Edition No. 31
Federal Prosecutors meet FTX team; New joint study on NFT IP; FTX class action celeb lawsuit dropped; SEC guidance(?); Crypto v. Securities; and more. Here's what happened from 12/4/2022 - 12/12/2022.
Welcome back to Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories directly to your browser. We took last week off for finals and holiday shenanigans, but we’re back and better than ever.
Table of Contents:
1. On the Docket (Top Stories of the Week)
2. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)
3. Bird Watching (Tweet, tweet!)
4. The Public Ledger (Featuring an additional 20 links on FTX this week)
5. Closing Statements
On the Docket
Five things you might have missed last week:
1. Federal Prosecutors Meet With FTX Team
Touch gloves before the fight.
According to reports, FTX's new CEO has met with federal prosecutors. Bloomberg reported on Thursday that John J. Ray III, who was appointed CEO of FTX last month, and bankruptcy attorneys met with prosecutors from the U.S. Attorney's Office for the Southern District of New York (Dec. 8).
According to the report, meeting details are unavailable, but authorities are examining charges that FTX misappropriated customer funds and lost billions of dollars. According to the article, the encounter suggests a probable overlap between the criminal and bankruptcy investigations.
About a week ago, Bloomberg reported that the U.S. Attorney's Office for the Southern District of New York and the U.S. Securities and Exchange Commission (SEC) have separately asked crypto trading firms and investors to voluntarily provide them with information regarding their communications with select FTX employees and associates.
According to Ray, in the November 17th bankruptcy filing:
“From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
2. USPTO and US Copyright Office To Conduct a Joint Study on Intellectual Property Law and Policy Issues Related to NFTs
Two heads are better than one:
The U.S. Patent and Trademark Office (USPTO) and the U.S. Copyright Office filed a Federal Register Notice (Notice) on November 23, 2022, announcing a collaborative examination of intellectual property (IP) problems pertaining to non-fungible tokens (NFTs). In relation to the joint study, the USPTO and Copyright Office are soliciting public feedback and will organize three public roundtables during the next two months.
According to the Notice, the USPTO and Copyright Office will accept any public comments regarding NFT-related intellectual property issues during the public comment period. In addition, the Notice includes a list of issues and themes that are of particular interest to the two offices. These topics and questions typically concern:
IP challenges or opportunities presented by NFTs and NFT-related markets;
information on whether current IP laws are adequate to protect and enforce IP in the NFT context;
information on whether, how and to what extent NFTs are currently used or could be used by IP rights holders; and
adjustments, if any, to IP portfolio planning and management due to the emergence of NFTs.
To encourage uniformity among responses, the USPTO and Copyright Office supply Merriam-definition Webster's of "NFT":
“…a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights relating to it).”
3. Class Action Lawsuit Against FTX's Celebrity Promoters and Sam Bankman-Fried Consolidated and Transferred
Vox Populi
In Miami, a class-action lawsuit brought against former FTX CEO Sam Bankman-Fried and a number of paid celebrity promoters for the collapsed cryptocurrency exchange is proceeding.
In the Southern District of Florida, three separate lawsuits filed by plaintiffs represented by the boutique Moskowitz Law Firm and the international law firm Boies Schiller & Flexner have been consolidated and will be supervised by U.S. District Court Judge Michael Moore.
The initial suit called FTX a:
“….house of cards, a Ponzi scheme where the FTX entities shuffled customer funds between their opaque affiliated entities.”
Moskowitz said he was confident the FTX celebrity promoters will also be found to have violated state and federal anti-touting laws.
“We have no doubt that Sam [Bankman-Fried] committed one of the country’s largest financial scams and he had no intention of complying with any of these FTC and SEC celebrity endorsement regulations. That was part of his fraudulent plan to compete with Voyager, Gemini, Coinbase and BlockFi.”
4. U.S. SEC Issues New Guidance on Disclosing Crypto Risks
Ah - just in time to prevent a massive exchange’s collapse! Wait…
The U.S. securities regulator advised public firms on Thursday to evaluate if they are obligated to report any potential implications of cryptocurrency market volatility.
