Blockchain and Cryptocurrency
From the earliest days of blockchain, our Emerging Company and Venture Capital Practice has provided critical guidance and legal advice to companies and entrepreneurs on the leading edge of this disruptive technology.
We work with top-tier blockchain and cryptocurrency projects, including decentralized apps; blockchain-powered networks; exchanges; trading, lending and payment platforms; enterprise solutions; and public cloud computing resources. Clients turn to us for advice as they tackle the operational and regulatory questions posed by blockchain-based networks, innovative capital-raising methods and investment vehicles.
Our lawyers have a sophisticated understanding of the technology that underpins our clients’ businesses and can identify nuances that may have a critical bearing on the way their projects are viewed by regulators. Our deep familiarity and frequent interaction with US federal and state regulators make us effective advocates as the constellation of securities laws and regulations impacting blockchain and digital currency continues to evolve.
Securities and Futures Regulation, Compliance and Disclosure
WilmerHale’s securities, futures and derivatives, broker-dealer and corporate governance lawyers know the regulatory terrain from the inside and understand the priorities of the regulators. Our team features a roster of high-ranking regulatory alumni, including more than 20 lawyers who have held senior positions at the SEC, three of them former directors—one who oversaw the Division of Corporation Finance and two who led the Division of Enforcement.
Our lawyers assess clients’ business plans and help them build new cryptocurrency products while navigating federal agency approval. We advise on the questions clients face where established federal securities law meets blockchain technology: “How do I know whether my token is a security?” “Does my private placement qualify for a Reg D exemption?” “Do I need to register as a broker-dealer?”
Our clients include stablecoin issuers, bitcoin swap execution facilities, digital asset trading platforms, futures exchanges, service providers and intermediaries. We also advise companies issuing tokenized securities to create liquidity in traditionally illiquid assets in order to open secondary trading markets, and those using blockchain technology to facilitate the trading of conventional securities.
Large financial industry clients seek our advice on the securities law implications of proposed cryptocurrency projects, as well as assistance in responding to regulatory and enforcement inquiries into potential products and services.
Investigations, Enforcement and Litigation
As cryptocurrency enforcement priorities crystallize and regulatory investigations and proceedings arise, no firm is better prepared to help companies or individuals respond to a subpoena, interface with regulators and policymakers, and mount a strategic defense.
In recent years, we have represented clients in multiple SEC probes, ranging from informal inquiries to formal investigations, and in significant SEC enforcement actions—often involving parallel inquiries conducted by the DOJ, the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority (FINRA), the United States Congress, and state securities regulators and attorneys general. We have also prevailed in a series of high-profile trials against the SEC, in both federal court and in administrative proceedings.
In defending our clients, we have addressed complex issues involving alleged securities fraud, false disclosures, stock manipulation, false statements to auditors, and internal controls deficiencies. We have also regularly handled matters that have implicated the intersection of cryptocurrency and blockchain issues with the securities laws.
Our team includes a long list of former SEC officials with insight into enforcement priorities affecting the cryptocurrency space. Among others, our securities enforcement team includes the former Director of Enforcement who was in place when the SEC issued its seminal DAO Report, which set forth the framework the SEC used to assess whether unregistered offers and sales of tokens violated the securities laws.
Licensing, Anti–Money Laundering and Economic Sanctions Compliance
Blockchain technology and convertible virtual currencies add an extra layer of complexity to existing financial and regulatory systems dealing with the challenge of money laundering, sanctions and other aspects of national security and illicit finance.
WilmerHale’s experienced anti–money laundering (AML) and sanctions team frequently advises on regulatory and law enforcement matters, including Bank Secrecy Act (BSA) recordkeeping and reporting requirements and regulations and sanctions administered and enforced by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC).
We work with virtual currency exchanges to develop AML and sanctions compliance programs, advising them on the federal and state compliance and licensing obligations of entities defined as money services businesses or money transmitters. We also counsel regulated financial institutions that may be accepting or transacting in cryptocurrency or considering adding the processing of virtual currencies to their line of products and services.
Our AML and sanctions team includes alumni of the Treasury Department, the Office of the Comptroller of the Currency (OCC), the US Department of Justice, the Federal Bureau of Investigation (FBI), the Central Intelligence Agency (CIA), and various US Attorneys’ offices, including the US Attorney’s Office for the Southern District of New York.
- Assisted a number of blockchain and cryptocurrency companies with financing transactions—including a $61 million token sale by leading next-generation blockchain network Dfinity.
