Congressional Crypto Roundtable: Panel Discusses Token Classification and Compliance for ICOs

Congressional Crypto Roundtable:
Panel Discusses Token Classification and Compliance for ICOs

More than 45 representatives from major Wall Street

firms and crypto companies took part in a meeting to discuss Initial Coin Offering (ICO) and cryptocurrency regulations in Washington D.C. September 25. The “crypto roundtable,” hosted by Congressman Warren Davidson in the last legislative session week before elections, gave a chance for industry representatives to express their concerns regarding possible regulations of the crypto space. Namely, experts told lawmakers that there is a pronounced lack of regulatory clarity for ICOs and digital currencies.

Roundtable participants discussed “token taxonomy,” aiming to describe the existing uncertainty around the definition of ICO tokens, as well as the implied regulatory framework. Experts suggested principles for regulatory compliance and consumer protection, aiming to outline major regulatory approaches that should be implemented in line with the evolving technology. Addressing the first and main point of the discussion, Marvin Ammori, General counsel at Protocol Labs, stressed a whole “cascade of uncertainty,” associated with existing token classification.

Ammori cited the issues faced by the decentralized file storage project Filecoin (FIL), claiming that at the time the company was was launched in 2017, they thought that the Securities and Exchange Commission (SEC) would consider it a security. Chia Network president Ryan Singer joined the discussion, pointing out the “Ethereum question” that was raised recently when the SEC stated that the major altcoin would be not regulated as a security, but rather as a commodity.

Singer agreed with Ammori, emphasizing that the main problem of the industry is the absence of clarity, as well as no basic definition of what is “decentralized enough,” or what is “functional enough.” Hilary Kivitz, COO and General Counsel at Andreessen Horowitz Crypto, suggested that tokens operating within a fundraising phase should be considered securities. Kivitz also suggested a definition for general tokens, stressing that tokens’ incentive should “align the interests of all the participants” of

the ICO network:

“Tokens [are] an asset that facilitate a shared incentive network, where every participant derives value from the growth of the network.”

Other participants argued that current regulations were not only vague, but outdated. Joshua Stein, CEO at crypto-security firm Harbor, stated that securities regulations “do not work” in regard to utility tokens in decentralized apps (DApps). Stein concluded that current securities laws are only appropriate for traditional securities, and “they are not good fit” for

the ICO industry:

“Everytime I want to use decentralized Microsoft Word, or I want to store files like with Filecoin, imagine every time you use Dropbox, you have to contact a broker dealer, go through a KYC (Know Your Customer) process, perhaps be accredited by your Dropbox subscription on a licensed exchange, and then go through a whole bunch of reporting requirements, it just doesn’t work.”

Kate Prochaska of the U.S. Chamber of Commerce said that three things need to be done so that the crypto industry “doesn’t go abroad as well.”  Prochaska named regulatory coordination, clear definitions, and engaging with regulators to seek “no action” letters.

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Helen Partz

Helen is passionate about learning languages, cultures and the Internet. She has years of experience working at international online advertising projects. Growing interested in Bitcoin and cryptocurrencies in late 2017, she joined Cointelegraph as a writer.

https://cointelegraph.com/news/south-korean-government-to-exclude-sale-brokerage-of-digital-assets-from-venture-business

Wallet Provider Blockchain Sues Crypto Startup Days Before ICO

Luxembourg-based cryptocurrency wallet provider Blockchain

has filed a lawsuit against a startup with a similar name, the company announced Thursday. Blockchain – formerly known as Blockchain.info – is suing Blockchain.io just days in advance of the latter's initial coin offering (ICO) over concerns that investors may believe they are buying tokens distributed by the wallet distributor, according to a public court filing.

Specifically, the suit names Paymium SAS, the company behind Blockchain.io, and founder Pierre Noizat, as defendants, claiming that Paymium has participated in "bad acts," including the operation of the now-defunct crypto wallet Instawallet. A representative for Blockchain told CoinDesk that the move came as a result of investors confusing the two firms,

adding:

"As we allege in our complaint, blockchain.io is using our brand to cover up a history of hacking and theft of user funds. Worse, they are raising money in a dubious ICO they claim is 'registered with the [U.S. Securities and Exchange Commission].' There is of course no registration statement in place. Given the current climate of SEC enforcement and scam ICOs, when users and investors alerted us to this confusion, we needed to step up and take action before any further harm was done."

Among the suit's arguments is the claim that Blockchain.io's logo is similar to Blockchain's, which infringes its design marks (both logos are pictured above). The complaint specifically states that "Blockchain does not claim exclusive rights to the word 'blockchain' to describe the technology underlying cryptocurrencies …Rather, it claims exclusive rights in the BLOCKCHAIN marks, which it has been using exclusively for its Blockchain Products and which have become well and favorably known to consumers throughout the United States and the world as identifying its highly regarded and secure services."

