Add a bookmark to get started

Abstract view of canyon
19 November 201919 minute read

Blockchain and Digital Assets News and Trends December

Achieving Digital Transformation and Securing Digital Assets

To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses by developing new offerings based on emerging technologies and integrating these technologies into existing product and service offerings.

This is our ninth monthly bulletin, 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, from copyright protection to voting, most of the current adoption is in the financial services section and the focus of this bulletin will be primarily on the use of blockchain and or smart contracts in that 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

Digital assets can themselves be assets or instead can reflect the ownership of an underlying asset. For example, electronic records that are the equivalents of negotiable instruments and electronic chattel paper would be digital assets, as would an electronic recording of a security interest in the underlying asset, such as recording title to real or personal property and the use of tokens to represent revenue streams from otherwise illiquid assets such as patents and commercial real estate (sometimes referred to as a "tokenized" or digitized asset).

In addition to reporting on the law and regulation governing blockchain, smart contracts and digital assets, this bulletin will also report on the legal developments to support the infrastructure and ecosystems enabling the use and acceptance of these new technologies.

Each issue will feature in-depth insight on a timely and important current topic.  This month, we report on a lawsuit in which a company alleges that the Prepaid Rule violates its right to free speech.   

For related information regarding digital transformation, please see our monthly bulletin, eSignature and ePayment News and Trends.


New lawsuit alleges CFPB Prepaid Rule requires use of certain fee terminology without permitting clarification, thereby violating free speech
By Margo H.K. Tank

In a lawsuit filed in DC federal court on December 12,  PayPal challenged a rule implemented by the Consumer Financial Protection Bureau – the Prepaid Rule, which applies to digital wallets as well as prepaid cards. Learn more.


Digital assets

SEC 2019 annual report on enforcement. On November 6, the SEC Division of Enforcement announced the issuance of its annual report for Fiscal Year 2019. In addition to highlighting a wide range of enforcement cases, the report notes that the SEC reached settlements with three issuers of digital assets; the settlements included tailored undertakings providing a path to compliance with registration requirements and rescission for investors. Click here for DLA Piper's assessment of the report.

Financial Stability Oversight Council issues 2019 Annual Report. On December 4, the Financial Stability Oversight Council issued its annual report. The council includes US financial regulators – among them Treasury Secretary Steven Mnuchin, Federal Reserve Chair Jerome Powell, SEC Commission Chair Jay Clayton, and CFTC Chair Heath Tarbert – who recommended that federal and state officials "continue to examine risks to the financial system posed by new and emerging uses of digital assets and distributed ledger technologies."


SEC approves trade of bitcoin futures. On December 2, the SEC approved the registration statement of Stone Ridge Trust VI to offer institutional investors shares of a new portfolio fund –the New York Digital Investment Group (NYDIG) Bitcoin Strategy Fund – focused on bitcoin futures. The fund will invest in cash-settled bitcoin futures contracts traded on exchanges registered with the CFTC and will not invest in any cryptocurrency directly. NYDIG seeks to raise $25 million through the fund.

SEC announces review of bitcoin ETF proposal. On November 18, the SEC published a notice that it will review the staff's decision to disapprove of the proposed rule change, establishing a comment deadline of December 18 in support of or against NYSE Arca's proposed rule change to list and trade shares of the Bitwise Bitcoin ETF Trust. The SEC’s disapproval of the proposed rule change was reported in our October issue.

SEC extends period for action on proposed Boston Security Token Exchange. On November 29, the SEC issued a Notice of Designation of Longer Period for Commission Action on a proposal by the BOX Exchange LLC relating to the trading of equity securities through an exchange facility to be referred to as the Boston Security Token Exchange LLC. The facility would be a fully automated execution system for trading security tokens that would constitute equity securities meeting specified listing standards and for which ancillary records of ownership could be created and maintained using blockchain technology. The initial proposal was filed on September 27, 2019 and required SEC action by December 2. The extension gives the SEC until January 16, 2020 to approve or disapprove, or to institute proceedings to determine whether to disapprove, the proposal.

SEC Commissioner discusses cryptocurrency regulatory framework. In remarks before the 51st Annual Institute on Securities Regulation, on November 4, SEC Commissioner Hester Peirce stated, "I am concerned about how the SEC has regulated [the cryptocurrency] space, because I believe our lack of a workable regulatory framework has hindered innovation and growth. The only guidance out of the SEC is a parade of enforcement actions and a set of staff guidance documents and staff no-action letters. … Of particular concern is that these enforcement actions and guidance pieces, taken together, offer no clear path for a functioning token network to emerge. Instead, I support creating a non-exclusive safe harbor period within which a token network could blossom without the full weight of the securities laws crushing it before it becomes functional. By allowing legitimate projects to get their tokens into the hands of a broad set of developers and network users without fear of enforcement, we also would allow the SEC’s Enforcement Division to focus its resources on the fraudulent actors in the realm of crypto offerings."


