Recent Enforcement Actions and Regulatory Developments in the Digital Assets Space

This article provides an update on recent legal news regarding various digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as developments in blockchain and Web3 technologies.

In the United States, there have been notable enforcement actions in the digital assets space. The Manhattan U.S. Attorney’s Office charged the developers of Tornado Cash, a crypto application, with facilitating over $1 billion in money laundering. The charges include conspiracy to engage in money laundering, conspiracy to violate U.S. sanctions targeting North Korea, and conspiracy to operate an unlicensed money transmitting business.

The U.S. Securities and Exchange Commission (SEC) also brought enforcement actions related to non-fungible tokens (NFTs) as securities. Impact Theory, a media company, was charged for its sales of NFTs, and the SEC concluded that these tokens were investment contracts. In a separate case, Stoner Cats 2 LLC was alleged to have conducted an unregistered securities offering through profile-picture NFTs. Both companies settled the charges and agreed to pay fines.

The Commodity Futures Trading Commission (CFTC) issued orders against three decentralized finance (DeFi) trading platforms—Opyn, ZeroEx (0x), and Deridex—for offering digital asset derivatives trading. The platforms cooperated in the investigation and agreed to pay civil penalties. The CFTC emphasized its commitment to pursuing unregistered platforms allowing U.S. persons to trade digital asset derivatives.

In addition to enforcement actions, there have been significant regulatory developments. LBRY filed an appeal against a court decision that it violated U.S. securities laws failing to register the sale of its native tokens with the SEC. The court imposed a civil penalty and barred LBRY from participating in unregistered crypto securities offerings in the future.

Furthermore, a former FTX executive, Ryan Salame, pleaded guilty to conspiracy charges related to operating an unlicensed money transmitting business and making unlawful political contributions. His plea comes ahead of the upcoming trial of Sam Bankman-Fried, co-founder of FTX.

Lastly, a former Head of Product at OpenSea, Nate Chastain, was sentenced to three months in prison for NFT insider trading. Chastain traded NFTs that he knew would be featured on the OpenSea homepage, resulting in personal profits.

These recent enforcement actions and regulatory developments highlight the increasing scrutiny and regulatory framework surrounding digital assets. Market participants need to stay informed and ensure compliance with applicable laws and regulations.

Source: Gibson Dunn’s digital assets regular update