It goes on to note that "in 2018, after years of doing business under different trademarks, Paymium adopted the mark BLOCKCHAIN.IO in a blatant and bad faith attempt to capitalize on the valuable and trusted BLOCKCHAIN marks and to confuse consumers into believing Paymium's inferior services emanate from or are otherwise associated with Blockchain."

"Paymium's digital currency services are identical or nearly identical to Blockchain's Digital Wallet Services, Mobile App Services and Website Services, which allow consumers to exchange one form of digital currency for another, such as bitcoin for ether or bitcoin cash," the suit continued. However, Blockchain.io has denied the claim, with founder Pierre Noizat telling CoinDesk that "we find it strange that Blockchain Luxembourg filed a claim just [six] days before our public token sale when they had [six] years to contact us regarding our domain name if they had issues with it."

Indeed, whois information confirms that the domain "blockchain.io" was first registered in April 2012 by Paymium. Public records with the National Institute of Industrial Property, the French patent office, also show that blockchain.io was registered as a brand in 2017. However, it is unclear if there was any activity under the domain prior to 2018. The Wayback Machine does have a snapshot from 2017, indicating the domain may have simply redirected to Paymium's website at the time.

And while ICOs cannot "register with the SEC," companies offering securities sales can declare their intent to do so. Public records indicate that Paymium filed a "Form D" for the sale of "digital tokens" in June 2018, announcing the company's intent to sell tokens in the future. CoinDesk was unable to confirm that Blockchain.io had registered with the Autorité de Contrôle Prudentiel et de Résolution, or the French bank and insurance company monitor, as the firm claimed in its pitch deck.

Lawyers weigh in

The lawsuit has failed to impress at least some lawyers who work in the space. Stephen Palley, an attorney with corporate law firm Anderson Kill P.C., told CoinDesk that "it's an odd argument to make in a trademark infringement action." His colleague, Dan Healy, explained further, saying that "BLOCKCHAIN" is a generic term.

"Generic terms are not generally trademarks because they do not identify [a] source. They generically refer to a thing or service. It looks like the plaintiff is trying to show that it is using its design mark as a source identifier for digital wallet services, as something not generic to blockchain, even though they are wallets for holding blockchain currency," he explained. Palley expanded on that idea, noting that "in fact, they had to disclaim any such protection, the lawsuit even says as much."

He added:

"Their use of the word blockchain isn't really protected under U.S. Trademark law … Perhaps because they couldn't get protection for the word, they filed a "design mark" – "blockchain" in all capital letters with a picture next to it. And even though they don't have trademark protection for the word, it appears that they are in effect by this lawsuit trying to use their design mark to prevent blockchain.io from using the word blockchain."

"We think that's a weak argument," he concluded.

Healy noted that Blockchain disclaimed the term, saying "no claim is made to the exclusive right to use BLOCKCHAIN apart from the mark as shown." "That means the plaintiff has a design mark and disclaimed the exclusive right to use the term BLOCKCHAIN, but appears to be trying to enforce its mark to preclude other from using the term BLOCKCHAIN," he said.

Article Produced By
Nikhilesh De

https://www.coindesk.com/wallet-provider-blockchain-sues-crypto-startup-days-before-ico/

Blockchain files a complaint against a cryptocurrency exchange launching ICO next week

Blockchain files a complaint against a cryptocurrency exchange, launching ICO next week

Blockchain, a cryptocurrency company,

announced on their official Twitter that they have filed a complaint against Blockchaindotio, a cryptocurrency exchange, for using their name and promoting false information to users. According to the blog report, Blockchaindotio is a cryptocurrency launched by Paymuim, a company which focuses on providing services for Bitcoin. However, it is stated that the company which was popular for running Instawallet is rebranding itself since they lost their customers funds to a hack.

In the year of 2013, Paymuim claimed that Instawallet was compromised due to a hack and that the customers’ coins were stolen from the platform. The platform also stated that they have filed a complaint with the police. This falls in the same timeframe as that of Mt. Gox hack, the biggest cryptocurrency hack in the space.

However, the announcement of the hack eventually resulted in many stating that the platform was running a scam and are falsely claiming that they were hacked. This is because the platform failed to show any evidence related to the police report despite the community asking for it several times. Reportedly, the company has not completely paid off the claims made by their customers.

Blockchain claims that the platform is rebranding itself in order to conceal the allegations of scam. The blog further stated the company is falsely claiming that they have registered with the Securities and Exchange Commission [SEC] for their Initial Coin Offering [ICO]. The ICO is going to be launched in next week on 27th September 2018. This would result in the investors being unable to trade the token publicly. Moreover, the report also stated that there is no evidence regarding the ICO being regulated by the French ACPR.

