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25 September 202217 minute read

Blockchain and Digital Assets News and Trends - September 2022

Achieving Digital Transformation and Securing Digital Assets

This is our ninth monthly bulletin for 2022, aiming to help companies identify important and significant legal developments governing the use and acceptance of blockchain technology, smart contracts and digital assets.

While the use cases for blockchain technology are vast, this bulletin will be primarily on the use of blockchain and or smart contracts in the financial services sector. With respect to digital assets, we have organized our approach to this topic by discussing it in terms of traditional asset type or function (although the types and functions may overlap), that is, digital assets as:

  • Securities
  • Virtual currencies
  • Commodities
  • Deposits, accounts, intangibles
  • Negotiable instruments
  • Electronic chattel paper
  • Digitized assets

In addition to reporting on the law and regulation governing blockchain, smart contracts and digital assets, this bulletin will discuss the legal developments supporting the infrastructure and ecosystems that enable the use and acceptance of these new technologies.


IRS releases draft Form 1040 with new cryptocurrency question

By Tom Geraghty and Kali McGuire

The Internal Revenue Service has been posing questions on virtual currency on Form 1040 since 2020, hoping to understand and gather data around crypto transactions. These questions have mostly generated confusion without providing enough clarity to encourage large-scale compliance. The new question in the 2022 draft Form 1040 is likely no different, but could potentially offer more guidance than earlier years  simply because, for the first time, it refers taxpayers to the instructions.

SEC Chair Gensler continues to push broad SEC authority over digital assets

By Deborah R. Meshulam

During September, SEC Chair Gary Gensler has continued to focus on the SEC’s ability to police a wide range of blockchain activities related to the offer, sale and trading of digital assets.  His remarks on “crypto tokens” at PLI’s Annual SEC Speaks conference and subsequently, make important points. 

Liability exposure of blockchain software developers may be expanded

By Mark Radcliffe

The liability of software developers for writing blockchain software has been raised in two recent developments.



Blockchain and crypto advisor position establishedHR 4346, which President Joe Biden signed into law on August 9, 2022, created a blockchain and cryptocurrencies advisory specialist position that will be established within the Office of Science and Technology Policy to coordinate federal activities and advise the President on matters of research and development relating to blockchain, cryptocurrencies, and distributed ledger technologies.

House Committee seeks data from cryptomining companies on environmental impacts of PoW. On August 17, leaders of the US House Energy and Commerce Committee announced that they had written to four cryptomining companies, seeking information on how each company is mitigating environmental and energy impacts of blockchain technology. The letters assert concerns with the companies' consumption of "immense" amounts of energy for proof of work (PoW) consensus mechanisms, driving up electric grid peak demand. "While blockchain technology is emerging as a potentially important tool in fighting climate change, increasing demand on the grid and burning more fossil fuels to power PoW cryptomining facilities only serves to undermine the potential climate benefits of blockchain technology and hold us back from achieving our climate pollution reduction goals.” The letters seek answers to several questions, including how much energy did the company's facilities use in 2021, what energy sources serve the company's facilities, and how many days have the companies curtailed cryptomining to support grid stability. Responses are required before September 17.

Digital assets

White House releases framework for responsible development of digital assets. On September 16, the White House announced receipt of nine reports (including the ESG report discussed below) in response to President Biden's Executive Order 14067 on Ensuring the Responsible Development of Digital Assets. According to the announcement, these reports collectively "articulate a clear framework for responsible digital asset development and pave the way for further action at home and abroad." The announcement describes additional actions to be taken by the Biden-Harris Administration, including:

  • encouraging regulators " to aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space" and "redouble … efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices" and
  • considering agency recommendations to "create a federal framework to regulate nonbank payment providers" and evaluate "whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-foff statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms."

Virtual currency

White House issues report on ESG impacts of crypto-assets. On September 8, the White House Office of Science and Technology Policy (OSTP) announced publication of its report Climate and Energy Implications of Crypto-assets in the United States. The report was issued in response to President Biden's Executive Order 14067 on Ensuring the Responsible Development of Digital Assets, and makes the following recommendations "to ensure responsible development of digital assets:"

  • Minimize greenhouse gas emissions, environmental justice impacts, and other local impacts from crypto-assets
  • Ensure energy reliability
  • Obtain data to understand, monitor, and mitigate impacts
  • Advance energy efficiency standards
  • Encourage transparency and improvements in environmental performance
  • Further research to improve understanding and innovation

Banking regulators 

Federal Reserve Board publishes letter regarding crypto-asset-related activities by Board-supervised banking organizations. On August 16, the Federal Reserve Board provided further information for banking organizations engaging or seeking to engage in crypto-asset-related activities. The supervisory letter outlines steps that the Board expects Board-supervised banks to take, such as assessing whether activities are legally permissible and determining whether regulatory filings are required. Board-supervised banks should notify the Board before engaging in crypto-asset-related activities.

