Representation of Investors in EminiFX

According to the US Attorney for the Southern District of New York, and the Commodity Futures Trading Commission, Eddy Alexandre the leader of a purported cryptocurrency and forex trading platform called EminiFX, has been charged with commodities fraud and wire fraud offenses.  

The CFTC also obtained an order from the Court appointing a receive to collect and manage the assets of EminiFX.

Sallah Astarita & Cox, LLC has been contacted by EminiFX investors and is reviewing the matter on their behalf.

The goverment alleges that Alexandre solicited more than $59 million in investments from hundreds of individual investors after making false representations in connection with the EminiFX trading platform.  

The US Attorney's office issued a press release regarding the arrest.

If you were an investor in EminiFX and wish to discuss the matter, please email your contact information to their  EminiFX Investor team at info@eminifx-investors.com

SEC Examing Crypto as Securities

The SEC is attempting to gain regulatory oversight of cryptocurrency products and platforms that may be engaging in the sale and offering of securities. Securities are strictly regulated and require detailed disclosures to inform investors of potential risks. Since the first cryptocurrency (Bitcoin) launched in 2009, the question of how exactly to fit the components of this new, decentralized financial ecosystem into traditional categories has been widely debated.

Are Cryptocurrencies Securities?

The SEC has long held that an “investment contract” is the basic definition of a security. But tokens are not investment contracts.

The difficulty in answering the question is the fact that not all cryptocurrencies are the same. But since terms like "coin," "token," "currency," and "asset" are regularly used interchangeably to describe the thousands of products under the "cryptocurrency" umbrella, we can't categorize them based on nomenclature alone. Instead, one must look at function.

We discussed the various definitions of a "security" in our What is a Security article. The basic definition is “an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative, or whether there is a sale of property with or without intrinsic value”. SEC v. Howey Co., 328 U.S. 293 (1946)

The SEC has stated that cryptocurrencies like bitcoin are not securities. This includes cryptocurrencies such as Bitcoin, Ether, and Litecoin.

However, the SEC Chair Gary Gensler said, in August 2021, that the SEC considers many cryptocurrency coins and tokens to be securities under the Howey Test, saying, "If somebody is raising money selling a token and the buyer is anticipating profits based on the efforts of that group to sponsor the seller, that fits into something that's a security."

Of course, now we are mixing the concept of the actual token as a security with the manner in which the token is marketed, but this will all shake out.

Unfortunately, we will get clarity in the worst possible way. Rather than propose regulations, the SEC has decided to create regulation by litigation, exposing market participants to lawsuits, and the expense of time and money for conduct which was not a violation when conducted.

Reuters has an article which contains an overview of the SEC's recent litigation attempts to regulate crypto.

-Mark Astarita

Biden Signs Executive Order on Cryptocurrency

On March 9, President Biden signed an Executive Order (the Order) to establish the first comprehensive federal digital asset strategy for the U.S., which would promote digital asset innovation while balancing benefits and associated risks. The order directs the Justice Department, U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau (CFPB), and many other federal agencies to study the legal and economic implications of creating a U.S. Central Bank Digital Currency (CBDC).

President Biden’s order sets deadlines for a series of reports on “the future of money,” the role that cryptocurrencies will play in a global economy, and information on a possible CBDC.

More on the President's order at

https://www.consumerfinancialserviceslawmonitor.com/2022/03/biden-signs-executive-order-on-cryptocurrency/

Bitcoin: Definition, origin and risks

Bitcoin is a virtual 'cryptocurrency' traded much like real money.

Bitcoin is a virtual currency known as a 'cryptocurrency that can be traded between buyers and sellers much like "real" money is.

One of the very first and most high-profile cryptocurrencies launched, Bitcoin is also the most well-known of this virtual money. Bitcoin first emerged in 2009 and its creator is allegedly called Satoshi Nakamoto, though several theories exist as to Nakamoto's real identity, according to Business Insider.

A bitcoin is essentially a digital computer file that is stored in something called a digital wallet, which can be accessed by software and apps.

Visit https://www.livescience.com/bitcoin-definition for more on Bitcoin, including

Why is Bitcoin Used?

How are Bitcoins Produced?

Is Bitcoin Safe?

Problems with Bitcoin.

SEC Investigating NFT Creators and Marketplaces

Bloomberg is reporting that the SEC is investigating nonfungible token (NFT) creators and marketplaces for securities violations, according to a report from Bloomberg.

Anonymous sources in the report claims that the SEC is investigating whether “certain nonfungible tokens […] are being utilized to raise money like traditional securities.”

According to Bloomberg, over the past several months, attorneys in the SEC’s enforcement unit have sent subpoenas demanding information about the token offerings.

