https://www.cfobrew.com/stories/2026/02/05/amid-the-sec-s-slowdown-in-enforcement-actions-cfos-need-to-play-the-long-game-experts-caution

By Natasha Piñon

Amid the SEC’s slowdown in enforcement actions, CFOs need to tread carefully.
There’s a new sheriff at the securities regulator—but that doesn’t mean it’s the Wild West for CFOs.

“Tread carefully,” Lisa Bragança told us, addressing CFOs. “Don’t jump to conclude that just because something has changed at the SEC level, that it means you should move to that disclosure regime. You may still have obligations under state [rules] and other organizations.”

“This is a time that CFOs definitely need to be careful…to make sure that they don’t just go ‘Whee!’” she added. “It’s a more complicated time, because we will have these different views of what needs to be done, disclosed, and what a fiduciary is required to do.”

State of mind. In the years to come, Bragança thinks it’s possible that while federal regulation ebbs, state-by-state regulation will increasingly come into focus, with states stepping in to take a potentially more rigorous approach.

“Typically, state regulators defer to what the Feds are doing,” she said. “It’s not clear that that’s going to be the paradigm this coming year or in the coming years.”

“You cannot just look at what is going on at the very top, at the federal level,” Bragança said. Even in the most extreme what-if cases—like, say, the president saying fraud cases are fully a thing of the past—“that would not change the states, and it would not change the requirements that apply to CFOs as accountants,” Bragança noted.

“Maybe in a decade, the states will follow, and all the other organizations will be in perfect sync with a new regulatory regime from the federal government,” she acknowledged. “But usually these things happen more slowly, and there is more time for consensus and then you don’t have those discontinuities.”

There has been a virtual 180 degree turnaround in crypto regulation in the last two weeks. In this article, Lisa Braganca comments on the new administration’s directive to agencies like the SEC to develop regulations that address the specific characteristics of digital coins. We may see digital coin securities being issued and traded in the not-too-distant future. They can be used as a method for businesses to raise capital under regulations that account for them being resident on a blockchain – not “physically” held by an SEC authorized custodian.

There are lots of explanations of bitcoin, blockchain, and cryptocurrency out there. How do you find the best? After speaking last week at ABA TechShow 2019, I decided to pull together my favorite resources for understanding bitcoin, blockchain, and cryptocurrency.

Before we get to that, I have to share this graphic, which Leah Silverman created live as Antigone Peyton and I were giving our talk on bitcoin and blockchain at the ABA TechShow.

This graphic is a pretty nifty summary of what Antigone and I talked about at this TechShow 2019 session. Leah captured the analogies that we used in the mere one hour that we had to talk about this huge subject.

We had lots of questions from folks before and after our talk so I want to share some resources in one easy-to-access place right here.

I have to start with an article I wrote for the ABA Law Practice Dipping Your Analog Toe into Digital Coins, Management Magazine. Download Here. It is a primer on cryptocurrencies and other digital coins. It is nontechnical and pretty short.

The best way to understand blockchain and cryptocurrency is by viewing some of the outstanding videos on the web. These concepts are not intuitively obvious – to say the least. Over the last few years, I viewed hundreds of YouTube explainer videos before selecting these are my favorites.

Learning about blockchain and cryptocurrency reminded me of trying to wrap my head around the theories of relativity and quantum mechanics – two concepts that are not intuitive and hard to grasp – to put it mildly. (I also must admit, I still don’t really get either theory – sigh.)

The good news is that blockchain and cryptocurrency are not those complexes! Be patient. It takes time for the ideas to really take hold. But it is worth it. I watched a lot of videos and read a lot of explanations of blockchain before I got the basics.

More good news – the videos are interesting and sometimes downright fun. So please enjoy. And don’t forget to check out the ABA TechShow.

Best Short Blockchain Explanation for Kids and Adults

Best Explanation of Blockchain

Best Explanation of Bitcoin

Most Hilarious Explanation of Cryptocurrency

Please give me your thoughts on these videos. And let me know about the videos that you think should be on the list.

Lisa Bragança recovers losses for investors all over the country, protects whistleblowers, and defends individuals and businesses in government investigations. As a Branch Chief with the SEC Division of Enforcement, Lisa conducted and supervised insider trading investigations and a wide range of investment fraud and Wall Street misconduct. Lisa represents participants in the digital coin/cryptocurrency industry so she thinks a lot about what money is.

Disclaimer: This information is for general purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. The information on this website is not legal advice and does not create an attorney-client relationship.

In December, Justin Steffen, Drew Hinkes, Chris Veatch, Kashan Pathan, Jimmie Zhang, and I did a crypto mock trial to show how blockchain transactions can be introduced into evidence. This was no easy feat. It took many hours of preparation — the creation of a fact pattern, the legal research, the preparation of expert witnesses — before we could do the mock trial.

