In an unexpected to say the least case of first impression, the United States Court of Appeals for the Fifth Circuit, essentially, blew away the privacy doors of the cryptocurrency world when it forced a Bitcoin exchange to disclose user data to the federal government without being served a warrant. See USA v. Gratkowski, Case number 19-50492, (5th Cir. 2020).  This Bitcoin exchange use blockchain technology that records every transaction in a publicly accessible ledger, but the persons owning the actual Bitcoin addresses are not known.

The appellate court found that the government could subpoena a cryptocurrency exchange, and obtain records since there was no violation of the defendant’s Fourth Amendment rights. The court reasoned that users of the digital coin exchanges have no greater privacy rights than those people who have accounts at ordinary banks. The court also held that Bitcoin traders have no expectation of privacy for information published on the public blockchain.

This decision also implicated the United States Supreme Court’s recent decision requiring a warrant to access cellphone records in Carpenter v. United States.  In this case, however, the court said only a subpoena was necessary because it was similar to bank records where there is not necessarily a Fourth Amendment protection.  The court also indicated that no one considered Bitcoins to be as central to someone’s daily life like cellphones.

It would appear that, despite the well-known privacy benefits of blockchain technology, this court apparently believes these exchanges fall under the “third-party doctrine,” whereby there is no expectation of privacy when a party turns over their information voluntarily to a third party, including, but not limited to, banks.  The court found that both traditional banks and cryptocurrency exchanges would be subject to the Bank Secrecy Act of 1970, the statutory authority requiring financial institutions to turn over financial records.

Nonetheless, this decision may have a chilling effect on the blockchain and cryptocurrency industry.  Many participants have been drawn to this medium because it offers high degree of privacy. It is possible that this decision may cause a great deal of anxiety in this area.

As a result, it is more likely that law enforcement authorities—civil and criminal—will be seeking information from Bitcoin exchanges.  Conversely, it is also likely that Bitcoin exchanges will probably publish less information and seek enhanced privacy protections. Accordingly, these issues should be carefully discussed with counsel when proceeding in the future.

The United States Department of Labor (“DOL”) has had a very active summer regulating the securities industry. Yes, you heard it right, the DOL has made certain pronouncements that have considerable effect on the securities industry.

Initially, the DOL allowed 401(k) plans to invest in private equity funds so long as they are managed by an investment professional. The DOL allowed specific types of private equity investments provided the investment professional satisfied its fiduciary obligations. Since these investments are illiquid, the DOL capped these investments at 15%.

Additionally, the DOL has now proposed a new fiduciary advisor rule to replace the previous rule that was abandoned by the current administration. Ironically, the current Secretary of Labor led the legal attack that scuttled the previous rule. The “new” rule adopts the previous test if a registered investment advisor or broker-dealer constitutes an “investment advice fiduciary”: (1) securities value advice; (2) regularity; (3) agreement; (4) investment decisions’ basis; (5) and individualized. This “investment advice fiduciary” must also satisfy the SEC’s new best interest standard, provide sufficient disclosure, and have appropriately implemented compliance policies as well as reviews.

In sum, the DOL’s pronouncements indicate that it will be looking very closely at the actions of securities professionals. As such, it would be important for securities professionals to be prepared for those inquiries by consulting with counsel at the earliest convenience.

By Jesse Fishman and Laura Holm

In Quarterly Reports on Form 10-Q, companies are required to disclose any material changes to risk factors that were included in their most recent Annual Report on Form 10-K.  Many companies do not update risk factors in their first quarter 10-Q filing because no material changes have occurred since the filing of the Form 10-K.  However, the world changed drastically in the first and second quarters of 2020 and many companies have felt that impact of COVID 19.

Companies need to consider whether additional risk factor disclosure in their 10-Q filings is appropriate to address material risks exacerbated or introduced in connection with COVID-19.  Some risk factors that companies may wish to consider are:

Risks related to changes to in demand;

  • Risks related to cybersecurity issues;
  • Risks related to supply chain disruption;
  • Risks related to financial markets and economic conditions; and
  • Risks related to general uncertainty.

