Legal Bi-Weekly Update

Friday 10th February

• Crypto exchange Kraken discontinues its staking services after a $30 million settlement with the US SEC.

• A UK court rejected Craig Wright’s copyright claim to the Bitcoin blockchain. A separate lawsuit by Wright, against 15 Bitcoin developers, has been allowed to go to trial.

• The UK doubles down on crypto consultations. The Treasury is seeking feedback on plans for a future financial services regulatory regime to crypto assets, which covers DeFi in a dedicated chapter. The consultation reflects the government’s intention to increase the appeal of the UK as a crypto hub, although with some added guardrails in light of the FTX collapse; the consultation closes on the 30th April. The Treasury also offered a temporary bespoke exemption for the financial promotion of certain crypto asset services and financial promotion rules for the crypto industry. The Bank of England and the Treasury also published a joint consultation on a digital pound, asking for feedback on privacy, corporate use and financial inclusion, among other things. Feedback can be submitted until the 7th June.

• Dubai’s Virtual Assets Regulatory Authority (VARA) issued its Virtual Assets and Related Activities Regulations 2023. Licensed VASPs will need to comply with four rulebooks, including one on market conduct. Additional rules apply to seven activities, from crypto advising to broker-dealer services and remittances. Issuing and marketing crypto is also regulated.

• Former Coinbase manager Ishan Wahi pleads guilty to conspiracy to commit wire fraud, in what prosecutors call the first crypto insider trading case.

• Stablecoin issuer Paxos is being probed by the New York Department of Financial Services.

• India’s digital rupee onboards 50,000 users and 5,000 merchants, including retail giant Reliance.

• Secondary transfers of crypto on marketplaces does not create investment contracts, Cohen et al. argued in an extensive article reviewing US appellate case law on the Howey test. The argument made its way to the courtroom in the Ripple-SEC litigation. The judge clarified in an appeals hearing that its summary judgment from November, siding with the SEC, did not apply to secondary sales of the LBC token.

Algorithmic stablecoins “will not be accepted”, said the Hong Kong Monetary Authority in its conclusion of a discussion paper on crypto-assets and stablecoins. The authority wants rules requiring full backing and redemption at par by 2023/2024, which will apply to domestic companies as well as overseas entities actively marketing into Hong Kong. Meanwhile the Securities and Futures Commission added four staff to oversee the crypto industry.

Hermès won an IP claim against MetaBirkin NFT creator Mason Rothschild. The jury rejected Rothschild’s claim that the NFTs were protected as free speech under the US Constitution. Instead, it agreed with the luxury brand that the NFT creator violated the brand’s Birkin trademark. The test in Rogers v. Grimaldi was applied to distinguish between artistic expressions and IP infringements. The Rogers test protects the former on the condition that it meets a minimal degree of artistic relevance and does not explicitly mislead consumers.

• In another ongoing case on NFTs and IP law, Yuga Labs settled with a developer who worked with Ryder Ripps on his RR/BAYC NFT collection. Ripps Yuga Labs’s separate lawsuit against Ripps continues.

• South Korea’s Financial Services Commission published guidance on when digital assets are securities under its Capital Markets Act.

• South Korean officials traveled to Serbia to find Do Kwon, co-founder and CEO of Singapore-based Terraform Labs prior to its ecosystem collapse.

• Australia’s Treasury published a consultation on token-mapping, inviting submissions from the public until 3 March.

• Interpol is looking into ways to police the metaverse. Some crimes, such as sexual harassment, are defined in relation to physical environments, making it difficult to apply them to the metaverse, according to Interpol's executive director of technology and innovation Dr. Oberoi.

• A judge allowed FTX lawyers to subpoena SBF family members and close collaborators.

Web3 can boost ‘Cool Japan’, said Japan’s Prime Minister Kishida. “If you consider DAOs, people who are interested in the same social issues can form a new community,” he stated in a parliamentary committee hearing. “NFTs can also be used to diversify the income of creators and maintain highly loyal fans.”

Genesis, Gemini and DCG reached an agreement during bankruptcy proceedings.

• Crypto-friendly bank Silvergate is facing a fraud probe by the US justice department.

• Italy is working on a crypto legal environment in line with the anticipated EU MiCA Regulation, according to the Central Bank governor. An estimated 2% of Italian households hold crypto.

• A US court rejected a class action lawsuit against Coinbase arguing the exchange sold unregistered securities.

• Crypto exchange Bitstamp registers in France.

• China plans to establish a blockchain research centre.

China should review its crypto ban, according to a former People’s Bank of China official.

• YouTube influencer Logan Paul and CryptoZoo face a class action lawsuit claiming a fraudulent NFT venture and rug pull.

• A bill in Argentina is set to give the securities commission the authority to regulate crypto assets. The National Securities Commission plans a consultation on the topic.

• The SEC’s action against Eisenberg, the Mango Markets exploiter, is a win for DeFi, according to Moody’s, creating a “safer and more welcoming environment” for institutional adoption.

Revolving door: Rebecca Rettig moves to Polygon Labs to spearhead the firm’s policy work.

Newsletter: Around the Blockchain’s latest newsletter on crypto & law.

Podcast: The Law of Code - Jason Gottlieb on DAO liability and legal wrappers.

February 10, 2023

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