As part of its review, the SEC is seeking information on so-called fractional NFTs, which involve breaking down the assets into units that can be easily bought and sold, said the people, who asked not to be named as the probe hasn’t been disclosed publicly.

  

https://www.bloomberg.com/news/articles/2022-03-02/sec-scrutinizes-nft-market-over-illegal-crypto-token-offerings

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Former SEC Senior Attorneys and Broker-Dealer attorneys at Sallah Astarita & Cox represent crypto investors and promoters across the country. For more information, call them at 212-509-6544.

Registration of Two Digital Tokens Halted

The Securities and Exchange Commission today instituted proceedings against American CryptoFed DAO LLC, a Wyoming-based organization, halting the effectiveness of the company’s registration of two digital tokens as securities.  In the SEC’s order…

Read the Full Press Release

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Have a securities law question? Call Sallah Astarita & Cox at 212-509-6544.

CoinBase Cancels Proposed Lending Program after SEC Scrutiny

 As we posted last week, CoinBase's proposed lending program, where its customers would be able to use cryptocurrency to make loans to third parties raised objections from the SEC. Coinbase objected to the objections in a public statement, claiming it didn't know what the problem was.

There isn't much public information available about the program, but as we dug in a bit it certainly appeared that the proposed program would be a security, which would require registration with the SEC, or compliance with an exemption. Our examination of the issue is at CoinBase Plan May Be a Security

Well, apparently CoinBase has figured out what the SEC's issue is, or simply decided that the cost of registration, or of the fight with the SEC wasn't worth the benefit. Yesterday they announced the cancellation of the proposed LEND program.

From their website:

Our goal is to create great products for our customers and to advance our mission to increase economic freedom in the world. As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch the USDC APY program announced below. We have also discontinued the waitlist for this program as we turn our work to what comes next. We had hundreds of thousands of customers from across the country sign up and we want to thank you all for your interest. We will not stop looking for ways to bring innovative, trusted programs and products to our customers.

CoinBase Plan May Be A Security

The CoinBase Wells Notice is creating quite a stir. My original comments are here, but more information has come to light.

It appears from other comments that the CoinBase Lend program is not simply a loan by depositors to others. According to other posts, CoinBase is planning on pooling the assets of its depositors and then creating loans from that pool.

That my friends, is a different kettle of fish, for the pooling of assets for investment purposes is in fact a security. If that is what they are planning on doing, the interest in the pool meets the Howey test - an investment of money in a common enterprise, with the expectation of making a profit from the efforts of others. The customer's interest in the pool would be a security.

Adam Levitin has an excellent analysis of the plan at the Credit Slips blog.

Other posters are mocking the General Counsel of CoinBase for "whining" about the SEC's lack of transparency in the Wells Notice. I suspect that those posters have never dealt with an SEC Wells Notice, which quite often is simply a statement that the Staff intends to recommend enforcement action for violation of a particular statute.

While it is true that a Wells Notice comes after an investigation, in which the target participated, and after discussions with the Staff, the often cryptic language presents a problem for the target in deciding whether to respond and how to respond. Assuming too much raises additional questions, not saying enough dooms the response to failure.

Rather than mock the GC, we should be applauding the public posting objecting to the Wells Notice and the lack of clarity that apparently exists in this particular notice.

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The attorneys at Sallah Astarita & Cox, LLC have over 100 years of combined experience representing all participants in the securities markets, including the cryptocurrency markets. For a consultation, or to simply ask a question, give them a call at 212-509-6544

Coinbase Responds to its Wells Notice

Coinbase, the cryptocurrency platform, has received a Wells Notice from the SEC regarding its lending program. 

At first blush it does not appear that the program, which allows customers to lend their currency is a security,  but we have not seen the SEC's files, so anything is possible. 

Coinbase has released a statement regarding the Wells Notice, explaining its position, here. Coinbase claims that the SEC is relying on SEC vs. Howey and Reves, but that it will not explain why or how those cases apply to their lending program.

The lending program is not yet live, and there is very little public information on the program, but it sure does not look like a security. According to Coinbase, its proposed program allows its customers to lend (not borrow) its USD Coin (USDC) known as a stablecoin to others, for 4% interest.

SEC vs. Howey

Howey is the seminal Supreme Court case defining what is a security. In simple terms, according to Howey, a security is an investment of money in a common enterprise, with the expectation of making a profit from the efforts of others. In an oversimplification, stocks, bonds, and promissory notes with a term of more than nine months, are all securities, and subject to SEC regulation.

