United States government agencies escalated sanctions and tightened rules on exports this month in connection with Russia’s enduring attacks on Ukraine – and at least one of these actions is expected to impact fashion and footwear brands. Implemented on September 15, the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a Final Rule applying further export-focused restrictions that not only expand the scope of Russian industry sector sanctions to include items that could potentially be useful for “chemical and biological weapons production capabilities” but that refine existing controls on “luxury goods” (namely, apparel and footwear products) to put the U.S. in line with requirements implemented by its allies.

In addition to including “lower-level items potentially useful for Russia’s chemical and biological weapons production capabilities and items needed for advanced production and development capabilities to enable advanced manufacturing across a number of industries,” the new BIS rule revises previously-enacted controls by lowering the dollar value thresholds that trigger legally-mandated license requirements in order for certain “luxury goods” to be exported to Russia and/or Belarus.

(There are two license requirements for “luxury goods” as defined by the BIS-administered Export Administration Regulations (“EAR”) and identified in Supplement No. 5 to Part 746: One for “luxury goods” that are being exported, reexported or transferred to or within Russia or Belarus; and another for “luxury goods” that are being exported, reexported or transferred to “certain Russian or Belarusian oligarchs and malign actors, regardless of their location.”)

While the list of 400 or so “luxury goods” identified in Supplement No. 5 includes everything from nuclear reactors and vehicles to wine and spirits, leather goods, furs, carpets, and artworks, clothing and footwear are primarily affected by BIS’s new threshold revisions. “Tennis, basketball, gym, [and] training shoes” that are “valued at greater than or equal to $1000 per unit wholesale price in the U.S.,” for example, are among the various types of garments and/or footwear that are subject to decreased price thresholds, as are things like “women’s or girls’ swimwear, not knitted or crochet, and valued at greater than or equal to $1000 per unit wholesale price in the U.S.” 

“In reviewing our allies’ value threshold exclusions,” BIS said in a statement on September 15 that it “determined that the $1,000 Per Unit Wholesale Price in the U.S. dollar value exclusion for clothing and shoes was more permissive than those adopted by our allies.” As such, the new rule reduces the dollar value threshold for clothing and shoes from $1,000 to $300 Per Unit Wholesale Price. BIS estimates that these changes will result in a reduction of 10 license applications submitted per year.

While the reduction in dollar thresholds brought about by the new BIS rule – which went into effect on September 15 – serves to extend the licensing requirement for exports to a wider pool of less expensive “luxury goods,” Thompson Hine LLP’s Scott Diamond, Samir Varma, and Francesca Guerrero state that “even with these revisions certain luxury goods entries continue to not warrant a dollar value exclusion and those entries remain unchanged by this rule.” (These include other “luxury goods” like jewelry, leather goods, etc.)

The new BIS rule comes on the heels of earlier rulemaking from the U.S., which first saw BIS impose restrictions on certain “luxury goods” destined for Russia and Belarus and certain “Russian and Belarusian oligarchs and malign actors” in the wake of Executive Orders from President Biden on March 11, including EO 14068, which restricts exports of luxury goods to Russia and Belarus. In accordance with the luxury goods-centric rule that BIS enacted in March, direct – or indirect – exports, reexports, or transfers of such goods from the U.S. or by a “U.S. person” to Russia or Belarus require a BIS export license.

Because requests for licenses are reviewed with a “presumption of denial,” the rule “effectively restricts U.S. retailers and businesses from suppling any luxury items” to Russia and/or Belarus, Morgan Lewis’s Ezra Church, Gregory Parks, Rachelle Dubow, and Emily Kimmelman stated at the time. In other words, the BIS rule established “a high bar to obtaining an authorization, thereby, acting effectively as a ban on licenses.” 

Still yet, it is “important to note,” according to K&L Gates attorneys Jeffrey Orenstein, Steven Hill, Stacy Ettinger, Jerome Zaucha, and Donald Smith, that the BIS export restrictions apply to more than just U.S.-origin luxury goods. “First, the restrictions apply to all goods listed under the final rule that are subject to the EAR,” which includes products that are: (1) U.S.-origin (wherever they are located); (2) Located in the U.S. (whatever their origin); (3) Produced outside the U.S. with more than 25 percent (by value) U.S.-controlled content; and (4) Produced outside the U.S. and covered by the special “foreign direct product rules” for Russia, which was discussed in a prior alert.

