Stirling & Rose’s Post

An interesting decision this afternoon in the Federal Court dealing with Bit Trade's Kraken crypto exchange and whether it had failed to comply with design and distribution obligations (“DDO”) in s.994B(1) and (2) in Part 7.8A of the Corporations Act 2001 when offering a margin trading product to Australian customers: Australian Securities and Investments Commission v Bit Trade Pty Ltd [2024] FCA 953. https://lnkd.in/g-pexyrs Under the DDO, the issuer of a financial product to which the relevant obligations apply, must make a “target market determination” before the financial product is offered to consumers.  A target market determination must, amongst other things, describe the class of retail clients that comprises the target market for the product: s 994B(5). The target market determination must be such that it would be reasonable to conclude that, if the product were to be issued or sold to a retail client in the target market, “it would likely be consistent with the likely objectives, financial situation and the needs of the retail client”: s 994B(8).  It was common ground that Bit Trade was the issuer of the margin extension product and had never issued a target market determination in relation to the product.  Bit Trade said was not required to comply with the DDO on the basis it did not issue a financial product to which s 994B(1) and (2) applied.  Ultimately the court disagreed. Bit Trade's margin extension product provided for margin extensions to be made and repaid in either digital assets (e.g. Bitcoin) or national currencies (e.g. US dollars). ASIC alleged that the obligation to repay a digital asset or national currency was a deferred debt and accordingly, that meant that the product fell within the definition of a credit facility. In assessing the issues Justice Nicholas found that "An obligation to pay an amount of cryptocurrency of some type is not an obligation to pay a sum of money and therefore cannot be a debt". While a margin extension involved the provision of “financial accommodation” to a customer that did not mean that the provision of financial accommodation in eg, Australian or US dollars, gave rise to a debt. It was also necessary to consider how any payment obligation imposed on the customer may be satisfied. After closely reviewing the terms, his Honour accepted ASIC's submission that a margin extension in a national currency created a deferred debt which meant that the product was a credit facility. As a result, Bit Trade contravened s994B(2) of the Corporations Act each time it made the product available to a customer. Entities that provide crypto-related products should be aware that many such products are financial products.  ASIC has published Information Sheet 225: Crypto Assets (INFO 225) which provides guidance on the circumstances in which a crypto-related offering may be a financial product. It is worth a read.

On 23 August 2024, the Federal Court of Australia published its decision in ASIC v Bit Trade Pty Ltd [2024] FCA 953. The decision concerned whether the product in question – a “Margin Extension” used to purchase cryptocurrency on a digital exchange – was a financial product in which Bit Trade was required by s 994B(1) and (2) of the Corporations Act 2001 (Cth) to issue a target market determination. That question was answered in the affirmative. The Court (Nicholas J) held that the contract entered into between Bit Trade and customers, evidenced by its Terms of Service, provided for a Margin Extension. The provision of this Margin Extension in national currency (including in Australian or US dollars) gave rise to a “deferred debt” which was (i) incurred by the customer when they were provided with the Margin Extension and (ii) became payable upon the customer ceasing to be eligible to receive the Margin Extension. This meant that the Margin Extension was a credit facility that involved credit of a kind referred to in subpara (a) of reg 2B(3) of the Australian Securities and Investments Commission Regulations 2001 (Cth), as a consequence of which the exception provided for under reg 7.8A.20 of the Corporations Regulations 2001 (Cth) did not apply to the Margin Extension. By issuing the Margin Extension to retail clients without having first made a target market determination for the Product, Bit Trade contravened s 994B(1) of the Act when read together with s 994B(2). Jeremy Giles SC appeared for the successful regulator. A copy of the decision is available here: https://lnkd.in/gyTtVp7e

