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16 November 202219 minute read

Blockchain and Digital Assets News and Trends - November 2022

Achieving Digital Transformation and Securing Digital Assets

This is our eleventh 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.


Minnesota and Wisconsin include income from NFT sales within the sales tax base

By Tom Geraghty and Kali McGuire

The taxability of non-fungible tokens (NFTs) has been subject to significant debate throughout their relatively short existence. As reported in this newsletter previously, some states (eg, Washington and Pennsylvania) have announced their intention to subject NFTs to sales tax. Wisconsin and Minnesota recently made similar announcements. Read more.

SEC wins again on Howey token analysis, this time against LBRY

By Michael Fluhr

In one of the few cases to address the application of the Howey test to blockchain-based assets, on November 7, 2022, the US District Court for the District of New Hampshire granted summary judgment to the SEC in an enforcement action alleging that defendant LBRY, Inc.’s LBC tokens constituted securities, which were sold without registration in violation of Section 5 of the Securities Act. Read more.

Form 1040 instructions provide guidance on digital asset transactions for the 2022 tax season

By: Tom Geraghty and Kali McGuire

On October 17, the IRS released new draft instructions for the 2022 Form 1040 that provide some limited guidance on reporting digital asset transactions and a newly expanded definition of “digital assets" for this purpose. Since the new reporting question was released back in September, taxpayers have been anticipating what further guidance may be contained in the 2022 Form 1040 instructions given the expanded scope of the question. Read more.

What should customers expect from the FTX bankruptcy? Lessons learned from MF Global and similar cases

By: Noah SchottensteinRachel AlbaneseStuart BrownDennis O’DonnellDeborah R. Meshulam and Eric Forni

The crypto markets were rocked again last week by the collapse and bankruptcy of FTX and Alameda Research. Within a few short days, Sam Bankman-Fried (SBF) and his companies went from a stabilizing force for markets and acting as an industry leader to causing one of the greatest disruptions in digital asset market history. Read more.

NFTs and secondary royalties

By Mark Radcliffe

The promise of royalties on secondary sales has attracted many artists to NFTs. These royalties can be substantial – Galaxy Insights reported that secondary royalties totaled $1.8 billion to Ethereum-based NFT collections: $147,602,791 for Yuga Labs, $82,015,895 for Art Blocks and $52,061,077 for Chiru Labs (Azuki). Yet such secondary royalties cannot be implemented automatically with current technology and require action by the relevant platform. Read more.



OFAC updates FAQs to address sanctions against Tornado Cash. On November 8, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) announced it simultaneously delisted and redesignated Tornado Cash "for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of," the government of the Democratic People's Republic of Korea and "for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain." OFAC also issued a new FAQ to provide additional compliance guidance and updated three existing FAQs.

FinTech and banking

OCC announces Office of Financial Technology. On October 27, the Office of the Comptroller of the Currency (OCC) announced it will establish an Office of Financial Technology early next year to bolster the agency’s expertise and ability to adapt to a rapidly changing banking landscape. The Office of Financial Technology will be created in early 2023 and will build on and include the Office of Innovation. In testimony before Congress on November 15, Acting Comptroller of the Currency Michael Hsu also confirmed that the OCC would continue its "careful and cautious" approach to crypto activities by financial institutions.

FDIC Acting Chair speaks on crypto-asset regulation. On October 20, Martin J. Gruenberg, Acting Chair of the Federal Deposit Insurance Corporation (FDIC), spoke on the "prudential regulation of crypto-assets." He said the FDIC's approach to engaging with banks on crypto-asset activities will be "cautious and deliberate" and will be developed once the FDIC receives responses to the financial institution letter issued earlier this year, (see our April 2022 issue) and can provide "case-specific supervisory feedback." Mr. Gruenberg also discussed the potential benefits, risks and policy questions related to the development and use of a stablecoin in the "broader payments system." He asserted that "there may be merit in continuing to examine the potential benefits associated with payment stablecoins … designed specifically as an instrument to satisfy the consumer and business need for safe, efficient, cost-effective, real-time payments." Such payment stablecoins could be "significantly safer than the stablecoins currently in the marketplace" if they were subject to prudential regulation, required to be backed dollar-for-dollar by high-quality, short-dated US Treasury assets and transacted on permissioned ledger systems with robust governance and compliance mechanisms.


