NFTs and Fractional NFTs: Legal and Regulatory Concerns for Creators and Investors
NFT as a Commodity, Securities Requirements, AML and Cybersecurity Issues
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Banking and Finance
- event Date
Wednesday, August 25, 2021
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will examine the current legal and regulatory framework around creating and marketing non-fungible tokens (NFTs). The panel will discuss regulation of NFTs as a commodity, potential securities requirements when fractional NFT interests are offered, and money-laundering and cybersecurity issues with the blockchain architecture in which NFTs are held and traded.
Mr. Lom is Co-Head of the firm’s Asset and Wealth Management International Business Group--U.S. and a member of the firm's global Fintech team. He represents family offices, funds and institutional investors, and their related service providers, in transactional and regulatory matters. Building on his engineering background, Mr. Lom also works with clients to develop innovative products and services relating to cryptocurrency, blockchain and smart contracts. He has particular experience advising on complex governance matters and decision-making protocols for families, foundations and blockchain-based businesses, often involving multiple constituencies with varying goals, roles and capabilities.
Mr. Wittow’s work focuses on complex intellectual property, technology and data related transactions and counseling, including the acquisition, development, marketing, licensing and distribution of mobile applications and computing devices, cloud-based software and other types of computing and data management services, other types of technologies, music, and other media content. He also advises clients on electronic commerce, data privacy and data protection issues, technology litigation settlements, and patent licensing and dispositions. Mr. Wittow provides advice to clients of all sizes on technology and content development, protection and licensing in a wide variety of industries. He is a frequent presenter and author on cloud computing, copyright and trade secret law developments and technology and patent licensing and transaction issues and is an active member of the CLE Board of the intellectual property law section of the ABA. Mr. Wittow is also an adjunct professor at the University of Washington and Seattle University law schools.
Mr. Nolan has a domestic and international practice that emphasizes lending transactions, fixed income securities, structured finance, structured products and derivatives. He often works at the intersection of finance and investment management, including trading and regulation of swaps and security-based swaps, loan trading, securities lending and repo as well as traditional borrowing and leverage transactions.
NFTs have emerged as a viable asset class in 2021. Like cryptocurrency, NFTs reside on the blockchain, but in contrast to cryptocurrency, they are unique and can represent a hard asset such as title to property or digital assets such as video images and tweets. As the market for NFTs and fractional NFTs evolves, counsel to NFT creators and the platforms should consider various legal and regulatory issues.
An NFT may be deemed a commodity, subject to general prohibitions on deceptive and manipulative trading under the Commodity Exchange Act. If offered on a leveraged basis, additional regulations could apply.
Investors may look to purchase fractional interests of an NFT, but such interests could be considered "investment contracts" subject to registration requirements of the Securities Act of 1933, and the sellers of fractional interests may be treated as broker-dealers under the Securities Exchange Act of 1934.
Activities related to the transfer, sale, and custody of NFTs may be subject to Bank Secrecy Act and FinCEN regulations. In addition, OFAC has pursued enforcement actions involving cryptocurrency transactions and blockchain technology--NFTs present a similar avenue of risk exposure.
Intellectual property laws, and in particular copyright and trademark laws, potentially limit the sale and transfer of NFTs and require consideration in any NFT transaction. Although some IP laws allow for the allocation of fractional ownership shares and fractional rights, contractual terms should specifically address any fractional shares.
Listen as our authoritative panel discusses the regulatory issues and legal risks associated with the marketing and sale of NFTs and fractional NFTs.
- Introduction to NFTs: how they are created, how they are identified, and where they reside on a blockchain
- NFT as a commodity
- Securities issues with fractional NFTs
- Howey test: registration/exemption requirements
- Sellers of fractional NFTs treated as broker-dealers
- IP considerations
- Bank Secrecy Act and AML concerns
- Cybersecurity issues with NFTs
- Consumer protection issues
The panel will review these and other important issues:
- What commodities regulations might apply to the sale of an NFT?
- When might securities registration and broker-dealer regulations be applied to fractional NFTs?
- How can NFT sellers ensure that the sale and transfer of an NFT do not violate Bank Secrecy Act and FinCEN regulations?
- What cybersecurity issues associated with the blockchain are of special concern with NFTs?
- What intellectual property rights are necessary for the issuance or subsequent sale or transfer of NFTs? What limitations do copyright and trademark laws place on issuance or sale of NFTs, including the sale of fractional shares? What are the risks of failing to comply with applicable intellectual property laws?
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