Blockchain stated that they are particularly concerned about the company has rebranded to a name which is similar to theirs and that it has already led to a lot of confusion in the market. They stated that the similarities which both the companies share include the domain name, the color of the portal, logo, and the tagline. Blockchain further stated that there have been several people questing them about the ICO.

Blockchain said:

“Blockchain is not doing an ICO. When we inspected blockchain.io’s social media and Telegram channels, we discovered that many more people had assumed that blockchain.io was Blockchain.”

They further added:

“To protect our users and maintain the trust we’ve worked so hard to build, we’ve had to take action. Today we filed a complaint in US federal court. We’ll file more complaints in other courts if we need to and we will continue to fight false and misleading statements that endanger the crypto community.”

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Priya

Priya is a full-time member of the reporting team at AMBCrypto. She is a finance major with one year of writing experience. She has not held any value in Bitcoin or other currencies.

https://ambcrypto.com/blockchain-files-a-complaint-against-a-cryptocurrency-exchange-launching-ico-next-week/

SEC Director Vows More Substantial’ Enforcement Against Illegal ICOs

SEC Director Vows ‘More Substantial’ Enforcement Against Illegal ICOs


U.S. Securities and Exchange Commission (SEC)
 
co-director of enforcement Stephanie Avakian mentioned in a Sept. 20 speech that the regulatory agency is most likely going to recommend “more substantial remedies” against those who fail to follow proper initial coin offering (ICO) registration requirements in the future

According to a transcript of the speech posted on the SEC’s website, Avakian articulated the specific set of principals that guide the agency’s decision-making when it comes to regulation, and then delved into how the SEC was tackling in “misconduct” in the ICO and virtual asset space.

Balancing The Risks and Rewards of ICOs

In the speech, Avarkian mentioned that the “novelty of ICOs” and the possible “utility of the underlying blockchain” makes these types of offerings exciting for certain investors. However, she noted  the market “exuberance” for ICOs can mask the reality that they are “often high-risk investments,” since they could lack viable products, have flawed business models, or just simply be “outright frauds.” According to Avarkian, the SEC has tried to be cognizant about how to deal with ICOs registration cases that are not fraudulent. The agency wants to affirm valid ways to raise money while still making sure investors can enjoy the legal protections already in place.

She noted that the agency has issued a number of public statements to inform investors about concerning activity in the ICO space, particularity highlighting one last November that discussed the rise in ICO promotion by celebrities and other public figures. Avarkian said the “anecdotal evidence” in the wake of the announcement pointed to a “dramatic decline” in the amount of celebrity-endorsed ICOs. Overall, Avarkian said any issues related to ICOs and cryptoassets must be in the crosshairs of the Division of Enforcement, and pointed out that current work related to the space and other cyber-related issues was already “paying dividends.”

Staying Active On The Cryptocurrency Front

The recent speech by Stephanie Avakian seemingly caps off what has been a busy week for the SEC when it comes to virtual currency. The regulatory agency also said on Thursday that they are starting a formal review process for the bitcoin ETF proposed by VanEck and SolidX. The proposed ETF has made headlines since it would hold actual vitcoin in lieu of virtual currency futures contracts, and would maintain “comprehensive insurance” to safeguard investors against loss or theft of the bitcoin.

Just a couple of days before, SEC Commissioner Hester Peirce, often referred to as “CryptoMom,” asserted that the government should not hold back new products from coming out in the cryptocurrency market due to the perceived weaknesses associated with bitcoin.

Article Produced By
ICO News

https://www.ccn.com/sec-director-vows-more-substantial-enforcement-against-illegal-icos/

China’s Central Bank Warns Investors of ICO Crypto Risks

China's Central Bank Warns Investors of ICO, Crypto Risks

China’s central bank, the People’s Bank of China (PBoC),

has today, September 18, issued a new public notice “reminding” investors of the risks associated with Initial Coin Offerings (ICOs) and crypto trading. The notice, released from the bank’s headquarters in Shanghai, reiterates the severe line that has been adopted by the country’s Office for Special Remediation of Internet Financial Risks, which first introduced a blanket ban on ICOs in September 2017. Today’s notice censures the “unauthorized” and “illegal” ICO financing model for posing a “serious disruption” to the “economic, financial and

social order”:

“[ICOs are] suspected of illegally selling tokens, illegally issuing securities, illegal criminal activities, financial fraud, pyramid schemes and other illegal and criminal activities.”

The PBoC has today hailed the successes of the country’s stringent restrictions that have targeted ICOs and a broad spectrum of crypto-related activities to date,

claiming that:

“[T]he global share of domestic virtual currency transactions has dropped from the initial 90% to less than 5%, effectively avoiding the virtual currency bubble caused by skyrocketing global virtual currency prices in the second half of last year in China’s financial market. The impact has been highly recognized by the community.”