We are grateful to Judge Blakey for his invaluable participation.

We are grateful to Loyola Law School for allowing us to do the mock trial there. We are grateful to Law360 for publishing our thoughts about the exercise.

If you would like a copy of the article, send an email request to Lisa@SECDefenseAttorney.com and we will send it to you. Here are some of the highlights:

“We had each seen articles that wondered aloud whether blockchain ledger entries were admissible evidence in a court proceeding.  With over 65 years of litigation experience combined, we too could envision the hearsay and authentication objections attorneys would inevitably assert when confronted by the adverse party’s attempt to admit crypto-evidence.  Rather than opine, we sought to take action. As Einstein quipped, “the only source of knowledge is experience.”

“So, we hatched a plan to test whether litigators could actually get distributed ledger entries into evidence under the existing Federal Rules of Evidence.  We collaborated to make a realistic fact pattern, elicited the help of a few carefully-curated witnesses, and instructed them to use their wits and act like real witnesses.  Most importantly, we found a judge willing to help us on our journey of discovery.  On December 6, at Loyola Law School (Chicago), in front of the Honorable Judge John Robert Blakey (N.D. Ill.) and a packed house of technologists, lawyers, and students, we put ourselves to the task, learning more than we had anticipated in the process.

Background

“First, we created a problem. Attorneys live for facts. Depending on who you ask, “facts” are not necessarily the truth; a lawyer will tell you facts are what you can prove at trial. If you cannot prove it, it may as well have never happened. Attorneys also, perhaps unsurprisingly, love to argue. So, we needed to develop a problem that would yield nuanced arguments and that would allow the attorneys and the audience to explore the issues and challenges presented by distributed ledger entries. We also sought to create a fact pattern that was as realistic as possible, relying on the types of evidence and witnesses that would be available in a real-life lawsuit.

“Next, we assigned roles.  Drawing on their years representing the government, Chris and Lisa morphed into the Prosecution.  Andrew and Justin assumed the mantle of the Defense.  Kashan and Jimmie stepped into the roles of the blockchain explorer company witness and the developer witness, respectively.  And, for the sake of time, the parties stipulated that the third witness—a witness from a fictional blockchain forensics company—would have testified that the public keys involved in the relevant transaction were, at one point, each associated with the husband and hitman, respectively.

“Then, the teams prepared.  In all ways, this exercise mimicked an actual federal trial.  We briefed Judge Blakey, prepared the witnesses, drafted examination outlines, and secured demonstrative exhibits. The parties agreed that the Federal Rules of Evidence (“FRE”) would govern, and researched the Rules and recent caselaw supporting or precluding the admission of various other forms of digital evidence. Witnesses were prepared to testify for multiple days. In all ways, we treated this exercise as if it were real.

“Finally, we performed. Chris and Lisa carefully put on their case through multiple witnesses.  Drew and Justin pressed every objection they could muster—relevance and unfair prejudice (FRE 401, 403), failure to authenticate (FRE 901), the best evidence rule (FRE 1002), hearsay (FRE 802), and even a Crawford objection. Chris and Lisa countered, drawing on hearsay exceptions and a new rule created to help litigants self-authenticate electronically generated records (FRE 902(13)). The parties argued, and Judge Blakey “ruled.”[1]

Lesson 1: If Done Correctly, Pseudo-Anonymous Ledger Entries are Admissible Into Evidence ….

Lesson 2: Preparation is a Must ….

Lesson 3: Discovery is Key …  

[1] Judge Blakey’s participation in this event was purely for educational purposes. His rulings and comments should not be construed as precedential, an advisory opinion, or indicative in any way of how he may view evidence and arguments in actual (as opposed to a moot court) proceedings. 

By: Justin Steffen is a FinTech Law Professor at Loyola Law School (Chicago) and a Litigation Partner at Ice Miller LLP where he helps fintech, blockchain, and other businesses navigate the legal and regulatory obstacles to innovation. Andrew Hinkes is the General Counsel of Athena Blockchain and an Adjunct Professor at NYU School of Law and NYU Stern School of Business. Lisa Bragança is the founder of her own firm, Bragança Law LLC, and the former branch chief for the Chicago office of the SEC’s Division of Enforcement. Chris Veatch is a Partner at Perkins Coie LLP and former chief of the National Security and Cybercrimes Section with the U.S. Attorney’s Office for the Northern District of Illinois. Kashan Pathan was recently an Associate at Jenner & Block where he focused on internal and government investigations. Jimmie Zhang is a Legal and Policy Advisor to the Illinois Commerce Commission and a former advisor to Athena Bitcoin, Finalize, and other technology companies. The views expressed in this article are solely the views of the authors and do not necessarily reflect the views of any of the authors’ current or former firms or employers.

