SEC Blockchain Investigations
Experienced SEC Blockchain Defense Team
Do you need legal assistance regarding blockchain laws, blockchain technology, or an impending federal investigation? If so, then you need the help of an experienced blockchain defense attorney.
The use of blockchain technology, mining new coins, verifying transactions, and investing in cryptocurrencies are becoming attractive opportunities for both businesses and individuals seeking to achieve security and transparency in online transactions.
However, blockchain laws in the United States are inconsistently regulated by the government. Congress is increasingly seeking to impose stringent regulations on crypto transactions and blockchain technology.
The Securities and Exchange Commission (“SEC”) has been especially eager to investigate companies and individuals using the blockchain and cryptocurrencies.
If you are under investigation for using blockchain technology, then you need to retain a blockchain defense attorney. Finding an attorney experienced in blockchain technology can be challenging because not many attorneys understand the complexity of the crypto sphere.
At Oberheiden, P.C., our attorneys have an intricate understanding of blockchain technology, crypto transactions, ICOs, and federal investigations.
We are skilled at guiding our clients through the stages of an SEC investigation regarding complicated blockchain issues.
Do not wait to take action to protect your business and your reputation. Put Oberheiden, P.C. on your side today to advise you on these complex, novel legal issues.
What is the Blockchain?
The blockchain is the decentralized public ledger that contains a record of transactions that are all linked to each other. The transactions stored on the blockchain are permanent and cannot be altered once they are transferred to the ledger.
Companies are increasing turning to blockchain technology for their business because it is more secure and transparent than centralized transactions.
In other words, because the blockchain is “decentralized,” no single entity or person controls it—there is no need for third parties or central government authorities; the network is distributed across numerous computers. It is harder to manipulate.
Bitcoin is the best example of a cryptocurrency that relies on blockchain technology. Bitcoin transactions are stored on a public, decentralized ledger on the blockchain. So every time we buy, sell, or transfer Bitcoin, our transactions are transferred to the blockchain—which cannot be destroyed or modified.
Useful characteristics of the blockchain include the following:
- Decentralized network over multiple users;
- No reliance on centralized storing, location, or ownership;
- Secure transactions that are extremely difficult to manipulate;
- Transparency due to the inability to alter transactions;
- Lower transaction costs because there is no reliance on third parties;
- Costly due to the high computing power needed for decentralized systems;
- Efficiency in transactions because transactions can be processed quickly and without the use and wait times associated with intermediaries;
- Novel federal regulatory landscape.
This last factor presents the most challenges to individuals and companies. The novelty of this type of technology heightens federal scrutiny for violations of the securities laws. This can put you and your business at risk, which is why you need to secure a blockchain defense attorney right away.
Blockchain: Public versus Private?
The blockchain can public or private. Public blockchains mean that anyone can join the network, participate in transactions, and validate transactions. The public blockchain uses multiple computers for verifying transactions that are then transferred to the blockchain. Bitcoin uses a public blockchain where individuals can mine Bitcoin and verify transactions
On the other hand, private blockchains are restricted to business networks and are generally characterized by limited control and membership. The network relied upon is private and requires permission in order for transactions to be verified. Only individuals and entities with such permission can participate in transactions that are then transferred to the private ledger.
What Companies Utilizing Blockchain Technology Need to Know
The SEC has increased its investigative efforts regarding blockchain technology. Issues such as whether the coins mined or invested in are “securities” or whether all key information is being disclosed to investors are common focus points of SEC investigations.
In addition to the inconsistent laws and regulations surrounding the blockchain or lack thereof, below we outline the key hurdles for individuals and entities utilizing blockchain technology:
- Novelty of public ledgers and blockchains;
- Lack of education regarding the blockchain;
- Lack of public awareness of the blockchain when making investment decisions;
- Lack of scalability;
- Irreversible transactions once transferred to the ledger;
- Reliance on a decentralized network, which is expensive;
- Complexity in transactions.