Nonetheless, the bank recognizes that several challenges remain, notably the prevalence of offshore exchanges that are used by investors to circumvent the mainland ban. The PBoC notes that the Office for Special Remediation of Internet Financial Risks has now adopted a series of targeted measures, including blocking up to 124 IP address suspected of providing a gateway to domestic crypto traders.  

It further points to redoubled efforts to “clean-up” payment channels and strengthen monitoring and inspection mechanisms, noting that around 3,000 accounts have already been closed as a result of increased oversight. Lastly the notice outlines recent measures undertaken to counter the circulation of crypto “hype” materials. As previously reported, on August 25 the PBoC had already issued a fresh risk alert against “illegal” ICOs, warning that blockchain and the idea of “financial innovation” are being used to lure investors as a “gimmick” that conceals essentially fraudulent Ponzi schemes.

This summer has seen an onslaught of toughened anti-crypto measures from Beijing, which have included a ban on commercial venues from hosting crypto-related events in certain districts. Alongside ‘offline’ measures, China’s tech titans – Chinese ‘Google’ Baidu, Alipay’s Alibaba and WeChat-developer Tencent – have all tightened their monitoring and acted to ban accounts suspected of engaging in or propagating crypto and even blockchain related activities.

Article Produced By
Marie Huillet

Marie Huillet is an independent filmmaker, with a background in journalism and publishing. Nomadic by nature, she’s lived in five different countries this decade. She’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives.

https://cointelegraph.com/news/not-high-performance-tradeshift-ceo-prudent-on-blockchain-supply-chain-potential

Federal Judge Applies Long-Established Securities Law to ICOs

Federal Judge Applies Long-Established Securities Law to ICOs

Federal Judge Applies Long-Established Securities Law to ICOs

Does a decades-old securities law apply to an initial coin offering (ICO)? In a case that represents the first time securities laws have been applied to cryptocurrencies, a district judge says it may. On September 11, 2018, in a district courthouse in Brooklyn, New York, Judge Raymond Dearie ruled that two ICOs were securities, based on established laws that govern the financial instruments. His decision does not imply that all ICOs are securities, but that simply calling a token a “currency” does not preclude it from being classified as a security.  

Turning back a few pages, in October 2017, businessman Maksim Zaslavskiy was accused of misleading investors in two separate ICOs. He raised about $300,000 in a cryptocurrency called REcoin, which he claimed was backed by real estate, and a cryptocurrency called Diamond, which he claimed was backed by diamonds. In truth, no real estate nor diamonds backed either of the coins, and Zaslavskiy was charged in a criminal complaint with conspiracy and two counts of securities fraud — charges that carry up to five years in jail and a fine. Zaslavskiy moved to have the charges dismissed. He argued that his ICOs were not securities, but “the exchange of one currency for another,” and that securities laws are too “unconstitutionally vague” to be applied to his case. 

Cornell law professor Robert Hockett calls the insistence that the laws are vague a “Hail Mary.” “It is a fallback argument,” he told Bitcoin Magazine. “At first the defendant says the law is clear in that it clearly does not apply, but then he effectively says, ‘I have no way of knowing what I can do because the law is unclear.’” Judge Dearie found the laws clear enough. He pointed out that laws are meant to be interpreted flexibly. He then went on to determine that the two ICOs in question were “investment contracts” by applying the Securities Exchange Act of 1934, one of the most important pieces of legislation governing securities, and the Howey Test, a checklist regulators use to determine if an asset is a security.

Specifically, the Howey Test determines that a transaction represents an investment contract if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." According to case documents, Judge Dearie found that REcoin and Diamond investors “undoubtedly expected to receive profits in their investments.” In his arguments, Judge Dearie also referenced the DAO Report, an investigative report issued by the U.S. Securities and Exchange Commission (SEC) in July 2017 claiming that tokens sold on an Ethereum-based investment fund were securities, and public statements made by SEC Chairman Jay Clayton on cryptocurrencies and ICOs in December 2017. At that time, Clayton noted that “simply calling something a ‘currency’ or a currency-based product does not mean that it is not a security.”

“Combined with statements the SEC chairman made previously, yesterday’s decision lends further credence to what many of us believe, which is that offered coins will count as investment contracts and hence securities,” said Hockett. “The SEC has made noises that ICOs were securities, but up until now, there has been no official legal ruling declaring they were.” The case still has to go to trial and, ultimately, it will be up to a jury to decide whether the ICO in question was a security. Still, Hockett said: “I really doubt an appellate court will overturn the district court’s ruling.”  

ICOs have been a major source of controversy in the crypto space. So far, about $20 billion has been raised in ICOs, most of that in the last two years. In a talk at MIT in April 2018, Gary Gensler, former chairman of the Commodity and Futures Trading Commission (CFTC), another regulatory body that has weighed in on ICOs, noted “significant noncompliance” with securities laws in the cryptocurrency space. “Many initial coin offerings, probably well over a thousand, many crypto exchanges, probably 100 to 200, are basically operating outside of U.S. law,” he said.