CFTC releases annual enforcement results. On October 20, the Commodity Futures Trading Commission (CFTC) announced the release of the agency's enforcement results for Fiscal Year 2022. Of the CFTC's 82 enforcement actions, digital asset actions represented more than 20 percent of all actions filed. For more information on some of the highlighted CFTC actions, see our October 2022 issue (Digitex, bZeroX and Ooki DAO), July 2022 issue (Steynberg), and June 2022 issue (Gemini Trust)


Virtual currency

NY Fed issues results of CBDC project. On November 4, the Federal Reserve Bank of New York (FRBNY) announced issuance of a report on the Phase I results of Project Cedar. Phase I of the Project Cedar experiment examined the potential application of distributed ledger technology, specifically blockchain, to enhance the functioning of cross-border payments through the use of “a theoretical wholesale central bank digital currency (wCBDC).” The 12-week experiment included the development of a wCBDC prototype and "revealed that wholesale cross-border digital currency transactions supported by blockchain technology can deliver fast and safe payments." The experiment "simulated a foreign exchange (FX) spot trade" and revealed three key findings of: faster payments, atomic settlement and safer and accessible transactions.

NY Fed announces digital dollar proof of concept. On November 15, the FRBNY announced the start of the Regulated Liability Network US Pilot, a 12 week digital dollar pilot with several US financial institutions to "explore the feasibility of an interoperable network of digital central bank liabilities and commercial bank digital money using distributed ledger technology."  The regulated liability network (RLN) is a concept for a financial market infrastructure (FMI) facilitating digital asset transactions that connect deposits held at regulated financial institutions using distributed ledger technology. The theoretical FMI provides a multi-asset, always-on, programmable infrastructure containing digital representations of central bank, commercial bank, and regulated non-bank issuer liabilities, denominated in US dollars. At the conclusion of the proof of concept, the FRBNY will issue a report summarizing the findings, an outline of guidelines for FMI participants, and a legal assessment of finality of settlement of the RLN.

California DFPI determines issuing tokenized versions of US dollars or securities is not money transmission. On November 3, the California Department of Financial Protection and  Innovation issued an opinion letter to a cryptocurrency exchange platform, which intended to enable purchase and conversion of its own stablecoin hinged to the US dollar for persons controlling their own wallets. Additionally, the platform would, through an affiliated broker-dealer, enable trading in "cryptographic representations of publicly listed securities" in the form of platform-issued tokens. The platform holds the security in its affiliate's brokerage account and mints the token representing the ownership of that security. The token is delivered to the customer and enables the customer to transact on the platform using the token. The DFPI determined that, at this time, the platform was not required to obtain a money transmission license for this activity.




SEC charges four persons in $295 million crypto Ponzi scheme. On November 4, the Securities and Exchange Commission (SEC) announced charges against Douver Torres Braga, Joff Paradise, Keleionalani Akana Taylor, and Jonathan Tetreault for their roles in Trade Coin Club, "a fraudulent crypto Ponzi scheme that raised more than 82,000 bitcoin, valued at $295 million at the time, from more than 100,000 investors worldwide." The SEC complaints allege that Trade Coin Club (TCC) was a multilevel marketing program that operated from 2016 through 2018 and promised profits from the trading activities of a purported crypto asset trading bot which the defendants purported as making "millions of microtransactions" every second, enabling investors to receive a minimum return of 0.35 percent daily. The complaint asserts violations of the antifraud, securities registration, and broker-dealer registration provisions of federal securities laws. One defendant agreed to settle the charges without admitting or denying the allegations.

