Lawyers Studying the SEC's Dragonchain Complaint Like "Scripture"

As SEC Leans on Enforcement to Regulate, Crypto Lawyers Study Every Word

What makes a crypto token a security? It’s the central question plaguing the industry, and while the U.S. Securities and Exchange Commission isn’t volunteering an answer, the agency has showed some of its hand in enforcement documents crypto lawyers are studying like scripture.

A complaint against a company selling an alleged unregistered security this week – Dragonchain and its DRGN token – follows on the heels of a more expansive document last month in which the agency spent dozens of pages explaining how AMP and eight other cryptocurrencies should be registered securities. This stream of enforcement language offers a rudimentary guide for other companies wary of the same finding, according to interviews with several industry advisers.

The stakes are high, because any token that’s a security would need to be registered with the SEC and be traded on regulated exchanges – an infrastructure that doesn’t really exist, yet.

Nearly Half of SPACs Are Likely to Liquidate If SEC Rules Are Adopted

The Securities and Exchange Commission’s proposed new rules on special purpose acquisition companies could force almost half of the SPACs that are still searching for a merger partner into liquidation, according to a new report from SPAC Insider.

Those SPACs account for $80.6 billion in capital that is now held in trust, but which would be returned to investors.

Under the SEC’s proposal, a SPAC would need to announce a deal within 18 months from the date of its IPO and close within 24 months in order to avoid falling under the Investment Company Act of 1940.

“As investment companies, their activities would be severely restricted and subject to very burdensome compliance requirements,” wrote Kristi Marvin, the founder of SPAC Insider and author of the report. “Those requirements can get quite expensive, and most SPACs do not have the funds available to pay for it.” As a result, she said, “liquidating would be the most palatable and likely solution in that situation.”

SEC Disgorgement Win Bolsters Ability to Recoup Ill-Gotten Gains

A Florida federal judge’s decision that transfer agent Island Stock Transfer Inc. must pay nearly $115,000 in disgorgement gives the SEC more legal ammunition to go after ill-gotten gains.

Congress last year expanded the Securities and Exchange Commission’s authority to pursue disgorgement even when victims of securities fraud won’t benefit from the payment—effectively overriding a US Supreme Court ruling that curtailed the SEC’s enforcement remedies, a district court judge found.

Aug. 10 decision may be the first to directly address the issue. While not binding on other district courts, the decision gives the SEC a ruling to highlight when arguing for disgorgement in cases where it’s hard to identify or prove that specific individuals were harmed, including in insider trading.

US Asks Theranos Victims to Weigh in Ahead of Holmes Sentencing

The US Justice Department is seeking input from victims of the frauds at blood-testing startup Theranos Inc. committed by Elizabeth Holmes and her second-in-command, Ramesh “Sunny” Balwani.

The US Attorney’s Office in San Francisco on Thursday issued a “call for information” from victims following the separate convictions of the former executives for their roles in the collapse of the company once valued at $9 billion. The federal judge in San Jose, California, who presided over the trials will use the information in determining their sentences, according to a statement from the office.

Court Dismisses Opioid-Related Securities Suit

One of the more distinctive litigation phenomena over the last several years has been the series of securities lawsuits filed against companies related to the opioid crisis. Plaintiffs’ attorneys have filed securities suits against opioid manufacturers, distributors, and even retailers. While a number of these lawsuits have resulted in settlements, several of them have also been dismissed. In the latest opioid-related securities suit to result in a dismissal, on August 17, 2022, the judge presiding over the opioid-related litigation pending against Endo International in the District of New Jersey granted the defendants’ motion to dismiss with prejudice. Although the dismissal is significant, there is more to be taken into account when assessing the opioid-related corporate and securities lawsuits.

US Treasury’s Tornado Cash Sanctions Are ‘Unprecedented’, Warns Congressman

The U.S. Treasury Department’s sanctioning of the Tornado Cash cryptocurrency mixer was an unprecedented move threatening privacy and innovation, according to one U.S. member of Congress. And he thinks Congress should start asking questions.

On CoinDesk TV’s “First Mover” program Thursday, Rep. Tom Emmer (R-Minn.) lays out his concerns with the Treasury Department’s Office of Foreign Asset Control (OFAC) latest moves.

“I didn’t want to make it sound like I’m totally opposed to OFAC looking at this,” said Emmer. “My problem is that this software is controlled by code, not by any person or entity. So if you think about it, the sanctioning of Tornado Cash is an unprecedented shift in the Office of Foreign Asset Control in their sanctioning policy.”