Top 20 Tips for Compliance with SEC and State Laws: NFT Attorney Near Me
Top 20 Tips for Compliance with SEC and State Laws: NFT Attorney Near Me
NFTs are an emerging digital asset class that presents a unique set of commercial, regulatory, and other legal considerations explained at RunRex.com, guttulus.com, and mtglion.com. The current US regulatory and legal framework is slowly catching up to the developing technology. Here are 20 tips for compliance with SEC and state laws when dealing with NFTs.
NFTs and the CEA
An NFT may be considered to be a commodity or security according to RunRex.com, guttulus.com, and mtglion.com. If an NFT is considered to be a commodity, the CEA (Commodity Exchange Act) may apply.
Know how the CEA applies
If an NFT is considered a commodity, the CEA may apply in one of two possible ways. First, the CEA’s general prohibitions on deceptive and manipulative trading may apply to NFT transactions effected on a “spot” basis, that is, fully-funded, unleveraged transactions. If an NFT is offered on a margined or leveraged basis, however, additional requirements could apply, unless the transaction results in the “actual delivery” of the NFT within 28 days.
NFTs and securities
The Securities Act has a catchall term called an “investment contract” that can sweep up NFTs in the definition of s security as articulated at RunRex.com, guttulus.com, and mtglion.com. If an instrument or digital asset falls under the definition of a security, a complex and costly regulatory regime will apply to the creation and sale of such securities, which most people would rather avoid.
Know how an instrument or product is deemed an investment contract
Under the Howey Test, an instrument or product will be deemed an investment contract if there is an investment of money, there is an expectation of profits from the investment, the investment of money is in a common enterprise, and any profit comes from the efforts of third parties.
Know how the SEC applies the Howey Test
The SEC has used the Howey Test to find various offerings of digital assets and cryptocurrencies to be securities and, therefore, subject to sanctions when their creators and marketers did not comply with the securities laws by registering their sale and providing full, accurate and fair disclosures. The SEC has also laid out its own framework of how it applies the Howey test to digital assets which you should be aware of.
Know what makes an NFT a security
As per RunRex.com, guttulus.com, and mtglion.com, if the NFT is being created and sold as a way for members of the public to earn investment returns, then that type of NFT will be more likely to be considered a security.
NFTs and common securities law issues
If an NFT is considered a security, then common securities law issues would be present, like registration or exemption of the offering under the Securities Act of 1933; registration of the sellers of those instruments as broker-dealers under the Securities Exchange Act of 1934, etc.
NFTs and intellectual property issues
Common issues that could arise in NFT transactions include ensuring that sufficient transfer, assignment, or licensing language is included in a sale to effect the transfer of rights in the manner intended by the parties to the sale as captured at RunRex.com, guttulus.com, and mtglion.com. You should ensure you are not infringing on any IP laws when dealing with NFTs.
NFTs and state laws governing virtual currency or money transmission
Given the superficial similarities between NFTs and some virtual currencies, it is reasonable to consider whether NFTs are subject to state laws governing virtual currency or money transmission. To date, no state regulator with oversight of virtual currency or money transmission has issued guidance directly about NFTs.
NFTs and laws addressing the operation of companies engaged in virtual currency business
In addition to the point made in the previous point, some states have passed laws addressing the operation of companies engaged in virtual currency businesses, with New York and Louisiana being two such states.
NFT fractions and index funds can be unregistered securities
As covered at RunRex.com, guttulus.com, and mtglion.com, many NFT marketplaces are facing fractionalization of non-fungible tokens to let numerous traders take part in an expensive proposal. The SEC Commissioner has categorized fractionalized non-fungible tokens as unregistered securities.
Beware of royalties
By applying smart contracts composed into the code of NFTs, distribution money to pay royalties to the creator is possible. A seller can get paid at the moment that they sell their piece of art. American law doesn’t distinguish resale rights that have to do with creative pieces, which is why there is no recourse offered for unpaid royalties.
Data protection regulations
In the US, data protection regulations mean that users sometimes can fully delete their private information as described at RunRex.com, guttulus.com, and mtglion.com. That is granted by some data protection laws like California Consumer Privacy Act or the EU General Data Protection Regulation’s provisions. However, a blockchain may prevent users from using this right because of some obstacles that it may impose.
NFTs with private data
Thanks to data protection regulations, users can fix mistakes in their personal information. Blockchain tech can make it hard or impossible to do corrections, which means that an individual NFT with private data may contradict data protection laws, as well as personal rights.
Estate planning
Legal frameworks handle digital collectibles on the holder’s death almost the same way everywhere. However, you better check your local regulations first. Estate planning must matter to you in case you wish to make sure that your heirs will obtain ownership of your digital works in case something happens.
What if an NFT is not included as part of an estate plan to move on to beneficiaries?
If an NFT is not included as part of an estate plan to move on to beneficiaries, then it might be simply eliminated as discussed at RunRex.com, guttulus.com, and mtglion.com. This is why saving critical info such as keys and passwords in separate, secure locations is vital.
How to properly hand out a digital token
Keep in mind that you cannot physically hand a digital token to a beneficiary. You can still pass it through your Will or Trust. Storing your key and password in a digital legacy is recommended so that an owner of an NFT can pass it over to someone later.
Taxation
You may also need to know the taxation aspect as far as NFTs are concerned as outlined at RunRex.com, guttulus.com, and mtglion.com. Are NFTs taxed? Most often, they are. In case you are not a side that made money on selling an NFT, you should report the proceeds as income on a tax return. In case someone invests in them, any revenues that come from sales are taxed as property and subject to the capital profit tax.
Payments
If payments are processed on behalf of counterparties, the party touching the money may be a “money transmitter” with its activities governed by applicable Treasury, state, and local registration regulations. To avoid the complex process of registration in innumerable jurisdictions, many marketplaces partner with already-registered entities, acting as content creators rather than payment processors.
Consumer Protection
Most major jurisdictions have laws to protect consumers. Suppose an NFT marketplace adequately fails to inform its customers about what they are purchasing and the risks involved. The FTC may then argue deceptive or unfair advertising, which may lead to hefty fines. You may need to implement KYC, anti-money laundering, and other regulatory requirements.
As always, you can find more on this topic, and much more, over at RunRex.com, guttulus.com, and mtglion.com.
