Recent Landmark Decision in Cryptocurrency Law

A recent decision in the United States District Court for the Southern District of New York has sent shockwaves through the world of cryptocurrency investing.  In re Bibox Group Holdings Ltd. Securities Litigation, the Court ruled that a plaintiff did not have standing to assert class claims on cryptocurrency assets he did not own.  However, it was what the court didn’t rule on that made this a landmark case in the legal field developing around cryptocurrency, as the Court took no issue with the fact that the Plaintiff brought a case alleging securities violations against a cryptocurrency issuer and exchange.

The background on this matter is as follows.  In October 2017, Bibox Group Holdings Ltd. and their affiliates funded the launch of their new crypto exchange by launching a new ERC-20 cryptocurrency called BIX.  In this offering of BIX, Bibox raised approximately $19 million in funding.  Bibox told investors that they could exchange BIX for tokens on their exchange, and Bibox would use a portion of the funds raised in the offering to buy back some of the BIX that was issued.  BIX was one of six ERC-20 tokens on the exchange, with the others being EOS, TRX, OMG, LEND, and ELF.

The Plaintiff, Mr. Alexander Clifford, was one of the initial investors who bought BIX.  Mr. Clifford ended up exchanging his BIX for Bitcoin in December 2018.  Mr. Clifford never purchased or owned any of the other tokens.  On April 3, 2020, Mr. Clifford then filed an action in the Southern District of New York against Bibox and their affiliates.  In his complaint, Mr. Clifford alleged that Bibox had violated federal securities law and state Blue Sky law in connection with the trading activities of the six tokens.  Defendants moved for a motion to dismiss, arguing that Mr. Clifford lacked standing since he was asserting claims based on the five tokens he did not purchase, and that his claims pertaining to the one token he owned were time-barred.

Judge Denise Cote of the Southern District of New York granted the motion to dismiss as to all claims, ruling that Plaintiff lacked standing to assert claims based on the five tokens he had never purchased.  This was for two reasons.  First, the Plaintiff did not suffer any injury from the unpurchased tokens.  Second, the Court precluded standing on the grounds that “such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class[1]” because all the tokens were made by different entities and had distinct characteristics and advertising history, meaning the injuries could not be proven in a similar enough way to allege standing.

The Court also dismissed the remainder of claims Plaintiff asserted on the token he did purchase, BIX.  In doing so, the Court rejected the argument that the one-year statute of limitations began to run when the cryptocurrency Plaintiff discovered the token could qualify as a security.  This is because the SEC had previously issued a publication on April 3, 2019 stating that cryptocurrencies may be qualified as securities under the Howey test in the right circumstances.  Rather, the Court held that the statute of limitations began to run when Plaintiff became aware of his injury, which was his last transaction in April 2018.

The main takeaway here is that the Court did not rule that securities laws did not apply to crypto, but rather took issue with the Plaintiff’s standing.  It makes it clear that cryptocurrency issuers and exchanges could be held liable under securities law for their actions.  In addition, while the Court precluded the “same set of concerns is implicated” argument, it is possible another court could find otherwise.  This is due to the fact that the six tokens were on the same exchange, used the same blockchain and were based on the same technological standard.  In conclusion, the rapidly developing field of law around cryptocurrency is one that continues to require close monitoring because of major developments such as this.

[1] Ret. Bd. of the Policemen’s Annuity & Ben. Fund of the City of Chicago v. Bank of N.Y. Mellon, 775 F.3d 154, 161 (2d Cir. 2014)

Pastore Expands Its PPE Practice

Pastore has worked with several clients to represent and advise on transactions involving the sale of Personal Protective Equipment (“PPE”). Pastore has represented sale side transactions for the sale of on the ground and production order transactions for the sale of goods, including but not limited to, nitrile examination gloves, vinyl blend examination gloves, masks, and medical PPE goods. Pastore has significant experience with PPE contract negotiation, conducting domestic and international banking, anti-money laundering, and know your customer due diligence reviews, all crucial elements of these transactions. Pastore has also represented intermediary clients in structuring, brokering and acting as a liaison in connection with the sale of PPE goods.

Pastore Obtained an Injunction Requiring Return of PPP Funds in National Matter

Pastore successfully represented its client, a Registered Investment Adviser, in a preliminary injunction hearing against a national bank on an issue regarding a Paycheck Protection Program (“PPP”) loan. The hearing was held virtually in the Supreme Court of New York. The bank had taken out PPP loan money from Pastore’s client’s account and provided default notices to the client. Pastore filed for injunction on behalf of its client and the Court agreed with Pastore that the bank had interfered with its client’s ability to apply for forgiveness. The Court directed the bank to put the money in an escrow account and allow the client’s application for forgiveness to proceed through the proper channels. If the loan is forgiven, the money will be released to its client.

Pastore Retained to Advise a Large Registered Investment Advisor in Sale

Pastore was retained to advise a large registered investment advisor in connection with the sale of its business to Victory Capital Holdings, a large national registered investment advisor.  The registered investment advisor, based in Connecticut, invested primarily in microcap securities, providing services primarily to institutional investors and large religious-affiliated clients. The advisor, which was previously owned by Old Mutual Asset Management Trust Investment Funds LLC, spun out in 2009.