Article Produced By
Amy Castor

Final Draft of ICO Legislation Could Signify Next Step for Philippines Fintech Sector

Final Draft of ICO Legislation Could Signify Next Step for Philippines Fintech Sector

The Philippine Securities and Exchange Commission (SEC)

is due to unveil the hotly anticipated draft regulation for cryptocurrencies in the next few days, if the information provided by The Manilla Times is correct. If the regulation reflects the previous enthusiastic efforts to implement cryptocurrency in the Philippines, it stands to play a seminal role in defining the country’s status as a major player in the fintech sector. The SEC chairman, Ephyro Luis Amatong, has previously emphasised the need to regulate cryptocurrency exchanges as traditional trading platforms.

The draft comes in the wake of several Philippine lawmakers calling for the creation of a properly structured and above-board regulatory environment for Initial Coin Offerings (ICO) as the country opens up to the new technology. In spite of several successful DApps being developed in the country and the start of a promising upward trend for the Filipino fintech industry, officials are aware of the need to create a competent legislative framework to both protect their citizens from scams and for the sector to develop profitably.

In stark contrast to the majority of other central banks worldwide, the Philippines central bank — Bangko Sentral ng Pilipinas (BSP) — has been extremely proactive in ushering in both the implementation and regulation of cryptocurrencies. The central bank has developed a partnership with the SEC in order to establish “cooperative oversight.” SEC Chairman Amatong

explains their cooperation:

“We already discussed the matter with the BSP, since the BSP is also interested and we are also interested […] The discussion […] [involves] joint cooperative oversight over [cryptocurrency exchanges] engaged in trading.”

Back in 2016, the BSP deputy director Melchor Plabasan made clear his positive outlook on the potential of cryptocurrencies in a televised interview,

stating that:

“If you want something that is fast, near real-time and convenient, then there’s the benefit of using virtual currencies like Bitcoin.”

Final draft builds on months-long efforts to create effective legislation

As previously reported by Cointelegraph, this upcoming draft is the just the latest installment of the SEC’s attempt to regulate the cryptocurrency sector. In November 2017, the SEC announced that it would move to legalize digital currencies by classifying them as securities, using the example of new regulation in the United States, Malaysia and Hong Kong. The SEC chairman and then-commissioner Emilio Aquino shed light on the developments in a news conference:

The direction is for us to consider this so-called virtual currencies offerings as possible securities, in which case we will apply the Securities Regulation Code. The heightened frenzy and increasing popularity surrounding Initial Coin Offerings has pushed authorities to lay down new rules to protect consumers.” In August 2018, the SEC released their draft rules for public feedback. According to the official statement released by the local SEC, any company registered in the Philippines seeking to run an ICO must submit an initial request to the commision, establishing whether their token qualifies as a security. Companies must submit their assessment requests no less than 90 days before they plan to launch their sale period. The SEC will then review the request within 20 days and provide its findings in a written report.

The report also said that if ICOs were only to be distributed among 20 people or less, then registration with the SEC may not be compulsory. The proposed legislative framework seeks to set out clear rules to avoid the creation of fraudulent ICO projects. The SEC has been proposing to regulate crypto assets since late 2017. In April, the Philippines also floated the notion of defining cloud mining contracts as securities, given that the investors of the data centers operate the process via “investment contracts.” The SEC specified that they invited banks and investment houses, along with the investing public, to submit feedback on the proposed rules and set a deadline of Aug. 31.

Crime and punishment: The government cracks down on scams

Like most countries in which cryptocurrency is a burgeoning platform, the Philippines has been victim to a number of scams, as naive investors seek quick returns on offers that are too good to be true while regulators scramble to keep up. In May, an email circulated using the name of President Rodrigo Duterte, along with high-profile members of the Senate, encouraging them to part with their hard-earned pesos in order to invest in cryptocurrency, with the promise of high returns. The presidential spokesman for the Philippines was forced to step in and make a statement denouncing the email scam after President Duterte’s brother’s name was used in conjunction with the scandal. In his official statement,

Roque said:

“For your information, now that the President’s brother [is being dragged into that cryptocurrency scam], the President has asked me at least three times to announce and inform the public not to entertain any person peddling their alleged influence with the President, including his relatives.”

In another scandal, the Philippine’s SEC issued a warning to investors about Onecash Trading, another digital currency provider promising attractive returns of over 200 percent to investors in

only eight weeks:

"Facebook Account Onecash Trading is inviting the public to sign up to their website through a sponsored link and deposit an amount of P1,000 [$20] as an enrollment fee. Upon activation thereof, a member may opt to become a Trader with a promise receiving 25 percent return of investment every Thursday for eight consecutive weeks without doing anything, or to be a Builder wherein a member shall be receiving P 50.00 [$1] per direct and indirect invites, up to the 10th level."

