Lowenstein Crypto advises leading digital asset and cryptocurrency projects, exchanges, and trading firms. Our practice covers regulatory advice, transactions and structuring advice, investigations, and adversarial matters including commercial disputes, bankruptcy, and related litigation. As these markets continue their rapid growth and market participants continue to evolve and mature their businesses, we are providing this weekly digest as a resource that highlights and summarizes a selection of key recent legal regulatory developments.
SEC Chair Atkins Touts ‘Project Crypto,’ Crypto-Token Taxonomy, and Forthcoming ‘Innovation Exemption’
On April 21, Securities and Exchange Commission (SEC or the Commission) Chairman Paul S. Atkins delivered keynote remarks at The Economic Club of Washington, D.C., in which he sharply criticized the prior administration’s regulatory posture toward digital assets. Atkins noted that “innovators found that engaging with the SEC often relatively quickly gave way to getting investigated by it” and that “[a]n entire generation of digital asset innovation developed outside of the United States … because American regulators lacked the will.” Looking ahead, Atkins signaled that the Commission is “on the cusp of releasing what I call an ‘innovation exemption,’ which will provide market participants with a cabined framework to begin facilitating the trading of tokenized securities on-chain in a compliant fashion as the Commission works toward long-term rules of the road.” He also reaffirmed that the SEC has “recentered our enforcement program to focus on fraud and bring actions that actually address investor harm.” Atkins’ full remarks are available here.
Federal Court Rules $JENNER Memecoin Is Not a Security, Dismisses Class Action Against Caitlyn Jenner
On April 16, in Naeem Azad v. Caitlyn Jenner, Judge Stanley Blumenfeld Jr. of the U.S. District Court for the Central District of California granted in part a motion to dismiss a class action lawsuit against Caitlyn Jenner over her self-promoted $JENNER memecoin, ruling that the token does not constitute a security under federal law. Applying the Howey test, the court found that the lead plaintiff failed to plausibly allege either horizontal or vertical commonality–key elements of a “common enterprise.” Investor funds were not pooled or used to develop any related product or technology; rather, defendants described the token as “a memecoin on the Ethereum blockchain intended solely for entertainment purposes” whose value would rise through promotional efforts and increased demand. The court further noted that defendants made only general promotional statements rather than offering a concrete development plan with specific, actionable commitments of managerial effort. The full opinion is available here.
SEC Charges Bitcoin Latinum Founder With $16M SAFT Fraud
On April 17, the SEC filed a civil enforcement action in the U.S. District Court for the Eastern District of New York against Donald G. Basile, GIBF GP Inc., and Monsoon Blockchain Corp. alleging that the defendants defrauded hundreds of investors in a $16 million offering of Simple Agreements for Future Tokens (SAFTs) tied to a purported crypto asset called Bitcoin Latinum (LTNM). According to the complaint, Basile “offered and sold the SAFTs as securities” and made multiple false and misleading statements concerning the offering. The complaint alleges that Basile repeatedly claimed that LTNM “is … insured” and was “the world’s first insured digital asset” with “up to $1 billion coverage,” when in fact no insurance company ever issued a policy or otherwise insured LTNM or any other part of the SAFT offering. The complaint further alleges that Basile falsely represented that LTNM was an “asset-backed cryptocurrency” supported by an “existing trust,” even though no such trust or asset pool was ever created, and that 80 percent or more of offering proceeds would be placed in a “fund” to support the token’s value, when in reality no such fund existed. The SEC’s litigation release is available here and the complaint is available here.
Justin Sun Sues World Liberty Financial in California Federal Court Over Token Freeze
On April 22, Justin Sun and affiliated entities filed a federal lawsuit in California against World Liberty Financial (WLFI) asserting claims for breach of contract, fraud, and conversion arising from WLFI’s freezing of approximately 540 million of Sun’s unlocked WLFI tokens and his exclusion from governance participation. The complaint alleges that an “admin-controlled blacklist function embedded in WLFI’s smart contract … allowed the team to unilaterally freeze any wallet’s transfers, sales, and protocol interactions” without disclosure of that capability to investors. Sun’s suit seeks “a court order to unfreeze his holdings, trial-determined damages, and an injunction barring WLFI from burning or otherwise tampering with his tokens.” A copy of the complaint is available here.
North Carolina House Introduces Comprehensive Digital Asset and Stablecoin Legislation
On April 21, North Carolina Reps. Chesser, Willis, Ross, and Schietzelt filed House Bill 1029, the “NC Digital Asset and Stablecoin Act.” Part I of the bill enacts the “Digital Asset Financial Act,” which would authorize state-chartered banks and credit unions to provide digital asset custody, staking, and transaction services in a fiduciary capacity. The bill specifies that staked customer assets remain customer property, may not be recorded on the institution’s balance sheet, and may not be encumbered or rehypothecated, and it prohibits proprietary trading of digital assets by institutions providing transaction services. Part II of the bill enacts the “North Carolina Stablecoin Act,” which would prohibit any person from issuing, circulating, offering, or redeeming a payment stablecoin in the State unless the person is a “permitted payment stablecoin issuer”–either licensed by the NC Commissioner of Banks, federally qualified under the GENIUS Act, or a reciprocal state-qualified issuer. Notably, licensed issuers would be required to maintain eligible reserve assets at not less than 100% of outstanding stablecoins and honor redemption requests without unreasonable thresholds. Foreign issuers must, within 12 months of the effective date, become permitted issuers or cease offering stablecoins to North Carolina residents. The Stablecoin Act would take effect the earlier of January 18, 2027, or 120 days after the issuance of final GENIUS Act regulations. The full bill text is available here.
FCA Leads First Multi-Agency Crackdown on Illegal Peer-to-Peer Crypto Trading in the UK
On April 22, the UK Financial Conduct Authority (FCA) announced that it had carried out its first joint operation with HM Revenue & Customs and the South West Regional Organized Crime Unit to disrupt illegal peer-to-peer crypto trading across eight London premises. The FCA issued cease and desist letters at each site, and evidence obtained during the on-site inspections is supporting a number of ongoing criminal investigations. The action was taken under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, and the FCA emphasized that there are currently no FCA-registered peer-to-peer crypto traders or platforms operating in the UK. Steve Smart, executive director of enforcement and market oversight, stated that “[u]nregistered peer-to-peer crypto traders operating in the UK are doing so illegally and pose a financial crime risk,” and warned consumers to deal only with FCA-registered firms and to remember that “crypto remains a high risk investment.” The full press release is available here.
BIS General Manager Warns of Stablecoin Risks to Credit Provision, Monetary Sovereignty, and Financial Integrity
On April 20, Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos delivered a speech in Tokyo titled “Stablecoins: framing the debate,” cautioning that widespread stablecoin adoption could have material macro-financial implications. Hernández de Cos noted that as of early April, global stablecoin market capitalization stood at approximately $315 billion, “dwarfed by the roughly $8 trillion held in bank deposits in the United States alone.” He warned that flows from retail bank deposits into stablecoins could shift bank funding toward wholesale sources, with potential consequences for credit provision, and that “[r]uns on stablecoins would trigger fire sales of reserve assets that could impair market functioning.” With respect to monetary policy, he observed that “shifts to foreign currency stablecoins could pose challenges, especially in emerging market and developing economies,” echoing prior episodes of “financial dollarisation.” Hernández de Cos also flagged financial integrity risks, citing estimates that “stablecoins now account for most illicit transactions within the crypto ecosystem,” and called for jurisdictions to “avoid global regulatory fragmentation” through coordinated standards. The full speech is available here.