Beyond that, they contend that “even with regard to products that are not subject to the EAR, the text of [Biden’s] executive order indicates that U.S. persons, wherever they are located, are barred from the exportation, re-exportation, sale, or supply of covered luxury goods to Russia, Belarus, and designated parties,” which makes for an even broader scope.

“Combined with the broad range of U.S. and multilateral sanctions already issued,” the Morgan Lewis attorneys asserted that such “luxury goods” export bans “further tighten restrictions on commercial activities with Russia and are designed to impact Russia’s wealthiest citizens most directly by ensuring that these luxury products are no longer available to them.” 

Nike is among the highest-rated names on the latest version of a ranking of companies by the “completeness of [their] withdrawal” from the Russian market, while names like Alibaba, Diesel, Tom Ford, and Armani allegedly score poorly. After first compiling and publishing a ranking of companies’ responses to the Russian invasion of Ukraine (and the subsequent levying of sanctions by governments) in February, the Yale Chief Executive Leadership Institute (“CELI”) has released an updated ranking this month of what it claims is the current state of companies’ operations, with over 1,000 companies “voluntarily curtail[ing] operations in Russia to some degree beyond the bare minimum legally required by international sanctions,” but some companies – including fashion/luxury names “continu[ing] to operate in Russia undeterred.” 

A the top of the September 14 ranking are companies that CELI characterizes as “totally halting Russian engagements or completely exiting Russia.” These companies largely consist of “financials,” “materials,” information technology,” and “industrials” firms (the latter of which includes management consultancies, law firms, etc.), but also extends to the likes of Nike (which is “exit[ing] Russia,” per CELI), Etsy (“deactivate[d] all listings from Russian sellers”), Ikea (“fold[ed] up Russian presence”), French cosmetics brand L’Occitane (“exit Russian operations”), off-price retail group TJX Cos. (which “divest[ed] its Familia subsidiary”) and French automaker Renault (“sold Renault Russia; transfer[ed] Moscow factory to city government and partner for local brand production”), among others. 

According to the CELI’s data, a total of 315 companies are included in this category, which carries with it an “A” rating. 

At the other end of the spectrum are companies that CELI labels as “continuing business-as-usual in Russia,” i.e., companies that are “defying demands for exit or reduction of activities.” Included in the 241 companies that are labeled as such: Chinese sportswear company Anta Sports and Chinese e-commerce giants Alibaba and JD.com. A handful of Italian fashion names are assigned an “F” rating, including Benetton, which has allegedly “continue[d] operations in Russia;” Calzedonia, which has “continued sales in Russia;” Diesel, which is “still operating in Russia [but has] not disclosed” that, per CELI; and Giorgio Armani, which is “still operating in Russia.” 

A snapshot of CELI's ranking

French fashion company Lacoste is also “still operating in Russia,” per CELI, as are U.S.-headquartered Quiksilver, which allegedly has “online sales still running,” and Tom Ford, which CELI claims is “still operating in Russia; not disclosed publicly.” (It is noting that Tom Ford’s operations are almost certainly limited to those of its Italian eyewear licensee, Marcolin; the company has not yet responded to a request for comment.)

Armani said in a statement that it “does not operate directly in Russia and the shops operating in the country with the brands of the group are managed by independent franchisees,” which is the norm for most brands when it comes to their presence in the Russian market. The company asserted that it maintains “strict compliance [with] the sanctions regime issued by the EU.” Diesel similarly revealed that it does not maintain brick-and-mortar stores in Russia and that it has ceased its e-commerce sales there. The Italian brand “stressed that … it was respecting the sanctions while noting that they do not apply to products selling for less than €300,” according to The Economist’s Italy correspondent John Hooper. 

Meanwhile, the likes of cryptocurrency exchange platform Coinbase (which “block[s] certain illicit Russian accounts but not all”); Fortnite-creator Epic Games (which has “stop[ped] in-game commerce for Russia;” Gap (whose “online sales [are] running; stopped shipments to franchisees in Russia”); Skechers (which has “suspended shipments to Russia but online sales continue”); and Mayhoola-owned Valentino (which has “suspend[ed] online sales; no information about on-site sales”) have been assigned a “C” grade “for scaling back some significant business operations but continuing some others.” (170 companies have been given a “C” rating by CELI.)