The SEC stated that all investment schemes that make use of either fiat money or cryptocurrencies are deemed securities and are subsequently required to comply with existing regulations in the Philippines. The statement also came with a warning: Those who fall foul of the law could end up serving 21 years in prison as well as paying up to $100,000 in fines.

Cryptocurrencies are a relatively recent phenomenon for most countries. Their sudden skyrocketing into the very center of both public consciousness and the world of finance has often caught governments and issuers by surprise. As a result of this, governments are often on the back foot when it comes to legislation, leaving the door wide open for scammers. An example of this is the January hack of Coincheck in Japan, which led to the theft of $532 million worth of NEM. Anger at the hack was compounded by the fact that Coincheck was not registered with Japan’s Financial Services Agency and was therefore not subject to the same level of scrutiny as other exchanges in the country. The exchange froze all transactions and issued an apology. The Coincheck security compromise is indicative of wider issues in the crypto world, with over $1.2 billion worth of cryptocurrency stolen worldwide in 2017 alone. However, investors and regulators alike are learning from their mistakes. With the Philippine government taking steps to crack down on cyber crime, the wild west environment that has allowed startups and scammers to flourish in equal measure is soon to draw to a close.

The current legislation put in place by the Philippine government to deter cyber criminals has been deemed too tepid for some. Opposition politician Senator Leila de Lima is pushing a bill through the senate that seeks to impose drastically stricter punishments for crimes relating to cryptocurrencies. In her authority as a former justice secretary, de Lima used the April 4 arrest of two individuals for an alleged P900 million ($17.2 million) Bitcoin scam to emphasize the need for Senate Bill No.

1694 to be passed:

"I hope that this occurrence will push my esteemed colleagues in the Senate to take my proposed bill seriously and help pass it into law soon. Knowing that virtual currency resembles money, and that the possibilities in using it are endless, higher penalty for its use on illegal activities is necessary.”

De Lima provided a list of illicit activities that could use cryptocurrencies:

"Where unscrupulous individuals entice unsuspecting people to purchase fake Bitcoins, sending a virtual currency as payment for child pornography or a public officer agreeing to perform an act in consideration of payment in Bitcoins [direct bribery].”

De Lima’s bill would determine the severity of the criminal activity by the equivalent value of the funds raised through illegal activity. Depending on the amount illicitly raised and the circumstances in which the funds were raised, individuals could face lengthy prison sentences or even the death penalty.

Cryptocurrency and blockchain could help unite the Philippines fragmented payments sector

In a bid to keep the country at the forefront of the ever-expanding crypto frontier, the Philippine government has created the Cagayan Economic Zone Authority (CEZA). With countries like Malta and Switzerland already ahead of the curve in welcoming both blockchain and cryptocurrencies, the CEZA is the country’s response to the ‘Crypto Valley’ of Switzerland’s Zug canton. The Philippine government permitted 10 blockchain and cryptocurrency companies to operate in the zone, with the aim of promoting economic growth and generating jobs for its citizens. In spite of appearances, the zone isn’t just a tax haven free-for-all. Companies are required to contribute no less than $1 million over a two-year period, which, in turn, is topped up by up hundreds of thousands of dollars in fees. CEZA deputy administrator for planning and business development Raymundo T. Roquero explained what businesses must do to be able to operate

in the zone:

“When they apply, they will pay an application fee of $100,000 (P5.35 million) [and a] license fee of $100,000. Then you go into probity checks, then application programming integration (API), which costs an additional $100,000.”

In a ceremony granting licenses to operate in the zone in April, Roquero commented on some of the applications that had

been successful:

“These are offshore companies, and they have committed investments of $1 million (P534.6 million) each. GMQ intends to build [its] infrastructure in Sta. Ana, Cagayan […] and will have an incubation period of two years, so they are already allowed to operate here in Manila.”

Crypto activity in the Philippines, however, is not confined to the CEZA alone. The U.S.-based company ConsenSys has launched Project i2i — short for “island-to-island,” a payment network built on Ethereum that aims to connect the 400 rural community banks across the Philippines. Although there are evidently banks to serve the country’s many rural communities, they are neither connected to any wider electronic networks nor international money transfer systems, meaning that thousands of people are without a means of making quick and reliable payments.

The project uses a web API in order to allow banks to connect to a blockchain backend. This allows users to both carry out transactions and to make use of smart contracts on permissioned blockchain via ConsenSys’ Kaleido platform. Transactions signed through this system will allow for the pledging of digital tokens corresponding to an amount of Philippine pesos in an off-chain account, as well as redeeming and transferring tokens among other platform users.

