SEC Address Cryptocurrency & Blockchain; Activities and application of the ETF

The SEC has been involved in dealing with issues related to blockchain and crypt in the last two weeks.

ETF Activities

The SEC rejected, for the second time, a request from the Winklevoss brothers for a negotiated Bitcoin-fund exchange. The main reason given by the SEC was that the presentation did not sufficiently explain how the ETF would have prevented manipulation and fraud. The SEC previously expressed further concerns with cryptographic ETFs regarding liquidity, price manipulation and custody. It is interesting to note that SEC Commissioner Hester M. Peirce expressed a strong disagreement with the refusal, stating that the refusal "sends a strong signal that innovation is not welcome in our markets, a signal that can have effects far beyond the fate of bitcoin eTPES. " [19659004] The Winklevoss brothers are not the only ones interested in a crypto ETF.

The SEC announced that it would delay until September 21st a decision on another Bitcoin ETF request submitted for the Direxion ETFs. Arca Inc. submitted a request to change the rules in January of this year to get approval to negotiate five BTC ETFs. The SEC said it was appropriate to postpone the review for sufficient time to consider this proposed rule change.

Despite the lack of positive results on the demands of the ETF, Bitwise is joining the fray. He filed a request to the SEC for his cryptographic ETF. Bitwise proposed a named ETF, HOLD10 Cryptocurrency Index. As the name suggests, it will include 10 cryptocurrencies that monitor the fund of the private HOLD 10 index of Bit Wise launched last year.

Investigations and enforcement activities

The SEC commissioned a lawyer and a law firm with illegal sales of stock blockchains. According to the complaint, the duo made about $ 1.4 million by selling shares of UBI Blockchain Internet Ltd. over a period of 10 days from December 26, 2017 to January 5, 2018. Sales stopped when the SEC temporarily suspended trading in UBI Blockchain shares at the start of this year due to concerns about the accuracy of the assertions in its SEC documents and unusual and unexplained market activity.

According to an SEC statement: "This case is a prime example of why the SEC has warned retail investors to be cautious before buying shares in companies that suddenly claim to have a blockchain business. involving both a trading suspension and holders of restricted stocks who attempted to profit from the dramatic price increase with sales of illegal actions that violated the registration declaration. "

Consistent with the previously published guidelines on Corporate information, the SEC has sued the documents from Long Blockchain. Recalling the companies that added ".com" to their names in the early days of the Internet, Long Blockchain, a beverage producer, made headlines last year when he changed his name from Long Island Ice Tea to Long Blockchain, which he caused the peak of stocks and then later crashed. It was subsequently removed from NASDAQ in April of this year.

The SEC has clarified that it is "looking closely at the revelations of public companies shifting their business models to exploit the perceived promise of generalized register technology."

Long Blockchain disclosed the July 10 summons in an 8-K presented on July 26th. A similar subtitle was released at Riot Blockchain some time ago. These investigations appear to be ongoing. We will continue to monitor this problem. In the meantime, be careful to rename a company to include the blockchain without sufficient commercial justification and clear information.

On another front, the SEC has focused on the encrypted business practices of several brokers. Apparently, the survey focuses on the commissions generated by trading, financing and the initial supply of coins. Previous reports indicate that the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA) are also examining these issues.

These actions continue to demonstrate that regulatory bodies are focused on clean fraud and other commercial practices in the sector. The adoption of best practices and the guarantee of regulatory compliance are no longer optional in the encrypted world.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

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