Gary Plastic Packaging v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

8 Analyses of this case by attorneys

  1. SEC Targets NFTs as Securities for the First Time

    Latham & Watkins LLPAugust 31, 2023

    , marketing NFTs as an investment because of the NFT’s expected appreciation based on the creator’s efforts can bear on the nature of the overall transaction and make it more likely that such sales would be considered securities transactions (for more information, see this Latham post).This matter was especially notable in that the value of the NFTs at issue was marketed as being directly tied to the value of the company, which fits more readily within the traditional conception of an investment contract in which purchasers typically have a right in a legal entity.Endnotes[1] NFTs are essentially unique digital assets with blockchain-based authenticity, ownership, and transferability features. They differ from other blockchain-based assets such as Bitcoin, Ether, and stablecoins that are identical and interchangeable (i.e., fungible). NFTs can be purchased and sold peer-to-peer or on dedicated marketplaces online.[2]Gary Plastic Packaging v. Merrill Lynch, Pierce, Fenner & Smith Inc., 756 F.2d 230, 240–41 (2d Cir. 1985) (the marketing of a non-security investment (i.e.,bank certificates of deposit) that included the promise of a secondary market transmuted the certificates of deposit into investment contracts).

  2. NBA-Branded NFTs May Be Securities S.D.N.Y. Finds

    Patterson Belknap Webb & Tyler LLPH. Gregory BakerMarch 16, 2023

    riel, slip op. at 21-22.Id. at 36-37.In the Matter of Kimberly Kardashian, Admin. Proc. File No. 3-21197 (S.E.C. Oct. 3, 2022), available at https://www.sec.gov/litigation/admin/2022/33-11116.pdf.In the Matter of Paul Anthony Pierce, Admin. Proc. File No. 3-21305 (S.E.C. Feb. 17, 2023), available at https://www.sec.gov/litigation/admin/2023/33-11157.pdf.https://www.coinbase.com/price/ethereummax.See Paul Grewal, The SEC Has Told Us It Wants to Sue Us Over Lend. We Don’t Know Why., Coinbase, Sept. 7, 2021, available athttps://www.coinbase.com/blog/the-sec-has-told-us-it-wants-to-sue-us-over-lend-we-have-no-idea-why.See In the Matter of Coinbase, Inc., N.Y.S. Dept. of Fin. Svcs., Consent Order, available athttps://www.dfs.ny.gov/system/files/documents/2023/01/ea20230104_coinbase.pdf.https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202301041.Friel, slip op. at 22 (alteration in original) (quoting Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230, 237 (2d Cir. 1985)).

  3. Suit Alleging NBA ‘Top Shot’ NFTs Were Securities Survives Motion To Dismiss

    Skadden, Arps, Slate, Meagher & Flom LLPFebruary 28, 2023

    n” that was “ill-suited for resolution on a motion to dismiss.”Notwithstanding the preliminary posture, the court went out of its way to highlight that its holding was “narrow.” As the court explained, Howey analyses are often fact- and circumstance-specific, and each NFT project “must be assessed on a case-by-case basis.” Thus, much of the court’s holding turned on the unique factual allegations regarding Moments and the underlying blockchain supporting them.Moreover, essential to the court’s reasoning was the allegation that Dapper Labs controlled the Marketplace where Moments could be bought and sold, which the court emphasized “significantly, if not entirely, dictate[d] Moments’ use and value.”This reasoning is an extension of the Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc. line of cases, where the creation and maintenance of a secondary marketplace may be viewed as evidence of an expectation of profits based on the ongoing efforts of the promoters. 756 F.2d 230, 237 (2d Cir. 1985). This aspect of the court’s ruling highlights the potential regulatory risks of a “walled garden” business model where the NFT issuer creates its own marketplace that serves as the only place for buyers and sellers to trade.Other points are also worthy of emphasis. For example, despite finding that horizontal commonality was adequately alleged, the court held that the presence of seller royalties not directionally linked to an NFT holder’s profits or losses is insufficient, by itself, to establish vertical commonality between the promoter and purchasers — a ruling that could have broader ramifications given the near-ubiquity of royalties in the NFT market.Additionally, while the court pointed to the lack of intellectual property rights as indicia that Moments were purchased with an intent to invest (and not consumptive intent), the opposite argument could — and likely will — also be made at later stages of the litigation.Due to its procedural posture and the specific allegations at is

  4. President’s Working Group Report: Stablecoin Issuers Should Be Banks; Status as Securities or Commodities Still Unclear

    Morgan LewisMichael PhilippNovember 8, 2021

    A Wells notice is a letter and/or telephone call from the SEC indicating that the SEC staff intends to recommend that a civil enforcement action be taken against an individual and/or company.See, e.g., Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce Fenner & Smith, 756 F.2d 230 (2d Cir. 1985). Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Release No. 90788 (Dec. 23, 2020); 86 Fed. Reg. 11,627 (Feb. 26, 2021).

  5. Crypto yield products in the crosshairs

    Bryan Cave Leighton PaisnerJ. Ashley EbersoleOctober 20, 2021

    This underscores that many may find these analyses unsatisfying until the situation is more fully unfolded.Gary Plastic Packaging Corp. v. Merrill Lynch, 756 F.2d 230 (2d Cir. 1985).SEC v. W.J. Howey Co., 328 U.S. 293 (1946).Reves v. Ernst & Young, 494 U.S. 56 (1990).Howey, 328 U.S. at 301.Marine Bank v. Weaver, 455 U.S. 551, 559 (1982).

  6. SEC Staff Announces Guidance and No-Action Relief Regarding Status of Digital Assets as Securities

    Dechert LLPApril 19, 2019

    9) See, e.g., Chairman Jay Clayton, Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11 2017) (“Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law”). 10) Bill Hinman, Digital Asset Transactions: When Howey Met Gary (Plastic) (June 14, 2018). 11) 756 F.2d 230 (2d Cir. 1985) (a certificate of deposit ordinarily exempt from being treated as a security could nevertheless be considered part of an investment contract when it was sold through a program promising retail investors liquidity and profits from interest rate changes). 12) Supra, note 2.

  7. Senior SEC Official Provides Regulatory Clarity for Digital Assets

    Perkins CoieJ. Dax HansenJune 25, 2018

    ; see also Perkins Coie Client Alert - SEC Takes Aim at Initial Coin Offerings Again (Jan. 11, 2018), available athttps://www.perkinscoie.com/en/news-insights/sec-takes-aim-at-initial-coin-offerings-again.html. [7] Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230 (2d Cir. 1985). [8] Hinman stated that “if a promoter were to place Bitcoin in a fund or trust and sell interests, it would create a new security.

  8. Are Digital Assets Securities? – Regulators Weigh In

    Orrick - Securities Litigation and Regulatory Enforcement GroupEdward EisertJune 21, 2018

    [1] Interview by Bob Pisani with Jay Clayton, Chairman, Securities and Exchange Commission, in New York, N.Y. (Jun. 6, 2018).[2] William Hinman, Director, Securities and Exchange Commission, Remarks at the Yahoo Finance All Markets Summit: Crypto (Jun. 14, 2018).[3]Id.[4] 756 F.2d 230 (2d Cir. 1985) (hereinafter "Gary Plastic").[5]Id.