Success stories help the government to keep an open mind about cryptocurrencies

In spite of a stumbling start to the outright acceptance of cryptocurrencies, the Philippine government is clearly waking up to the many advantages that the technology can bring. This change has not gone unnoticed by some of the industry players. In an interview with Nikkei, FintechAlliance chairman

Lito Villanueva said:

“With these startups come huge investments in their portfolio. Surely, each country would want to take a piece of the action. Taking blockchain and fintech players in with enabling regulations and potential investment incentives would surely make the game more exciting.”

Some of the nation’s startups have already brought in considerable investment. Perhaps the Philippines’ most well-known fintech startup success story, Coins.ph, raised $5 million in a Series A funding round, securing investment from Naspers and Quona Capital. Other Philippine crypto pioneers include Bloom Solutions and Satoshi Citadel Industries. Aiai Garcia, global business development lead for Consensys in Asia-Pacific commented on how the Philippines central bank’s openness toward cryptocurrencies had benefited the industry

within the country:

“Today, the Philippines has one of the most advanced blockchain payments apps in the world [Coins.ph], which provides 1.5 million Filipinos alternative access to their finances and other value-added services. [Philippine] regulators were also among the first to announce the regulation of Bitcoin as security."

It appears that the government is aware that the opportunities for fintech companies can bring benefits for itself. Department of Finance spokesperson

Paola Alvarez said:

‘’Secretary [Carlos] Dominguez is really pushing for the application of financial technology. He wants to harness fintech to improve business, for example, payment of taxes online."

As both cryptocurrency and blockchain technology gain footing across the globe, the potential benefits for the underdeveloped Philippine fintech industry are hard to deny. The disparate and fragmented nature of the island’s financial system could be revolutionized thanks to initiatives such as i2i, along with the nation’s many payment apps that have sprung up in recent years. With eager anticipation from high-profile government figures, the ICO regulations seem set to take the next step in defining the role of cryptocurrency in the nation’s future.

Article Produced By
Henry Linver

Henry Linver is a freelance journalist. He’s interested in how blockchain has the potential to radically change the world we live in and the transformative power of crypto.

https://cointelegraph.com/news/from-kazakhstan-to-uzbekistan-how-cryptocurrencies-are-regulated-in-central-asia

US Judge Rules That ICOs are Covered by Securities Laws

U.S. Judge Rules That ICOs are Covered by Securities Laws


A U.S. District Judge in Brooklyn has delivered a landmark judgement
 
with far-reaching implications for the initial coin offering (ICO) market. Judge Raymond Dearie of the U.S. District Court Eastern District of New York today ruled that U.S. securities laws cover ICO token sales.The ruling came in a case against a fraudulent ICO promoter Maksim Zaslavskiy, whom prosecutors are looking to bring up on fraud charges for defrauding investors of more than $300,000 from a scam ICO called REcoin.

REcoin ICO Scam

In Sept. 2017, CCN reported that the SEC charged Zaslavskiy and two of his companies with defrauding investors through a number of ICO scams including REcoin. REcoin was marketed to investors as being backed by real estate and diamond assets which in actual fact did not exist. In a pioneering ruling, Judge Dearie refused to dismiss the case against Zaslavskiy, whose lawyers earlier pled for dismissal on the basis that the ICOs in question were currencies and not securities, placing them outside the jurisdiction of the SEC Act.

An excerpt from today’s hearing file reads:

“He [Zaslavskiy] argues that the securities laws are  unconstitutionality vague as applied. The Government, meanwhile, asserts that the investments made in REcoin and Diamond were “investment contracts,” and thus “securities,” […] and that these laws are not unconstitutionally vague.”

Judge Dearie’s ruling on this matter was that an ICO is indeed a security for the purposes of federal criminal law, which is what prosecutors have argued since last year.

Implications of Dearie’s Ruling

The SEC claims the REcoin ICO scammed investors out of $300,000. Dearie has become the first judge to deliver a ruling that places ICOs firmly within the jurisdiction of securities regulators, and this could potentially have important implications for the ICO market by creating a precedent for future cases. While the CFTC has had some successes tackling fraudulent crypto offerings within its space, the SEC — which has long said that it has jurisdiction over most ICOs — had not yet established this authority in court.

An excerpt from Judge Dearie’s ruling reads:

“Zaslavskiy’s contrary characterizations are plainly insufficient to by pass regulatory and criminal enforcement of the securities laws. Because the indictment is sufficient under the Constitution and the Federal Rules of Criminal Procedure, and because the law under which Zaslavskiy is charged is not unconstitutionally vague as applied, Zaslavskiy’s motion is denied. The case will proceed to trial.”

While the ruling comes as a boost for prosecutors, the it is by no means a final word on the matter. In his comments, Judge Dearie noted that the ultimate decision rests with a jury and that Zaslavskiy’s lawyers can in fact still present the argument contesting the jurisdiction of securities laws to the jury.

