The SEC’s long-awaited green light for spot bitcoin ETPs is welcomed by the market, but the ambivalent decision raises more questions than it answers.

By Jenny Cieplak, Aaron Gilbride, Yvette D. ValdezStephen P. Wink, and Deric Behar

On January 10, 2024, the Securities and Exchange Commission (SEC) issued, on an accelerated basis, an Omnibus Approval Order (the Order) for proposed NYSE Arca, Nasdaq, and Cboe BZX rule changes seeking to list and trade shares of 11 spot bitcoin trusts. Spot bitcoin trusts hold actual bitcoin, as opposed to bitcoin futures trusts, which hold derivatives tied to the price of bitcoin.

The approval of these rule change requests represents a green light for spot bitcoin-based exchange traded products (ETPs) to trade on national securities exchanges for the first time in bitcoin’s 15-year history, after a decade of attempts by market participants to obtain such approval.

In the Order, the SEC found the proposals to be “consistent with the Securities Exchange Act of 1934 (the Exchange Act) and rules and regulations thereunder applicable to a national securities exchange,” including the requirement that the exchanges’ rules be designed to “prevent fraudulent and manipulative acts and practices.”

In its second action involving NFTs, the SEC targets an offering tied to fundraising and promises of future value.

By Ghaith Mahmood, Nima H. Mohebbi, Stephen P. Wink, Douglas K. Yatter, Adam Zuckerman, Luca Marquard, and Deric Behar

On September 13, 2023, the Securities and Exchange Commission (SEC) issued a cease-and-desist order (the Order) against Stoner Cats 2, LLC (SC2) for an alleged unregistered securities offering relating to SC2’s sale of $8.2 million worth of non-fungible tokens (NFTs). The SEC alleged that the NFTs were issued to the public to finance the production of a web-based animated series by the same name.

SC2 agreed to a settlement that includes a civil monetary penalty of $1 million and ceasing and desisting from violating the Securities Act of 1933. SC2 neither admitted nor denied any wrongdoing as part of the settlement, which does not include any allegations of misleading or fraudulent statements.

The SEC obtained this settlement a few weeks after its first enforcement action against an NFT issuer (for more information, see this Latham post). This second action may signal a meaningful escalation in the area of NFTs.

An appeals court panel rules that the SEC rejection of a proposed spot bitcoin ETP was arbitrary and capricious, opening the door for the potential launch of numerous ETPs in the near future.

By Jack BarberAaron Gilbride, Marlon Paz, Stephen P. Wink, and Deric Behar

On August 29, 2023, a three-judge panel on the District of Columbia Circuit Court of Appeals ruled in favor of Grayscale Investments, LLC On Petition for Review of an Order of the Securities and Exchange Commission (SEC).

Grayscale proposed to the SEC in October 2021 that Grayscale would convert its Bitcoin Trust into an exchange traded product (ETP) based on the spot bitcoin market (rather than bitcoin futures). As ETPs are traded on stock exchanges, and investors in the ETP would not need to buy the digital asset directly, an ETP could potentially accelerate retail and institutional adoption.

The SEC rejected Grayscale’s proposal in June 2022 because it asserted that the ETP failed to meet consumer protection requirements, including measures “designed to prevent fraudulent and manipulative acts and practices.” Grayscale subsequently sued the SEC under the Securities and Exchange Act of 1934, petitioning the Court of Appeals to review the SEC’s denial. In its decision, the Court of Appeals panel vacated the SEC’s denial.

In its first enforcement action involving NFTs, the SEC focused on issuer marketing that promised outsized returns on investment and platform building.

By Ghaith Mahmood, Nima H. Mohebbi, Stephen P. Wink, Douglas K. Yatter, Adam Zuckerman, and Deric Behar

On August 28, 2023, the Securities and Exchange Commission (SEC) issued a cease-and-desist order (the Order) against a Los Angeles media and entertainment company (the Company) for an unregistered securities offering relating to its sale of $29.9 million worth of non-fungible tokens (NFTs)[1]. The company agreed to a settlement that includes disgorging $5 million, paying another $1 million in fees and penalties, and ceasing and desisting from violating the Securities Act of 1933. Notably, the settlement does not include fraud charges.

