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

Photo by Bjorn Pierre on Unsplash

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.”

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Podcasts, Videos, and Blogs

The brightest voices & sharpest pens:

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Bird Watching

Tweet, Tweet, Tweet!

1. The Block has ties with FTX revealed:

db @tier10k

axios.comExclusive: SBF secretly funded crypto news site The Block and its CEO’s Bahamas apartmentA total of $27 million was funneled into the company without the newsroom’s knowledge.

2. An illustration of the systemic risk of FTX:

Lawtoshi @lawtoshi

Inquiring minds want to know how FSOC had a better picture of the entire circular crypto lending ecosystem in Oct 2022 than SBF had of his own firm’s finances, ⁦@fintechfrank⁩

3. DAO Research Collective highlights the legal engineering efforts of Kali and LexDAO:

DAO Research Collective @DAOResearchCo

@DAOResearchCo Fellow @z0r0zzz (Co-Founder of @lex_DAO and @kali__gg) is a true De-Fi purist and DAO builder. The latest project from the KALI team,, Wrappr (ERC 1155V), is aiming to simplify the DAO legal entity landscape. Here’s why: 🧵

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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

• Coinbase CEO Armstrong Sees 2022 Revenue Down 50% or More

• Recent Meta Policy Statement Outlines Goals, Hopes for Metaverse Regulator Activity

• Tailoring Merger and Acquisition Agreements to Address Crypto and Digital Assets

• Crypto Deals Continue Despite FTX Implosion

• SEC Investigations Guide - Second Edition: December 2022

• Bankruptcy Law Firms Boom as Crypto Firms Go Bust

• Starbucks NFTs are now available to beta testers

• Top PHive Crypto Enforcement Notes: December Edition

• How Investigators Are Tracing Crypto Criminals

U.S. - Federal

• Supreme Court takes Coinbase appeal over crypto lawsuits

• Class Action Lawsuit Against FTX's Celebrity Promoters and Sam Bankman-Fried Is Quietly Dropped

• Blockchain Companies Spar Over Names in Newly Filed Lawsuit

• Warren presses regulators to probe bank ties to crypto

• SEC Releases FY 2022 Whistleblower Annual Report

• Trademark Enforcement Injunctions in the NFT Landscape

• 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

• Federal Prosecutors Meet With FTX Team

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' crypto mining boom, built on incentives like cheap power and favorable regulations, looks like a bust after soaring energy costs and crashing coin prices

• Texas enforcers want Sam Bankman-Fried to attend the hearing in February

• Niagara Falls, N.Y., Sues to Stop Cryptomining Operations

• Could Legal Sportsbooks in New York Accept Crypto in the Near Future?

• While the Crypto Financial World Burns, New York Passes Law Preventing Crypto Miners from Burning More Fossil Fuels

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

• BVI to Introduce the Virtual Assets Service Providers Act

• 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

• Hong Kong Amends Finance Law to Incorporate Crypto Firms

• Over 3,000 crypto accounts under scrutiny for 'illegal activities'

NOTE: For your convenience, we have started identifying articles that require a subscription or site registration (paid or free) with ** preceding the article link, and the linked site in () after.

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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

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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.