Key Takeaways

Key takeaway #1 — The SEC’s Division of Corporation Finance (the Staff) announced that it will not consider “meme coins” – as described in the Staff’s statement – as “securities” under federal securities laws, and therefore not subject to SEC jurisdiction. 

Key takeaway #2 — The Staff views meme coin purchasers and holders as not protected by federal securities laws.

Key takeaway #3 — The Staff carefully noted that whether any specific meme coin is or is not a security under the federal securities laws depends on the specific facts relating to that meme coin and the circumstances of its offer and sale.

Key takeaway #4 —SEC enforcement involving meme coins is likely to be muted, but other state or federal agencies could use their authorities to bring enforcement against participants in meme coin fraud schemes, such as “pump and dumps” or “rug pulls.”

On February 27, 2025, the Staff issued a statement (the Staff Statement) clarifying the application of the federal securities laws to crypto assets, specifically “meme coins.” Meme coins are a category of cryptocurrency tokens typically driven by internet trends or popular culture (e.g., memes).  The Staff said that it does not view transactions in meme coins (as described in the Staff Statement) as involving the offer or sale of securities under federal securities laws.  However, the Staff Statement does not expressly state whether fraud or market manipulation occurring through or as part of meme coins would be subject to federal enforcement actions under federal securities laws.

The Staff noted that meme coins are “typically purchased for entertainment, social, or cultural purpose, with value driven by market demand and speculation.”  As a result, the Staff views meme coins as similar to collectibles such as trading cards, items lacking use (or limited use) and/or functionality, yet having speculative interest.  The Staff reached the following conclusions as to meme coins described in the Staff Statement:

  1. Transactions in meme coins “do not involve the offer and sale of securities under the federal securities laws”;
  2. Persons who participate “in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act of 1933 (Securities Act) or fall within one of the Securities Act’s exemptions from registration”; and
  3. Purchasers and holders of meme coins are not protected by federal securities laws.
Continue Reading SEC’s Corporate Finance Staff Issues Statement That Meme Coins Are Not Securities

As Bitcoin reaches prices not seen since November 2021, individuals and entities will undoubtedly consider selling – sometimes called “taking profit” on – Bitcoin and other digital assets to capture previously unrealized gains.  But crypto market participants should be aware of the U.S. tax implications of realizing gains on the sale of digital assets – more importantly, properly reporting such gains to the Internal Revenue Service (“IRS”).  As a recent U.S. Department of Justice (“DOJ”) Indictment makes clear, the willful failure to report such gains to the IRS may lead to potential criminal charges.

Continue Reading DOJ’s First “Pure” Criminal Tax Charges in Bitcoin Case Signals Heightened Focus On Tax Reporting of Digital Asset Gains

On August 17, 2023, the U.S. District Court for the Western District of Texas granted summary judgment to the U.S. Department of the Treasury (Treasury) on all of the plaintiffs’ claims in the lawsuit challenging the Department’s Treasury’s Office of Foreign Assets Control’s (OFAC) designation of Tornado Cash, a purportedly decentralized cryptocurrency mixer that runs on Ethereum.  Days later, on August 23, 2023, the U.S. Department of Justice unsealed an indictment charging two of the three cofounders of Tornado Cash with conspiracy to commit money laundering, conspiracy to commit sanctions violations, and conspiracy to operate an unlicensed money transmitting business.  The charges arise from the two cofounders’ alleged creation, operation, and promotion of Tornado Cash, which facilitated more than $1 billion in money laundering transactions involving the Lazarus Group, a sanctioned North Korean cybercrime organization.  Concurrent with the DOJ charges, OFAC designated Roman Semenov, one of the criminally charged cofounders of Tornado Cash.  These latest events come roughly one year after OFAC designated Tornado Cash, about which Crowell issued a comprehensive client alert.

Crowell’s Caroline Brown and Anand Sithian provided commentary on the district court’s ruling and the indictment to Law360 and CoinDesk, respectively.

Links to media coverage:

Law360, Tornado Cash Charges Set Stage For Clash Over ‘Control’

CoinDesk, Tornado Cash Indictments May Prove to Be Just a Localized Storm After All

The International Swaps and Derivatives Association, Inc. (“ISDA”) continues to press forward with its digital asset working group, following the publication[1] in January this year of (i) the Digital Asset Derivatives Definitions (the “Definitions”) and (ii) the whitepaper on netting and collateral enforceability.

On May 3, 2023, ISDA published the second[2] of its two whitepapers relating to digital assets – this paper examines the key legal issues, under New York law and English law, in relation to digital assets that are held by a digital asset intermediary for or on behalf of a customer.

