![]() Designed by anonymous developers, Sand Vegas released for sale more than 12,000 NFTs programmed with profit-sharing rights to the public on the OpenSea NFT marketplace. A recent example cited by Santos involves the online gaming platform Sand Vegas Casino Club. Thus, they must take note of this patent ambiguity, and failure to recognize this regulatory gap in their investment strategy is almost certainly a violation of the fiduciary duties owed to plan participants, in her view.Īnd if all the above weren’t enough to curtail even the most gunslinging of public pension fund managers, digital assets programmed with multiple properties may create hazards uniquely difficult to overcome. Pension funds and their operators are likewise regulated by FinCEN and must comply with the BSA. #Diligent boards web login registrationThe challenge, however, says Santos, is that FinCEN has made no statement describing the factors that determine when a cryptocurrency has gained such widespread acceptance as a means of payment that transmission of it requires registration and licensure. FinCEN enforcement actions involving cryptocurrency usually focus on the failure to implement an effective anti-money laundering program compliant with BSA requirements. They are falling like dominos before a hurricane to FBI dawn raids complete with tactical vehicles and weaponized drones for selling Bitcoin for a profit or a fee without a license, according to Santos. ![]() Although Wall Street is more familiar with this agency’s zero-tolerance policy for error, young innovators are not. The cost of BSA compliance is steep, says Santos, and it extends not just to regulation by FinCEN, but to each state financial regulator as well, resulting in a 51-jurisdiction compliance quagmire that has incentivized more than a few legitimate blockchain companies to start their startup somewhere else. The sister agency to the SEC and the CFTC, FinCEN oversees the administration and enforcement of the Bank Secrecy Act (BSA) that regulates financial institutions, dealers in precious metals and gems, and money transmitters, among others. To further complicate matters, if a crypto-commodity serves as a generally accepted payment alternative to the dollar-like Bitcoin-then it will also be regulated by the Financial Crimes Enforcement Network (FinCEN). As a result, she believes pension funds caught investing in these unlicensed financial products may find themselves the subject of class action lawsuits that would be justified under the circumstances. Moreover, with the CFTC’s recent formation of the Office of Technology Innovation designed to focus on financial technology, she anticipates a flood of enforcement actions charging staking pools as unlicensed commodity pool operators. However, due to recent changes in regulations across a bevy of jurisdictions worldwide, these models no longer provide the safe harbor they once did. For this reason, most blockchain developers try to model their projects after Bitcoin and Ethereum which have successfully avoided an SEC smackdown to date. Santos believes, given the choice, the industry would generally prefer to be regulated by the CFTC rather than the SEC because of the belief that CFTC compliance is less onerous. ![]() ![]() In the past, the SEC and CFTC have made non-binding statements that Bitcoin BTC and Ethereum ETH are not securities, but are commodities subject to CFTC regulation and oversight for instances of fraud or manipulation in spot markets, and for commodity pools, futures contracts, and other derivatives. Consequently, how any pension plan could ever justify investing in cryptocurrencies that are likely to be deemed unregistered securities or exchanges is beyond the pale. Although the SEC has recently been accused of “selective enforcement” of the regulations against unpopular digital asset issuers and exchanges, the more likely explanation, says Santos, is that the SEC simply lacks the resources to prosecute all the schemes they’d like to target. The SEC is so aggressive about prosecuting unregistered digital asset securities that they have dedicated an entire webpage to listing Crypto Assets and Cyber Enforcement Actions that can deter even the most diligent blockchain entrepreneur. For example, the SEC’s position under both the Trump and Biden administrations is that nearly every cryptocurrency ever released is an unregistered public offering of securities. In reality, several federal agencies have issued an abundance of regulations that grant these agencies increasing latitude to bring civil enforcement actions and criminal charges resulting in a legal framework overtly hostile to the industry, she says. ![]() Attend any meetup, conference or gathering for cryptocurrency, blockchain, fintech, NFTs or the metaverse and you’re sure to hear grumbling about the lack of regulatory guidance coined as regulatory uncertainty, Santos observed. ![]()
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