Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Sunday, March 11, 2018

The Nine Alternatives for Regulating Cryptocurrency

By Kathy Bazoian Phelps

To regulate or not?  That is the question. And there seems to be no consensus. The results of the Cryptocurrency Poll so far reveal a very clear divide on several important questions about virtual currencies. The public opinion is split nearly evenly on whether cryptocurrency should be considered a currency, a security, or a commodity. An equally wide split is evident in the very fundamental question about who, if anyone, should regulate cryptocurrency.

A recent decision on the question of who is in charge of regulation reveals nine possible alternatives of how to deal with cryptocurrency. Whether the SEC, CFTC or someone other agency should regulate cryptocurrency is an issue up for grabs. The CFTC obtained a ruling on March 6, 2018, that provides some guidance, although still leaves the door wide open.  CFTC v. McDonnell, 2018 WL 1175156 (E.D. N.Y. March 6, 2018). In answering the question of whether virtual currency may be regulated by the CFTC as a commodity, the court identified the following 9 possibilities:
  1.  No regulation.
  2.  Partial regulation through criminal law prosecutions of Ponzi-like schemes   by the Department of Justice, or state criminal agencies, or civil  substantive suits based on allegations of fraud.
  3.  Regulation by the Commodity Futures Trading Commission (CFTC).
  4.  Regulation by the Securities and Exchange Commission (SEC) as securities.
  5.  Regulation by the Treasury Department’s Financial Enforcement Network     (“FinCEN”).
  6.  Regulation by the Internal Revenue Service (IRS).
  7.  Regulation by private exchanges.
  8.  State regulations.
  9.  A combination of any of the above.

In the McDonnell case, since CFTC standing was at issue, the court concluded that the CFTC is “one of the federal administrative bodies currently exercising partial supervision of virtual currencies.” While not reaching a conclusive and exclusive finding, at least we know that someone is in charge, at least “partially.”

Please feel free to express your views on The Cryptocurrency Poll. In the meantime, here is the current split on what it is and how to regulate it:

1. Do you think cryptocurrency is a commodity, security, or currency?

        a. Commodity                 36.75%
        b. Security                  27.11%
        c. Currency                  25.90%
        d. Don’t know                 10.24%

2. Should cryptocurrency be regulated by the SEC, CFTC, or some other agency?

        a. SEC            42.55%
        b. CFTC            20.57%
        c. Some other agency    14.89%
        d. Should not be regulated 17.02%
        e. Don’t know     4.96%

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