Senator Toomey sends letter to FDIC alleging FDIC deterring banks from doing business with lawful crypto companies. On August 16, Senator Pat Toomey (R-PA) sent a letter to the director and acting chairman of the Federal Deposit Insurance Corporation (FDIC) stating that it had come to his attention that the FDIC may be improperly deterring banks from doing business with lawful crypto companies. Senator Toomey wrote that he received this information from affected parties and protected whistleblower communications. He asserted that, according to corroborated whistleblower communications, FDIC personnel are urging FDIC regional offices to send letters to multiple banks requesting that they refrain from expanding relationships with crypto-related companies, without providing any legal basis for doing so. Senator Toomey requested that the FDIC provide written answers to a variety of questions regarding whether the FDIC has instructed, requested, or suggested that banks refrain from doing business with or expand business with crypto companies, as well as whether the FDIC legal division has given an opinion on the legality of the FDIC engaging in such actions.

FDIC issues cease-and-desist letters to five crypto companies regarding false and misleading statements about FDIC deposit insurance. On August 19, the FDIC issued cease-and-desist letters to five companies regarding false representations made that stated or suggested that certain crypto-related products were FDIC-insured or that stocks held in brokerage accounts were FDIC-insured. This follows the FDIC’s letter on July 29, regarding deposit insurance and dealings with crypto companies.


OFAC updates FAQs to address sanctions against Tornado Cash. Due to the US Department of the Treasury's Office of Foreign Assets Control (OFAC) 's issuance of sanctions against the virtual currency mixer Tornado Cash (see our August 2022 issue), OFAC has updated its online FAQs to respond to questions of US persons.

Congressperson seeks clarification on OFAC Tornado Cash sanctions. On August 23, US Representative Tom Emmer published a letter to US Treasury Secretary Janet Yellen asking for clarification on OFAC's "first-of-their-kind" sanctions against "privacy-enabling" code used by Tornado Cash. According to the letter, OFAC sanctioned the "neutral, open-sourced, decentralized technology" consisting of the protocol’s smart contracts, raising questions of national security and the right to privacy of American citizens.


Federal Reserve releases discussion paper on DeFi products. On August 30, the Federal Reserve Board released Decentralized Finance (DeFi): Transformative Potential & Associated Risks, a June discussion paper regarding the risks and benefits of DeFi. The paper concludes that, which DeFi "has come a long way," it has not yet become "systemically important." Nonetheless, the authors suggest that policymakers should give serious consideration to the financial stability issues that could arise as "evidence indicates that DeFi will rapidly exploit any and all profitable opportunities regardless of supervisory concerns."

US Central Bank board vice chair calls for greater crypto oversight. On September 7, Vice Chair for Supervision Michael Barr spoke at the Brookings Institution and addressed needs for oversight of stablecoins, crypto-asset activity, and digital payments. Vice Chair Bar stated that the Central Bank "plan[s] to work with other bank regulatory agencies to ensure that crypto activity inside banks is well regulated, based on the principle of same risk, same activity, same regulation, regardless of the technology used for the activity."

FBI issues PSA on cybercrime in DeFi. On August 29, the US Federal Bureau of Investigation issued a public service announcement warning investors that cybercriminals are increasingly exploiting vulnerabilities in decentralized finance (DeFi) platforms to steal cryptocurrency from investors. Investors who suspect cyber criminals have stolen their DeFi investments are asked to contact the FBI via the Internet Crime Complaint Center or their local FBI field office. Additionally, DeFi platforms are recommended to take certain precautions to avoid hacking.


SEC to add industry office focused on crypto assets. On September 9, the Securities and Exchange Commission (SEC) announced plans to add an Office of Crypto Assets to the Division of Corporation Finance's Disclosure Review Program. The new office will enable the SEC to "provide focused review of issuer filings" by industry expertise and "further the Division's work to promote capital formation and protect investors."