The highest number of companies (499) are situated within the “B” tier, which refers to companies that are “temporarily curtailing most or nearly all operations while keeping return options open.” This is the category where most fashion/luxury brands – such as Chanel, Gucci and Balenciaga-owner Kering, Louis Vuitton and Dior parent LVMH, Hermès, Prada, Moncler, Rolex, Ferragamo, Canada Goose, ACNE, Ganni, and Ralph Lauren, among others – are listed. Fast fashion companies H&M (which is “winding down business entirely”), Boohoo Group, and ASOS are included within this camp, as do retailers like Farfetch and Yoox, and mass-market names like adidas, Crocs, Ugg-owner Deckers, Levi Strauss, Puma, Northface and Supreme owner VF Corp., and Victoria’s Secret, the latter of which has “stopped exports to Russia, paused sales in Russia by franchisers, [and] suspended online sales.” 

A snapshot of CELI's ranking

A Balancing Act

The balance between leaving the Russian market entirely and continuing to operate there/opting to provide goods/services that fall within the threshold allowed by sanctions (Italian fashion companies are permitted to export goods whose wholesale price is under 300 euros to Russia) has proven to be a tricky one from companies. Making a clean break for Russia has obvious benefits from a logistical perspective, along with benefits from a public relations perspective, especially given the increasingly ESG-specific stance that younger pools of Western buyers have taken in recent years; it also enables companies to more easily ensure that they are complying with various sanctions – which have, in many cases, been modified over time – thereby, reducing their potential exposure to criminal and civil penalties. 

In the short term, the rush of companies to remove themselves from the Russian market – at least for the time being – “will cost companies,” including fashion brands, “surprisingly little,” Hooper asserts. (For some context, French luxury goods titan LVMH, for instance, has typically generated less than 2 percent of annual revenue from Russia, while Cartier-owner Richemont has derived roughly 3 percent of its annual sales from the country in the past. It is worth noting that such impacts are not limited to sales that occur in Russia, as no shortage of deep-pocketed Russian consumers already do their luxury shopping outside of the country in markets like London and Dubai, along with Milan and Paris.)

Not without drawbacks, attempts by companies to walk away from their operations in Russia have likely proven complicated and costly. Beyond that, such moves could put them at risk of facing legal consequences, including lawsuits waged by consumers and companies, alike. As of April, at least two class action lawsuits had been filed against Western companies in the wake of their moves to halt operations in Russia. Moscow-based firm Chernyshov, Lukoyanov & Partners filed suit on behalf of pools of Russian consumers against Apple and Netflix, accusing the two companies of running afoul of consumer rights laws. (Apple has “suspend[ed] all official site sales; turn[ed] off select apps and services,” per CELI, getting it a “B” rating, while it found that Netflix – which has an “A” rating – has “suspend[ed] service in Russia.”)

In connection with the lawsuits, as first reported by Reuters, the plaintiffs are seeking 60 million rubles ($998,750) in moral damages from Netflix users and 90 million rubles ($1.5 million) from Apple for reducing its devices’ functionality and value. Those figures are likely to increase as more individuals join the pool of plaintiffs, per Reuters. 

At the same time, Moscow-based company Talmer reportedly filed suit against Dell (which CELI says has “suspend[ed] all shipments to Russia”) for allegedly cutting off technical support for VMWare cloud computing services. 

A growing number of M&A deals and investment rounds are bringing together some of the biggest names in the fashion and luxury space. In November, a $1.15 billion deal came to light, bringing together Cartier’s parent company Richemont, Chinese e-commerce titan Alibaba, and fashion retail platform Farfetch. The headline-making transaction followed from reports that a “mega deal” was in the making. In addition to proving noteworthy because it brought together three very big names in the fashion sphere in furtherance of an effort that largely focuses on “providing luxury brands with enhanced access to the China market,” the alliance is striking, as it has given rise to speculation about a potential consolidation, with at least some analysts wondering aloud whether the $1.15 billion tie-up could be “a preamble” a larger M&A effort, namely, Richemont merging Yoox Net-a-Porter with Farfetch or the Swiss conglomerate selling the fashion e-commerce pioneer to Alibaba. 

