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Report: Court Ruling to Return Mistakenly Sent Cryptocurrency Could Set Precedent

A blog post from the University of Oxford Faculty of Law highlights the potential impact of a recent Canadian court ruling on lost or stolen crypto claims.

A Dec. 12 Business Law Blog post from the University of Oxford Faculty of Law notes possible repercussions for lost and stolen crypto claims following a case in a Canadian trial court earlier this year.

In the post, SAFE Frankfurt researcher Grygoriy Pustovit notes the case of Copytrack Pte Ltd v Wall. The superior trial court of British Columbia ruled that Ethereum (ETH) tokens, which were mistakenly sent by the plaintiff, Singapore blockchain startup Copytrack, to the defendant, Brian Wall, must be returned to Copytrack.

The defendant mistakenly received 530 Ethereum coins from Copytrack instead of 530 Copytrack (CPY) tokens that he was supposed to receive after participating in Copytrack’s initial coin offering (ICO). The Ethereum amounted to 495,000 Canadian dollars ($370,482), while the value of CPY tokens he intended to purchase was 780 Canadian dollars ($583) at the time.

“This precedent may have major repercussions for the enforcement of claims regarding lost or stolen cryptocurrency,” Pustovit claims, as the ruling allows the plaintiff to trace and recover tokens “in whatsoever hands those Ether Tokens may currently be held.”

As professional services for tracing digital assets develop, the rightful owners of certain assets could trace them on a public ledger and ostensibly recover tokens once they appear in an exchange’s wallet. Pustovit states that blockchains are not only governed by their code, but by the laws of concerned jurisdictions as well.

While noting that cross-border enforcement of varying national laws and regulations could prove difficult, the blog says that crypto businesses will likely comply with judgements in jurisdictions wherein they have strategic interests.

Pustovit also states that the Canadian court “missed the opportunity” to define the legal character of cryptocurrencies because it “could not be handled through summary judgment.” Since the defendant was deceased, “there would be no practical utility in sending this matter to trial.” The court therefore ruled the Ethereum tokens to simply be the property of the plaintiff and that they should be returned. Claims in conversion and detinue were left unsettled.

While the legal status of cryptocurrencies in case law remains hazy, “there is an increasing number of decisions recognizing that other intangible assets, e.g. funds, shares and mineral interests, may be subject to claims in conversion and detinue.”

Canada is reportedly one of the most crypto-friendly countries, with its favorable regulation of the industry, and low energy costs for crypto mining. In the summer of 2018, the Canadian government issued an official draft regulation for crypto exchanges and payment operators.

Additional reporting by Helen Partz

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Canadian Court Rules to Return Mistakenly Sent Ethereum to Rightful Owner

A superior trial court of British Columbia decided that mistakenly transferred Ethereum should be returned to the rightful owner.

A Canadian court has decided that a sum of mistakenly transferred cryptocurrency should be returned to its rightful owner, according to a report from the University of Oxford Faculty of Law published Dec. 12.

A superior trial court of British Columbia found that Ethereum (ETH) tokens, which were mistakenly sent by the plaintiff, blockchain startup Copytrack, to the defendant, Brian Wall, must be returned to Copytrack.

According to the report, the defendant mistakenly received 530 Ethereum coins from Copytrack instead of 530 Copytrack (CPY) tokens that he was supposed to get after participating in Copytrack’s Initial Coin Offering (ICO).

At the time of the incorrect transaction to his private crypto wallet, the amount of acquired Ethereum amounted to 495,000 Canadian dollars ($370,482), while the value of CPY tokens he intended to purchase was worth 780 Canadian dollars ($583).

Copytrack subsequently discovered the mistaken transaction, and requested Wall to return the erroneously sent crypto. Following initial denials to transfer back the Ethereum, the defendant agreed to send the tokens back to the startup.

Eventually, Wall claimed that his private wallet was hacked and the mistakenly transferred amount of Ethereum was stolen. Per the report, Wall passed away only a few days after legal proceedings on the matter began.

