The Chamber of Digital Commerce has filed an amicus brief in the ongoing court case between encrypted messenger service Telegram and the United States Securities Exchange Commission (SEC). Filed on Jan. 21, the document was authored by Lilya Tessler, a partner and the New York head of Sidley Austin LLP, counsel to the Chamber.
In the amicus brief — a legal document that allows a non-litigant to submit its expertise or opinion in a case — the Chamber makes a number of arguments regarding how the U.S. District Court for the Southern District of New York should consider digital assets. The Chamber is a non-profit trade association established in 2014 which aims to promote the adoption of digital assets and blockchain-based technology. As part of its mission, the Chamber established major blockchain and crypto-related advocacy groups including the Blockchain Alliance and the Token Alliance.
Given its supportive stance on blockchain technology, the Chamber emphasized that it is not trying to prove whether Telegram’s $1.7 billion Gram token sale was a securities transaction. Instead, the trade association aims to ensure that there is enough clarity around regulations applying to digital assets:
“Although the Chamber does not have a view on whether the offer and sale of Grams is a securities transaction, the Chamber has an interest in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”
As such, the Chamber has urged the Court to distinguish the term of digital asset, which is the subject of an investment contract, from the securities transaction associated with it. The association stated that this requires two separate analyses including whether there is an investment contract that is offered in a securities transaction and whether the subject of the investment contract is a commodity that can be sold in a traditional commercial transaction. The question of whether a token sale constitutes an investment contract — and therefore a securities offering — has been at the heart of the SEC’s case against Telegram. Earlier this month, Telegram stated that Gram does not constitute an investment product and that investors should not expect profits for buying and holding the token.
In the document, the Chamber also states that not all digital assets should be regulated as securities simply because they are based on blockchain technology:
“We further respectfully request that the Court affirm that a digital asset is not a security solely by virtue of being in digital form or recorded in a blockchain database.”
Additionally, it noted that, while digital asset investors should be afforded full protections of securities laws, disclosures required by the securities laws “serve little purpose with respect to commercial transactions in the digital assets themselves.” Moreover, the brief also stresses that not all digital asset-related transactions require the protection of securities laws, noting that there are a number of related regulators other than the SEC. The Chamber further requested the Court to consider multiple regulatory regimes while making its decision in SEC vs Telegram case:
“Depending on the relevant activity, other regulatory regimes exist to protect purchasers or counterparties. For example, fraud and market manipulation in certain digital asset transactions (depending on the facts and circumstances) is subject to CFTC enforcement authority. Other activities involving digital assets may also be subject to the Bank Secrecy Act, federal and state consumer protection laws, state money transmitter licensing laws, and state laws specific to virtual currency transactions, such as New York’s Virtual Currency Business Activity law.”
Dubai Government Set To Launch KYC Blockchain Consortium In Early 2020
One of the financial hubs of the Middle East, the United Arab Emirates (UAE), is continuing to expand blockchain-driven developments. The Department of Economic Development (DED) of Dubai has established a Know Your Customer (KYC) blockchain consortium with six major banks. Dubbed “KYC Blockchain Consortium,” the new blockchain-powered regulatory platform is designed to accelerate processes like an exchange of digital customer data and documents while ensuring security.
Scheduled for launch in Q1 2020, the KYC Blockchain Consortium will purportedly become the first project of its kind in the region, the report notes. Ali Ibrahim, Deputy Director-General of the DED, outlined that the effort aims to bring more investment to the region:
“Our strategic alliance with banks to launch the first KYC blockchain platform in the UAE is an important step towards continuing to attract investors to this market.”
Additionally, the consortium-powered ecosystem hopes to boost business as well as regulatory compliance in the UAE. According to the report, the UAE Central Bank and Smart Dubai authority will be monitoring operations of the KYC Blockchain Consortium. The UAE’s newly reported blockchain comes in line with the general growth of blockchain spending in the region.
