The author has been staying in New York, USA for a month now, and plans to receive training or conduct research on American judicial procedures until February next year. Regarding virtual assets and blockchain, I cannot completely understand the atmosphere since I came to the United States not long ago, but I was able to learn about it indirectly through Meetup, a large-scale blockchain-related gathering, and federal court rulings.
There are many cases in progress where virtual assets are a major issue in the Southern District of New York, which has jurisdiction over Manhattan, the center of American finance. The court has recently handled cases such as the famous Ripple case and money laundering using Bitcoin. He has delivered rulings on US v, Phillips and Denny v. Canaan, and is currently the founder of virtual asset exchange FTX, Samuel B. Bankman-Fried. A criminal trial is in progress.
In a federal trial outside of New York, in Washington, D.C., the capital of the United States, the appeals court ruled in favor of the plaintiff, Grayscale, last month on the premise that Bitcoin spot exchange-traded fund (ETF) was recognized. Around June of this year, the Exchange Commission (“SEC”) indicted Binance and Binance US, along with Binance founder Changpeng Zhao, on charges of operating as an unregistered stock exchange, brokerage and clearing agent. The first trial is in progress. The Western District Court of Texas recently ruled in favor of the Federal Treasury (defendant) in the Tornado Cash case related to money laundering, and in Miami, two Americans and one South African were accused of making false claims about the HYDRO virtual asset. He was indicted on charges of market manipulation based on the transaction.
Among the cases mentioned above that have already been decided, the money laundering case and the Bitcoin ETF case will be mentioned separately in another page, and here we will look at the attitudes and trends of U.S. government agencies regarding whether virtual assets are recognized as securities.
First, if we look at the flow of the judiciary, in the Ripple case regarding whether virtual assets are securities, some of the SEC's claims were dismissed and Ripple received a partial ruling, but the US judiciary's standards and legal explanation on whether virtual assets are securities are completely complete. It doesn't look like anything has changed. There is criticism that the standards are inconsistent or unclear regarding the contents of the above ruling, which states that when Ripple coins are sold to the public on an exchange, their securities are denied, but when they are sold to institutional investors, their securities are acknowledged.
In addition, the Southern District Court of New York, which sentenced the Ripple case, recognized the securities nature of the Kik case and the Telegram case that occurred before that, unlike the Ripple case above, and the court's decision immediately after the Ripple case In the Terra case (SEC v. Terraform Labs), the court directly dismissed the logic of the Ripple ruling. Audet v. Audet v. In the Fraser case, the jury's verdict denying the securities nature of Paycoin was denied and a new trial was ordered under the consideration that the securities nature of Paycoin could be acknowledged.
For reference, the author also recently met a criminal division judge working at the U.S. District Court for the Southern District of New York. Among various topics, we also discussed the securities nature of the above virtual assets. Although he refrained from saying that he is currently handling several cases related to virtual assets, he expressed his opinion that he does not agree with the conclusion of the Ripple case. The above judge said that when the conclusions of the first trial rulings are conflicting like this, it would be necessary to at least check the trend of the appellate court rulings, and suggested that we wait to see the judgment of the circuit court with jurisdiction over the appellate court being pronounced in the near future.
Looking at the movements of U.S. government agencies, the Commodity Futures Trading Commission (hereinafter “CFTC”), which regulates products, clearly views Bitcoin as a product and commits fraudulent acts, violation of registration obligations, etc. under the Commodity Exchange Act. It is being filed in court for this reason, and the courts are successively issuing rulings citing the CFTC's claims. As is well known, the SEC, which regulates securities, appears to be trying to introduce as many virtual assets as possible regarding securities, and accordingly, Ripple, Solana (SOL), ADA (ADA), Polygon (MATIC), Algorand ( For various virtual assets such as ALGO), we are filing lawsuits in court or providing guidance to related industries on the premise that they recognize the securities nature.
Looking at legislative trends in the United States, New York State established the Bitlicense system, which regulates the entry of virtual asset business operators, since 2015, and around May of this year, New York Attorney General Letitia James introduced the digital asset industry. The Crypto Asset Regulation, Protection, Transparency, and Oversight (CRPTO) Act to strengthen regulation of virtual assets has been proposed and is currently being considered by the state legislature. This bill enables independent audits of virtual asset exchanges and specifies investor protection measures aimed at preventing market manipulation and fraud, while also stipulating to prevent conflicts of interest by related workers, etc. There are extensive legal regulations. This move by the New York State Legislature does not provide a direct standard for determining whether virtual assets such as Ripple are securities, but New York State has separately prepared content similar to the U.S. Federal Securities Exchange Act, which regulates securities, in a virtual asset-related bill. Due to the judiciary's interpretation of the law, there is room to reduce the scope of virtual assets as securities, so it can be seen as a move that is more advantageous to the virtual asset industry than to securities regulators.
Moreover, at the level of federal law, Democratic and Republican lawmakers submitted the Responsible Financial Innovation Act around June 2022, and this bill covers various contents, including disclosure regulations on virtual assets, related taxation standards, and issuance of stablecoins. It is equipped with There is also the Financial Innovation and Technology for the 21st Century Act, sponsored by Rep. French Hill and Rep. Glenn "GT" Thompson, and the House Financial Services Committee and the House Agriculture Committee recently approved the above bill, respectively. did. Both of these bills present the standards necessary to distinguish between commercial and securities properties of virtual assets and require the spot market of virtual assets to be regulated by the CFTC. According to this, a significant portion of virtual assets are considered commodities and are likely to be regulated by the CFTC.
So, in the Ripple case above, the SEC recently submitted a statement of appeal to the U.S. court, and if the court approves it, it is likely to appeal. What conclusion can be expected? Judging from the series of movements above, if these bills become a reality, it seems likely that security-type virtual assets will ultimately be regulated to a significantly smaller scope than the SEC's opinion, and will have a significant impact on the judiciary's judgment on whether they are securities. If the bill is not passed, it appears that we will have to wait and see how the rulings of each federal lower court, which have conflicting judgments on whether the securities are securities, will be integrated through the appellate court and the Supreme Court. In particular, it seems important to pay attention to whether the Howey Test, which was established in 1946 as a standard for determining whether virtual assets constitute investment contract securities, will be applied to virtual assets in the Supreme Court ruling, or whether new legal principles will be created to determine whether virtual assets are securities. , if new legal principles are created, there is a possibility that a favorable conclusion will be drawn for the virtual asset industry.
Once such a legal system is in place and the judiciary's legal structure on whether securities are applicable is refined, the virtual asset industry or those seeking to enter it are expected to modify or design the blockchain system in accordance with the regulatory system, thereby increasing the virtual asset market. It is expected that there will be changes, and this trend in the United States is expected to naturally affect Korea's virtual asset regulators and industry.
Seoul Rehabilitation Court Judge Seokjun Lee
[Please note that this column or contribution is not related to the Token Post policy.]