In addition to ruling on the return, the court was called to find a working definition of cryptocurrencies, as both parties argued about whether the Ethereum tokens constituted a digital currency, a digital good, or another type of asset.

According to the report, the Canadian court “missed the opportunity” to define the legal character of cryptocurrencies because it “could not be handled through summary judgment.” Since the defendant was deceased, “there would be no practical utility in sending this matter to trial.”

The court therefore ruled the Ethereum tokens to simply be the property of the plaintiff and that they should be returned. Claims in conversion and detinue were left unsettled.

The report notes that, while the legal status of cryptocurrencies in case law remains hazy, there is an increasing number of cases in which “intangible assets” such as funds and shares are subject to conversion and detinue claims.

Canada is reportedly one of the most crypto-friendly countries, with its favorable regulation of the industry, and low energy costs for crypto mining. In the summer of 2018, the Canadian government issued an official draft regulation for crypto exchanges and payment operators.

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Russian Deputy Prime Minister: Draft Crypto Legislation Won’t Be ‘Significantly’ Edited

Russia’s cryptocurrency legislation draft won’t be dramatically changed, according to deputy prime minister Maxim Akimov.

Maxim Akimov, the deputy prime minister of Russia, announced that the authors of Russia’s draft cryptocurrency legislation were not planning on making any changes to the bill. His statement was reported by Russian information agency Finmarket, which specializing on the financial and commodity markets, on Dec. 11.

The bill “On Digital Financial Assets” — approved by Russia’s parliament, the State Duma, back in May — has given rise to a lot of discussion within the Russian legal discourse since its first reading. Back in the fall, all crypto- and token-related terminology had been replaced with the term “digital rights,” and the definition of crypto mining had also been cut from the bill.

However, at the beginning of this month, Pavel Krasheninnikov, the head of the council and chairman of the State Duma committee on state building, said that the bill had been pushed back to the first reading stage as it needed to be “significantly” changed, as Cointelegraph reported Dec. 1.

Meanwhile, the deputy prime minister underlined this week that there would not be “significant amendments” to the draft bill, according to Finmarket. Akimov also noted:

“We are having a big conversation with any interested parties, we are in a dialogue and discuss it at various venues […] [But] We adhere to the position that has been worked out at the site of the two committees [the Finance Committee and the Civil Law Committee of the State Duma].”

Speaking about the possibility of creating stablecoin-related regulation, Akimov noted that this form of legislation would possibly “duplicate the standard mechanisms for fundraising,” adding:

“This is not the case for which all civil law must be turned upside down. These tools must be entered into [existing] civil legislation very carefully, what we are trying to do.”

Last month, Anatoly Aksakov, the chairman of Russia’s State Duma Committee on Financial Markets, said that the “crypto ruble,” a proposed state-backed stablecoin, would be “the same ruble, just in encrypted form,” Cointelegraph wrote Nov. 8.

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Dutch Central Bank Proposes License Requirement for Cryptocurrency Service Providers

Cryptocurrency service providers will soon be required to hold a license issued by the Dutch Central Bank in the Netherlands.

Cryptocurrency service providers will soon be required to obtain a license from the central bank of the Netherlands, major Dutch news outlet DeTelegraaf reports Dec. 11.

The article explains that the measure has been undertaken hoping that it will “prevent such cryptocurrencies being used to launder money obtained through crime or to fund terrorism.”

To qualify for a license, providers will reportedly need to know who their customers are and report unusual transactions. All of this data will be monitored by De Nederlandsche Bank, the Dutch central bank.

After the implementation in April of similar laws in Japan obliging cryptocurrency exchanges to report dubious cryptocurrency transactions, a notable increase in the number of such reports was noted this winter.

In August, an executive at the Dutch central bank stated that cryptocurrencies aren’t recognized as “real money,” but that the bank has no plans to ban them. Also in August, an advisor of the central bank claimed that Bitcoin’s (BTC) price changes coincide with Google searches for the cryptocurrency.

