SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities

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U.S. Securities Laws May Apply to Offers, Sales, and Trading of Interests in Virtual Organizations

FOR IMMEDIATE RELEASE
2017-131

Washington D.C., July 25, 2017—

The Securities and Exchange Commission issued an investigative report today cautioning market participants that offers and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws. Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.

The SEC’s Report of Investigation found that tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors’ protection.

“The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us,” said SEC Chairman Jay Clayton. “We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.”

“Investors need the essential facts behind any investment opportunity so they can make fully informed decisions, and today’s Report confirms that sponsors of offerings conducted through the use of distributed ledger or blockchain technology must comply with the securities laws,” said William Hinman, Director of the Division of Corporation Finance.

The SEC’s Report stems from an inquiry that the agency’s Enforcement Division launched into whether The DAO and associated entities and individuals violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for “Ether,” a virtual currency. The DAO has been described as a “crowdfunding contract” but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.

“The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

Steven Peikin, Co-Director of the Enforcement Division added, “As the evolution of technology continues to influence how businesses operate and raise capital, market participants must remain cognizant of the application of the federal securities laws.”

In light of the facts and circumstances, the agency has decided not to bring charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants:  the federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.

The SEC’s Office of Investor Education and Advocacy today issued an investor bulletin educating investors about ICOs. As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws. The federal securities laws provide disclosure requirements and other important protections of which investors should be aware. In addition, the bulletin reminds investors of red flags of investment fraud, and that new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws.

The SEC’s investigation in this matter was conducted in the New York office by members of the SEC’s Distributed Ledger Technology Working Group (DLTWG) — Pamela Sawhney, Daphna A. Waxman, and Valerie A. Szczepanik, who heads the DLTWG — with assistance from others in the agency’s Divisions of Corporation Finance, Trading and Markets, and Investment Management. The investigation was supervised by Lara Shalov Mehraban.

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Russia Prepares to Legalize ICOs – Bitcoin News

Russia is currently working on a regulatory framework to legalize Initial Coin Offerings (ICOs), local publications reported on Wednesday. This is in addition to a bill that is being finalized to recognize cryptocurrencies such as bitcoin and ether.

Also read: Russian President Vladimir Putin Discusses Using Ethereum with Vitalik Buterin

Amending Law to Recognize ICOs

Russia Prepares to Legalize ICOsRussian lawmakers are working on amendments to the civil law aimed at legalizing ICOs, according to Vedomosti, one of Russia’s largest newspapers. Discussion of the amendments has already begun by an interdepartmental working group under the State Duma, which has been assessing the risks of cryptocurrency use in the nation.

An associate criminal law professor at the Moscow State Institute of International Relations (MGIMO), Elina Sidorenko, heads the working group. “The group includes representatives from the Parliament, including the initiative’s originator Andrei Lugovoi. We also cooperate with other parliamentary committees,” she told Forklog in an interview published on Tuesday. “Aside from that, there are representatives from the central bank and the financial monitoring service.”

The Need to Regulate ICOs

According to Konstantin Vinogradov, Senior Associate at Runa Capital, there were more than 150 ICOs globally in the past year, which totaled more than $500 million.

Sidorenko explained that “legislative gaps exist which do not allow legal settlement of crowdfunding issues and ICO contracts,” according to Russian 360tv which also reported her saying:

The State Duma should undertake the development of legal mechanisms that would allow the verification of such contracts. They should also be designed to identify users and protect the rights of the holders of tokens to fulfill the obligations of issuing companies.

Source: Russia Prepares to Legalize ICOs – Bitcoin News

Alphabay Phisher Makes $1 Million in 14 Months Stealing Bitcoins

A deep web hacker operating under the pseudonym of ‘Phishkingz’ has recently claimed to have generated over $1 million from phishing Alphabay accounts during the last 14 months. In a recent interview with Deepdotweb, Phishkingz details the methods that he uses when stealing bitcoins.

Also Read: Law Enforcement Takes Down the Biggest Darknet Market on the Deep Web

Phishkingz Claims to Have Sold 500 Stolen Bitcoins in the Last 14 Months

Alphabay Phisher Makes $1 Million in 14 Months Stealing Bitcoins

Darknet phisher, Phishkingz, recently discussed methods that he claims allowed him to generate over $1 million in 12 months by stealing bitcoins. Phishkingz claims to have traded approximately 500 bitcoin on Localbitcoins in the last 14 months, the entirety of which was generated through phishing.

Phishkingz states that he is also a dark market vendor. His decision to start phishing to steal bitcoins was made following the discovery of an error on Alphabay’s forums “that allowed [Phishkingz] to see new members the second they joined.” The hacker would then directly contact new members, “send[ing[ them to my link with a verification process.” From them, Phishkingz is “able to obtain the login details syncing, and the mnemonic phrases, as well as any PGP private key and password and pin code.”