Two poles🧲 apart continent: 15175 km is distance between the two countries divided by🌊Pacific Ocean. And the Judgment and analysis by their two honourable courts are that much poles apart in a week!!! 🇦🇺⚖️When the Australian Federal Court has thrown out ASIC’s claim that Finder.com provided Finder Earn Product [ read illegal financial advice and products ] , finding that the Finder Earn offering did not require a financial services licence. 🇱🇷⚖️Then the USA SDNY Court has given the decision in favour of SEC’s claim that Gemini’s crypto lending- Earn Product which is an investment agreement and construed to be Securities under Reeves Test ( SEC used Howey for major part of 2021-23 without much success and now Reeves test in most occasions can be scoped out to make crypto offerings in securities) ⛓️💥💭For a long time I had assumptions that “Yield”/ “Earn” products and offerings are more easier prey for Securities Regulators because You can not market a Yield product realistically without promise of ROI ( mostly a specific number) or can not construct yield mechanisms without pooling of investors funds. 💬👨⚖️And that happened with Gemini, SEC argued and the court agreed that the program involved the pooling of investors' crypto assets, managed and determined by Genesis and facilitated by Gemini. Investors expected to profit from the efforts of Genesis and Gemini through interest payments, with rates subject to unilateral revision, indicating an investment of money in a common enterprise with expectations of profits derived predominantly from the efforts of others. Additionally, the marketing efforts of Gemini emphasized the potential for financial gain, further aligning with the definition of a security. 💬👩⚖️But oppositely in Australia, Finder told the market that Finder Earn which allowed customers to invest in stables such as TrueAUD for a fixed return was “ not a banking product, not a savings account “! ⚠️📋ASIC argued the product was more accurately a “debenture” and therefore a financial product, which requires a financial services licence or authorisation to distribute but Justice Markovic given few distinctive points in favour of Finder Earn Product : 1. No Deposits or loans to Finder Wallet 2. Purpose of transfers to Finder Wallet is to allow customers to use the wallet’s services either by investing in a particular crypto or investing in earn products ( utility) 3.Customer can be an unsecured creditor but that status does not imply traditional debt repayment obligations to wallet 4. There is a contractual promise of return tuning it more for investment relationships rather than debt! 💭🫥So, Whether you are building a lending or staking or yield/ earn product always make sure your arrangement should not talk about investment-lending-debt -ROI … 🤨pun intended. Rather build these at offshores like Bahamas or other offshores till there is common alignment! #cryptoassets #judgment #sec #staking #lending #gemini

[Issuance of debt securities - #Attractiveness of French law 🇫🇷] 3️⃣ Registration in a distributed ledger technology (blockchain) 💻 Blockchain was first introduced into French law by Order no. 2016-520 of 28 April 2016, which created the "minibons". France continued to modernise its law with Order no. 2017-1674 of 8 December 2017 on the use of a distributed ledger technology (DEEP) for the representation and transfer of financial securities which, in line with the objective set by the French legislator, allowed the representation and transfer of financial securities not admitted to the operations of a central securities depository or to a securities settlement system by means of a distributed ledger technology. 👍 The use of blockchain as an alternative means for representing financial securities marks the uniqueness and modernity of French law and increases its attractiveness. 🇪🇺 In this respect, it is noteworthy that a foreign issuer, the European Investment Bank (EIB), chose French law to govern its inaugural "digital" bonds issuance in April 2021. The bonds were registered on the Ethereum public blockchain and the issuance was the first multi-dealer issuance of its kind. 📈 Initially applicable to unlisted securities, the possibilities were extended to listed securities following the enactment of the EU Pilot Regime regulation. French law offers the following advantages to the users of a DEEP:  👉 the DEEP allows the issuer to unambiguously identify the holders of securities, the nature and the number of securities held (Article R. 211-9-7 of the French Monetary and Financial Code), 👉 the DEEP is considered by law as a "sustainable medium" (Article R. 228-8 of the French Monetary and Financial Code),  👉 the consensus rules of the DEEP remain unrestricted, 👉 the characteristics of the DEEP are relatively flexible in that they must, in general, they need only offer "guarantees, in particular in terms of authentication, at least equivalent to those offered by registration on an account" (Article L. 211-3 of the French Monetary and Financial Code) and be designed and implemented "in such a way as to ensure the recording and integrity of the registrations" (Article R. 211-9-7 of the French Monetary and Financial Code), 👉 negotiable debt securities may be traded on a trading platform in registered form without necessarily having been previously placed on an administrative account (Article R. 211-5 of the French Monetary and Financial Code), and 👉 financial instruments in the form of tokens are excluded from the specific regulatory framework for digital assets created by the Pact Law of 22 May 2019. #DCM

Success for regulator in enforcement proceedings concerning Australian design and distribution obligations   The Federal Court of Australia recently determined that Bit Trade Pty Ltd (an Australian subsidiary within the global Kraken group) contravened s 994B of the Corporations Act 2001 (Cth) by failing to make a target market determination prior to issuing a margin extension financial product. The design and distribution obligations in Division 2 of Part 7.8A of the Corporations Act (also known as the “DDO regime”) require that a target market determination is made by an issuer for a financial product prior to it being issued to a retail client.   Bit Trade’s “margin extension” product allowed Australian customers to borrow digital assets (cryptocurrency) or legal tender in order to make spot purchases of digital assets on the Kraken exchange. The margin extension facility was provided by Bit Trade to its customers as an adjunct offering to its digital exchange platform.   The Court found that the margin extension product was a financial product within the extended definition of “financial product” under Division 2 of Part 2 of the ASIC Act and so the DDO regime applied to it.   Bit Trade’s terms and conditions enabled a person to return cryptocurrency in satisfaction of their obligation to repay Bit Trade the cryptocurrency borrowed. The Court found that this arrangement did not amount to a monetary obligation capable of constituting a debt because it would not require the payment of a sum of money. However, that did not matter in the result because the product also permitted the extension of legal tender (in both Australian and foreign currency) and so was capable of giving rise to a monetary obligation and therefore a deferred debt obligation.    By issuing the product without first issuing a target market determination in respect of the product, Bit Trade contravened s 994B DDO regime.   The Court will hear the parties on penalty later this year. The judgment is available here: https://lnkd.in/gxMabFSq   Karen Petch acted for ASIC, led by Jeremy Giles SC. James Arnott SC and Amy Campbell acted for Bit Trade, instructed by Gilbert + Tobin.