A bifurcated decision in a highly anticipated digital assets enforcement action may not provide the clarity that market participants want or need.

By Jack Barber, Jenny Cieplak, Benjamin Naftalis, John Sikora, Stephen P. Wink, Douglas K. Yatter, Luca Marquard, Adam Zuckerman, and Deric Behar

On July 13, 2023, Judge Analisa Torres of the US District Court for the Southern District of New York issued an order on motions for summary judgment in the civil enforcement action brought by the Securities and Exchange Commission (SEC) on December 22, 2020, against Ripple Labs Inc. (Ripple), its former CEO (Christian Larsen), and its former COO and current CEO (Brad Garlinghouse). The SEC’s claims include the unlawful offer and sale of securities in violation of Section 5 of the Securities Act of 1933 (the Securities Act), as well as aiding and abetting the allegedly unlawful offer and sale of securities by the individual defendants (see this Latham blog post for more information).

The issue before the Court was whether, at the time of the various offerings, the defendants sold XRP as an investment contract. The Court determined at the outset that “XRP, as a digital token, is not in and of itself a ‘contract, transaction, or scheme’ that embodies the Howey requirements of an investment contract. Rather, the Court examines the totality of the circumstances surrounding the defendants’ different transactions and schemes involving the sale and distribution of XRP.”

Whereas the original proposal did not directly discuss digital assets, the reopening release is mainly focused on digital asset platforms.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, and Deric Behar

On April 14, 2023, the Securities and Exchange Commission (SEC) issued a release amending portions of its earlier proposal to reinterpret the definition of an “exchange” and reopening the comment period for the proposed amendments (the Reopening Release.)

The SEC had issued a set of proposed amendments (the Original Proposal) on January 26, 2022, regarding the regulation of alternative trading systems (ATSs). The Original Proposal would amend Rule 3b-16 (Rule 3b-16) under the Securities Exchange Act of 1934 (the Exchange Act) to more expansively interpret certain terms used in the statutory definition of an “exchange” under Section 3(a)(1) of the Exchange Act. This reinterpretation would, among other things, cause the “exchange” definition to capture “Communication Protocol Systems”, which are not captured under the present version of Rule 3b-16. (See this Latham post for more information.)

Cases filed in the past year by the DOJ, CFTC, and SEC represent a new phase in the US government’s digital asset enforcement efforts.

By Douglas K. Yatter, Matthew Valenti, and Deric Behar

Expanding beyond their earlier focus on registration and compliance violations and retail fraud, enforcement agencies have also begun to address other types of conduct involving digital assets. One such area is market manipulation. In the past year, the Department of Justice, the Commodity Futures Trading

The Financial Services Committee seeks to bring order to an industry many say has suffered from lack of proper rulemaking.

By Stephen P. WinkNima H. Mohebbi, and Deric Behar

On January 12, 2023, incoming House Financial Services Committee Chair Patrick McHenry established a new subcommittee on digital assets, financial technology, and inclusion. Rep. French Hill will chair the subcommittee, while Rep. Warren Davidson will serve as its vice-chair.

According to Rep. McHenry, the subcommittee will:

  • provide federal

While a conclusion to the much-hyped case may be approaching, market participants should be wary of doomsday prognostications.

By Stephen P. Wink, Douglas K. Yatter, John Sikora, Benjamin Naftalis, William Baker, Jack Barber, Natalie DeLave, and Deric Behar

As a new year begins, the digital assets industry is still enduring a deep and widespread crypto winter. When the story of this crypto winter is written, a chapter will likely be devoted to the

In granting the SEC’s motion for summary judgment, a federal court ruled that sales of LBC tokens were securities transactions.

By Stephen P. WinkDouglas K. Yatter, Jack McNeily, Benjamin Naftalis, Adam Zuckerman, and Deric Behar

On November 7, 2022, the Securities and Exchange Commission (SEC) prevailed in a motion for summary judgment against blockchain-based streaming and publishing firm LBRY, Inc. The US District Court for the District of New Hampshire (the Court) considered the