SEC halts crypto asset-related fraud victimizing Latino investors. On October 3, 2022, the SEC announced the filing of a complaint against Mauricio Chavez, Giorgio Benvenuto, Crypto FX, LLC and a company owned by Mauricio Chavez and Giorgio Benvenuto called CBT Group, LLC for defrauding Latino community investors in a Ponzi scheme. The complaint alleges that, despite having no training in investments and crypto assets, the defendants offered paid classes to Latino community investors to empower them to build wealth. The SEC contends that the defendants raised over $12 million in funds and that the seminars were merely conduits for soliciting investors to give their money to CryptoFX. Defendants diverted almost $8 million of those funds for their use personal use. The SEC complaint charges defendants for violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b), and Rule 10b-5 of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint also charges Chavez with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Chavez and CryptoFX with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.


CFTC bans Texan from trading and registration. On November 4, the CFTC announced it issued an order filing and settling charges against Jeremy Rounsville, aka David Peterson, of Texas, requiring him to pay a $177,000 civil monetary penalty, permanently banning him from soliciting or trading in commodity interests and virtual currencies, or registering with the CFTC in any capacity, and requiring him to cease and desist from any further violations of the Commodity Exchange Act and CFTC regulations. The order found that Rounsville misrepresented himself as CEO of a virtual currency trading website and fraudulently solicited customers on its behalf, which solicitations included claims that the website would take advantage of arbitrage opportunities across virtual currency trading platforms to lock in immediate profits for its customers.



SDNY denies motion to dismiss, allowing government to prosecute "insider trading" of NFTs. In US v. Nathaniel Chastain, Slip Copy 2022 WL 13833637 (SDNY October 21, 2022), the court denied defendant Nathaniel Chastain’s motion to dismiss his indictment for insider trading. Federal prosecutors alleged in the indictment that, while Chastain was an OpenSea employee, he was responsible for selecting NFTs for showcase on OpenSea’s homepage. Selection for showcase would increase the value of the NFTs, and prosecutors alleged that Chastain purchased dozens of NFTs shortly before they were featured and then sold them shortly thereafter for profit. Based on these allegations, the indictment charged Chastain with wire fraud. The indictment also alleged Chastain concealed his trading through use of anonymous Ethereum blockchain accounts, committing money laundering.

Chastain moved to dismiss on three grounds, all of which were rejected by the court. The court summarily rejected the first two arguments as concerning the sufficiency of evidence, not the adequacy of the allegations. Chastain also argued that an insider trading wire fraud charge requires "the existence of trading in securities or commodities." The court rejected this argument as wholly without merit, reasoning that, unlike the insider trading prohibition contained in federal securities regulations which requires trading in a security, the federal wire fraud statute contains no such specific requirement. The court upheld the wire fraud charge without defining the asset class for NFTs. For information on the complaint, see our June 2022 issue.

Crypto banking

Wyoming crypto bank allegations of unreasonable delay in processing master account application survive dismissal. In Custodia Bank, Inc. v. Federal Reserve Board of Governors & Federal Reserve Bank of Kansas City, 2022 WL 16901942, at *5 (DWY Nov. 11, 2022), the court contemplated whether federal reserve banks have discretion in granting master account applications and if there was a substantiated claim of unreasonable delay in processing plaintiff's application. Custodia Bank is a Wyoming Special Purpose Depository Institution which provides custody services for digital assets and otherwise facilitates cryptocurrency banking. Custodia applied in October 2020 with the Federal Reserve Bank of Kansas City (FRBKC) for a Federal Reserve master account. During this two-year period, Custodia has accessed the Federal Reserve through a correspondent bank that has a master account, which arrangement "is much costlier and introduces counterparty credit risk and settlement risk that would" be avoided with its own master account. Custodia sued, seeking an order compelling the Federal Reserve to promptly decide the application or compelling the Federal Reserve to grant the application. In response to the Federal Reserve's motion to dismiss the complaint for failure to state a claim, the court stated that the development of facts is needed before determining whether the Federal Reserve and the FRBKC are agencies subject to the Administrative Procedure Act and its requirements to conclude matters "within a reasonable time." The court found Custodia's claim of unreasonable delay plausible because the application form describes that "processing may take 5-7 business days" and a representative of FRBKC had informed Custodian that there were "no showstoppers" with Custodia's application. Additionally, the court required additional facts to determine whether that the Federal Reserve and the FRBKC were granted by Congress full discretion to grant or deny a master account application as a matter of law.