FinCEN reiterates that stablecoin transactions are covered by definition of "money transmission services." On November 15, the director of FinCEN, Kenneth Blanco, gave a talk in which he discussed the applicability of money transmission services requirements to stablecoins and anonymity-enhanced cryptocurrencies (AECs). Mr. Blanco stated that "we can say with complete clarity that for AML/CFT purposes, it should be understood that transactions in stablecoins, like any other value that substitutes for currency, are covered by our definition of 'money transmission services.' …To that point, administrators of stablecoins have to register as MSBs with FinCEN." He further stated that "FinCEN's technology neutral approach also means that other types of activity in convertible virtual currency are already covered by our money transmitter requirements. As highlighted in a prior guidance [covered here], this includes AECs…In practice, this means that whether you are a money transmitter offering bitcoin, ether, or AECs – your obligations under the BSA are the same." "It does not matter if the stablecoin is backed by a currency, a commodity, or even an algorithm – the rules are the same," Blanco said.

Virtual currency

Board of Governors of the Federal Reserve System addresses stablecoins in most recent Financial Stability Report. On November 15, the Board of Governors of the Federal Reserve System (FRB) published its Financial Stability Report, which contained a section titled "Global Stablecoins and Financial Stability." In that section, the FRB stated that the “possibility for a stablecoin payment network to quickly achieve global scale introduces important challenges and risks related to financial stability, monetary policy, safeguards against money laundering and terrorist financing, and consumer and investor protection.”

Fed chair responds to congressmen on digital dollar. Jerome Powell, chair of the Board of Governors of the Federal Reserve System, responded on November 19 to a letter from Representatives French Hill (R-AR) and Bill Foster (D-IL) asking if the Fed was investigating creating its own central bank-issued digital currency (CBDC) and setting forth their concerns regarding the risks to the US dollar if a private entity or another country first creates a widely adopted cryptocurrency. (Details on the congressmen’s letter were provided in our October issue.) Chair Powell explained that the US is not currently pursuing the development of its own CBDC, but the Fed is closely watching news about digital currency regarding other central banks. He further discussed how the Fed "continues to carefully evaluate the costs and benefits of issuing a general-purpose central bank digital currency, defined as a new type of Federal Reserve liability that could be held directly by households and businesses."

Treasury Department expresses concerns with privately issued virtual currencies. On November 21, Deputy Secretary Justin Muzinich of the Treasury Department discussed the challenges posed by virtual currencies in a speech, saying, "We value innovation and welcome efficiency improvements. However, decentralized privately-issued digital currencies are not simply a means of payment, but, depending on their structure, can shift some functions traditionally performed by government to the private sector. Digital currencies at scale raise not only concrete questions about money laundering, monetary policy, and other topics, but also very abstract questions about self-government. Those engaged in digital currency markets should therefore expect that policymakers, in pursuing the public interest, will take a very hard look at these issues."


CFTC issues its 2019 annual report. On November 25, the CFTC Division of Enforcement (DOE) announced the issuance of its Fiscal Year (FY) 2019 Annual Report. The Annual Report highlights the division’s prosecution of various offenses, including commodities fraud and misappropriation of confidential information.

CFTC chairman speaks on digital asset regulation:

  • CFTC Chairman Heath Tarbert, in an op-ed published on November 19, endorsed a principles-based approach to regulation of innovative financial technologies - such as blockchain and digital assets – in derivative markets. “Principles-based regulation involves moving away from detailed, prescriptive rules and relying more on high-level, broadly-stated principles to set standards for regulated firms and products. Companies will then be responsible for finding the most efficient way of satisfying those standards. Such an approach affords greater flexibility to the tech sector.”
  • On November 20, Chairman Tarbert was interviewed on CNBC's "The Exchange" on digital assets and the importance of US leadership. He said, “I want the United States to lead, particularly in the blockchain technology that underlies digital assets…. I think whoever ends up leading in this technology will end up writing the rules of the road for the rest of the world. My emphasis is on making sure that the United States is a leader.” “It's just that for those that are commodities regulated by us, we want to make sure we create an environment where these markets have integrity and we're able to regulate them and they're able to innovate.”


Financial Stability Oversight Committee issues guidance on non-bank financial companies. On December 4, the Treasury Department issued a press release announcing the unanimous approval of the Financial Stability Oversight Committee’s guidance implementing an activities-based approach for identifying and addressing potential risks to financial stability. The guidance also enhances the analytical rigor and transparency of the Council’s process for designating nonbank financial companies as systematically important financial institutions. On December 6, CFTC Chairman Heath P. Tarbert approved and highlighted the guidance in a statement.