The guidance from the Securities and Exchange Commission's (SEC) division of corporation finance, which is tasked with ensuring that public companies provide investors with key information, is the latest indication that regulators are on high alert for further fallout in the wake of the collapse of major crypto firms such as FTX and BlockFi Inc.
In guidelines to public companies, the SEC outlined facts that businesses may be required to disclose to their investors, such as whether they have any material exposures to counterparties that have filed for bankruptcy or become insolvent.
The guideline applies to all public corporations with exposure to recent crypto market volatility. The law already requires publicly traded companies to disclose relevant financial information to investors, but the SEC frequently gives more detailed guidelines on how businesses should approach risks from large occurrences.
5. Cryptoassets - Are They Securities or Not?
We don’t know. But these guys at Harvard might:
Jai Massari, Co-founder of Lightspark and lecturer at Berkeley University, provides analysis and insight into the contents of a new paper titled The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are Not Securities, written by Lewis Cohen and team.
The study analyzed the pertinent case law and concludes that there is scant legal foundation to characterize fungible cryptoassets as securities, and it outlines a far more satisfying analytical methodology. The article distinguishes capital-raising operations involving the sale of a cryptoasset by blockchain project sponsors or other insiders, which are often securities transactions, from the handling of the cryptoasset, which is not a security. This analytical methodology solves the now-apparent issues posed by the SEC staff's approach and appropriately focuses SEC regulatory authority on capital-raising transactions.
According to Massari:
“The paper’s approach is the right one and should be taken on both by the US Congress as it considers legislation to regulate the crypto industry and by courts as they consider high-stakes cases that hinge on the securities law treatment cryptoassets. Doing so will avoid the flaws of the SEC’s well-intended but flawed current approach. And, together with legislative initiatives to regulate crypto markets and intermediaries, it will better protect market participants and more responsibly support innovation.”
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
Bird Watching
Tweet, Tweet, Tweet!
The Public Ledger
Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:
General News and Opinion
Binance Seeks to Reassure Crypto World With Proof of Reserves
Recent Meta Policy Statement Outlines Goals, Hopes for Metaverse Regulator Activity
Tailoring Merger and Acquisition Agreements to Address Crypto and Digital Assets
U.S. - Federal
Class Action Lawsuit Against FTX's Celebrity Promoters and Sam Bankman-Fried Is Quietly Dropped
Securities Class Action Targets Bitcoin Mining Data Center Provider
Kraken Coughs Up $362,158 to OFAC to Settle Iran Sanctions Violations
FTX team met with federal prosecutors investigating firm's collapse
U.S. - State Law
Applied Direct Response — ERCOT Study Shows Bitcoin Mining Is Beneficial to the Texas Grid
Senator Ted Cruz Sees Texas as Potential Crypto Hub, Also Bets Big on Bitcoin
Texas enforcers want Sam Bankman-Fried to attend the hearing in February
Could Legal Sportsbooks in New York Accept Crypto in the Near Future?
International
Bahamas attorneys file emergency motion in FTX case for access to databases with client information
Global Perspective on Patenting of Blockchain, Crypto, and DeFi Technologies
UK announces tax break for crypto investors and new regulatory sandbox
UK Government Expands Enforcement Measures To Address Fraud and Money Laundering
Hong Kong to subject crypto exchanges to the same laws governing TradFi
Québec Utility Requests Reallocation Of Electricity Away From Bitcoin Miners
EU To Force Crypto Companies To Report Their Users’ Holdings To Tax Authorities
Over 3,000 crypto accounts under scrutiny for 'illegal activities'
Closing Statements
We want to hear from you:
If you enjoyed what you read today, subscribe to receive the weekly publication and give the authors a follow on Twitter for updates on what’s next for the newsletter!
If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler, Chris, and the Around the Blockchain News team.
Quote of the Week:
“The trouble with law is lawyers.” Clarence Darrow
The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.
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