Below is a summary of some of the significant legal and regulatory actions that occurred over the past weeks. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Weeks of March 19th through March 30th, 2018
Arizona Becomes First State to Create Legislative “Sandbox” for FinTech Innovations
On March 22, Arizona Governor Doug Ducey signed into law H.B. 2434, a measure that will provide a regulatory “sandbox” for FinTech innovators to bring new products to customers within the state without requiring formal licensure, via a pilot program. Traditionally, businesses seeking to bring a new product to market in the state would need a license issued by the Arizona Department of Financial Institutions. Under the sandbox program, which is scheduled to begin in late 2018, a company would have to submit a less onerous application for the pilot program. After approval, the company would be able to test a new product with 10,000 customers for up to two years before needing to apply for licensure. The company could test the product on an additional 7,500 customers upon demonstration of adequate capitalization and risk management procedures. The measure additionally provides companies an opportunity to apply for a one-year extension. The office of the Arizona Attorney General will administer and monitor the sandbox program, an initiative it has supported through the legislative process. Attorney General Mark Brnovich opined in a statement that federal regulators have not provided adequate guidance to innovators in the FinTech space and hopes that Arizona’s initiative will attract more capital investment to the state.
Litigation and Court Decisions
DOJ and SEC Push Back Against Claims that Securities Laws Regarding ICOs are Too Vague
On March 19, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) filed Oppositions in New York federal court to dismiss dual indictments against Maksim Zaslavskiy, who was charged with fraud related to two initial coin offerings (ICOs). The SEC charged Zaslavskiy with securities fraud in September 2017; the DOJ filed additional charges in November 2017. The SEC’s case is on hold, pending the DOJ’s criminal case. Zaslavskiy allegedly made false statements regarding “investment opportunities” related to the issuance of two commodities-backed coins, REcoin (purportedly backed by real estate holdings) and Diamond (backed by diamonds). Zaslavskiy has pled not guilty to securities fraud, claiming U.S. securities laws do not apply to his coin offerings, arguing that they are merely currencies. He has argued further that U.S. securities laws are unconstitutionally vague and do not provide issuers like himself with fair notice that their conduct is unlawful. The DOJ and SEC have maintained that Zaslavskiy’s claims are without merit in their respective Oppositions.