NYDFS grants trust charter to digital assets company. On November 19, the New York Department of Financial Services (NYDFS) announced that it had granted a charter under New York banking law to Fidelity Digital Asset Services, LLC (FDAS), to operate as a limited liability trust company. NYDFS has authorized FDAS to provide a virtual currency custody and execution platform, on which institutional investors and individuals can securely store, purchase, sell, and transfer bitcoin. Including the charter granted to FDAS, to date NYDFS has approved 23 charters or licenses for companies engaged in virtual currency business activities.

NYDFS issues virtual currency license to student lending company. On December 3, New York Department of Financial Services announced its grant of approval to a subsidiary of San Francisco-based Social Finance (SoFi) of its applications for virtual currency and money transmitter licenses. The approval will allow trading in the state of digital currencies including Bitcoin, Ethereum and Litecoin on the SoFi Invest platform.

New Jersey grants approval to digital assets custodian and depositary. On November 22, the New Jersey Financial Services Commission website indicated that the Commission has granted regulatory approval for Komainu, a joint venture for cryptocurrency custody and depositary services, to operate as a fund services business in the state.

NYDFS announces updated guidance for crypto listings. On December 11, the NYDFS announced proposed guidance modifying the approval process for listing new cryptocurrencies by evaluating how an exchange approaches a coin’s governance, risk, and monitoring, and allowing for potential self-certification. NYDFS seeks public comment on the following and submissions are due by January 27, 2020:

  1. A proposed DFS web page that will contain a list of all coins that are permitted for the Virtual Currency Business Activities of the VC licensees, without the prior approval of DFS, which list may be updated from time to time, as long as such listed coins have not been subject to any modification, division, or change after their listing on the DFS web page; and
  2. A proposed model framework for a coin-listing or adoption policy that can be tailored to a VC licensee‘s specific business model and risk profile to create a firm specific coin listing or adoption policy (a “company coin-listing policy”) that, if approved by DFS, will enable the licensee to self-certify the listing or adoption of new coins in addition to those listed under 1 above, without DFS’s prior approval.

Digital assets

Wyoming announces custody rules for blockchain banks. During the Fordham Law Blockchain Regulatory Symposium in New York, on November 11, Wyoming Blockchain Task Force President Caitlin Long announced digital asset custody rules for blockchain banks. Wyoming's "blockchain banks" (or "special purpose depository institutions" (SPDIs)) were approved by Wyoming in February. The custody rules allow for banks and non-banks to opt-in to an enhanced regulatory requirement framework for digital asset custody, and address forks, airdrops, staking, customer notice requirements, digital asset lending, and other areas.


Token Taxonomy standards published. On November 4, the Token Taxonomy Initiative (TTI), an industry organization, announced the publication of the Token Taxonomy Framework (TTF) v1.0. The TTF is designed as a set of industry standards for building token-based systems that can "interoperate across the multiple and disparate systems that make up a typical enterprise infrastructure." Using standardized terms and definitions, the TTI asserts that the TTF enables businesses and developers to universally design token-based business goods and services.




Swedish citizen extradited to stand trial for securities fraud. The US DOJ announced on November 18 the extradition of Roger Nils-Jonas Karlsson from Thailand to the United States to stand trial for alleged securities fraud, wire fraud and money laundering. On July 25, 2019, a federal grand jury indicted Karlsson and his company, Eastern Metal Securities (EMS) on a scheme to defraud at least 3,575 victims of more than $11 million. Karlsson was known by several aliases and allegedly used websites to make false representations to potential investors, instructing them to invest cryptocurrencies which Karlsson directed into his personal bank account.

Virtual currency

IRS subpoena of bitcoin trading narrowed by Washington court. The US District Court for the Western District of Washington ruled on November 26 in the case of Zietzke v. U.S., case number 2:19-cv-01234, that the Internal Revenue Service must amend its summons to cryptocurrency trading platform Bitstamp seeking the records of William A. Zietzke, a Washington resident. The court found that the summons exceeded the scope of the IRS’s audit of Mr. Zietzke’s 2016 amended tax return and must be limited to bitcoin holdings and trades conducted by Mr. Zietzke in that year. 


