Drew Hinkes

30 Dec 20, 11 tweets, 5 min read

OFAC settlement w/@BitGo for apparently failing to prevent users accessing their online hot-wallet service via Crimea, Cuba, Iran, Sudan, & Syria IP addresses; service appears to be a non -custodial online wallet. Violaton of OFAC regs, NOT BSA . Let's look at the regs: /1

31 CFR 515.201, (i.e. Cuban Assets Control Regulations) prohibits transactions by foreign countries and their nationals including "...transfers, withdrawals, or exportations of, any property," /2

31 CFR 560.204 regarding Iran (defined as the Territority of Iran) also prohibits "exportation, reexportation, sale, or supply, ....from the United States....of any goods, technology, or services to Iran or the Government of Iran" /3

31 C.F.R. §538.205- Sudanese Sanctions prohibits exportation of goods or services to Sudan without a license or other authorization

Syrian Sanctions Regulations, 31 C.F.R. §542.207 prohibit exportation sale or supply of services to Syria.

Syrian Sanctions Regulations, 31 C.F.R. §542.207 likewise prohibits "exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any services to Syria."

Taken together, these statutes tell us a few things. First, custodial or otherwise, if you're "directly or indirectly" participating in these transfers providing goods or services, you're in the trouble. Same issue discussed here, in 2017 coindesk.com/coinbases-cuba…

as pointed out by my friend (formerly of Treasury) @stmdc OFAC violations are strict liability- if you don't speak legal, that means if you commit the act that violates the law or regulation, that's it. Intent doesn't matter.

finally, as a regulated entity, you are expected to have proper practices and compliance in place to screen, and to self disclose violations. The enforcement against Bitgo noted that their practices were deficient and they did not self disclose violations.

Finally, & perhaps of most interest to the #crypto #bitcoin and #blockchain crowd, #custody isnt the point. The statutes at issue are very broad and include providing services transfers of "property" incl. indirect transactions. Service providers should pay close attention.

many will say "what do we do?" The first thing to do is ask your compliance officer. If you don't have one, go get one and ask her or him. Also, look at the last 2 pages of the enforcement release (lots of helpful info!) & at this document: home.treasury.gov/system/files/1…

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More from @propelforward

Drew Hinkes

@propelforward

26 Sep 20

🚨🚨🚨BREAKING: clarity on how broker dealers should handle non-custodial digital asset securities transactions on ATS. 🚨🚨🚨 THREAD coming atcha /1

/1 since the Joint Staff Statement (July 8, 2019) which addressed BD custody & handling of trades of digital asset securities (sec.gov/news/public-st…) which emphasized consumer protection, it has not been clear how transactions on ATS should be conducted:

/2 The Joint Statement did not make clear how BDs should conduct these trades. Today's letter provides no action relief (i.e. if you do this specific thing, the SEC will not enforce against you) for a specific process flow for digital asset securities transactions by BDs

Read 17 tweets

Drew Hinkes

@propelforward

24 Sep 20

Should #smartcontract code execution always be dispostive? Can code execution actually bind participants if litigation is always available? Does extrinsic goverance of #blockchains that may alter #consensus governance weaken, or strengthen a protocol? Who should care? /1

https://twitter.com/masonic_tweets/status/1309166410573197312

Short answer- everyone. #Developers #investors & #lawyers all need to understand #blockchain & #smartcontract governance to understand what it means to build on top of others' tech. Can you patent new art built on a blockchain? Will your software work if the underlying chain /2

upgrades its code? What if the underlying blockchain forks? How can a #smartcontract advocate for or against software changes to underlying #blockchain system functionality? Is it worth investing in a project built on a frequently shifting foundation.... /3

Read 4 tweets

Drew Hinkes

@propelforward

12 Aug 20

Another place where #bitcoin tends to show up in litigation is in divorce, when married couples divvy up assets. In DeSouza v. DeSouza, a spouse was held to violate his fiduciary duty to his spouse by concealing #bitcoin. /1

Here, the divorcing spouse had some #bitcoin tied up in #MtGox and some held on private wallets. One spouse did not disclose the holdings until after the divorce, and the other spouse immediately sought an award of 1/2 and attorney's fees. Court agreed, noting that divorcing /2

Spouses owe statutory fiduciary duties, & failure to disclose the existence of the #bitcoin, payments to Mt. Gox, some bitcoin's ties to #MtGox & the forks of #bitcoincash and #bitcoingold amounted to breaches of duty; Court disagreed that capital appreciation mitigated /3

Read 6 tweets

Drew Hinkes

@propelforward

11 Aug 20

#California appellate court affirms summary judgment in favor of @coinbase as to claims for #conversion #breach of contract & negligence; related to #coinbase not supporting #bitcoingold fork for its users; since it's precedent in CA, let's dive in /1

Court ruled that there was no agreement to give Plaintiff #Bitcoingold; there was no "contractual obligation to support or provide services for any particular cryptocurrency." Merger clause barred parol evidence & there was no contractual duty. That's breach of contract /2

Conversion of crypto is a pet issue of mine because it requires the Court to determine that the thing that is allegedly converted (i.e. the civil version of theft) is legally recognized property. Fun Fact- property rights are mostly created by state law. Only 1 state (Wyoming)/3

Read 11 tweets

Drew Hinkes

@propelforward

6 Jun 20

@CQRollCall reports the Boston Options Exchange (BOX) reworks its plan to use #Ethereum to record ownership of securities, says it resubmitted plan after meeting with regulators; would use #blockchain as an "ancillary method of recordkeeping" with official data kept by DTCC /1

New proposal limits trading on exchange to listed items, not to provide unlisted trading privileges, which would allow transactions in securities whose home is on another exchange.
Notably, @SIFMA is reported to have asked the SEC to "take its time to consider the proposal," /2

given its novelty. SIFMA did not oppose it, but "said the prospect raised many issues. For one, the plan would allow an options exchange to have an effect on the securities markets, it argued." also expressed concerns about security token technology and unlisted trading privs./3

Read 5 tweets

Drew Hinkes

@propelforward

2 Jun 20

Claim by Q3 v. Tran et al re: alleged #ponzi disguised as #crypto trading venture remanded to state court by M.D. Fla after being removed to Fed. Ct. under Securities Litigation Uniform Standards Act (SLUSA); issue is if investment was in "covered" or "uncovered securities" /1

"Covered security" (needed to trigger federal court jursidiction over the matter)= Traded nationally & listed on a regulated national stock exchange. If doesn't involve covered securities, no SLUSA, no federal court jurisidction on that basis. /2

Here, the argument was that the LP interests sold by Tran et al were not covered securities but the things to be owned by those LP interests described by Partnership Agmt. included crypto & covered securities, so SLUSA should confer Jurisidiction. /3

Read 6 tweets