Blockchain and the Law

New York Grants BitLicenses to Robinhood Crypto and LibertyX

On January 24, 2019 the New York Department of Financial Services (the “DFS”) announced that it had granted BitLicenses to Robinhood Crypto, LLC and Moon Inc. (d/b/a LibertyX). These are the fifteenth and sixteenth BitLicenses granted by the DFS since the final BitLicense rules were released in 2015.

Robinhood Crypto is a subsidiary of popular stock trading platform Robinhood, which allows users to make commission-free trades of stocks, ETFs, options and select digital assets online and through a smartphone app. The BitLicense, along with a New York state money transmitter license also granted this month, authorizes Robinhood Crypto to offer services for buying, selling and storing Bitcoin, Ether, Bitcoin Cash, Litecoin, Dogecoin, Ethereum Classic and Bitcoin SV to New York residents. LibertyX allows customers to buy Bitcoin with their debit cards through traditional ATM transactions. In October, LibertyX partnered with Genmega, Inc., which supplies over 100,000 ATMs throughout the United States, to upgrade their ATMs to enable purchases of Bitcoin. Readers of our blog may recall that Coinsource, Inc. similarly received a BitLicense in November 2018 to operate “Bitcoin Teller Machines” that allowed customers to buy and sell Bitcoin for cash.

Robinhood Crypto and LibertyX already actively conduct their respective “virtual currency business activities” in other states and expect to roll out their services to New York in the coming months.

Wyoming Legislature Advances Blockchain-Related Bills

States have long been “laboratories of democracy” where policymakers can try out certain innovative policies on a local or regional level that could eventually, if successful, become national programs. On the tech side, some states have sought to establish themselves as laboratories of blockchain. For example, this past week Vermont announced that it will work with vendors to launch a pilot program permitting new captive insurance companies to register with the Vermont Secretary of State using blockchain.

Across the country, Wyoming has been especially active in this area and reportedly desires to be a corporate-friendly “Delaware of the West” [subscription required] as well as a haven for blockchain and fintech business activity. To that end, the Wyoming legislature has advanced several blockchain-related bills through committee since the new year (following an active 2018, which saw the state pass a number of regulatory measures related to blockchain and digital assets). Continue Reading

New York Approves Nationwide Licensing Tool for Virtual Currency Business Activity Companies

New York State has taken measures this year to modernize its approach to regulation for blockchain-based companies. Even before Assembly Bill A8783B established a government task force to study the effects of blockchain and digital assets on financial markets in the state, in October, the New York State Department of Financial Services (“NYSDFS”) announced that it would allow companies engaged in “virtual currency business activity” (as defined in the New York State “BitLicense” requirements) to utilize the Nationwide Multistate Licensing System and Registry (“NMLS”) to apply for, update, and renew their operating licenses, including BitLicenses. The NMLS was created in 2008 by the Conference of State Bank Supervisors to act as a central licensing repository and has expanded over the past decade from servicing non-bank mortgage companies to including a variety of non-bank firms. The system is intended to allow for enhanced supervision, as license applications and registrations can be managed by a number of governmental agencies through NMLS. In addition to businesses engaged in virtual currency business activity, other nonbank financial institutions currently under the oversight of the NMLS platform include licensed check cashing companies, budget planners, sales finance agencies, money transmitter licensees, and mortgage providers. Continue Reading

Lawsuit Alleging that LATX Tokens are Securities Survives Motion to Dismiss

On December 10th, 2018, a U.S. District Judge for the District of New Jersey denied Latium Network, Inc. (“Latium”) and its co-founders’ motion to dismiss a class action alleging violations of Section 5 of the Securities Act of 1933 (the “Act”) for offering and selling unregistered securities in the form of Latium X (“LATX”) tokens. Continue Reading

Practice Note: Blockchain and Supply Chain Management

Proskauer authored a Practice Note published by Practical Law, which provides an overview of the use of blockchain and smart contracts in the supply chain context, including the legal issues, concerns, benefits and risks associated with its use. It includes, among other topics, information on key distinctions between public and private blockchains and important considerations regarding the use of blockchain consortia.

The full text of our Practice Note is available here: Practice Note: Blockchain and Supply Chain Management

Airfox and Paragon Settle with SEC for Unregistered ICOs: Civil Monetary Penalties Imposed; Rescission and Registration Required

On November 16, the SEC announced that it settled charges against CarrierEQ, Inc. (“Airfox”) and Paragon Coin, Inc. (“Paragon”) for securities offering registration violations in connection with their respective initial coin offerings (“ICOs”).

The settlement orders represent the first time the SEC has imposed civil penalties against ICO issuers solely for securities offering registration violations (i.e., without any allegations of fraud or misrepresentation) and notably, require Airfox and Paragon to make remedial undertakings that include offers of rescission to token purchasers pursuant to Section 12(a) of the Securities Act of 1933 and registering with the SEC under Section 12(g) of the Securities Exchange Act of 1934.

The two issuers, both of whom conducted their ICOs in 2017 after the release of the SEC’s DAO Report, will be subject to $250,000 in civil penalties. The settlements were entered into by the companies without any admission or denial of the SEC’s findings.

The full text of the settlement orders are available here:

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