SEC Speaks reveals SEC divided stance on cryptocurrency. On September 8 and 9, the SEC held its conference, SEC Speaks, at which the following members of the SEC spoke regarding the SEC’s position on regulation of cryptocurrency:

  • SEC Chair Gary Gensler: "Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities." Chair Gensler noted that application of the Howey test results in most tokens being investment contracts; therefore, the tokens and the crypto intermediaries interacting with such tokens, must register with and be regulated by the SEC. He directed staff to register the separate functions that a cryptocurrency platform performs "exchange, broker-dealer, custodial functions, and the like– which could result in disaggregating their functions into separate legal entities to mitigate conflicts of interest and enhance investor protection."
  • Director Gurbir Grewal, Division of Enforcement: "[C]ritics are upset because we're not giving crypto a pass from the application of well-established regulations and precedents." Director Grewal explained that the Howey and Reves tests "remain vital and accurate" means of identifying instruments within the SEC's jurisdiction, and the SEC "will continue to bring actions regardless of what label is used or technology is involved (or not)."
  • Commissioner Mark Uyeda: Commissioner Uyeda noted that the issue of how to regulate crypto assets and related services was "conspicuously absent" from the SEC's published regulatory agenda. He asserted that "[t]o the extent that crypto assets raise unique issued not otherwise addressed in the current rule book, the Commission should consider proposing rules or issuing interpretive releases."


Virtual currency

DC Department of Insurance, Securities and Banking issues bulletin on money transmission and virtual currency. On August 8, the District of Columbia’s Department of Insurance, Securities, and Banking (DISB) issued a bulletin addressing money transmission obligations when participants use virtual currencies. DISB stated that, in its view, transactions where entities receive for transmission, store, and/or later take custody of virtual currencies from consumers via kiosks, mobile applications, and/or online transactions, constitute engaging in money transmission. DISB does not view transactions where entities propose to sell virtual currencies from consumers in exchange for cash payments via kiosks or online transactions as engaging in money transmission.

Connecticut Department of Banking issues guidance on money transmission, including for virtual currencies. On July 20, the Connecticut Department of Banking (Department) issued guidance regarding when a money transmission license is required. The Department stated that “any time a person takes possession or control of monetary value belonging to another person for the purposes of holding such monetary value for a period of time or transmitting monetary value to a third party, such person engages in money transmission.” Regarding virtual currency, the Department explained that “[l]icensure may also be required of persons that engage in virtual currency transactions to the extent they take possession or control of virtual currency belonging to another person, or transmit or receive virtual currency for another person.”


New York allows service of process using NFTs. In litigation involving an $8 million hack of LCX, a cryptocurrency exchange, the Supreme Court of New York allowed plaintiffs to deliver service of process to the unknown alleged hacker by depositing an NFT minted from the court paperwork into a wallet that an algorithmic forensic analysis identified as belonging to the hacker. Copies of the temporary restraining order and other legal paperwork were linked on the NFT, as well as a mechanism to track the visitor upon being clicked. If the wallet owner fails to respond to the notification within 30 days, the case will proceed as if the wallet owner pleaded guilty, allowing the stolen digital assets to be frozen.




IRS issues John Doe summons to sFOX. On August 16, the US Department of Justice (DOJ) announced that, on August 15, a federal court in California entered an order authorizing the IRS to serve a Joe Doe summons on sFOX, a cryptocurrency prime dealer, seeking information on US taxpayers who conducted at least $20,000 of transactions between 2016 and 2021. The summons directs sFOX to produce records identifying such US taxpayers and their cryptocurrency transactions. For more information on prior Joe Doe summonses, see our May 2021 issue.


SEC sues crypto assets broker and others with fraud. On September 14, the SEC announced charges against Chicago Crypto Capital LLC, its owner, Brian Amoah, and former salespersons, Darcas Oliver Young and Elbert Elliott for allegedly defrauding investors during their unregistered offering of crypto asset securities. According to the SEC's complaint, from approximately August 2018 through November 2019, CCC, Amoah, Young, and Elliott acted as unregistered broker-dealers and conducted an unregistered offering of BXY tokens, illegally raising at least $1.5 million in proceeds from approximately 100 individuals, making false and misleading statements in the offer and sale of BXY tokens. The SEC seeks injunctive relief, disgorgement with pre-judgment interest, and civil penalties. The SEC has accepted an offer of settlement from Young, in which he consented to the payment of disgorgement and a civil penalty, an associational bar, and injunctive relief. 

