After slapping other blockchain enterprises with civil penalties, the Securities and Exchange Commission (SEC) continues their enforcement of the 2017 DAO Report. Two years after the report was published, this article examines new regulations for blockchain-based enterprises throughout 2019. For a look from a wider lens, check out the parent article here.
May 2019: Continual Enforcement of the 2017 DAO Report by the SEC
On May 14th, the SEC ordered a cease and desist against NextBlock Global Ltd. NextBlock is owned by Alex Tapscott, a business writer focusing on the impact of emerging technologies like blockchain and cryptocurrency.
From the ruling, Mr. Tapscott agreed to a $25,000 USD civil penalty. Also, no further penalties were imposed on NextBlock due to the prompt remedial actions of the company. However, Alex Tapscott returned the initial investment of debenture holders, totaling $20million Canadian dollars and $28 million in profit from the investments. Mr. Tapscott also willingly declined the carried interest, which would have equaled $3 million Canadian dollars.
Nine days later, the SEC also filed a litigated court action suit against Daniel Pacheco et. al. The defendants were accused of operating a $26.5 million pyramid scheme where they enticed investors with points that could be converted into cryptocurrency.
June 2019: SEC v. Kik Interactive, Inc.
In early June 2019, the SEC targeted Kik Interactive, a software company known for the Kik social platform. BBHQ’s editorial staff covers the targeting of Kik Interactive here for lack of compliance with U.S. blockchain regulations.
July 2019: “Regulation A+” Policy
On July 10, the Wall Street Journal announced that Blockstack, “…made a new fundraising template” as the first blockchain company to be approved for fundraising through digital tokens under Regulation A+ . On the following day, another financial technology company, YouNow, received a similar decision. The SEC green light allows both blockchain enterprises to target retail investors, institutions and wealthy individuals.
Blockstack’s agreement per the filing comes with a stipulation: Blockstack has until the end of January 2020 to obtain 1 million users. If Blockstack fails to meet this metric, the blockchain company must return millions in capital back to its investors.
Time will tell if Blockstack is capable of meeting these goals. Hopefully for blockchain regulation going forward, coin offerings that meet their fundraising goals stay in accordance with existing U.S regulation on DAO offerings. Blockstack is the oldest blockchain company currently in business and it’s not out of the question for the SEC use the success of Regulation A+ to inform future financial technology and blockchain policy. Nothing for Blockstack is guaranteed until January 2020.
Regulatory Uncertainty Expected Heading Into 2020
2019 still holds an uncertain forecast for blockchain-based digital currencies as a viable form of fundraising for blockchain enterprises. In conjunction with the semi-misinformed Congressional hearing of Facebook Libra, the U.S government regulations surrounding blockchain-based enterprises may shift in focus, associated penalties and policy enforcement.
Other nations around the world have recently revised their legislation surrounding financial technology. France, for example, detailed a new framework for initial coin offerings. Additionally, the Autorite des Marches Financiers (AMF) published a white list of approved blockchain corporations.
In Germany, new anti money laundering (AML) regulation came into effect which will require crypto businesses to acquire a BaFin license. Despite the regulatory uncertainty, the BaFin recently approved a $280 million Ethereum-based tokenized real estate bond. Combining blockchain and financial technology is a new territory for regulation that will ask both legislators and blockchain enterprises to stay on their toes.