Pastore Retained to Advise Multibillion-dollar Registered Investment Advisor in Restructuring

Pastore was retained to advise a multi-billion-dollar registered investment advisor and related private equity funds on the restructuring of the advisor. Pastore advised the advisor and private equity funds in connection with modifications to ownership structure, distribution rights, employment rights, indemnification, and banking issues. Pastore also assisted in substantial revisions to the advisor’s Form ADV, other SEC filings, Compliance Manual, Corporate Governance documents, and Policies and Procedures.

Pastore Represents a Large Investment Bank in Win at the Eighth Circuit

Pastore & Dailey won a complex securities and M&A appeal taken to the United States Court of Appeals for the Eighth Circuit arising from a derivative rights holder agreement and related investment banking engagement agreements. This matter was an appeal filed by Plaintiff-Appellant after Pastore & Dailey successfully defended this case in the United States District Court for the District of Nebraska.

Plaintiff-Appellants, who were shareholders to a company, brought suit against Pastore & Dailey’s client in the District Court seeking to invalidate investment banking fees owed to Pastore & Dailey’s client following a series of complex insurance corporate mergers, in which the company was acquired and merged with another company. In its appeal to the Eighth Circuit, Plaintiff-Appellants argued that the District Court erred in denying certain Post-Judgment motions made by Plaintiffs arguing their lack of standing. The Eighth Circuit affirmed the District Court ruling in Pastore & Dailey’s favor that Plaintiff-Appellants lacked standing.

Pastore & Dailey attorneys have vast experience arguing and defending matters in various federal courts across the country and are well-situated to handle similar claims involving complex contractual and investment banking issues.

Pastore & Dailey Retained by Leading Cryptocurrency Firm

Pastore & Dailey has been retained by a leading cryptocurrency firm specializing in decentralized finance in connection with regulatory and compliance matters in the Cayman Islands and internationally.  Pastore & Dailey has substantial experience and the burgeoning business of cryptocurrency having represented in 2020 a cryptocurrency mining company, and defended a Department of Justice (DOJ) investigation into an initial coin offering.

Pastore & Dailey attorneys have served as Chief Compliance Officer’s at multi-billion-dollar investment advisers and two of the largest institutional banks in the world. Thus, the firm is uniquely positioned to handle this and similar matters.

Pastore & Dailey has been retained in DOJ Crypto Currency Proceeding

Pastore & Dailey has been engaged as co-counsel to an Am Law 50 Firm in a Department of Justice (DOJ) investigation into an initial coin offering. The matter is pending in the District of New Jersey and involves the creation of a Bloomberg terminal for the cryptocurrency industry. The software created by the start-up was designed to provide all data related to thousands of cryptocurrencies and the crypto trading functionality was to be provided through third parties accessible through the terminal.

Connecticut Approves Recovery Bridge Loan Program as of March 25, 2020

The State of Connecticut will immediately roll out a no-interest loan program, “The Connecticut Recovery Bridge Loan Program,” with assistance of up to $75,000 over an 18-month period for small businesses effected by the COVID-19virus (Coronavirus) crisis. “This plan is a meaningful and flexible plan, stated by David Lehman, Gov. Ned Lamont’s economics chief. Funding for the plan will be derived from the banking system, primarily because it is faster and would infuse cash into the economy rapidly for businesses. “The banks have the network, the relationships, and the ability to deploy the money efficiently,” stated Mr. Lehman. The program will be broken down into rounds of financing, the first of which will infuse a total of $20 – $25 million to small businesses, enough to finance about 600 businesses with a quick cash infusion in the range of $40,000 per business. The CT Recovery Bridge Loan Program is similar to those launched around the United States in the wake of the COVID-19 crisis. Similarly, Massachusetts has launched a program that is comparable in size (Dollar amount) and targeting small businesses. As per a Department of Economic and Community Development survey, approximately 90% of CT businesses have taken a hit to revenue. However, 50% are still working near full capacity.

This Statewide plan will be implemented in addition to the existing Loan Forbearance program, which 800 existing borrowers in the Small Businesses Expense Program received a 3-month reprieves for payments (a benefit worth approximately $5 million). In addition, the plan will fall under the legislative authorization Small Business Express Program and financed with paybacks from prior loans, reducing the need for legislation to be passed for the program. The CT program is in addition to the Federal Stimulus and Bailout which includes $50 billion for small businesses administration backed loans, which would infuse an additional $4 billion into the Connecticut economy in direct Federal aid alone. Major concerns for the CT Recovery Bridge Loan Program are related to banks’ lending more money to small businesses with current debt obligations, especially because the COVID-19 crisis has killed vast consumer and business spending. The federal and state stimulus in addition to unlimited Federal Reserve buying of Treasury Securities will have the effect of filling banks’ balance sheets with low or no-cost capital. Known as quantitative easing, or QU this practice could potentially drive down Treasury interest rates, which will provide private investors, businesses, and consumers to look for deals to help revive the economy.

Pastore & Dailey Retained in Billion Dollar Tech Deal

Pastore & Dailey has been retained by a technology company in connection with a possible Billion dollar distribution deal. The European based conglomerate manufactures and distributes off-patent healthcare products in the US and Europe. The parties will enter in an MOU, making the products available in 2021.