Governments across the Middle East and Africa region are projected to see at least a 400% surge in their investment to blockchain-based solutions in four years. In October 2019, the UAE accepted cryptocurrency regulation after releasing the draft law for public comment. As reported, the UAE has taken a very positive stance to the crypto and blockchain industry as the country is already hosting a number of blockchain-based initiatives such as digitized trade projects the “Digital Silk Road” and the document exchange platform known as the “Bank Trust Network.”
IRS Invites Cryptocurrency Advocates to March Summit
With the 2019 tax season upon us, the IRS is leaving nothing off the table. Cryptocurrency holders are looking for ways to avoid reporting failures on their returns, and the agency has noticed. According to a Feb. 19 report by Bloomberg Tax, the IRS has invited cryptocurrency companies and advocates to appear for a March 3rd summit in Washington DC. Among the aims of the summit are determining how to “balance taxpayer service with regulatory enforcement.”
Topics under discussion at the summit include regulatory guidance and compliance, preparing tax returns, issues for cryptocurrency exchanges, and technology updates. Each panel will last 90 minutes and feature speakers from the government and private sector. Crypto holders in the United States need to know how to declare their assets on their 1040 form. This year’s tax return is the first to include a question on virtual currency.
TON Devs Worldwide Working Together To Intervene In SEC Case Against Telegram
A group of international Telegram Open Network (TON) contributors has submitted a court document criticizing United States regulators’ line of attack against the project. The group has formed a non-profit association, “The TON Community Foundation,” and collectively submitted the brief on Feb. 14 in the form of an amicus curiae.
An amicus curiae is a brief that offers expertise or insight into a given case on behalf of an entity that is not formally a party to the case itself — i.e. an entity that is neither a plaintiff, defendant, nor legal counsel for either side. The court can decide whether or not to take the brief into account at its discretion.
In their filing, the contributors state that the foundation has been formed to represent a “professional community of active participants in the TON project in whose interest it is to see the TON blockchain mainnet launched as soon as possible.” The foundation comprises 20 teams in the TON global community, designated as “independent specialists with extensive blockchain experience who are involved in the actual work on the TON blockchain and who write its code, protocol, smart contracts, tools, and applications.” These 20 teams ostensibly represent over 2,000 computer scientists, engineers, programmers, and entrepreneurs — based in China, Russia, France, and Spain, among other countries.
The foundation writes that the unanimous position of the TON dev community is that the TON blockchain is fully operational, has “state-of-the-art prelaunch security” and a developed suite of services. They contend it would, in its current state, be ready for launch as a mainnet in a “matter of seconds.” The brief focuses on particular arguments that were presented by Brown University Professor Maurice Herlihy in his review of TON for the United States Securities and Exchange Commission.
Following Telegram’s wildly successful $1.7 billion initial coin offering for TON in 2018, the SEC had launched an investigation into the project in 2019, claiming the entity had not registered with the commission for its ICO and the network’s “Gram” tokens. The Herlihy report was submitted as evidence on behalf of the SEC in late December 2019. In its brief, the foundation argues that the court should decline the SEC’s impulse to place the industry under an “innovation-suffocating regime,” it contends. It argues that other successful blockchains — such as Bitcoin, Ethereum and Tezos — would never have launched had they been subjected to Professor Herlihy’s “academic scrutiny” and his “unrealistic standards of pre-launch performance, security, and maturity.” Moreover, despite Professor Herlihy serving as the SEC’s blockchain expert, the foundation claims he has mischaracterized the TON network in his report. It notes that he uses a blockchain definition from 2010 that has since become obsolete, which fails to account for smart contract functionality as one of the technology’s core parameters.
What makes the TON blockchain unique, the brief outlines, is that literally “everything in its network is based on interaction with smart contracts” and “all Grams will be located in smart contracts,” so that, “in a way, TON is a smart contract platform more than a cryptocurrency one.” The rest of the foundation’s arguments against Professor Herlihy’s report provide a detailed overview of the state of the network’s services, readiness for launch, protocol, code, and security audit results.
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