Some special considerations should be made by those in the travel industry where stay at home orders and corporate restrictions on travel have greatly affected their revenues in Q1 and may affect their revenue projections in the coming months.  Additionally, because of stay at home orders, more employees are working from home.  This situation presents unique opportunities for cyber criminals and exposure to phishing attacks.

SEC’s guidance stresses companies to tailor the risks to their company and to avoid generic risk factors that could apply to any issuer or offering.  If the company has experienced a situation which requires risk factor disclosure, the company should be careful to avoid posing that situation as a hypothetical.

Reviewing peer companies and companies who have the same SIC code as your company are important practices.  You can also look at risk factors for companies in industries who have been severely impacted by the pandemic, such as the travel, restaurants and retail industry.


Join our colleagues, Jon Heyl and Alex Kerzhner, in what is sure to be an important review of the challenges facing the PE/HF industry during the pandemic.   The webinar will take place on Thursday, June 4, 2020 at 2 p.m. (EDT)/ 11 a.m. (PDT).

Please register (or click) at this site:



Sadly, the hackers of the world have not let the pandemic get in the way of their nefarious activities.  In particular, BDs and RIAs have been primary targets.   In our prior blog postings, we discussed business continuity plans and the requirement these plans include cybersecurity provisions.   We believe that the SEC, FINRA, and the various states could begin to review these firms for cybersecurity issues as early as this summer.  Thus, the old adage– be prepared– has never been more true.  We strongly recommend that these firms consult with securities counsel to prepare for this regulatory onslaught.

Oksana Wright and Charles DeMonaco discuss the management and corporate compliance measures for the companies to prioritize during the time of cost-cutting and uncertainty:

Although we are certain that Shakespeare never had to deal with the vagaries of Regulation BI, we do, and, in a series of questions relating to Regulation BI, the SEC Staff made it abundantly clear that, if you are a broker-dealer and not also a registered investment adviser, you cannot use the term “adviser” or “advisor.”  See

The SEC Staff went further to state that, if the terms “adviser” or “advisor” are used in a name or title by a BD, who is not also registered as a RIA, the BD would be violating the disclosure requirements relating to its capacity as a BD pursuant to Regulation BI.   The SEC Staff, essentially, is stating you can only hold oneself out to be what one is registered to be (yet another play on a Shakespeare reference!).  Nonetheless, BDs may use those terms if they are acting as, among other things, a municipal advisor, commodity trading advisor, or advisor to a special entity.  Similarly, if you are both a BD and a RIA, you may use the terms “adviser” or “advisor” in the name or title.

In sum, one needs to be very careful how they describe themselves to the public, and securities counsel should be consulted prior to choosing or changing any securities entities’ name.

As proxy season approaches for a number of public companies, the Securities and Exchange Commission (SEC) and certain state authorities have taken steps to revise their current corporation laws or provide guidance for companies regarding the conduct of annual shareholder meetings in light of the COVID-19 outbreak. The SEC has provided relief for companies seeking to comply with the proxy rules promulgated under the Securities Exchange Act of 1934.  always, the goals of the recent guidance from the SEC is to keep investors and shareholders informed.  A number of states have made some of their requirements for conducting shareholder meetings or virtual shareholder less burdensome than under normal conditions.

In a recent client alert, we discussed recent guidance from the SEC and states and explain how companies should assess compliance measures.

Click here to read the full alert.

In 2 separate actions, the SEC came down very hard on private equity/hedge funds regarding both disclosure and operational issues.  See; and

In the first action, a firm settled for $1 million because it allegedly mischaracterized its prior investments in its marketing materials.  This purported misrepresentation led to an over-statement of the fund’s performance.  The SEC brought an action against the fund for allowing such an over-inflation in its disclosures to occur.   Similarly, the SEC drained nearly $2 million out of another fund that was charging its portfolio companies for “services” thereby obtaining most of its costs, and then did not disclose it or obtain informed consent from these companies.

The bottom line for these actions is that the SEC does not like when funds try to “pull the wool” over their clientele or business partners.  If these funds had sought out securities counsel, they likely would not have had to endure these actions because they would have been advised of the SEC’s tendencies.