As Cointelegraph reported in October, the Port of Rotterdam has partnered with both a major Dutch bank and Samsung to test blockchain use for shipping in Europe’s largest port. Also in Holland, the country’s largest supermarket chain, Albert Heijn, revealed in September that it is using blockchain to make the production of its orange juice more transparent.

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Four Vermont State Agencies Establish Blockchain Working Group

Four Vermont state agencies have launched a blockchain working group to learn more about the technology and its impact on the economy.

Four agencies of the state government of Vermont in the United States have jointly formed a working group to study blockchain technology, according to an announcement published Dec. 10.

The working group will comprise the Attorney General’s Office, the Department of Financial Regulation (DFR), the Secretary of State, and the Agency of Commerce and Community Development (ACCD), and will include industry experts among members. The group will purportedly begin its work in January 2019.

The group will purportedly address three core issues, including the opportunities, challenges, and concerns surrounding blockchain technology, the necessity of blockchain-specific regulation, and ways to protects customers who deploy the technology or are affected by it.

Attorney General Donovan stated that the group will enable state regulatory agencies to better understand blockchain and determine how to engage with “a technology that may represent a new business sector.” Donovan added:

“In an era of persistent data hacks, security breaches, and online activity, exploring new and innovative ways to protect our data is essential. And, we must strive to balance economic opportunity with consumer protection.”

Over the last year, administrations of other U.S. states have also established blockchain working groups. This summer, Connecticut governor Dannel Malloy signed SB 443 into law, which established a blockchain working group to study the technology. The body is also tasked with shaping a plan to “[foster] the expansion of the blockchain industry in the state.”

California’s AB 2658, a bill that calls for the establishment of a working group on blockchain technology, passed both houses of the state legislature in August, and was subsequently signed into law by the governor in late September. The bill defines blockchain as “a mathematically secured, chronological, and decentralized ledger or database.”

In March, the U.S. Federal Trade Commission (FTC) created a blockchain working group to identify and target fraudulent schemes which affect the FTC’s consumer protection and competition missions. The group intends to combine expertise and practices on one platform which will coordinate efforts in countering fraud in blockchain and cryptocurrency-related fields.

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British Crypto Exchange CEX.IO Now Requires Identity Info From Users

London-based crypto exchange CEX.IO has started requiring its users to disclose their identities to purportedly comply with international laws.

United Kingdom-based cryptocurrency exchange CEX.IO now requires its users to disclose their identities, financial trading news outlet Finance Magnates reported Dec. 11.

Established in 2013, CEX is a London-based cryptocurrency trading platform, initially started as a cloud mining provider. Currently, the exchange supports eight major digital currencies and four major fiat currencies, while its adjusted daily trading volume is around $4.9 million, according to CoinMarketCap.

While the situation with Brexit — the scenario in which the U.K. leaves EU — remains cloudy, CEX.IO does business with clients internationally, and therefore aims to comply with relevant international regulations, including the European Union’s Fifth Anti-Money Laundering (AML) Directive. The directive entered into force in July 2018, and EU member states have until Jan. 10, 2020 to implement it in their respective national laws.

CEX.IO is also a registered member of the the Financial Crimes Enforcement Network (FinCen) of the United States Department of the Treasury, and still has to perform operations in accordance with U.S. law. CEX’s Regulatory Affairs Counsel, Serhii Mokhniev, reportedly commented on the company’s decision:

“We have always understood the importance of dealing with virtual currency within a legal framework, so mandatory verification for customers who transact in fiat currency was introduced long before the Fifth Anti-Money Laundering Directive was adopted in the EU.”

In December 2017, the U.K. and EU jointly announced they are  planning a “crackdown” on crypto-enabled money laundering and tax evasion. The increased regulations, in line with directives in the EU, are intended to limit the amount of anonymity possible for cryptocurrency traders. In October, U.K. Economic Secretary to the Treasury Stephen Barclay said:

“The U.K. government is currently negotiating amendments to the Anti-Money Laundering directive that will bring virtual currency exchange platforms and custodian wallet providers into Anti-Money Laundering and counter-terrorist financing regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas.”

