Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
U.S. Developments
Regulatory Updates
Washington State Legislators Prepare Bill To Regulate Virtual Currencies
In Washington, Senate Bill 5031 was introduced by Senators Jan Angel and Mark Mullet in January. Both legislative chambers have now approved the bill, which was delivered Thursday to Governor Insleee for approval. The bill provides new rules for companies that deal in digital currency services.
The bill specifically adds a definition of “virtual currency” to the statute and equates virtual currency transactions to traditional money transactions in the state’s definition of money transmission. The proposed bill also requires money transmitter licensees who transmit in virtual currency to “hold like-kind virtual currencies of the same volume as that held by the licensee but which is obligated to consumers in lieu of the permissible investments required” in earlier parts of the statute. The bill also mandates that licensees include a third-party cybersecurity audit of their “electronic information and data systems.” WA SB 5031
New Arizona Law Recognizes Blockchain Signatures and Smart Contracts
Arizona Governor Doug Ducey signed a bill into law late last month that recognizes signatures recorded in an electronic form through blockchain technology as legally valid and enforceable by law. Specifically, the statute states that a “signature secured through blockchain technology” is considered to be in electronic signature. And, a “record or contract that is secured through blockchain technology” is considered an “electronic record.” “A contract relating to a transaction may not be denied legal effect, validity or enforceability solely because that contract contains a smart contract term.” AZ HB 2417
New Hampshire Bill Exempting Virtual Currency Companies Is Debated
New Hampshire House Bill 436 provides an exemption that protects bitcoin traders from money transmission laws. The bill cleared the state House of Representatives, but has been met with debate in the state Senate deliberations. Last week, in a hearing before the Senate Commerce Committee, officials from the New Hampshire Banking Department and the Department of Justice spoke out against the bill. The state banking commissioner argued that the measure would impede regulator’s efforts to prevent fraud and promote safety. Supporters argued that the bill would benefit the state. NH HB 436; Video recording of Senate Committee Hearing
Other News
The 9th Circuit Dismisses Appeal in Silk Road Bitcoin Theft Case
The 9th Circuit ruled this week dismissing an appeal of the former U.S. Secret Service special agent who was challenging his six-year prison sentence for stealing bitcoins while investigating the infamous Silk Road website. The Court reasoned that the defendant waived his right to appeal by entering into a plea agreement in 2015 admitting money laundering and obstruction of justice charges. Law360 Article
SEC Trial Against GAW Miners and Zen Miners Set for Trial in 2018
The SEC’s case against Homero “Josh” Garza and his companies GAW Miners and Zen Miner is set for trial in 2018. The SEC claims that Garza violated anti-fraud provisions of the Securities Act and the Exchange Act and offered and sold unregistered securities, in violation of the registration provisions of the Securities Act. The SEC claims that Garza sold investment contracts to over 10,000 investors. According to the SEC, these investment contracts purported to entitle the purchaser to a share of the profits from Garza and his companies’ virtual currency mining operations, but the companies, operating an apparent Ponzi-scheme, sold more than the company had to sell. Garza has asserted his rights under the Fifth Amendment and has not articulated his defenses to the SEC’s claims. The fact discovery deadline is August 7, and the parties anticipate being ready for trial by February 2018. 26(F) Report
Bitfinex and Tether Voluntarily Dismiss Suit Against Wells Fargo
This week, Bitfinex and Tether voluntarily dismissed their complaint for intentional interference with contractual relations against Wells Fargo, which was filed just last week. Notice of Voluntary Dismissal
Announcements
The OCC’s Office of Innovation To Hold Upcoming Office Hours
As part of the OCC’s new Office of Innovation, the OCC has announced that it will hold office hours where it will conduct one-on-one meetings for fintech industry members for companies wishing to discuss the OCC’s perspective on responsible innovation. The OCC will provide feedback to companies and answer questions. Meetings will be held at the OCC’s San Francisco Office on May 16 and 17, 2017. Space for these meetings is limited. The OCC plans to meet with only about 15 companies over the two-day period. OCC 4/13/2017 Press Release
International Developments
Hong Kong Explores Creating a Central Bank Digital Currency
The Hong Kong Monetary Authority (“HKMA”) has entered the first phase of exploring the feasibility of a central bank digital currency using distributed ledger technology and partnering with local banks and the R3 consortium. This phase is expected to conclude at the end of this year, at which time the HKMA will decide whether to move forward. Hong Kong Digital Currency
Bank of England Opines that Fintech Does Not Need Tougher Rules
Bank of England Governor, Mark Carney, stated this week that the fintech sector did not need the same level of regulations as banks. Britain has seen a large boom of business from fintech firms, which employ more than 60,000 people there and is a business worth nearly 7 billion pounds (for companies providing services like contactless payments, banking apps and online crowd sourcing). The government has taken a supportive position of the fintech industry and seeks to avoid stifling innovation in Britain. UK Fintech Regulations
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