Around the same time, LVMH Moët Hennessy Louis Vuitton decided to make good on an acquisition effort of its own, the one it had also been quietly (and then not so quietly) working towards: Tiffany & Co. Just a matter of days before the Farfetch-Alibaba-YNAP deal was confirmed, LVMH and Tiffany revealed that they had managed to put their rival lawsuits to bed and come to agreeable terms under which the famed New York-based jewelry stalwart could be brought under the ownership umbrella of the Paris-based luxury goods titan. In exchange for $15.8 billion, LVMH would acquire all shares in the formerly publicly-traded Tiffany & Co.

Both instances come as consolidation has been top of mind in the luxury space, where the biggest groups, such as Louis Vuitton-owner LVMH and Gucci’s parent company Kering, have amassed sizable rosters of brands over the past several decades by way of various fashion and luxury-centric M&A transactions, thereby, enabling them to benefit from sheer size and scale, while making it more difficult for independently-owned brands to compete. The havoc wreaked on brands’ balance sheets by the COVID-19 pandemic and the resulting shift online (and the expenses that come with doing that and doing it well) is expected to accelerate that existing fashion industry M&A activity even further. 

“With the financial difficulties [brought about by COVID] in mind, many players, and in particular the smallest, will become more-affordable M&A targets,” according to Isabelle Chaboud, an Associate Professor in the Finance, Accounting and Law Department of Grenoble Ecole de Management. “The most financially solid players – such as LVMH, Kering or Chanel – will no doubt have the option of buying out competitors, subcontractors and even suppliers.”

A Timeline of Transactions

With the foregoing in mind, here is a running timeline of the most recent fashion and luxury-focused M&A and investments dating back to LVMH’s headline-making deal with Tiffany & Co. … 

Sept. 16, 2022 – Everlane Secures $90 Million in Debt Financing

Everlane has secured $90 million in debt financing, including a $65 million revolving credit facility and a $25 million first-in last-out term loan, according to releases from Houlihan Lokey Advisers and CIT Northbridge Credit. “This financing will provide acceleration for our business through new stores and product expansion and allow us to continue to extend our mission of sustainability at a much-needed time in the world,” Everlane founder Michael Preysman said in statement. Beyond that, Everlane revealed that the funding will enable the company to “refinance existing indebtedness and provide incremental liquidity for growth initiatives as well as to pay transaction-related fees and expenses.”

“With the trends we’re observing in the apparel space and the heightened focus on sustainability and environmental impact, we are pleased to work with Everlane to be on the front lines of this transformation,” Neal Legan, managing director at CIT Northbridge Credit, said.

Sept. 15, 2022 – Prada Takes Stake in Tuscan Tannery Superior SpA

Prada SpA has acquired a 43.65 percent stake in Tuscan calfskin tannery Superior SpA, further “tightening its grip on its supply chain,” per Reuters. “The acquisition of a shareholding in Superior represents another important step in the strategic direction towards vertical integration of the Prada Group’s supply chain,” CEO Patrizio Bertelli said.

Sept. 6, 2022 – D’Amelio Family Raises $6 Million to Launch Brands Venture

The D’Amelio family, which includes sisters Charli and Dixie who are two of the most heavily-followed and top-earning TikTok personalities, has raised a $6 million seed round to launch a new fashion and lifestyle-focused venture. The new project, D’Amelio Brands, “will create its own brands in a variety of industries including fashion, beauty and lifestyle that are 100 percent owned by the family,” per CNBC. Investors in the round include Fanatics CEO Michael Rubin, entrepreneur Richard Rosenblatt, and Apple Senior Vice President of Services Eddy Cue. 

Sept. 5, 2022 – Alexander Wang Raises First Outside Funds

Alexander Wang has announced its first-ever outside investment, with two China-based entities – venture capital fund Challenjers Capital and apparel manufacturing and real estate firm Youngor Group – taking an undisclosed minority stake in the New York-based brand, whose eponymous founder and creative director has faced sexual assault allegations in recent years. According to Vogue, “The investment will be used to support the brand’s rehabilitation efforts, which began with a comeback runway show in Los Angeles in April. Wang projects that the funding, along with the external expertise that accompanies it, will help to double the company’s revenue within five years — it currently turns over $200 million annually.” Such anticipated growth is expected to come by way of the Asian market and an expansion of the brand’s offerings.