Digital Coins

Digital coins, virtual coins, tokens, or cryptocurrencies are bits of computer code. What makes this computer code special is that it is created on something called a “blockchain.” Blockchain technology allows people to engage in financial transactions directly with each other, without a bank or other financial intermediary. Transactions taking place on a blockchain are protected through cryptography and recorded on thousands of identical computer ledgers all over the world. There are some great introductions to blockchain technology and bitcoin that you can watch on YouTube. Here are a few I have blogged about previously: Blockchain + Crypto Explanations.

Digital coins like bitcoin have value only because other people are willing to pay for them. As long as people have confidence in a digital coin, it will continue to have value. As of this writing, a lot of people have confidence in bitcoin. Indeed, people hold almost $130 billion in bitcoin alone, and over 150,000 bitcoin transactions are processed each day.

How Did Digital Coins Get Started?

The creation of bitcoin and the blockchain came on the heels of the Great Recession (2008). The first digital coin, bitcoin, was created in 2009 by Satoshi Nakamoto. Nobody knows who Nakamoto is or whether he is one person or a group.

Nakamoto published a nine-page white paper called Bitcoin: A Peer-to-Peer Electronic Cash System. In the paper, he proposed an alternative to the existing financial system, which had recently failed so spectacularly. He proposed a system that would cut out governments, banks and other financial institutions, a system that would allow “two willing parties to transact directly with each other without the need for a trusted third party.” The goal was a peer-to-peer financial system that offered privacy, was independent of governments and eliminated the transactional expenses imposed by, and the interference of, banks and other financial intermediaries. Bitcoin would be created and maintained on a blockchain.

The bitcoin blockchain is maintained by “miners” who are paid in bitcoin when they are first to solve complex mathematical problems. They are called miners because they are trying to unearth, or mine, a finite resource, namely, 21 million bitcoin that are available on the bitcoin blockchain. Unless there is a consensus that allows the bitcoin protocol (or computer code) to be modified, only 21 million bitcoin will ever exist. Miners also receive transaction fees from those who have transactions on the bitcoin blockchain.

All lawyers should have some familiarity with the legal and regulatory issues concerning digital coins. Clients may ask to pay for legal services in digital coins. Individuals and businesses may acquire and hold digital coins as part of their estates. This means lawyers will be expected to be familiar with, and inquire about, digital coins in many types of matters such as litigation, tax, divorce, estate planning, probate, bankruptcy, and business transactions.

The Regulation of Digital Coins

For some time there has been some uncertainty as to how digital coins are regulated in the United States. As a result, some issuers of digital coins and digital coin exchanges have moved their operations offshore and will not do business with U.S. residents.

Digital coins as currency. Banking regulators require businesses selling virtual currencies like bitcoin to register as money transmitters and comply with anti-money laundering (AML) and “know your customer” (KYC) regulations. At the federal level, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department, oversees registration and regulation of money transmitting businesses. FinCEN issued guidance in March 2013 on the regulatory responsibilities of money transmitter businesses in a document entitled, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, which can be found here.

Money transmitters are also generally required to register with states. State money transmitter laws generally cover digital coin transactions. One notable exception is the state of Illinois. Illinois regulators do not consider digital currencies to be money under the Illinois Transmitters of Money Act. Only a few states, including North Carolina and New York, have enacted specific legislation addressing virtual currency money transmitters. For example, New York implemented “BitLicense” regulations that apply to money transmitters doing business in New York, which has been very unpopular with those in the cryptocurrency industry.

Digital coins as commodities. The Commodities Futures Trading Commission (CFTC) considers digital coins, which it calls “virtual currencies,” to be commodities. While the CFTC does not directly regulate the sale of commodities—such as gold, silver and pork bellies—it does regulate derivatives that are based upon the value of commodities, such as swaps, futures contracts, and options contracts.

In the last year, the CFTC has allowed two of the exchanges it oversees to begin trading bitcoin futures. The Chicago Mercantile Exchange and the Chicago Board Options Exchange used a self-certification process to approve and begin trading these contracts, so the CFTC did not have to expressly approve the trading of bitcoin futures contracts. Yet it is notable that the CFTC did not object to the exchanges undertaking this type of trading. Recently the CFTC reported that the trading of bitcoin futures was working well.

The CFTC also regulates through enforcement actions. The CFTC brought several antifraud actions concerning digital coin investment schemes. It also brought an enforcement action against Bitfinex, one of the major online digital coin trading platforms, for operating as an unregistered futures commission merchant and for facilitating the financing of transactions in bitcoin for participants who were not eligible under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The CFTC has been in the vanguard of government agencies understanding digital coins. Much guidance on digital coins is available on its website. The CFTC has issued helpful guidance in several publications available here: A CFTC Primer on Virtual Currencies, CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets.