- Represented several technology companies that “tokenized” traditional securities in connection with their broker-dealer registrations.
- Represented Coil Technologies, a San Francisco–based startup designed to help creators monetize content, on general corporate matters as well as in its recent investments in Hacker Noon, a technology publishing platform, and Cinnamon, a video streaming platform.
- Represented a startup client in a $19 million financing to launch the Fei decentralized stablecoin. Investors included Andreessen Horowitz (a16z), Framework Ventures, Coinbase Ventures, and AngelList founder Naval Ravikant, among others.
- Represented a blockchain-based international remittance firm in a $5.25 million seed financing. Investors included Blockchange Ventures, Anthony Pompliano, Castle Island Ventures, Messari CEO Ryan Selkis, Volt Capital, Nima Capital and former GoDaddy CEO Blake Irving.
- Represented MicroStrategy in two offerings of convertible senior notes totaling $1.7 billion—the first convertible note offerings in which the proceeds were used to purchase bitcoin. We also advised the company in establishing its Treasury Reserve Policy, governing its institutional purchases of bitcoin, including its investment of cash assets generated by its business in bitcoin, and negotiated a third-party agreement for the provision of brokerage and custody services.
- Advised clients on initial coin offerings (ICOs), including an ICO implemented as an Ethereum-based token.
Regulation and Compliance
- Advised on the formation of the first CFTC-approved trading platform for bitcoin currency swaps, involving the creation of a proprietary benchmark bitcoin index for objectively gauging the worth of swap contracts that are settled in dollars.
- Obtained NYDFS limited purpose trust company charter for a stablecoin issuer.
- Secured FINRA approval for one of the first broker-dealers to use blockchain technology to effect traditional securities transactions, and counseled various clients on using blockchain technology in securities transactions.
- Continuing to advise numerous US and foreign token issuers, and other blockchain and cryptocurrency companies, on obligations under applicable AML and sanctions laws, and on other regulatory risks attendant with investment in various cryptocurrency projects.
- Advised several virtual currency businesses on US federal and state licensing and regulatory requirements, AML and money transmitter license requirements.
Investigations, Enforcement and Litigation
- Representing significant cryptocurrency exchange in federal and state regulatory inquiries.
- Represented a digital asset trading platform offering derivative products for bitcoin and other digital currencies, in an enforcement matter before the CFTC and persuaded the agency not to pursue an action against our client. A public enforcement action against this client would have jeopardized its imminent partnership with a major US futures exchange, which could have threatened the long-term viability of the company.
- Obtained a favorable resolution of CFTC charges against an SEF for alleging that it failed to enforce a prohibition on wash trading and prearranged trading on its platform. Over the dissent of Commissioner Sharon Bowen, the CFTC entered a cease-and desist order against our client without any monetary sanction against any of its officers or employees.
- Representing a web monetization platform using distributed ledger technology in connection with an SEC lawsuit against an issuer of digital currency.
- Represented an issuer of utility tokens in an SEC inquiry concerning representations to purchasers and the question of whether the utility token was a security.
- Represented an issuer of utility tokens in threatened litigation by a purchaser concerning alleged misrepresentations about utility tokens.
- Represented a cash exchange and Index purveyor in CFTC Division of Enforcement inquiry.
- Represented an SEF in CFTC enforcement action for wash trading involving Bitcoin contract.
- Represented a social networking company in an ICO-related SEC enforcement inquiry surrounding the issuance of utility tokens.
AML and Economic Sanctions Compliance
- Advised several members of an independent not-for-profit organization focusing on establishing simple global currency and financial infrastructure on AML, sanctions, and other financial regulatory obligations.
- Advising numerous US and foreign token issuers, blockchain, and other cryptocurrency companies on obligations under applicable AML and sanctions laws.
- Assisting cryptocurrency exchanges and other regulated financial institutions in developing controls to meet AML and sanctions obligations related to cryptocurrency.
- Counseling investment firms on AML, sanctions, and other regulatory risks attendant with investment in various cryptocurrency projects.
- In September 2018, Partners Paul Architzel (chair of WilmerHale’s Futures and Derivatives Group) and Franca Harris Gutierrez (vice chair of the Financial Institutions Group) were named Cryptocurrency, Blockchain and Fintech Trailblazers by the National Law Journal.
- Chambers and Partners ranked WilmerHale among the top FinTech law firms in the United States in its 2019 and 2020 FinTech Guide.