Legal Bi-Weekly Update

Friday 24th February

• The US SEC charged Singapore-based Terraform Labs and its CEO Do Kwon with “orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.” Terraform and Kwon “repeatedly misled and deceived investors” while marketing LUNA and UST, according to the complaint. It also alleges LUNA and UST are securities.

• The US SEC proposed a rule change for custody by registered investment advisors.

• Crypto exchanges in Canada have until 23 March to “pre register” with authorities or cease operations in the country. Commitments required from exchanges include segregation of crypto assets and retaining a Chief Compliance Offering. Exchanges are precluded from offering leveraged products and are prohibited from allowing users to buy or deposit stablecoins without the prior written consent of the Canadian Securities Administrator.

• Israel’s Central Bank published its proposed stablecoin rules, including a licensing obligation for issuers and a 100% reserve requirement. Algorithmic stablecoins may be banned if they become popular. The proposals are open to public feedback until 15 March.

• The UK Jurisdiction Taskforce released a statement on the issuance and transfer of equity and contractual securities on DLT-based systems.

• The European Commission announced its European Blockchain Regulatory Sandbox. It will annually accept cohorts of 20 blockchain use cases.

• Norwegian authorities seized US$5.8 million worth of crypto assets taken by North Korean hackers in the Axie Infinity hack.

• Binance Australia’s derivatives business is under review by the Australian Securities and Investments Commission (ASIC), after the exchange said it incorrectly tagged 500 of its users in the country as wholesale investors.

• Dapper Labs’ request to dismiss a class action lawsuit against its NBA Top Shot NFTs was rejected. The claimants allege that the NFTs are securities and the judge agreed this claim is plausible enough for the case to move forward.

• A Colombian court held its meeting in the metaverse.

• Paxos ceased minting BUSD after an order from the New York Department of Financial Services, which had identified “several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.” The ball reportedly got rolling after stablecoin issuer Circle told NYDFS that Binance did not have sufficient reserves to back the BUSD issued by Paxos. Paxos, licensed by the NYDFS to issue BUSD on Ethereum, terminated its relationship with Binance.

• Custodia’s bid to become a member of the Federal Reserve system has been rejected - again.

• A US judge dismissed a class action brought against Maker Ecosystem Growth Foundation and Maker Ecosystem Growth Holdings, Inc. in relation to “Black Thursday” on 12 March 2020.

• SBF faces new criminal charges of unlawful political donations.

• The FTC is investigating Voyager’s deceptive and unfair crypto marketing.

• “Crypto assets have been more of a disappointment than a revolution for many users,” according to the IMF. It still sees promise in blockchain technology for tokenization and automation in payments, although it is not convinced the private sector can deliver those promises safely and efficiently.

• The Chinese government reportedly is using Hong Kong as a crypto testing ground.

• Law firm K&L Gates published Solving Failures in NFT Licensing.

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

Podcasts: Unchained podcast on Paxos, BUSD, UST proceedings and the SEC, with Polygon Labs’ Chief Policy Officer Rebecca Rettig and Coinbase’s Chief Legal OfficerPaul Grewal; and the Law of Code podcast on LexPunK highlights from 2022, disclosures, sufficient decentralization, crypto native legal remedies and more.

February 24, 2023

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