Crypto Exchanges Announce Market Developments, US Report Addresses Crypto Tax, New DOJ and SEC Enforcement, Reports Detail Crypto Crimes

BakerHostetler

Cryptocurrency Exchanges and Financial Firms Announce Market Developments

By: Veronica Reynolds

Last week, Coinbase signified its intent to become a publicly traded company by announcing a proposed direct listing of its Class A common stock under Form S-1. Coinbase had previously confidentially submitted its Form S-1 to the Securities and Exchange Commission (SEC) on Dec. 17, 2020. According to reports, the venue for the direct listing will be Nasdaq.

Gemini recently released its report on the state of cryptocurrency in the U.K., which summarizes a survey of 2,000 respondents and captures demographic trends related to cryptocurrency in the region. For instance, of the respondents who are current or previous cryptocurrency investors, nearly 42 percent are women. The report also notes that respondents who are cryptocurrency investors are less likely to own their own home than those not interested in cryptocurrency, are more likely than not to be in a relationship and have children at home, and are most likely to be between the ages of 18 and 44.

Another major cryptocurrency exchange announced its acquisition of a leading debit and credit card issuer across the U.K. and Europe this week. According to a blog post, the acquisition provides the exchange with a technically sophisticated payments platform, accompanied by a full EMI license, which will allow the exchange “to issue multi-asset, crypto-enabled debit cards across the U.K. and Europe.”

In foreign markets, a Canadian investment firm recently completed an initial public offering of its cryptocurrency fund on the Toronto Stock exchange. And in Switzerland, according to a recent press release, Sygnum Bank and Fine Wine Capital AG “have successfully tokenized a range of premium investible wines, creating the first asset tokens issued under the new Swiss DLT law.”

For more information, please refer to the following links:

US Report Covers Crypto Tax Issues, Israeli Ruling Says Tokens Are Securities

By: Joanna F. Wasick

The Law Library of Congress published a January 2021 report on the taxation of cryptocurrency block rewards. The report provides the findings of foreign law specialists on the tax treatment in 31 countries of new tokens obtained by cryptocurrency mining or staking, known as “block rewards.” The report also addresses the tax implications of cryptocurrency tokens acquired through airdrops and hard forks (“chain splits”). The report shows that while various tax authorities have published guidance on the taxation of mined tokens, only a few specifically address the taxation of tokens obtained by staking. For countries where no explicit taxation rules on block rewards are available, the report provides information, such as general taxation rules, proposed legislation, official statements, and comments from legal scholars and tax experts, that may help in determining the tax treatment of these assets. The report complements a broader comparative study on regulatory approaches to cryptoassets that the Law Library published in April 2019.

This week, the Israeli Securities Authority issued an advance ruling paper, in which it found that cryptocurrency is a security subject to the Israeli Securities Law. The paper comes in response to a request by a blockchain company for a determination that its token was a utility token, meant to be used only in connection with the company’s services, which allow users to cancel cryptocurrency transactions. The authority rejected the company’s arguments, finding that (1) the company’s tokens may have a secondary market for investment purposes, (2) the tokens are a significant asset of the company, and (3) the company has a right to change the value of the tokens independently and allow their use for future developments.

For more information, please refer to the following links:

DOJ, SEC and Europol Bring Various Cryptocurrency Enforcement Actions

By: Teresa Goody Guillén

According to a recent press release from the U.S. Department of Justice (DOJ), a California man has been charged with money laundering and operating an unlicensed money transmitting business that exchanged tens of millions of dollars in bitcoin and cash. Upon pleading guilty, the defendant will face a statutory maximum sentence of 25 years in federal prison.

According to another recent report, a California couple is alleged to have used their status with the U.S. Navy to access the personal information of more than 9,000 people, which they sold to be used in identity thefts in exchange for bitcoin payments of at least $160,000. The couple was indicted on charges of conspiracy to commit wire fraud, wire fraud and aggravated identity theft, and they face maximum penalties of 20 years in prison.

The Securities and Exchange Commission (SEC) recently charged three individuals with defrauding hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings. The SEC alleges that several individuals drafted fraudulent promotional materials that were disseminated to the investing public and that those materials contained false statements, including that the digital tokens would be deliverable on the Ethereum blockchain, that the invested funds would be used to develop a coin that was “mineable” and that the tokens would be tradable on a proprietary digital asset trading platform at the platform’s “launch.” The DOJ brought a parallel criminal action against one of the defendants.

According to a recent press release, Spain’s Civil Guard, Catalan police, Andorra and Europol have collectively dismantled an investment fraud in foreign exchange and binary options markets and have arrested six suspected fraudsters aged between 20 and 34 years old. During two house searches, police reportedly seized eight vehicles; several electronic devices; an estimated $84,000 in fiat money and cryptocurrencies including bitcoin, ether, XRP and OmiseGo; and multiple bank accounts linked to the company.

For more information, please refer to the following links:

Reports Provide Insights on Cryptocurrency Crimes and Darknet Activities

By: Jordan R. Silversmith

A recently published report from CipherTrace on cryptocurrency crime and anti-money laundering showed massive growth in the amount of cryptocurrency crime last year. The report showed that in 2020, large crypto thefts, hacks and frauds amounted to $1.9 billion, which is the second-highest annual value ever recorded. Another recent report on cryptocurrency-related crime showed some marked geographical distinctions in darknet market activity. According to Chainalysis, while the U.S. and Western Europe feature the most darknet vendors, Eastern Europe and China are the source of the vast majority of money laundering activity related to cryptocurrencies. Meanwhile, darknet vendors continue to profit even during the pandemic, as scammers are now advertising COVID-19 vaccines on the darknet for as much as $1,000 worth of bitcoin. Recent analysis found over 340 fraudulent ads in 34 pages, while there were phony vaccine ads in only 8 pages last month.

For more information, please refer to the following links:

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