On March 27, 2018, Massachusetts Secretary of State William Galvin announced that the state had ordered five firms to halt initial coin offerings (“ICOs”) on the grounds that the ICOs constituted unregistered offerings of securities but made no allegations of fraud.  These orders follow a growing line of state enforcement actions aimed at ICOs.

This was not Massachusetts’s first foray into regulating ICOs.  On January 17, 2018 the state filed a complaint alleging violations of securities and broker-dealer registration requirements against the company Caviar and its founder for an ICO that sought to create a “pooled investment fund with hedged exposure to crypto-assets and real estate debt.”


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This past week, we received further evidence that U.S. federal regulators will continue to scrutinize potential compliance issues in virtual currency trading and initial coin offerings (“ICOs”) under existing law. However, the key takeaway is that the U.S. regulators, so far, are doing so under established interpretations of their existing authority. In our view, none

On January 30, 2018, the U.S. Securities and Exchange Commission (SEC) announced[1] that it had obtained an order from a U.S. District Court in Dallas, Texas, halting an allegedly fraudulent initial coin offering scheme.  The SEC’s complaint alleges that defendants AriseBank and AriseBank founders Jared Rice Sr. and Stanley Ford violated the anti-fraud and registration provisions of the U.S. federal securities laws, including by falsely claiming that AriseBank’s customers’ accounts and transactions were FDIC insured, falsely claiming that AriseBank’s customers could spend 700 different virtual currencies using AriseBank’s Visa card, and failing to disclose the criminal history of two of AriseBank’s officers.  Among other relief, the district court has granted the SEC’s request to freeze the defendants’ assets, and for the first time in a cryptocurrency enforcement case has appointed a receiver over those assets, including the cryptocurrencies purportedly held by AriseBank.
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On Monday, December 11, 2017, SEC Chairman Jay Clayton waded into the ongoing debate surrounding cryptocurrencies, initial coin offerings, and the regulation of both.  In a statement urging potential investors to exercise caution and market professionals to focus on their responsibility to help protect investors, the Chairman warned of the susceptibility of the burgeoning crypto markets to manipulation and fraud.
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On Monday, December 4, 2017, the U.S. Securities and Exchange Commission (SEC) obtained an emergency order from a U.S. District Court in New York to enjoin an allegedly fraudulent initial coin offering scheme.  The SEC’s complaint alleges that Dominic Lacroix, a recidivist securities law violator, and his company PlexCorps violated the anti-fraud and registration provisions of the U.S. federal securities laws in collecting up to $15 million in investor funds purportedly in exchange for digital tokens and promised returns in excess of 1,000% in 29 days.  The complaint also charges Lacroix’s partner Sabrina Paradis-Royer with securities fraud.  Among other relief, the district court has granted the SEC’s request to freeze the defendants’ assets.

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Last Friday, December 1, 2017, the U.S. Commodity Futures Trading Commission (CFTC) announced that three futures exchanges—the Chicago Mercantile Exchange Inc. (CME), the CBOE Futures Exchange (CBOE) and the Cantor Exchange (Cantor)—self-certified that they will be listing futures contracts (CME and CBOE) and options (Cantor) referencing bitcoin.  Trading in bitcoin futures will commence at the CBOE on December 10 and on CME on December 18, with Cantor’s options trading to follow.  Listing these contracts will allow both institutional and retail investors to obtain long or short exposure to bitcoin without buying or selling the underlying bitcoin itself.

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