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Michael J. Engle and Steven D. Feldman welcome us back to Stradley White-Collar Insider.
Off-Platform & Ephemeral Messaging – Prepare for More Scrutiny
By Steven D. Feldman, Frederic M. Krieger, Amy E. Sparrow and Michael J. Engle
For financial services industry participants and registrants in particular, the focus by various U.S. federal government agencies on “off-platform” and ephemeral messaging has become unmistakable. Below, we discuss the risks associated with the use of messaging for business communications and offer several practical steps companies can take to limit the resulting regulatory and legal exposure.
Background
Over the last decade, we have seen instant messaging grow as a communication method, and migrate from personal use to a tool for business communications as well. For regulated entities, communications using instant messaging create risks that business communications are not preserved pursuant to the books and records provisions applicable to the financial services industry. These unpreserved messages have been given the name “off-platform,” or at times, “off-channel” communications, because they occur outside the company’s electronic business platform where communications are otherwise preserved. The use of these off-platform communications has been augmented in recent years by the growth of ephemeral messaging applications (apps), such as Signal. Ephemeral messaging is a form of digital communication defined by two characteristics: (1) the automated and timed deletion of a message’s content for both sender and recipient; and (2) end-to-end encryption, which prevents third-party access. In addition to these security advantages, popular ephemeral messaging apps such as Signal, Telegram and WhatsApp are highly intuitive modes of communication and allow for the effective exchange of information without the need for significant IT infrastructure.
As a result of these advantages, the use of ephemeral messaging is becoming more common, even in highly regulated industries. Given the risk of enforcement actions or even criminal liability as described more fully below, now is a good time for every organization, particularly those in the financial services industry, to revisit its policies and procedures and its implementation of those policies and procedures as to off-platform and ephemeral messaging apps in order to ensure compliance with the applicable regulatory requirements. Read more...
4C1.1 - U.S. Sentencing Guidelines
Michael J. Engle discusses 4C1.1 U.S. Sentencing Guidelines.
Cryptocurrency Enforcement: The Ever-Changing Landscape
By Jan M. Folena, Ashley E. Shapiro and Michael J. Engle
Overview
The Securities & Exchange Commission (SEC), under current Chairman Gary Gensler, has launched an aggressive enforcement campaign against the cryptocurrency industry. This campaign is without clear rules, as the federal securities laws are silent with respect to cryptocurrency , and the SEC is relying solely upon the United States Supreme Court’s decision in SEC v. Howey Co., 328 U.S. 293 (1946) to allege that digital assets are investment contracts, a type of security required to be registered with the agency.1 Commonly referred to as “regulation by enforcement,” the SEC is hoping that by suing cryptocurrency developers and various exchanges, the courts will determine that digital assets are securities and subject to the registration and anti-fraud provisions of the existing federal securities laws. Congress so far has failed to pass legislation relating to this industry, thus leaving a regulatory void, and in the absence of federal legislation, the SEC remains intent to classify cryptocurrency as a security through enforcement proceedings. The landscape of cryptocurrency enforcement is ever-changing and becoming more complex with every new lawsuit and court opinion.
This article will focus on the trends in civil and criminal cryptocurrency actions, specifically on the SEC because (1) the SEC is by far the most active regulator in the cryptocurrency sector, and (2) the top news recently has involved the SEC’s civil actions. Although the Department of Justice (DOJ) has indicted matters related to the industry, it is taking a different approach than the SEC.
What are Digital Assets and Who is Responsible?
There are several regulators that defense counsel may encounter when dealing with cryptocurrency matters: Securities & Exchange Commission (SEC), Crypto Assets and Cyber Unit, Commodity Futures Trading Commission (CFTC), Digital Assets Task Force, Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), State Regulators, Department of Justice (DOJ), National Crypto Enforcement Team, and IRS Operation Hidden Treasure. Read more...
1
An investment contract is 1) an investment of money; 2) in a common enterprise; and 3) where investors are led to expect profits solely from the efforts of the promoter or a third party. See Howey, 328 U.S. at 298-99.
Loss Issues in Federal Sentencing
Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.
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