Further, even though blockchain technology creates a permanent record on the ledger, such transactions are not 100% protected against cyberattacks and hacking. Hackers are unfortunately often one step ahead of investors and federal authorities. They understand how to exploit blockchain vulnerabilities and perpetrate numerous online frauds.
Exploiting the code, stealing blockchain keys, general hacking, and phishing are common attacks to the blockchain. This can cause irreparable harm to investors and your reputation as well as initiate a federal investigation.
Blockchain technology has been a key area of interest to federal authorities. The novelty and lack of knowledge of the blockchain and crypto transactions have made federal agencies especially eager to investigate their use and adoption.
Businesses using a crypto exchange need to comply with the Bank Secrecy Act (“BSA”), including its stringent AML requirements as well as obtain the appropriate licensing from the Financial Crimes Enforcement Network (“FinCEN”).
The SEC considers most cryptocurrencies to be securities and, therefore, these coins must be registered under the securities laws or meet an appropriate exemption. Therefore, crypto exchanges, digital wallets, and investing in coins all fall under the jurisdiction of the SEC. Thus, filing periodic reports and maintaining appropriate records will be key requirements.
The Commodities Futures Trading Commission (“CFTC”) is another federal agency that can be involved in investigating and regulating blockchain and crypto transactions. The CFTC has indicated that certain coins such as Bitcoin and Ethereum are “commodities” and can therefore be regulated by the CFTC.
Sometimes, regulations by the CFTC or the SEC differ especially regarding their definition of “cryptocurrency,” which can be very challenging for businesses and individuals trying to make sense of the blockchain or trying to incorporate blockchain technology in their businesses.
Other agencies that can also be involved in federal investigations include the Internal Revenue Service (“IRS”), the Office of the Comptroller of the Currency (“OCC”), and the Federal Trade Commission (“FTC”).
How We Can Help You Through SEC Blockchain Investigations
Researching and retaining a law firm that is experienced in blockchain technology can be a difficult task.
At Oberheiden, P.C., our attorneys and consultants are prepared to handle issues relating to blockchain technology. Below are key issues we are prepared to handle for you:
- Government investigations involving blockchain technology;
- Initial coin offerings (“ICOs”);
- Advice on impending federal regulations and their impact on your business;
- Compliance issues such as AML, the development of a comprehensive compliance program, and audits;
- Registration obligations for companies under the Investment Company Act of 1940, for individuals giving advice under the Investment Advisers Act of 1940, and for securities under the 1933 Securities Act;
- Initial and continuous disclosure and reporting requirements under the 1934 Exchange Act;
- Internal controls services, advice on security, risk management, etc.;
- Encryption and the management of public keys and private keys;
- Granting permission for private keys;
- Establishing data or disaster recovery plans;
- Litigation involving blockchain technology and cryptocurrencies.
If you have questions involving the above or other issues involving the blockchain, do not hesitate to give us a call today.
Need Advice Regarding Blockchain Investigations?
Use of the blockchain presents many benefits including transparency, ease in transaction verification, and security. However, the novelty in their adoption outweighs their benefits, resulting in federal investigations for suspected violations of existing securities laws.
Until a comprehensive federal program regulating blockchain technology is unveiled, individuals and businesses relying on the blockchain need to be cautious.
A federal investigation can lead to significant fines and penalties, disgorgement orders, injunctions, the inability to do business with the government in the future, loss of business relationships, loss of customer base, and irreputable reputational harm.
If you are in the middle of a federal investigation, there is no time to waste in hiring an experienced defense attorney.
Our blockchain defense attorneys and consultants at Oberheiden, P.C. have the experience and dedication needed to guide you through an SEC investigation and litigation.
If you are involved in blockchain technology or cryptocurrency transactions, investing, or mining, then you need a personalized defense strategy by a knowledgeable team of attorneys and consultants.
Call or contact our office online today for a free consultation immediately.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.