Although existing private law concepts and traditional financial market principles can be applied to digital assets, and existing insolvency regimes will apply to digital asset intermediaries, distributed ledger technology (DLT) or similar technology raises incremental legal and operational questions compared to traditional financial instruments. For example, if the use of a private key is the only means of achieving a transfer of digital assets, control of the private key is necessary to ensure proper management and safeguarding of the custodied asset.

The whitepaper highlights a number of key distinctions, such as digital assets being held in omnibus versus individual client segregation, prohibitions on re-use, and sub-custody arrangements – while not necessarily unique to digital assets, these issues can affect the nature of the legal relationship between custodian and customer, as well as the application of legal and statutory regimes that determines the level of the customer’s protection.

Broadly speaking, a customer’s rights can be described as a proprietary claim, which gives rise to priority claims to specific custodied assets – whether through the operation of a contractual, legal or statutory framework – and the nature of the custodial relationship is such that the relevant digital assets will not be considered part of a debtor’s estate in a digital asset intermediary’s insolvency proceeding, i.e. bankruptcy remote. Alternatively, a customer might only have a contractual claim, which does not give rise to a proprietary claim, and a customer will likely have a claim as a general unsecured creditor.

Ultimately the recovery of digital assets will likely involve a cross-border analysis as to the legal and regulatory treatment under the relevant jurisdictions, as well as a detailed review of the contractual terms between the customer and the digital asset intermediary.

Furthermore, the ISDA working group is pressing forward with its initiatives in further developing contractual standards in the digital asset market. Draft language currently out for review with respect to proposed amendments to the ISDA collateral and credit support documentation in order to cater for the use of tokenized assets as collateral. While such initiatives are specific to the derivatives market, certain principles are relevant to wider financing structures and arrangements, and to collateralization, holding and custody of digital assets.

Bankruptcy filings in the digital asset space continue, as cryptocurrency exchange Bittrex filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware on Monday, May 8, 2023. The Bankruptcy Docket can be found here. Desolation Holdings LLC and its affiliated debtors, Bittrex, Inc., Bittrex Malta Holdings Ltd., and Bittrex Mala Ltd., as debtors and debtors in possession (“Bittrex US”) filed their chapter 11 petitions alongside a plan of liquidation. Unlike other exchanges that have sought to reorganize in fits and starts, Bittrex US heads directly to liquidation. Activities outside of the US, including Bittrex Global, shall continue uninterrupted by the filing.

Continue Reading Bittrex: Regulatory Enforcement and Macroeconomic Headwinds Lead to Another Crypto Bankruptcy

On May 3, 2023, Nathaniel Chastain, the former product manager of the NFT marketplace OpenSea, was convicted by a federal jury in the Southern District of New York for what is being called the first insider trading conviction in the digital asset space. 

Continue Reading First Insider Trading Conviction Against NFT Insider

Many of those active in the non-fungible token (NFT) market have been nervously anticipating action from the U.S. Securities and Exchange Commission (SEC) regarding whether or not they will categorize NFTs as securities and further regulate them. U.S. regulators have not yet definitely opined on whether NFTs in general are securities.  However, a recent ruling, Friel v. Dapper Labs Inc et al, U.S. District Court, Southern District of New York, No. 21-05837, may have set the stage for some much-needed clarity with respect to the legal characterization of NFTs.

Continue Reading NFTs as Securities?

Following many months of discussion and review by a working group of traditional finance institutions and crypto-native exchanges and platforms led by the International Swaps and Derivatives Association, Inc. (“ISDA”), ISDA published the Digital Asset Derivatives Definitions (the “Definitions”) on January 26, 2023 for use with Bitcoin (BTC) and Ether (ETH) non-deliverable forward and options transactions.

ISDA also published a number of supporting materials including:

(i)        A whitepaper on netting and collateral enforceability – these are two vital credit risk mitigation features of derivatives arrangements governed by ISDA documentation, and they impact a number of areas from regulatory capital relief for regulated financial institutions to counterparty default risk, while limiting the risk of contagion in the event of an institution’s bankruptcy.

(ii)       A user’s guide to the Definitions’ fork disruption events – these provisions set out the consequences on digital asset derivative transactions if a “protocol change” results in two or more digital assets (emanating from the original blockchain) being available for trading.