Article Produced By
ICO News

https://www.ccn.com/u-s-judge-rules-that-icos-are-covered-by-securities-laws/

ICOs are holding over 730M in treasuries and doing nothing with it

ICOs are holding over $730M in treasuries, and doing nothing with it

What is going to happen to all that cash?

 

If you thought that all those initial coin offerings (ICOs) that raised millions of dollars in cryptocurrency are busy spending that money on development in pursuit of delivering on their promises, you’d be wrong.Cryptocurrency insights firm Diar has revealed that companies which undertook an ICO before the last quarter of 2017 are sitting on huge cash reserves that could potentially fuel the startup for the next few years.

The total amount of Ethereum held in treasury by blockchain startups currently amounts to 3,744,651 ETH (or roughly $733,614,577 as of September 9). For context, this accounts for 3.7 percent of the total Ethereum supply. Over the last five months these ICOs have only liquidated 20 percent (907,024 ETH) of all total funds raised. Prior to the liquidation, the total amount of funds held in treasury was 4,651,675 ETH (or roughly $1,758,333,150 at this time).

Interestingly, the study also found that at least 12 blockchain-based businesses have a market capitalization that is smaller than the amount of Ethereum they currently hold in treasury. These are the 12 that actually are liquidating their reserves. On average, these companies have liquidated 62 percent of all Ethereum raised through an ICO.

One thing to point out here

is that the US dollar value of ETH has fluctuated dramatically since most of these companies’ fundraising efforts. Indeed, Ethereum has dropped from $378 on April 1 to $195 on September 9. With all this latent cash laying around, it is entirely likely that it could be used to support these companies and extend marketing efforts over the coming years.

There’s nothing wrong with that per se, but the issue is that this could potential obscure the poor performance of these companies in terms of adoption and product delivery. After all, these companies are under no legal obligation to deliver on their promises or pay back investors in the case of insolvency.

Article Produced By

Matthew Beedham

https://thenextweb.com/hardfork/2018/09/11/icos-mountains-treasury-diar/

The future of ICOs

The future of ICOs

Looking at the ICO space now,

it’s clear that there’s a lot of problems but potentially a lot of promise. A comparison that is often used is that the current state of the ICO market and cryptocurrencies as a whole is akin to internet companies in the dotcom boom and crash in 2000 — a lot of noise, many companies will fail, but there could be major firms that survive and become big.

If ICOs do survive, it could pose a challenge to traditional funding methods such as initial public offerings, venture capital or corporate debt.“Philosophically, the value of an asset should be greater when there is more utility, which is a strong incentive for issuers to tokenize real-world assets.”

But beyond that, the whole idea of “tokenizing” a product via an ICO could also lend itself to traditional assets such as stocks, bonds or even currencies like the U.S. dollar. Robert Leshner is the CEO of Compound, a start-up that lets users earn money on their cryptocurrencies. He believes that real-world assets will eventually be tokenized which could boost security, the ability to move them globally, and create new business models.

“Real world assets, from government currencies like the U.S. dollar, to corporate bonds, to equity, can all be upgraded with these properties. Philosophically, the value of an asset should be greater when there is more utility, which is a strong incentive for issuers to tokenize real-world assets,” Leshner told CNBC.

He proposes two ways to do this. The first involves freezing an asset in the traditional financial system and creating an equal amount of tokens on a blockchain, with the ability to unwind the process if needed. A central bank, financial institution, or custodian is trusted with the administration, similar to how exchange-traded funds are created and destroyed. The second option is creating tokens that mimic the value of an asset.

“Tokenized assets will behave like safer, speedier, more useful versions of themselves, which investors will prefer. Once we head in that direction, there will be no going back,” Leshner said. There are however a number of stumbling blocks to such a movement, the main one being regulation. Authorities across the world have barely begun looking at cryptocurrencies and ICOs, let alone the tokenization of traditional assets. But advocates believe it is just a matter of time, likening the development of blockchain and tokenization to the way content was changed by the internet. “Tokenization is to ownership as digitization was to content,” Muirhead told CNBC.

Article Produced By
Arjun Kharpal

Arjun Kharpal is a technology correspondent for CNBC in London. He moved into the role after being a news assistant at the company for two years, and a reporter for a year following that. Arjun's heads up CNBC's "Tech Transformers" special report, interviewing guests or offering analysis on "Squawk Box Europe" and "Street Signs", as well as writing a plethora of stories online. He writes extensively on the technology industry covering the latest trends and topics all the way from the most innovative start-ups up to the biggest companies in the world including Apple and Google.

Arjun talks to the most important industry players including company chief executives, investors, and entrepreneurs. Arjun has previously written for The Times, The Telegraph, The Guardian and The Mirror in London. He holds a BA in English Literature from the University of York and an MA in Newspaper Journalism from City University, London.

https://www.cnbc.com/2018/07/13/initial-coin-offering-ico-what-are-they-how-do-they-work.html