In Audet v. Fraser, an unusual case where federal jurors in a class action lawsuit considered whether digital assets known as “Hashlets” constitute securities, the District of Connecticut jury found that the Hashlets were not securities, and therefore the defendant was not liable for securities fraud. Notably, the SEC took a contrary position on Hashlets in 2015, when it sued GAW Miners, LLC, its founder Homero Joshua Garza, and another company founded by Garza for securities fraud, alleging that Hashlets were, in fact, securities. Both companies were permanently enjoined from violating securities laws and ordered to disgorge more than $10 million, and each was ordered to pay a $1 million civil penalty. Garza was later sentenced to 21 months imprisonment in a related criminal case.

The jury’s verdict comes as the SEC has expressed increased interest in regulating digital assets as securities. For example, in November, SEC Chair Gary Gensler noted that his staff’s enforcement mission includes bringing “novel” and “high-impact” cases involving crypto. And in September, Gensler called for greater regulation of crypto assets, likening the environment in crypto finance, issuance, trading, and lending to “the Wild West.” While increased enforcement in crypto markets may be on the horizon, the jury’s decision in Audet highlights some of the uncertainties that currently pertain to the regulation of digital assets, such as “Hashlets.”


Continue Reading Co-Founder of Crypto Mining Firm Prevails in Jury Verdict Based on Interpretation of Unique Securities Fraud Instruction

Through a series of recent public comments, top leadership from the Consumer Financial Protection Board (“CFPB”) is warning that the agency is poised to play an increasingly affirmative role in the oversight of new payments systems, including the technologies and technology companies involved. First, CFPB Director Rohit Chopra told federal lawmakers that “the desire of Big Tech to gain greater control over the flow of money in the economy raises a number of questions.” Director Chopra’s comments make clear that his agency is stepping up its regulatory scrutiny of large technology firms as well as more traditional participants in the consumer finance industry, such as banks and mortgage companies. Just days later, Director Chopra issued a statement reiterating his concerns about the role of large technology companies in consumer finance and further declaring that the CFPB is “actively monitoring” and preparing for a broader consumer adoption of cryptocurrencies. Commenting specifically on the Report on Stablecoins issued by the President’s Working Group on Financial Markets, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, Director Chopra stated that the use cases for stablecoins in retail payments, consumer deposits, stored value instruments, and others “trigger obligations under federal consumer financial protection laws,” including the prohibition of unfair, deceptive, or abusive acts or practices. These comments and others by the CFPB lead many to conclude that a more aggressive enforcement approach across industries is likely to follow.

As a starting point, Director Chopra indicated that the CFPB is examining the following questions regarding tech firms’ role in real-time consumer payments:

  • How will these firms harvest and monetize data they collect on consumer transactions?
  • What criteria will the firms use to decide who is removed from the platform?
  • How will they ensure that payment systems adhere to consumer protections?
  • Will Big Tech giants have an incentive to impede the entry of new firms seeking to offer competitive products and services?


Continue Reading Consumer Protection Regulator Signals Increased Scrutiny of Payments Systems and Tech Companies