The hacker would then “save a bookmark using blockchain.info… [and] highlight 50 [addresses] at a time every 20 minutes checking for deposits”. The majority of the withdrawals would be processed manually, despite early experimentation with bots. Phishkingz claims that his operations expanded to a scale that required the assistance of employees, stating that at one point he “had 27 people working… running phishers” that were stealing bitcoins for him.

The Admins Didn’t Really Care About Their Customers

Alphabay Phisher Makes $1 Million in 14 Months Stealing Bitcoins

Phishkingz describes Alphabay’s moderators as providing little support to his victims. “The admins didn’t really care about their customers, and it only took opening a support ticket with a problem to learn this. BM (Big Muscles – an Alphabay moderator) especially is a stupid one. He would let me into accounts for 50% if I provided mnemonic phrase knowing I had phished the account in the first place.”

Following the recent removal of Alphabay, the bitcoin hacker claims to “have moved to Dream Market and already made 4 BTC since yesterday launching the new site.”

The number of phishers attempting to hack bitcoins outside of the deep web has also recently proliferated. The record breaking Tezos ICO has attracted the attention of phishers, seeing clone sites being hosted for the purposes of stealing bitcoins. Other creative hackers have recently started setting up websites for fake ICOs, infecting victims’ computers through downloading malicious software disguised as project whitepapers. With bitcoin and altcoins seeing unprecedented media exposure, a growing presence of bitcoin hackers and scammers operating in all corners of the internet appears to be an unfortunate and inevitable consequence of greater cryptocurrency adoption.

Source: Alphabay Phisher Makes $1 Million in 14 Months Stealing Bitcoins

Massive Security Breach Exposes 14 Million Verizon Subscribers’ Data

verizonMillions of Verizon customer records have been exposed by an Israeli technology company, a ZDNetreport claimed last night. According to the report, as many as 14 million Verizon customers who called the company’s customer service in the past six months may have their data exposed.

Verizon has now confirmed that 6 million records were compromised by Nice Systems – carrier’s partner company that handles customer service calls.

The data was found by a security researcher on an unprotected Amazon S3 storage server, which was controlled by an employee of Nice Systems. However, the data was accessible to anyone who knew the “easy-to-guess” web address. Speaking to CNN, Verizon claims that no other external party had access to this data and that there has been no loss of customer data. The company hasn’t explained how it’s certain that no one has had access to this data.

Read More at Source: Massive Security Breach Exposes 14 Million Verizon Subscribers’ Data

PBOC Discusses ICO and Cryptocurrency Regulations

The People’s Bank of China (PBOC) has recently provided further detail regarding the cryptocurrency regulations that China is currently formulating. On ICOs, a PBOC counselor described ‘moderate regulation’ as necessary, whilst stressing the desire of China not to prematurely stifle bitcoin innovation and growth within the Chinese cryptocurrency markets. China’s central bank has also rejected the notion of cryptocurrency comprising a currency.

Also Read: BTCC Founder Bobby Lee Says Cryptocurrencies Need Regulation

PBOC – “Moderate Regulation Should Be Applied, but It Should Not Stifle Innovation”

PBOC Discusses ICO and Cryptocurrency Regulations

The People’s Bank of China has this week revealed further details pertaining to the high anticipated cryptocurrency regulations that are currently under development. On July 7, Yicai Global reported that a PBOC representative had advised investors to exercise great caution before participating in Initial Coin Offerings (ICOs), whilst prescribing moderate regulations for virtual currencies generally.

Sheng Songcheng, a counselor at the PBOC, told Yicai Global “Only time and market dynamics will tell how popular blockchain technologies and ICOs will become in the future. Moderate regulation should be applied, but it should not stifle innovation.” Songcheng also discussed the investor risks that stem from the current unregulated ICO industry, emphasizing the absence of disclosure standards and procedures, and the present potentiality for ICOs to comprise the sale of unlicensed securities.

The PBOC Statements Also Give Clues as to What the Future PBOC-Issued National Cryptocurrency May Comprise

PBOC Discusses ICO and Cryptocurrency Regulations

Songcheng also confirmed that the PBOC will not classify bitcoin and other cryptocurrency tokens as ‘currencies’, describing bitcoin as lacking the inherent value basis of a legitimate currency. The PBOC counselor stated that virtual currencies have ‘technical value’, and thus comprise an asset. Songcheng also implied that a currency must be a stable measure of value backed by a nation state, stating that “Virtual currencies are highly volatile, and fluctuations in their prices can easily reach 10 to 30 percent. If a country accepts one of them as its national currency, the entire national economy could collapse due to currency volatility. Project financing based on a volatile virtual money also entails risks.”