Calling stablecoin law… today’s tipsheet https://lnkd.in/ePsdMbGQ PayPal is the owner of a new limited purpose trust charter. Will PayPal takes stablecoins in-house? Yesterday, the judge in the DEBT Box fiasco required the SEC to pay $1.75 million to the defendants for "bad faith conduct." International trade is seeing more use of stablecoins as countries leverage the coins for their speed of transfer and to keep ahead of sanctions. Speaking of speed, the Securities and Exchange Commission's "180" on Ether ETF applications is still turning heads. House Majority Whip Tom Emmer (R, MN) and Senate Finance Chair Ron Wyden (D, OR) are policy headliners at the big crypto Consensus conference in Austin, Texas. From Grayscale's new voter poll: "Half of young voters, who own crypto at higher rates than equities, are considering candidate positions on crypto before casting their votes."

ASIC Decrypts Crypto Regulations   In one of the first decisions to provide guidance on the position of financial services regulation in relation to crypto-assets in Australia, the Federal Court has found that a crypto startup was offering a crypto-backed product, without the appropriate licensing authorisation, in the case of Australian Securities and Investments Commission v Web3 Ventures Pty Ltd.   This decision is significant as it provided much needed insight into the types of crypto-related products that may fall within the remit of existing financial services laws. Service providers offering crypto-related products and services should carefully consider whether these are licensable activities pursuant to the current regime.   We expect ASIC to continue clamping down on regulations of crypto-related businesses in the future as it continues to express concerns about consumer’s laissez-faire approach to crypto-assets. Please keep an eye out for our upcoming article that will provide a more in-depth analysis of the decision and regulation of crypto-related products. https://lnkd.in/g9T7MQ2X #crypto #legalupdates #financialservices #ASIC #auslaw

Hodler&#039;s Digest, March 17-23 – Cointelegraph Journal https://lnkd.in/d4k-pj3X This week&#039;s featured tales The SEC is attempting to categorise Ether as a safety The US Securities and Trade Fee has reportedly issued quite a few subpoenas to firms as a part of its efforts to categorise Ether as a safety. In accordance with a latest report, an SEC investigation into the Ethereum Basis may probably give the fee regulatory jurisdiction to label the digital asset as a safety. The inspiration instructed through GitHub that it might be beneath investigation “by a state authority.” In the meantime, a number of US-based firms reportedly obtained requests from the SEC to offer monetary paperwork and data associated to transactions with the Ethereum Basis. Celsius seeks to get better $2 billion in buyer withdrawals Bankrupt cryptocurrency lender Celsius reportedly goals to get better $2 billion from main shoppers who exited the platform simply earlier than its chapter in July 2022. In accordance with a latest report, a Celsius chapter oversight committee has begun contacting shoppers who withdrew greater than $100,000 earlier than its downfall, with the aim of utilizing potential returned funds to pay shoppers who didn&#039;t pay. They had been faraway from the platform on time. The committee will provide shoppers affected by the restoration a “favorable fee” in the event that they resolve to settle, with the specter of litigation if the funds are usually not returned. Moreover, shoppers making offers could have their notional digital belongings adjusted primarily based on their worth in July 2022, close to the underside of the cryptocurrency bear market. SEC receives sanctions for its &#039;severe abuse of energy&#039; in Debt Field case A US district court docket has imposed sanctions on the Securities and Trade Fee (SEC) for appearing in “unhealthy religion” in a lawsuit it introduced towards Debt Field. The SEC initially filed a movement to dismiss with out prejudice, however it was denied by Decide Robert J. Shelby, who criticized the regulator for deliberately mendacity to the court docket about proof it obtained to acquire a short lived restraining order and freeze Debt&#039;s belongings. Field final August. . <!-- 1456x180 (img) --> <!-- 600x500 (img) --> In its lawsuit, the SEC claimed that Debt Field perpetrated a $50 million cryptocurrency fraud scheme amid its operations as a software program mining license supplier, alleging that Debt Field had already despatched $720,000 abroad and would flee. to the United Arab Emirates and would secretly switch extra belongings if notified of the order. Shelby concluded that the SEC misrepresented proof and that the $720,000 switch was despatched inside america. Binance Presents $5M Reward for Insider Buying and selling Info Cryptocurrency change Binance introduced that it’s going to