Greyscale discloses SEC inquiries and certain cryptos may be securities. As reported on August 27, Greyscale Investments LLC has disclosed in its trusts' public filings that the SEC has been questioning the firm's "securities law analysis" of the native cryptocurrencies of the Stellar (XLM), Zcash (ZEC) and Horizen (ZEN) Trust blockchains. According to the filings, ZEC, ZEN and XLM “may currently be a security, based on the facts as they exist today.”

Latvian extradited for crypto securities fraud and wire fraud. On August 26, the DOJ announced the extradition of Ivars Auzins, a citizen of Latvia, on a six-count indictment, charging him with wire fraud, securities fraud, and conspiracies to commit wire fraud and securities fraud in connection with the operation of eight companies that purported to offer, invest in, or mine digital assets. According to the release, Auzins and the entities induced investors to invest more than $7 million in the entities through a series of material misrepresentations and omissions about the products and services offered and the profits that could be earned.

Virtual currency

EmpiresX head trader pleads guilty to cryptocurrency investment fraud. On September 8, the Department of Justice announced that Joshua David Nicholas, the "Head Trader" for the cryptocurrency platform EmpiresX, pleaded guilty to conspiracy to commit securities fraud in connection with a global cryptocurrency Ponzi scheme that took approximately $100 million from investors. Nicholas faces a maximum penalty of five years in prison. For additional information on the complaint, see our July 2022 issue.

Three persons charged with defrauding banks and cryptocurrency exchange. On August 23, the DOJ announced that Esteban Cabrera Da Corte, Luis Hernandez Gonzales and Asdrubal Ramirez Meza were arrested for participating in a scheme that used stolen identities to defraud US banks of more than $4 million. According to the indictment, the defendants used stolen identities to buy cryptocurrency and then disputed the transactions as unauthorized. This deceived the banks into believing they were the victims of another's fraud, causing the banks and the cryptocurrency platform to reverse those transactions and deposit the ill-gotten gains into the defendants’ bank accounts. The defendants are charged with conspiracy to commit wire fraud and bank fraud, wire fraud, and aggravated identity theft, and face over 30 years in prison.


Chamber of Digital Commerce releases analysis of SEC position on spot bitcoin ETF. On September 12, the Chamber of Digital Commerce announced the release of The Crypto Conundrum, "a detailed analysis of the investing community's pursuit of – and the SEC's increasingly unjustifiable unwillingness to approve – a spot bitcoin ETF." The report argues that a bitcoin exchange traded fund (ETF) would mitigate risks involved in investor custody of cryptocurrency.

Watchdog warns celebrities touting NFTs. On August 8, Truth in Advertising (, an advertising watchdog, announced it sent letters to more than a dozen celebrities who promote NFTs, warning them about Federal Trade Commission disclosure requirements that the endorsement include a clear and conspicuous disclosure of the celebrity's material connection to the NFT company being promoted.


Global Blockchain Business Council updates stablecoin code of conduct. The GBBC Digital Finance’s Stablecoins Working Group has drafted a proposal for the updated Code of Conduct Part VI: Principles for Stablecoin Issuers, as well as updates to the Stablecoins Taxonomy and Key Considerations. The proposal and updates are open for public consultation until September 22 at 17:00 ET.

Digital assets, their environmental impact, and litigation risk in the UK. An ever-growing body of English case law recognizes cryptocurrency and non-fungible tokens (NFTs) as transferable property. Following our recent Business Guide to Climate Disputes, in this article we examine some of the issues around the environmental impact of digital assets and the associated business and environmental risks. Read more.

NFT projects in Germany - legal issues. So far, Germany has no uniform and comprehensive legal framework for non-fungible tokens. However, this does not mean that NFTs move in a legal vacuum. Rather, existing laws can also apply to NFTs in many cases. However, since most of these existing laws were neither enacted against the background of NFTs nor were they adapted specifically for NFTs, numerous application and demarcation problems arise in practice, which can, unfortunately, lead to some legal uncertainty. We provide an overview of some of the legal issues that, based on our experience to date, may repeatedly arise for NFT projects in Germany. Read more.

EU project to fight counterfeiting by using NFTs.