The PBOC statements also give clues as to what the future PBOC-issued national cryptocurrency may comprise. The definition of a ‘currency’ given by the PBOC creates a potential rhetorical pretext for the promotion and legitimation of a PBOC-controlled cryptographic currency. The wording of the above PBOC statement suggests a currency can only attain legitimacy through its adoption by a centralized government, which is dubiously suggested as the only basis through which a currency can attain price stability – and see generalized use as a means of exchange. Greater price stability is argued to likely greater facilitate the use of cryptocurrency as a generalized means of commodity exchange. For the PBOC, said pretext could be used as the basis for launching a crack-down on undesired bitcoin use, whilst the PBOC provides a centralized alternative cryptocurrency that purports to offer the same use-value functionality as bitcoin.

Source: PBOC Discusses ICO and Cryptocurrency Regulations

Blockchain Security Firm Rivetz Launches ICO

This is a new ICO offering from blockchain security company Rivetz that I wrote about earlier this month that I have been advising off and on for several years now.

The Rivetz Ecosystem

Rivetz is a state-of-the-art toolkit for harnessing the Trusted Execution Environment (TEE) to protect your secrets, your finances, and your privacy. It’s like a hidden vault (already embedded in most phones) that no OS or software can eavesdrop on.

The RvT (Rivet) Token

Rivetz uses the RvT (Rivet) token and blockchain to cryptographically prove that the vault (TEE) in your phone is secure, from the manufacturer to your pocket. Once your vault’s integrity and health is verified, you know any transactions you send are exactly the ones you intended.

 Only Rivetz Provides AssuranceOnly Rivetz utilizes the hardware security embedded in devices! Rivetz truly secures customers’ devices and transactions from being exposed and protects software development companies from financial exposure and public embarrassment.

RvT Token Sale Details

200 MILLION TOKENS ISSUEDAvailable in Token…Incentivized Distrib…1/235%35%30%

Task Token Allocation
Available in Token Sale 70,000,000
Incentivized Distribution 60,000,000
Reserved for Future Use 70,000,000

Total token supply fixed at 200 Million (200,000,000) RvT, of which:

  • 70M available in tokensale
  • 60M promotional tokens used for approved marketing and incentive purposes
    • 30,000,000 available
    • 30,000,000 locked by smart contract for up to 1 year
  • 70M reserved for future use.
    • 10,000,000 now,
    • 20,000,000 locked by smart contract 12 months
    • 20,000,000 locked by smart contract 24 months
    • 20,000,000 locked by smart contract 36 months
  • Tokens will be sold for ETH.
  • A Presale is available and will require a minimum purchase of 150ETH. For more information please contact presale@rivetzintl.com!

Initial Coin Offerings: An Overview of Regulatory Considerations | JD Supra

icoIn recent months, a variety of companies have considered “initial coin offerings” (ICOs) as a way to generate money for their businesses. Companies considering ICOs should be aware that, depending on the structure of the coins they are offering, an ICO may involve an offering and sale of securities subject to regulation by the Securities and Exchange Commission (SEC) and/or swap contracts subject to regulation by the Commodity Futures Trading Commission (CFTC). An ICO also may subject a company to potential regulation as a money services business, which could mean that the company needs to comply with anti-money laundering, money transmission, and other applicable laws. Importantly, although the coins being issued may be called tokens or referred to in some other way, regardless of what they are called, the following discussion applies.

When do the SEC and/or CFTC have jurisdiction over an ICO and the coins being offered?

The following flow chart provides an overview of when companies are most likely to need to consider SEC and/or CFTC regulatory issues:

Read More: Initial Coin Offerings: An Overview of Regulatory Considerations | JD Supra

Largest Cryptocurrency Exchange Hacked! Over $1 Million Worth Bitcoin and Ether Stolen

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One of the world’s largest Bitcoin and Ether cryptocurrencies exchanges Bithumb has recently been hacked, resulting in loss of more than $1 Million in cryptocurrencies after a number of its user accounts compromised.

Bithumb is South Korea’s largest cryptocurrency exchange with 20% of global ether trades, and roughly 10% of the global bitcoin trade is exchanged for South Korea’s currency, the Won.

Bithumb is currently the fourth largest Bitcoin exchange and the biggest Ethereum exchange in the world.

Last week, a cyber attack on the cryptocurrency exchange giant resulted in a number of user accounts being compromised, and billions of South Korean Won were stolen from customers accounts.

Around 10 Million Won worth of bitcoins were allegedly stolen from a single victim’s account, according to the Kyunghyang Shinmun, a major local newspaper.

A survey of users who lost cryptocurrencies in the cyber attack reveals “it is estimated that hundreds of millions of won [worth of cryptocurrencies] have been withdrawn from accounts of one hundred investors. One member claims to have had 1.2 billion won stolen.

Besides digital currencies, hackers were succeeded in stealing the personal information of 31,800 Bithumb website users, including their names, email addresses, and mobile phone numbers, the South Korean government-funded Yonhap News reported.

However, Bithumb claims that this number represents approximately 3% of its customers.

The exchange also told Yonhap that it contacted South Korea’s cybercrime watchdog on June 30, Friday after it learned of the hack on June 29.

Source: Largest Cryptocurrency Exchange Hacked! Over $1 Million Worth Bitcoin and Ether Stolen

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