In the ongoing legal battle between cross-border payments company, Ripple and the United States Securities and Exchange Commission (SEC), a crypto expert has speculated that a possible settlement may be on the horizon. The recent events surrounding the case outlined by the expert, have indicated a progression to a potential conclusion in the case between the two parties.  Ripple And SEC On The Brink Of Settlement? XRP community member and expert, Ashley Prosper has speculated that the recent legal proceedings observed between Ripple and the US SEC could be key indicators pointing towards a possible culmination of the three-year-long court battle. In an X (formerly Twitter) post published on Friday, April 12, the crypto expert outlined an extensive number of factors and occurrences that suggest the possibility of a legal settlement.  According to Prosper, the Second Circuit’s decision to reject the SEC’s disgorgement in cases lacking financial loss, alongside the SEC’s failure to identify investors who suffered financial losses from Ripple has added weight to Ripple’s defense.  The crypto expert also noted that the SEC’s recent investigations and enforcement actions against Ethereum and crypto exchange UniSwap could be another indication of a possible conclusion of the legal case. By diverting its attention to these projects, the SEC might aim to classify Ethereum as a security, thereby impacting the broader crypto market and its case with Ripple.  Moreover, Prosper speculates that Ripple’s recent announcement to launch a stablecoin and expand into the market hints that a settlement was imminent. This move could suggest that Ripple was moving forward with its business plans, indicating confidence that could be stemmed from a potential settlement.  More Factors That Hint A Potential Resolution In Sight In her post, Prosper uncovered other factors that strongly suggest a forthcoming settlement and the eventual conclusion of the SEC and Ripple case.  The crypto expert disclosed that a settlement conference was slated for April 16th before Ripple could submit a response to the SEC’s remedies brief and demands. This timing could be an indicative factor that both parties may be open to reaching an agreement and possible compromise.  She also highlighted the recent 500 million XRP released from escrow on Friday, April 12. According to Prosper, the April escrow unlock might have been aimed at funding a potential settlement.  Following her statement, Prosper later clarified that no settlement had been scheduled for the specified date and that the 500 million XRP locked within the escrow was not released for settlement purposes. This underscores that the notion of a settlement between Ripple and the US SEC was purely speculative, as there are currently no reports or statements from either the SEC or Ripple confirming the possibility of a resolution to the ongoing legal battle.  

Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced the Payment Stablecoin Act of 2024 on April 17 Gillibrand described it as “historic bipartisan legislation that preserves the dual banking system while protecting consumers, enabling innovation, and promoting U.S. dollar dominance through establishing a transparent regulatory framework for payment stablecoins.” The $150 billion stablecoin industry could be subject to more excellent supervision and transparency under the proposed law, which could be the first significant crypto legislation passed in the United States. Additionally, it would streamline the process for banks subject to state and federal regulation to assume guardianship of digital assets on their client’s behalf. The legislation would allow nondepository trust corporations (nonbanks) to issue stablecoins—tokens designed to maintain a fixed value, typically $1—if the nominal value of all their tokens is less than $10 billion. The text specifies that a depository institution must be authorized as a national payment stablecoin issuer to qualify as a giant issuer. If this bill were to become law, companies such as Circle ($135 million PAXD) and Paxos ($33 billion USDC) would have two options to continue issuing stablecoins: a state nonbank pathway or becoming national payment stablecoin providers as depository institutions at the federal or state level. Other forms of stablecoin issuance, such as algorithmic payment stablecoins like TerraUSD, which depreciated by $50 billion in 2022, are strictly prohibited. In addition, the measure contains an “extraterritorial clause,” which means that these laws apply to companies such as Tether, the controversial stablecoin industry leader whose token is currently valued at approximately $110 billion, outside the United States. Basically, adding a section at the end that talks about how to account for custodial assets would get around the rules set out in Staff Accounting Bulletin 121 of the Securities and Exchange Commission. That rule says that cryptocurrency held in custody must be listed as an asset on the balance sheet of the financial institution. SAB 121 has garnered widespread industry criticism since its debut in March 2022. It imposes the costly requirement that institutions maintain cash reserves equivalent to the total value of their digital asset holdings. Numerous endeavours to enact crypto legislation have been documented in recent years. While specific bills seek to establish regulations for stablecoins, others endeavour to distinguish between digital assets that qualify as securities and commodities to develop the superior regulatory authority—the SEC or the Commodity Futures Trading Commission (CFTC)—in this regard. Last year, the House Financial Services Committee approved two measures of this nature; however, none have been… #Crypto #Blockchain #coinbase