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Blockchain Policy Development in China Concentrated in Three Cities

One third of national blockchain-related policies in China have been made in three areas: Beijing, Shanghai and Guangzhou.

Beijing, Shanghai and Guangzhou — or BeiShangGuang — has become the most concentrated area of ​​relevant blockchain legislation and policy in China, reports local finance publication Securities Daily Dec. 7.

The Chinese securities newspaper has analyzed blockchain-related policies introduced throughout the country in the recent years, and concluded that there are 32 blockchain-related policies within the country. Meanwhile, 11 projects are concentrated in three areas: Beijing , Shanghai  and Guangzhou. The publications states:

“Blockchain technology [is aimed] to serve the real economy, focusing on the balance between innovation, regulation and security, and clarifying the bottom line of financial stability and information security.”

China has adopted a split policy toward blockchain and cryptocurrencies, praising and adopting blockchain technology — China’s President Xi Jinping has publicly called blockchain a technological priority of the 21 century — while banning cryptocurrencies.

Last month, China’s Ministry of Industry and Information Technology (MIIT) published a document, calling  to “accelerate” the development of standards for blockchain system applications across various domestic industries.

Also last month, a new blockchain alliance, involving 54 different companies, was established in Guangzhou city, aimed to promote and develop blockchain technology in the country.

Meanwhile, the Chinese government has purportedly censored certain materials pertaining to cryptocurrencies. When Andreas Antonopoulos’  book “Mastering Bitcoin” appeared on China’s state-run TV channel, the title had been changed to “Blockchain: the Road to the Digitization of Assets,” and contained no references to Bitcoin (BTC).

The People’s Bank of China (PBoC), the Chinese central bank, had made several warnings against cryptocurrencies, calling them “bubbles” in financing and investment. Earlier this week, the Beijing Municipal Bureau of Financial Work reminded the public that Security Token Offering (STOs) were considered illegal in the jurisdiction.

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US SEC Fines Delaware-Based Digital Asset Fund and Issues Cease and Desist Order

The SEC has fined a digital assets fund for breaching securities law and issued a cease and desist order.

The United States Securities and Exchange Commission (SEC) has issued a cease and desist order against CoinAlpha Advisors LLC in addition to ordering a $50,000 penalty, according to a filing published Dec. 7.

Delaware-registered CoinAlpha Advisors LLC was reportedly established in July 2017 to act as the managing member of and manager to fund CoinAlpha Falcon LP, which was formed in October 2017.

By May 2018, the fund had allegedly raised over $600,000 from 22 investors from at least five states, which purchased limited partnership interests in the fund in exchange for a proportional share of any profits derived from the fund’s investment in digital assets. The file further reads:

“In October 2018, after being contacted by the Commission staff concerning the issues herein, CoinAlpha unwound the Fund, pursuant to the authority granted in the Fund’s Limited Partnership Agreement.”

Although CoinAlpha Advisors filed a Notice of Exempt Offering of Securities with the SEC on Nov. 3, 2017, the company was not registered with the SEC. Therefore, CoinAlpha Advisors violated the securities law that “prohibits the sale of securities through interstate commerce or the mails unless a registration statement is in effect.”

Per the file, CoinAlpha Advisors immediately halted the offering once it was contacted by the SEC and undertook a review of marketing and promotional materials posted on social media. The company also reimbursed all fees it had already collected, and resigned all rights to future management and incentive fees.

Now, CoinAlpha Advisors reportedly has to pay a civil money penalty in the amount of $50,000 within ten days of entry of the order.

Yesterday, the SEC set a new deadline for Feb. 27, 2019 in order to further review the rule change proposals to list a Bitcoin exchange-traded fund (ETF) by investment firm VanEck and blockchain company SolidX on the Chicago Board Options Exchange (CBOE).

Both VanEck and SolidX firms filed with the SEC to list a Bitcoin-based ETF on June 6. Subsequently in August, the commission delayed its decision on listing the ETF until Sept. 30, requesting further comments regarding the decision. In October, the SEC set a deadline for submitting comments about proposed rule changes related to a number of applications for Bitcoin ETFs.

