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.

Senate Agriculture Committee Releases Draft of Crypto Market Structure Bill

On Jan. 21, U.S. Senate Committee on Agriculture, Nutrition, and Forestry Chairman John Boozman, R-Ark., released updated legislative text that builds on a previously released bipartisan discussion draft that would give the Commodity Futures Trading Commission (CFTC) new authority to regulate digital commodities. The updated legislative text introduces several notable changes. First, it grants the CFTC authority over cash and spot transactions in digital commodities. Second, it expressly excludes stablecoins from CFTC oversight. Third, it brings “meme coins” within the definition of network tokens. Fourth, it enables ad hoc CFTC oversight of nonfungible tokens and consumptive tokens. Fifth, it requires futures commission merchants to use qualified digital asset custodians to hold digital assets. Finally, it mandates a new expedited registration process for digital commodity exchanges, brokers, and dealers. The draft bill is available here.

CFTC Chairman Selig Announces Senior Staff Appointments

On Jan. 20, CFTC Chairman Michael S. Selig announced the appointment of Michael Passalacqua and Cal Mitchell as senior advisors. Passalacqua has previous experience with financial regulatory matters involving crypto assets and blockchain technologies, including assisting with obtaining industrywide no-action relief concerning the use of state-chartered trust companies as crypto asset custodians. Mitchell previously served as special advisor in the Office of Legislative Affairs at the U.S. Department of the Treasury, leading the agency’s nominations portfolio to confirm President Donald Trump’s nominees through the U.S. Senate. The press release is available here.

Real Estate Developer Receives SEC No-Action Letter for Crypto-Token Issuance

On Jan. 15, the Securities and Exchange Commission (SEC) issued a no-action letter to MegPrime Holding LLC, indicating that the SEC would not recommend enforcement action against MegPrime for issuing its tokens without registering them as securities. The MegPrime token is a tokenized reward solution that “is intended to address the monthly household budget affordability needs of its users.” The token will be marketed as a crypto asset that will provide users with rewards (additional MegPrime tokens, gift cards, or rewards points) if they spend the token with specific merchants. The rewards points can only be redeemed for discounts on future home purchases of properties offered by MegPrime. The MegPrime tokens will also be available for purchase on MegPrime’s website and will trade on secondary markets. Read the no-action letter here.

Nevada Gaming Control Board Files Civil Action Against Polymarket; Massachusetts Issues Preliminary Injunction

On Jan. 16, the Nevada Gaming Control Board (NGCB) filed a civil enforcement action against Blockratize Inc. (Polymarket). The complaint asks the court for a declaration and injunction to stop Polymarket, the largest prediction market exchange globally, from offering unlicensed wagering in violation of Nevada law. The NGCB deems offering sports event contracts to constitute wagering activity within the state. Following this complaint, on Jan. 20, Suffolk County Superior Court Judge Christopher Barry-Smith in Boston stated that he will be issuing a preliminary injunction at the request of the Massachusetts Attorney General that will prohibit KalshiEX, LLC (Kalshi) from allowing users in Massachusetts from using its platform to place “bets” on the outcomes of sporting events without a license. Barry-Smith stated that he intends to finalize the injunction following a hearing on Friday. The Nevada press release is available here, and the Massachusetts ruling is available here.

New York State Proposes New Criminal Penalties for Unlicensed Crypto Businesses

On Jan. 14, New York State Sen. Zellnor Myrie (D. 20th Senate District) introduced an amendment to the Cryptocurrency Regulation Yields Protections, Trust, and Oversight Act, or CRYPTO Act. Under the amendment, unlicensed virtual currency businesses could face criminal prosecution with charges ranging from an A misdemeanor to a C felony, based on the amount of cryptocurrency transmitted. Currently, unlicensed businesses that conduct virtual currency operations in the state only face civil penalties. Read the amendment to the Senate bill here.

The CFTC Issues Multiple Enforcement Updates

On Jan. 16, the CFTC announced multiple enforcement updates. We will highlight two. The first notes that the CFTC filed two consent orders against Greg Smith of New York and Michael Nowak of New Jersey for spoofing precious metals futures markets during their respective tenures at a major bank. Smith is required to pay $200,000 in civil monetary penalties and will be barred from trading and registering with the CFTC for three years. Nowak is required to pay a $150,000 civil monetary penalty and will be barred from trading and registering with the CFTC for six months. The second enforcement update involves a complaint filed by the CFTC against Travis Ford of Oklahoma and his company, Wolf Capital Crypto Trading LLC. The complaint alleges that Ford and Wolf Capital fraudulently solicited and accepted more than $10 million from investors for an unregistered commodity pool. The alleged scheme involved promising investors daily returns of 3.5 percent (amounting to 1,277 percent annually) that would be derived from trading digital asset commodities, including bitcoin, ether, and futures on bitcoin via manual trading and bots. Investments were made into the pool by “staking” into the Wolf Capital smart contract on the Ethereum blockchain. To encourage deposits, Wolf Capital created a referral system wherein investors could qualify for higher daily returns depending on the number of additional investors they recruited. Read the full press release here, the Smith order here, and the Travis Ford complaint here.

NYSE Developing Platform To Trade Tokenized Securities

On Jan. 19, the New York Stock Exchange (NYSE), part of Intercontinental Exchange Inc., announced the development of a platform designed to facilitate the on-chain settlement of tokenized securities. If approved, this platform would enable several key features, including 24/7 trading of tokenized shares. These shares could be funded using traditionally issued securities as well as tokens natively issued as digital securities, thereby expanding market accessibility and enhancing settlement efficiency. Read the full press release here.