Parties have been utilizing bespoke in-house templates, crafted through a combination of existing ISDA publications for documenting derivative transactions where the underlying reference asset consists of other asset classes (namely currencies, commodities and equities) and incorporating provisions specific to the features of the relevant digital asset(s). This is not much of a surprise given the complexity around the nature and legal characterization of digital assets, taking into account their technological and economic features. The publication of the Definitions represents a significant step towards developing industry-wide contractual standards.

As noted, however, that the Definitions are currently limited in scope: they only contemplate non-deliverable forwards and options that reference either BTC or ETH. Market participants will still need to analyze their transactions for appropriate structuring and drafting solutions with respect to other product types (e.g., deliverable transactions, or staking yield swaps), other digital assets, bespoke contractual arrangements (e.g., optional early termination), and where the derivative forms part of a wider financing structure (e.g., secured loans, or staking arrangements).

ISDA has further projects and updates in the pipeline for digital asset derivatives, which will cover, amongst other things, ISDA standard collateral and credit support documentation, custody and intermediary or triparty arrangements, and a detailed jurisdiction-based analysis of netting and collateral enforceability. Analysis is also ongoing regarding the treatment of digital asset derivatives under existing derivative regulatory framework (including, Dodd Frank and EMIR).

All of the above will need to be considered alongside the rapidly evolving regulatory framework for digital assets, which is being accelerated in light of the recent spate of bankruptcy and insolvency filings of crypto-exchanges, lending platforms, investment funds and mining operations. It is clear that the publication of the Definitions is therefore an important, but preliminary step toward a more liquid and secure derivatives trading market for digital assets.

The fallout continued last week for embattled crypto trader Avraham Eisenberg, as Mango Labs filed litigation in the Southern District of New York to recover $47 million Eisenberg drained from decentralized crypto lending platform Mango Markets by manipulating the value of the Mango Markets native token. The lawsuit from Mango Labs is just the latest in a series of actions against Eisenberg, who was arrested by U.S. law enforcement officials in Puerto Rico in December, and charged by the Department of Justice (“DOJ”) with commodities fraud and commodities manipulation. Following his arrest, the Commodity Futures Trading Commission (“CFTC”), U.S. Securities and Exchange Commission (“SEC”), and now Mango Labs have proceeded to bring parallel claims against Eisenberg.

Eisenberg’s alleged scheme essentially involved taking advantage of the fact that the Mango Markets decentralized platform allowed investors to borrow cryptocurrency based on the value of the investor’s assets posted as collateral on the platform. Eisenberg allegedly took advantage of this feature by selling large amounts of the Mango Markets native token, MNGO, to another account he controlled, which artificially increased the value of the token by more than 2,200%. Eisenberg used the inflated value of the token to borrow and withdraw approximately $114 million worth of various cryptocurrencies from Mango Markets, effectively draining all of the assets from the platform and harming other investors. Shortly after, Eisenberg publicly defended his actions, which he referred to as a “highly profitable trading strategy,” as “legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are.” The DOJ, SEC, CFTC, and Mango Markets disagree, and are alleging Eisenberg’s conduct constitutes illegal market manipulation.

The dispute regarding whether Eisenberg’s conduct is actionable fraud or market manipulation seems poised to turn on whether Eisenberg made any false statements, or failed to disclose any material facts, which made his actions misleading under the circumstances. The actions taken by Eisenberg that potentially fit this criteria include, selling MNGO tokens to himself in order to artificially inflate the price, as well as borrowing and withdrawing assets using the artificially inflated MNGO tokens as collateral, knowing that he would not repay the borrowed assets and would surrender the artificially overvalued MNGO tokens.

The case has significant implications for the cryptocurrency trading markets, and decentralized exchanges, which have seen numerous “pump and dump” schemes over the years. In many ways, Eisenberg’s scheme resembles a traditional “pump and dump” scheme in that he deceptively profited from artificially inflating the value of a token at the expense of other investors. What separates Eisenberg’s conduct from the standard “pump and dump” scheme was that he was able to inflate the value of the MNGO token by trading it amongst accounts he controlled (without luring any unsuspecting investors into participating in the “pump” portion of the scheme), and was able to cash out on his scheme by converting the inflated value of his MNGO tokens into other cryptocurrencies by exploiting the design of the platform. The fact that Eisenberg appears to have operated within the parameters of the Mango Market exchange will likely not help him avoid liability for fraud or market manipulation. Like “pump and dump” or other market manipulation schemes, the potential criminal violation does not come from breaking the rules of the platform, but from operating within those rules deceptively in a way that causes harm to others.

Thus, the resolution of these cases will go a long way towards drawing a line between opportunistic trading strategies and illegal market manipulation.