Reves vs. Ernst & Young

Since there are types of notes which, under a traditional Howey analysis, may not be deemed "investment contracts" but still bear a resemblance to a security, the Supreme Court in Reves v. Ernst & Young, set forth the “family resemblance” test to determine whether a note is a security. 

Reves sets forth an analysis that starts with the assumption that a note is a security unless the note bears a resemblance to one of the categories on a list of exceptions. If the “note” does not bear a resemblance to an item on the list, the analysis continues to determine if a new category should be added to the list.

The rationale underlying Reves is important in the Coinbase situation. In Reves, the court stated

First, we examine the transaction to assess the motivations that would prompt a reasonable seller and buyer to enter into it. If the seller's purpose is to raise money for the general use of a business enterprise or to finance substantial investments and the buyer is interested primarily in the profit the note is expected to generate, the instrument is likely to be a "security." If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller's cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a "security." Second, we examine the "plan of distribution" of the instrument to determine whether it is an instrument in which there is "common trading for speculation or investment." Third, we examine the reasonable expectations of the investing public: The Court will consider instruments to be "securities" on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not "securities" as used in that transaction. . . . Finally, we examine whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary. 

Is The Coinbase Lend Program a Security? 

While the details of the program have not been released, it seems that Coinbase's lend program is not a security under Howey or Reves. Using the Reves analysis, the loan, or note, is not being used to finance a substantial investment. Rather, the loan, or note, is provided to advance a consumer purposed, i.e. to enhance the return on the lender's separate investment.

Where Coinbase may get tripped up is in the plan of distribution, with Coinbase facilitating the distribution of these notes. However, the third factor is the reasonable expectations of the investing public, which can only be to earn interest on an existing investment, the stablecoin.

Coinbase says that it is holding off on releasing the program, as it does not understand the SEC's issue with the program. More disturbing is Coinbase's claim that the SEC will not explain its position, or offer any guidance.

Regulation by Litigation 

Regulation by litigation is never a proper regulatory endeavor. Let's find out what the SEC's issue is, and let Coinbase launch its program in a compliant manner.

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The attorneys at Sallah Astarita & Cox, LLC have over 100 years of combined experience representing all participants in the securities markets, including the cryptocurrency markets. For a consultation, or to simply ask a question, give them a call at 212-509-6544

Bitcoin Could Bring the Internet to a Halt

Don't bet on bitcoin ever replacing the dollar or other traditional currencies as everyday money.

That's one of the messages from a new report by an organization that represents dozens of the world's central banks.

The group, Switzerland-based Bank for International Settlements (BIS), said the "intense interest" in bitcoin and other cryptocurrencies had prompted it to look "beyond the hype" at what use they could actually contribute to the economy.

The report's authors were unimpressed, detailing a range of problems with trying to adopt cryptocurrencies as a widely used form of money.

They include the danger that just processing all the payments "could bring the internet to a halt," said the report, which was published Sunday.

More at CNN Money

The SEC Says Ethereum Tokens Are Not Securities

The SEC has announced that it is not considering Ethereum and its digital coin ether as securities.The SEC has declared that Ethereum and its digital coin ether, are not securities The announcement led the price of ether to rise by over 8 percent, hitting a high of $520 per token.

William Hinman, director of the division of corporation finance at the SEC, explained at the summit: “Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions.”

Hinman also hints that other cryptocurrencies, or altcoins, might one day no longer need securities regulation. He says, “Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.”

In the past, the SEC has considered some digital tokens as securities, particularly tokens distributed through an initial coin offering. Last July, DAO tokens were found to be securitiesafter an investigation, according to a public SEC report. Therefore, they were subject to federal securities laws and the issuers had to register all sales of DAO tokens with the SEC. The report cautioned investors against initial coin offerings, which can also violate securities law. Months later, SEC chairman Jay Clayton clarified that “every ICO I’ve seen is a security,” and many were illegal.

Read more from The Verge here.

SEC CorpFin Director's Big Crypto Speech

SEC Division of Corporate Finance Director William Hinman’s detailed his thoughts on ICOs at the Yahoo Finance All Markets Summit in San Francisco.

He stated that ether is not considered a security, and touched upon the fact that just because a digital asset started as a security, that does not mean it can't evolve into something else. He stressed that the quality of an asset and the manner in which it is sold affect its regulation.

Although these statements are by no means official rulings from the SEC, they are sure to carry a lot of weight with market professionals.

Get further details of Hinman's remarks here.

DOJ Opens Criminal Investigation into Bitcoin Price Manipulation

The US Justice Department has launched an investigation into traders who are manipulating bitcoin prices.