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Report: US Congressman Announces Plans for Federal Cryptocurrency and ICO Regulation

U.S. Rep. Warren Davidson of Ohio announced plans to introduce a bill in the House of Representatives that would regulate ICOs and cryptocurrencies.

U.S. Rep. Warren Davidson (R) has announced plans to introduce legislation that would clearly regulate cryptocurrencies and Initial Coin Offerings (ICOs), local Ohio news agency Cleveland.com reports Dec. 3.

According to Cleveland.com, Davidson announced his intention to introduce new legislation at the Blockchain Solutions conference. The bill would create an “asset class” for cryptocurrencies and digital assets, which “would prevent them from being classified as securities, but would also allow the federal government to regulate initial coin offerings more effectively.”

This development would bring clarity to U.S. crypto regulation. Currently, state regulatory agencies classify tokens differently in ways that place them under their jurisdiction.

The Securities and Exchanges Commission (SEC) stance is that most cryptocurrencies are securities. The Commodity Futures Trading Commission (CFTC), on the other hand, treats cryptocurrencies as commodities.

In other words, the CFTC states that Bitcoin (BTC) has more in common with gold than with currencies or securities since it is not backed by a government and does not have liabilities attached to it. The Financial Crimes Enforcement Network (FINCEN), the agency managing anti-money laundering (AML) and know your client (KYC) standards, views crypto as money.

The U.S. Office of Foreign Assets Control (OFAC), which enforces economic sanctions, views crypto as money and blacklists wallets of sanctioned persons. Lastly, the Internal Revenue Service (IRS) treats cryptocurrencies as property, meaning that profits from selling them are subject to capital gains tax.

A group of U.S. Congressional representatives sent a letter in September to the SEC Chairman Jay Clayton calling for “clearer guidelines between those digital tokens that are securities.”

The same month, over 45 representatives of major crypto companies and Wall Street firms attended a Congressional roundtable discussion on cryptocurrency and ICO regulation. During meeting, which was hosted by Davidson, experts expressed concerns about a lack of regulatory clarity in the industry and discussed “token taxonomy.”

Davidson has previously demonstrated his support for the crypto industry, suggesting that the ICO market needs “light touch” regulation. A spokesman for the U.S. representative said in November that Davidson is working on a bill that, once law, would treat ICOs as products rather than securities at the federal and state level, effectively “sidestepping” security laws.

As Cointelegraph reported yesterday, seven Ohio funds will hand over $300 million to blockchain startups by the end of 2021. Of this funds, $100 million will be invested by nonprofit JumpStart.

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Swiss Finance Minister Rejects Specific Blockchain Legislation in Favor of Current Laws

According to Finance Minister Ueli Maurer, Switzerland will not create any specific blockchain or crypto legislation.

The Swiss Minister of Finance, Ueli Maurer, has rejected a possible blockchain law in a speech at blockchain conference Infrachain in Bern, Cointelegraph auf Deutsch reported today, Dec. 4.

Instead of a specific blockchain or crypto legal framework, Switzerland plans to tweak existing laws to allow for the new technology and its financial applications, Maurer said. The government expects to propose changes to six laws, including the civil code and bankruptcy law, next year.

Maurer, who has traveled extensively with Swiss bankers, made it clear that he is aware of the competition in fintech facing Switzerland. He said at the conference:

“London is already further advanced than we are, and centers like Singapore and Shanghai are fierce competitors”.

Meanwhile, neighboring Liechtenstein, not mentioned by Maurer, is already one legislative step ahead. In August, the local government published a draft for the new “Blockchain Act” — a law on transaction systems based on trustworthy technologies (VT) — which is currently being examined by an expert commission. The law is expected to be adopted in 2019.

In the United States, U.S. representatives recently proposed a bill, dubbed the “Blockchain Promotional Act 2018,” in the House of Representatives with the aim of creating a working group to form a common definition of blockchain.