Virtual currency

Claims of negligence and fraud in management of crypto exchange survive motion to dismiss. In Fabian v. LeMahieu et al, 2019 WL 4918431 (ND California Oct. 4, 2019), the court granted in part and denied in part the defendants’ motion to dismiss. The plaintiff’s complaint included federal law claims and multiple state law claims including negligence and fraud, in connection with the defendants’ promotion of a cryptocurrency referred to as Nano tokens or XRB. The defendants included Nano fka BaiBlocks fka Hieusys, LLC (Nano), along with certain founders and promoters of Nano (the Nano defendants) as well as B.G. Services SRL fka BitGrail SRL and its founder (BitGrail). The plaintiff’s claims of negligence, fraud, and negligent misrepresentation survived the defendants’ motion to dismiss based on the plaintiff’s well-pled factual allegations. The court found, in part, that the Nano defendants had a legal duty to exercise reasonable care with respect to the management of XRB and they had breached that duty. The plaintiff’s allegations are summarized as follows: The Nano defendants developed a cryptocurrency, XRB, which they offered, promoted and sold to the public. When popular cryptocurrency exchanges were unwilling to list XRB, the Nano defendants worked with BitGrail to create a BitGrail dedicated cryptocurrency exchange that primarily created and sustained a market for XRB. The Nano defendants used social media and other publicity to direct the public to buy, store, and trade XRB at the BitGrail Exchange, including by providing assurances that the exchange was secure and that transactions in XRB were instant, with no fees, and scalable. In late 2017, the BitGrail Exchange began having problems causing user verification issues, account balance miscalculations, and duplicate processing of one-time transactions. Despite the issues, the Nano defendants continued to represent the BitGrail Exchange as secure and reliable. In early 2018 over 15 million XRB with a value of approximately $170 million was “lost” due to “unauthorized transactions.” BitGrail then suspended all account activity on the BitGrail Exchange, making all withdrawals impossible and causing the plaintiff to lose his investment, which was, at that time, worth approximately $275,000.

Two Massachusetts men arrested on charges of cryptocurrency theft. The Department of Justice issued a press release on November 14 describing the arrest of Massachusetts residents Eric Meiggs and Declan Harrington on an 11-count indictment for crimes including wire fraud, aggravated identity theft, and computer fraud, resulting from a scheme targeting victims with large amounts of cryptocurrency to take over their social media accounts and steal their cryptocurrency using “SIM swapping,” hacking and other methods.

New York sentences cryptocurrency ICO marketer to 18 months. The District Court for the Eastern District of New York announced the sentencing of Maksim Zaslavskiy, the former owner and operator of initial coin offerings (ICOs) Recoin Group Foundation LLC and Diamond Reserve Club, to 18 months in jail for conspiring to commit securities fraud. The conspiracy stemmed from two ICOs – REcoin Group Foundation, LLC and DRC World, Inc., also known as Diamond Reserve Club  – which Zaslavskiy and others fraudulently marketed to the public. The amount of restitution will be determined by the court at a later date.

CEO of Shopin pleads guilty in fraudulent ICO. The New York Attorney General’s office announced on December 12 that Eran Eyal, CEO of Shopin, pled guilty to, and was convicted of, felony securities fraud and two counts of scheme to defraud in connection with a fraudulent initial coin offering in a new cryptocurrency, Shopin, and related to his operation of two prior companies.  Eyal was required to resign as CEO of Shopin and was ordered to pay $125,000 in restitution and $475,000 in judgments to investors in one of the prior companies, and to surrender approximately $450,000 in cryptocurrency received from Shopin investors.

Recent Publications

M. Tank and D. WhitakerLaw of Electronic Signatures, 2019 Edition


In the inaugural issue of AI Outlook, we review the latest developments around AI in Washington and discuss what these bills and trends mean for business.

More from DLA Piper

DLA Piper is pleased to announce the release of a special report, "Cryptocurrency and its impact on insolvency and restructuring," prepared on behalf of INSOL International. Among its findings: the rise in the use of cryptocurrencies has begun to create difficulties for the administration of bankruptcy cases.

In case you missed it

Our TechLaw podcast series

The November 2019 issue of eSignature and ePayment News and Trends

Read these next

Effective January 1, 2020, a game-changing privacy law will go into effect in California, the California Consumer Privacy Act of 2018. The CCPA will have profound implications for businesses that collect personal information about persons in California, even if the business is not based in the state. Find out more on our CCPA focus page. 

DLA Piper discusses tokenization in real estate in the latest installment of our new series, PropTech in the United States – where we're heading.

DLA Piper has released an analysis of the July 31 FCA policy statement PS19/22: Guidance on Cryptoassets, which sets out the FCA's final guidance on whether dealings involving cryptoassets require authorisation under FSMA.


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

    Margo H.K. Tank

    Mark Radcliffe

    Michael D. Hamilton


    Martin Bartlam

    Mary Dunbar

    Tom Geraghty

    Claire Hall

    Jeff Hare