerie A. Szczepanik, the SEC’s Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC's Division of Corporation Finance, will lead FinHub, which will focus on topics such as distributed ledger technology (DLT) and digital assets, automated investment advice, digital marketplace financing, artificial intelligence and machine learning. The SEC’s various divisions will assign staff with expertise in the FinTech space. FinHub will replace and build on the efforts of several of the SEC’s internal FinTech working groups.
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SEC Halts Fraudulent ICO that Claimed Regulatory Approval
10/17/2018On Oct 11, 2018, the Securities and Exchange Commission (SEC) announced that it halted a planned initial coin offering (ICO) and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the “Blockchain Exchange Commission.” Blockvest and Ringgold also allegedly used the National Futures Association (NFA) seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.
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SEC Division of Investment Management Publishes Feedback from Cryptocurrency ETP Inquiry
10/02/2018In January, the Securities and Exchange Commission (SEC) Division of Investment Management published a widely cited open letter to the industry in which the Division asked a series of questions about how it should consider risks associated with bitcoin- and other cryptocurrency-backed exchange-traded products (ETPs). The SEC staff expressed concerns about whether the bitcoin markets were sufficiently mature and liquid for registered funds to invest in that class of asset, and flagged several other issues related to valuation, liquidity, custody, ETP arbitrage and potential manipulation, among other things.
Now the Division is starting to post feedback it received from that inquiry. To date, the SEC has posted six letters: one from an exchange, one from a trade association, one from an investment manager and several from individual market participants. Presumably, this is the leading edge of what will be more and more responses over time.
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SEC Again Delays Bitcoin ETF Decision
09/25/2018On September 20, 2018, the Securities and Exchange Commission (SEC) in a filing said that it is seeking additional comments on a proposed rule change requested by the Cboe BZX Exchange that would allow it to list and trade shares of an exchange-traded fund (ETF) issued by the VanEck SolidX Bitcoin Trust. This is the second time the SEC has delayed a decision on the proposal, which was first proposed on June 20, 2018.
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Agencies Issue Multiple Digital Asset-Related Enforcement Orders
09/20/2018The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) last week issued three digital asset-related enforcement orders, and the SEC also suspended trading in two securities that track the value of digital assets. The orders mark an uptick in digital asset enforcement from previous months and suggest that regulators and self-regulatory organizations are still keeping a close eye on the nascent digital asset investment industry.
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SEC Order Shows Free Tokens Do Not Get a Free Pass From Securities Laws
09/07/2018The Securities and Exchange Commission cracked down on another initial coin offering, despite the fact that the parties were unable to raise any money. The SEC found that the efforts to fund oil exploration and drilling in California through the issuance of digital tokens called “Tomahawkcoins” or “TOM,” by Tomahawk Exploration LLC and David T. Laurance constituted an illegal securities offering in which they made materially false claims about the exploration prospects, the firm and Mr. Laurance’s background.
Read MoreCategories : Cryptocurrencies/Virtual Currencies, Enforcement, FinTech Regulation, ICOs, SEC, US Federal Regulation -
SEC Denies BZX Application to List Bitcoin Trust; Commissioner Peirce Dissents
07/31/2018On July 26, 2018, the Securities and Exchange Commission denied an application for a rule change that would have allowed the Bats BZX Exchange, Inc. to list and trade shares of the Winklevoss Bitcoin Trust, primarily because it viewed Bitcoin, the underlying asset, to be vulnerable to fraud and market manipulation. The Securities Exchange Act of 1934 directs the Commission to disapprove a proposed rule change of a self-regulatory organization, such as BZX, if the Commission finds that the proposed rule change is inconsistent with the requirements of the Exchange Act and the rules and regulations applicable to the SRO.
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Senior SEC Official Clarifies Whether and When Digital Assets Are Securities
07/05/2018
In wide-reaching remarks at the Yahoo Finance All Markets Summit: Crypto on June 14, 2018, William Hinman, the director of the SEC’s Division of Corporation Finance, affirmed that lawyers and promoters should focus on to the economic substance of a digital transaction, rather than to the label in analyzing whether the U.S. securities laws apply.
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NASAA Cracks Down on Fraudulent ICOs and Enters into Information Sharing Agreement with the CFTC
5/30/2018At the North American Securities Administrators Association Conference on May 21, 2018, NASAA, an association of state and provincial securities administrators in the United States, Canada and Mexico, announced a joint effort among its members to halt fraudulent initial coin offerings and virtual currency-related investment products. The so-called “Operation Cryptosweep,” which was launched this past April, consists of NASAA members from 44 jurisdictions in the United States and Canada and has to this point led to nearly 70 inquiries and 35 pending and completed enforcement actions, with more expected in the coming months.
Read MoreCategories : CFTC, Cryptocurrencies/Virtual Currencies, Enforcement, ICOs, SEC, State Regulation, US Federal Regulation -
Ether and XRP Face Heightened Regulatory Scrutiny
05/22/2018Over the past several months, rapid growth of market interest in digital assets has invited significant regulatory attention. While much of the focus to this point has been on initial coin offerings, questions have recently been raised as to whether the issuance of some of the most popular virtual currencies, including ether and XRP, constituted illegal securities offerings.
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SEC Commissioner Pushes for Hands-Off Approach to Token Regulation
05/02/2018Securities and Exchange Commission Commissioner Hester Peirce spoke on the agency’s oversight of tokens and initial coin offerings before the Medici Conference on May 2, 2018. In her speech, she pushed for a hands-off approach to token regulation and noted the importance of regulators keeping an open mind when regulating the space.
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Senior SEC and CFTC Officials Support Balanced Approach to Token Regulation
04/26/2018
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SEC Issues Statement on Potentially Unlawful Online Platforms for Trading Digital Assets
03/07/2018On March 7, 2018, the SEC issued a statement warning investors of potential risks involving digital asset exchanges. The statement aims to protect investors trading digital assets through online platforms and serves as a warning shot to exchanges dealing in digital assets that may be securities.
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Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee
02/07/2018A cross-functional team of partners including Jay Baris and Nathan Greene of the Investment Funds group, Donna Parisi and Geoffrey Goldman of the Derivatives group, Lona Nallengara of the Capital Markets group, and Reena Sahni of the Financial Institutions Advisory and Financial Regulatory group authored an article entitled, “Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee.” The article highlights the February 6 SEC and CFTC discussion with a Senate committee regarding the role of their respective agencies in regulating virtual currencies and virtual currency-related activities.
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Cryptocurrencies: A Big Week for U.S. Regulatory Attention
01/25/2018Jay Baris and Nathan Greene, partners in the Investment Funds group, authored an article entitled “Cryptocurrencies: A Big Week for U.S. Regulatory Attention,” summarizing a seemingly sudden burst of regulatory actions taken by the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission and a state regulator over the span of just a few days in January.
Read MoreCategories : CFTC, Cryptocurrencies/Virtual Currencies, Enforcement, Federal Regulation, SEC, State Regulation