On May 3, 2022, the SEC announced that it was renaming the Division of Enforcement’s Cyber Unit as the Crypto Assets and Cyber Unit, and significantly increasing its size with the addition of 20 new positions.[1]  In the same announcement, the SEC articulated specific areas of focus within the digital assets space, including:  (i) crypto asset offerings; (ii) crypto asset exchanges; (iii) crypto asset lending and staking products; (iv) decentralized finance (“DeFi”) platforms; (v) non-fungible tokens (“NFTs”); and (vi) stablecoins.
Continue Reading SEC Nearly Doubles Size of Digital Asset Enforcement Team

The SEC and a consortium of 32 states recently announced a $100 million settlement with BlockFi Lending LLC over its crypto lending product, BlockFi Interest Accounts. The SEC alleged BlockFi had violated the securities laws by failing to register its interest-bearing crypto lending product as a security, failing to register itself as an investment company,

February 17, 2022 was a busy day for the Department of Justice and its growing cyber portfolio.  First, Deputy Attorney General Lisa O. Monaco delivered remarks at the Annual Munich Cyber Security Conference, stressing the Department’s efforts to confront cyber criminals and its increasing focus on disruption and prevention, even if doing so would limit criminal prosecutions.  Additionally, the Department announced the appointment of the first Director of the National Cryptocurrency Enforcement Team, which was established to address criminal misuse of cryptocurrencies and digital assets.
Continue Reading Developments at Justice: The Deputy Attorney General Talks Cybersecurity and the National Cryptocurrency Enforcement Team Gets its First Director

On January 24, 2022, Securities and Exchange Commission Chair Gary Gensler gave a speech at the Northwestern Pritzker School of Law’s Annual Securities Regulation Institute signaling the SEC’s intention to step up its cyber-related regulatory and enforcement efforts.  Gensler described the continued rise in cybersecurity incidents targeting the financial sector as a serious threat to the nation’s economy and critical infrastructure, with costs potentially in the trillions of dollars.
Continue Reading SEC Chair Previews Ramp Up in Regulation and Enforcement in the Cybersecurity Context

Cybersecurity and data privacy continue to be among the most significant legal risks that businesses face today.

Last year brought a series of high-profile cyberattacks on major companies and U.S. infrastructure targets, continuing the trend seen in recent years. Regulators also brought a number of cybersecurity enforcement actions and announced new rules, guidance, and initiatives on ransomware and other cyber-related issues. In addition, after many years of debate, Congress made some progress in crafting legislation that would require certain companies to report significant cyberattacks and ransomware payments to the U.S. federal government. Companies should expect the demands of cybersecurity risk management and oversight to intensify as we enter 2022.
Continue Reading 2021 Cybersecurity and Privacy Developments in the United States

For those following data privacy and consumer data protection trends, it should come as no surprise that enacting comprehensive legislation to regulate companies’ use of personal data has continued to be a focal point both internationally and in the U.S., at the federal, state and local levels. 
Continue Reading Navigating the Complex Regulation of Privacy and Data Protection

A 2021 survey of chief legal officers demonstrated that cybersecurity has overtaken compliance as the most significant legal risk that businesses face today. This should not come as a surprise as 2021 brought a series of high-profile cyberattacks on major companies and U.S. infrastructure targets.
Continue Reading Cybersecurity: Data Breaches, Ransomware Attacks and Increased Regulatory Focus

On August 9, 2021, the SEC issued a cease-and-desist order against digital asset exchange Poloniex, Inc. for allegedly operating an unregistered exchange in violation of Section 5 of the Exchange Act in connection with its operation of a trading platform that facilitated the buying and selling of digital asset securities.[1]

In the cease-and-desist order, the SEC alleged that Poloniex met the definition of an “exchange” because it “provided the non-discretionary means for trade orders to interact and execute through the combined use of the Poloniex website, an order book, and the Poloniex trading engine.”  The SEC also found, based on internal communications, that Poloniex decided to be “aggressive,” ultimately listing token(s) it had internally determined carried a “medium” risk of being considered securities under the Securities Act of 1933 pursuant to the test set forth by the U.S. Supreme Court in SEC v. W.J. Howey.[2]  However, the SEC did not identify what digital asset(s) it determined were securities nor why, simply stating that Poloniex facilitated trading of “digital assets that were investment contracts and therefore securities.”

Without admitting or denying the SEC’s findings, Poloniex agreed to the entry of the order and a payment of $10,388,309 in disgorgement, prejudgment interest, and a civil penalty.
Continue Reading SEC Enforcement Action Against Poloniex Signals Heightened Scrutiny for Crypto Exchanges

Last week, the Second Circuit affirmed the dismissal for lack of Article III standing a proposed class action against a health services provider that mistakenly disclosed personally identifiable information (“PII”).  In its opinion, the Second Circuit held that plaintiffs may establish Article III standing based on an increased risk of identity theft or fraud following an unauthorized disclosure of their data, but that the standard was not met based on the facts presented.  The decision, which is the first time the Second Circuit has explicitly adopted this standard, has potentially important implications going forward for data breach cases.

Continue Reading Second Circuit Articulates Injury Standard in Data Breach Suits

On February 18, 2021, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) announced a $507,375 settlement with BitPay, Inc. (BitPay), a payment processor for merchants accepting digital currency as payment for goods and services, for 2,102 apparent violations of multiple sanctions programs between 2013 and 2018.[1] The settlement highlights that financial service providers facilitating digital currency transactions must not only establish sanctions compliance programs to screen their own customers but also must monitor third-party non-customer transaction information.
Continue Reading OFAC Settles with Digital Currency Payment Processor for Sanctions Violations