Digital coins as securities. Actions of the Securities and Exchange Commission (SEC) have created the greatest angst for practitioners in the digital coin space. In general, the SEC considers any offering of a digital coin (known as an initial coin offering or ICO) to be a securities offering. SEC Chairman Jay Clayton has said, “I believe every ICO I’ve seen is a security.”

This is important for lawyers because Chairman Clayton has made it clear that the SEC is carefully scrutinizing the activities of gatekeepers of the securities markets—including lawyers. This is not an idle threat. The SEC has brought actions against lawyers for aiding and abetting violations of federal securities laws. Recently the SEC charged a lawyer and his firm with fraud under the 1933 Securities Act and aiding and abetting a client to commit fraud in filing a false securities registration statement with the SEC.

The determination of whether a digital coin is security is not always clear-cut. There is no simple formula. The SEC looks at the economic reality of a particular transaction. The Howey test is the long-standing test for whether an offering is subject to federal securities laws. In the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (the DAO Report), the SEC issued an authoritative statement of how it applied the Howey test to conclude that digital coins issued by the DAO, an unincorporated organization, were securities: “An investment contract is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others . . . . In analyzing whether something is a security, form should be disregarded for substance, and the emphasis should be on economic realities underlying a transaction, and not on the name appended thereto (citations omitted).”Because the DAO digital coins, called tokens, offered investors the prospect of earning profits that would be generated through the managerial and entrepreneurial efforts of the issuers and others, the SEC considered the coins securities.

While recent enforcement actions have given the digital coin industry clearer guidance on what is and is not a security, it is important for non-lawyers and even lawyers who do not regularly practice in this area to seek the advice of an experienced securities lawyer. Many nonlawyers, and even some securities lawyers have misinterpreted the language of the DAO Report and concluded that their particular digital coin is not a security.

Just because a digital coin was launched through an ICO, does not mean that it will always be considered a security. Whether a digital coin is a security depends on how it is sold and the reasonable expectations of purchasers. While there has not yet been a ruling by the SEC on this issue, the remarks of SEC officials, including the individual Commissioners, are useful in determining how the SEC is thinking about this issue. Those remarks indicate that bitcoin (not initially offered through an ICO) and ether (offered initially through an ICO) are not considered securities by the SEC.

In April 2018 congressional testimony, Clayton noted bitcoin as something that is often cited as a pure medium of exchange “that has been determined by most people to not be a security.” While not the clearest guidance, practitioners took note. More definitive, albeit still nonbinding, guidance was recently provided by the director of the SEC’s Division of Corporate Finance. Director William Hinman addressed whether a digital coin that was originally a securities offering could later be used in the marketplace as a currency and no longer be a security. In Hinman’s view, “If the network on which the token or coin is to function is sufficiently decentralized—where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts—the assets may not represent an investment contract.” This view indicates that even though ether was initially issued through an ICO,  it has changed from security to a cryptocurrency.

The SEC continues to announce settled and contested enforcement actions in the digital coin space. It is primarily through those federal court cases and administrative actions that we will get a clearer sense of the SEC’s views.

Accepting Digital Coins as Payment

Certain digital coins like bitcoin and ether are gaining wide acceptance as a currency. You can use bitcoin to buy lunch (Subway, PizzaForCoins—Domino’s Pizza, Whole Foods, KFC Canada), travel (Virgin Galactic, Expedia, CheapAir), buy software (Microsoft, Intuit), and buy books and online reading materials (MIT Coop at Kendall Square Bookstore, Bloomberg.com, Suntimes.com). While you cannot yet pay your income tax with bitcoin, the state of Arizona is working on it. There are even some lawyers who accept payment in bitcoin.

The only state to expressly authorize attorneys to accept bitcoin as payment is Nebraska. If a Nebraska attorney receives bitcoin in payment, he or she is required to convert the bitcoin immediately to U.S. currency. Even if your state permits you to accept digital coins as payment for legal services, you should be extremely cautious in doing so.

Before you decide to accept payment in digital coins, first make sure that your state permits you to do so. Second, ensure that you are accounting for digital coin payments properly. Third, be aware of all the ways that your digital coins can be stolen. Even Apple co-founder Steve Wozniak has had bitcoin stolen. Common ways that digital coins may be stolen are through phishing schemes, fake exchanges, and clipboard hijacking. Fake exchanges have websites and addresses that masquerade as legitimate digital coin exchanges. Clipboard hijacking is accomplished by computer viruses that remain dormant until they detect a digital coin address copied onto a clipboard, which is the way most people enter online wallet addresses for digital coin transactions. The virus changes the receiving online wallet address to steal the digital coins. If you decide to accept bitcoin or other cryptocurrencies as payment, you should take precautions and stay abreast of the latest scams.

A version of this article will be published in the ABA Law Practice Management magazine shortly.