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One Year After the "DAO" Report Three U.S. Courts Begin to Provide Crypto-Clarity

One year ago today, the U.S. Securities and Exchange Commission (“SEC”) published the “DAO Report” which concluded that certain tokens issued in an initial coin offering (“ICO”) were securities under the Supreme Court decision SEC v. W.J. Howey Co.  The Report stated that whether an ICO is a security offering will depend on the facts and circumstances, including the economic realities of the transaction.  Confusion, private lawsuits, SEC enforcement actions, and even criminal prosecutions ensued, but three courts are about to provide clarity.

In March we wrote about federal criminal charges against Maksim Zaslavskiy in New York.  In a motion to dismiss, he asserted that: (1) the cryptocurrencies at issue are exempt from securities laws just as fiat currency is exempt; (2) the tokens did not satisfy the Howey test and so were not securities; and (3) the securities fraud charges, as applied to cryptocurrencies, are void for unconstitutional vagueness.  The issues have been briefed and the judge heard arguments of counsel last May.  We await the ruling.

Also pending in another New York federal court is the private securities case Balestra v. ATBCoin LLC et al.  The plaintiff sued ATBCoin for allegedly engaging in an ICO that was an unregistered sale of securities because the coins were securities under Howey but did not comply with securities laws.  The issue has been briefed, and we await the ruling.

Finally, pending in federal court in Florida is the private securities case Rensel v. Centra Tech, Inc. et al.  The complaint alleges that Centra Tech engaged in an unlawful sale of securities through an ICO.  A magistratejudge recently ruled that the coins were securities under Howey.  While the ruling is not final until approved by a district court judge, each of these cases provide an important sign that crypto-clarity is coming.

Copyright 2022 K & L GatesNational Law Review, Volume VIII, Number 206
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About this Author

Clifford C. Histed, Financial Markets Lawyer, Health Care Attorney, KL Gates, Law Firm
Partner

Cliff Histed focuses on representing companies and individuals operating in highly-regulated industries, particularly in the areas of financial markets, trading, and health care, during both criminal and regulatory proceedings, and in representing clients in litigation and at trial.

Mr. Histed is a former supervisory federal prosecutor and supervisory enforcement lawyer with the Commodity Futures Trading Commission.  He has more than 23 years’ experience investigating and prosecuting official misconduct, business frauds, and criminal offenses in...

312-807-4448
Nicole Mueller, KL Gates Law Firm, Securities and Transactional Litigation Attorney
Associate

Ms. Mueller’s practice is focused in litigation under the federal and state securities laws and litigation arising out of mergers and acquisitions, other transactions and corporate governance matters. Her experience includes representing investment advisers, corporate officers and directors, and independent trustees in derivative lawsuits, investigations, and actions brought pursuant to Section 36(b) of the Investment Company Act of 1940. Ms. Mueller also practices in the areas of complex commercial litigation and arbitration, regulatory disputes, and employment law....

312-807-4341
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