An issuer of a coin or token in an initial coin offering “generally” is a money transmitter under Financial Crimes Enforcement Network’s regulations, FinCEN indicated in a letter it made public on March 6, 2018. 

On March 7, 2018, the SEC’s Enforcement Division and its Trading & Markets Division issued a joint “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”[1]  The release appeared to be the strongest signal yet of a broadening of the SEC’s enforcement and regulatory interest beyond its focus since last year on the need for certain coin offerings to be registered or to qualify for an exemption as private placements.

On March 6, 2018, in a decision on the CFTC’s motion for a preliminary injunction and the pro se defendant’s motion to dismiss, United States District Court Judge Jack Weinstein in the Eastern District of New York ruled that virtual currencies are “commodities” as that term is used in the Commodity Exchange Act and CFTC Regulations.  Moreover, the court confirmed that a provision added to the CEA by the Dodd Frank Act, and regulations promulgated thereafter, provide the CFTC with jurisdiction over fraudulent transactions in the cash market for virtual currency even if the activity does not involve a futures or swap trade.

While the SEC's Division of Corporate Finance has begun to explore ways to distinguish between utility tokens and securities, Arizona and Wyoming have already proposed legislation designed to provide a more definitive framework to ICO regulation.  The proposed legislation illustrates the trade-off that regulators are faced with: fostering the growth of the ICO market by providing clear-cut rules or ensuring investor protection by adopting a policy-driven approach that suffers from line-drawing problems.

In what promises to be the start of a significant legal fight over the government’s ability to regulate initial coin offerings, or ICOs, under the federal securities laws, a Brooklyn man has moved to dismiss criminal securities fraud charges, arguing that digital coins are not “securities” within the meaning of the securities laws.

The SEC Division of Trading and Markets held a panel discussion and workshop at the PLI SEC Speaks program on February 24, 2018, where the implications of blockchain technology for securities markets was a prominent topic of discussion.  However, the discussions reveal that the staff is in the early stages of assessing the issues and determining the appropriate application of Exchange Act rules to the new technology.