The Bloomberg report states that the probe is focused on "spoofing" - a practice where an investor intentionally manipulates the price of an instrument. Eradicating the flood of fake orders from the market is also on the agenda.

With the fall of bitcoin prices, and the volatile nature of the cryptocurrency market, there is a call to crack down on fraudulent activity. For more information, head to this CNBC article.

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Cryptocurrency losses? The attorneys at Sallah Astarita & Cox include experienced former SEC staff attorneys, and securities attorneys with decades of experience in securities manipulation cases. For a confidential review of your investments, call 212-509-6544 or email mja@sallahlaw.com.

‘Operation Cryptosweep’ Launched

An effort to investigate cryptocurrency investment products continues to make headlines.

The North American Securities Administrators Association (NASAA) is coordinating with US and Canadian regulators to weed out fake ICOs and other crypto scams, with as many as 70 investigations already underway.

The Washington Post reports that it's the largest movement of its kind, with 50% of investigations pending or completed, and more on the way. Nicknamed "Operation Cryptosweep", it has the approval of Head of the US Securities and Exchange Commission, Jay Clayton, who applauds lawmakers for cracking down on fraud in the ICO markets.

Read his statement, and more information about the effort, in this Finance Magnates article.

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If you are concerned about losses in cryptocurrency, give Sallah Astarita & Cox a call at 212-509-6544 or email mja@sallahlaw.com

SEC Halts Fraudulent ICO

ICO Investment? SEC Halts Unregistered ICO

New investments bring new frauds, or sometimes just variations on a theme.. This true with cryptocurrency, demonstrated by the SEC's recent charges against two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants.

The SEC's complaint alleges that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech. Inc., masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products.

They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.

According to the complaint, Farkas made flight reservations to leave the country, but was arrested before he was able to board his flight. Criminal authorities also arrested Sharma.

"We allege that Centra sold investors on the promise of new digital technologies by using a sophisticated marketing campaign to spin a web of lies about their supposed partnerships with legitimate businesses,” said Stephanie Avakian, Co-Director of the SEC's Division of Enforcement. “As the complaint alleges, these and other claims were simply false."

"As we allege, the defendants relied heavily on celebrity endorsements and social media to market their scheme,” said Steve Peikin, Co-Director of the SEC's Division of Enforcement. “Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements as well as diligence by investors.”

The SEC’s complaint, filed in federal court in the Southern District of New York, charges Sharma and Farkas with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Sharma and Farkas serving as public company officers or directors and from participating in any offering of digital or other securities. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Sharma and Farkas.

Securities Defense Lawyer Blog: SEC Halts Fraudulent Scheme Involving Unregistered Offering.

If you lost money today trading in Amazon stock or any other security, and you know of anyone who knowingly or recklessly made a false public statement about that company or its stock, causing your losses, you should contact a securities lawyer today.

— Richard W. Painter (@RWPUSA) April 2, 2018

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Contact Mark Astarita, New York Securities Lawyer, if you have any questions or concerns about your stock losses. 212-509-6544

SEC Crypto Subpoenas Abound

SEC Crypto Subpoenas Abound

http://bitcoinist.com/sec-subpoenas-techcrunch-founders-crypto-fund-everyone-else/

Massive Cryptocurrency Probe Underway

The SEC has launched a vast investigation into cryptocurrencies and initial coin offerings (ICOs) Wednesday, issuing multiple subpoenas and formal information requests to technology firms and advisors engaged in creating and marketing the offerings.

The probe turns up regulatory heat on the highly volatile market for digital tokens, which topped some $700 billion in January, the Wall Street Journal was first to report.

If you have an issue with any of the cryptocurrencies, let's see if we can help. Call Mark Astarita at 212.509.6544 or email him at mja@sallahlaw.com.

https://www.fa-mag.com/news/sec-launches-massive-cryptocurrency-probe-37441.html

Mortgages for Bitcoin?

This is simply mindboggling.

"We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” Joseph Borg, president of the North American Securities Administrators Association, told CNBC today. “This is not something a guy who’s making $100,000 a year, who’s got a mortgage and two kids in college ought to be invested in.”

It should be obvious that this is not a good idea, but according to Joe Borg, folks are actually taking mortgages on their homes to buy Bitcoin.

Put aside for the moment whether Bitcoin' valuations have a factual basis, and whether it is real or not. You cannot mortgage your home to make any investment - not IBM, not Google, not Berkshire Hathaway.

We are truly in a craze when folks are mortgaging their homes to buy something that swings in value thousands of dollars, multiple times, in a day.

No, you shouldn’t mortgage your house to buy Bitcoin – BGR

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Lost money in cryptocurrency? Call Mark Astarita at 212-509-6544.