Virtual currency

State securities regulators issue cease and desist orders against virtual casino. This past month, the state securities boards of TexasKentucky, and Alabama issued cease and desist orders against Slotie, a metaverse casino. The orders prohibit Slotie from issuing NFTs which allegedly enable a "profit-sharing agreement" for shared ownership of the revenue generated by the utilization of the casino's online NFT-based slot machines. According to the announcement, the orders assert that the NFTs constitute unregistered securities.


FASB "tentatively" adopts crypto-asset accounting standard. At an October 12 meeting of the Financial Accounting Standards Board (FASB), the FASB made a "tentative Board decision" to require entities to measure crypto-assets at "fair value," and recognize fluctuations in fair value in "comprehensive income" each reporting period. This is reportedly a change to the current accounting method which calls for treating crypto assets as "intangible assets" and valuing them at their lowest price during any reporting period. The FASB's decision is tentative and may be changed prior to final adoption of a standard, expected in early 2023.


Chainalysis issues 2022 Geography of Cryptocurrency Report. The report covers cryptocurrency adoption and usage around the world.

EU Blockchain Observatory publishes new report on Blockchain for supply chain transparency. On October 18, the EU Blockchain Observatory and Forum announced the release of a new report which addresses issues and use cases related to the use of blockchain to enable transparency in supply chains. The report addresses:

  • problems in supply chains and ways to achieve transparency
  • ongoing changes in supply chain management and ethics, including working conditions, environmental issues and extended supply chains
  • specific use cases for blockchain, including the carbon markets and
  • a discussion of existing market blockchain solutions in supply chains.

Singapore banking authority pilot for digital assets and DeFi goes live. On November 2, the Monetary Authority of Singapore (MAS) announced that "the first industry pilot under MAS’ Project Guardian that explores potential decentralised finance (DeFi) applications in wholesale funding markets has completed its first live trades.” The pilot included foreign exchange and government bond transactions against liquidity pools comprising tokenized Singapore government securities bonds, Japanese government bonds, Japanese Yen (JPY) and the Singapore Dollar (SGD). It also included a successful “live cross-currency transaction involving tokenised JPY and SGD deposits."


Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, includes chapters by Meshulam and Fluhr and by Margo H.K. Tank and Andrew Grant.


TOKO - Using tokenization to boost property syndicate investment in New Zealand

Future-proofing real estate businesses with ESG metrics and blockchain technology

Creating an insider trading policy for your company’s digital assets: why to write one and what to consider

The Ethereum Merge: What does the hard fork mean for my NFT licenses?

Verra contemplates future of crypto instruments and VCUs

The crypto crash: a catalyst for further crypto litigation?

Listen to our podcasts and webinars

Casey Sobhani joined Neil Mandt, Founder and CEO of Metaverse Rights, and Steve Weikal, Industry Chair at MIT Real Estate Technology Initiative (RETi), for Digital & Physical: What the Metaverse Means for Real Estate.

Tech Disputes - Looking to the Future - podcasts

  • In the first episode of Tech Disputes – Looking to the Future, Phillip Kelly and Dan Jewell discuss NFTs from an English law perspective, covering issues relating to the rights acquired when purchasing NFTs, the risk of fraud and how to guard against it, and the regulatory framework applicable to NFTs and how it might develop. The podcast is on Apple PodcastsSpotifyLinkedIn, and the DLA Piper website.
  • In the second episode of Tech Disputes – Looking to the Future, Phillip Kelly and Dan Jewell discuss smart legal contracts from an English law perspective and the issues businesses need to be aware of when embedding smart contract technology into their legal agreements. The podcast is available on Apple PodcastsSpotifyLinkedIn, and the DLA Piper website.

Law of Code podcast Can't Be Evil NFT licenses featuring Mark Radcliffe.


Learn more about our Blockchain and Digital Assets practice by contacting any of our editors:

Margo H.K. Tank
Mark Radcliffe
Liz Caires
Martin Bartlam
Guy E. Flynn

The editors send their thanks and appreciation to Marc Aronson and Raymond Janicko for their contributions to this and prior issues.