Aug. 24, 2022 – Farfetch to Acquire 47.5% Stake in Yoox-Net-a-Porter

Richemont and Farfetch have finalized the long-rumored deal in furtherance of which Richemont will sell a 47.5 percent stake in Yoox-Net-a-Porter to Farfetch. In a statement on Tuesday, Richemont revealed that Symphony Global, one of the investment vehicles of Mohamed Alabbar, which currently maintains a Middle Eastern joint venture with YNAP, will also take a 3.2 percent stake, making YNAP “a neutral industry-wide platform,” and “lay[ing] a path towards FARFETCH potentially acquiring the remaining shares in YNAP [and] bringing together these highly complementary businesses.” The partnership marks “a step change in Richemont Maisons’ omnichannel distribution capabilities,” the Swiss luxury goods group revealed on Tuesday, noting that the “landmark transaction” represents a move “towards the digitalization of the luxury industry.” 

Aug. 21, 2022 – Noon to Acquire Namshi for $335 Million

Middle-Eastern e-commerce retailer Noon will acquire Namshi for in a deal that values the fashion retailer at $335.2 million. Emaar Properties announced on Saturday that it reached a deal “in-principle” to sell of Namshi to Noon, the latter of which is backed by Dubai billionaire Mohamed Alabbar and Saudi Arabian sovereign fund the Public Investment Fund. “The planned divestment is with a related party to the Company,” Ahmad Thani Al Matrooshi, the Director & Managing Director at Emaar Properties, said in connection with the impending deal, seemingly referring to Alabbar’s role as the Founder and Chairman of Emaar Properties, as well as a co-founder of Noon.com. “Detailed information will be disclosed once the approvals of Noon Board are received formally,” Al Matrooshi said.

Dubai-headquartered Emaar, the company behind properties, such as the Dubai Mall, first acquired a 51 percent stake in Namshi in 2017 for $281 million, and acquired the remaining 49 percent in 2019.

Aug. 16, 2022 – Authentic Brands Snaps Up Ted Baker

Authentic Brands Group has agreed to buy British fashion company Ted Baker in a deal that is worth approximately 211 million pounds ($254 million). “Pandemic-related losses forced Ted Baker to put itself up for sale in April,” Reuters reports, with a rep for New York-based Authentic Brands stating on Tuesday that it “believes there are significant growth opportunities for the Ted Baker brand in North America given (its) … strong consumer recognition in this market.” Authentic Brands has built up its portfolio of companies significantly over the past several years, with Barneys, David Beckham, Forever 21, Juicy Couture, Vision Street Wear, Brooks Brothers, and Aeropostale, among others, falling under its ownership umbrella.

August 8, 2022 – Sequoia Capital China Acquires Majority Stake in Holzweiler

Sequoia Capital China has acquired a majority stake in Holzweiler to help accelerate the Norwegian fashion and lifestyle brand’s global expansion. The 10-year-old company, which was founded by siblings Andreas and Susanne Holzweiler, said in a statement, as reported by BoF that the strategic partnership with Sequoia Capital China will accelerate its direct-to-consumer business internationally, including the United States, United Kingdom, China. It expects consolidated turnover to amount to $50 million in 2022, up 60 percent year-over-year.

June 13, 2022 – Zalando Acquires Highsnobiety

Berlin-based e-commerce platform Zalando has acquired a majority stake in Highsnobiety, the global pioneer of the new luxury culture, in furtherance of an effort that will see the two companies “join forces to lead the way in engaging and inspiring customers.” While continuing “independent operations,” Zalando says that Highsnobiety “will act as a strategic and creative consultant helping [it] develop new inspiration-focused spaces and formats on its platform.” The terms of the deal have not been disclosed, aside from the parties confirming that Highsnobiety founder and CEO David Fischer will retain a minority stake in the business.

Prior to the deal, Highsnobiety had raised $8.5 million from investors, including Felix Capital, Torch Capital, Reimann Investors, CASSIUS Family, and Holt Renfrew President and CEO Sebastian Picardo, since its founding in 2005, according to Crunchbase.

June 8, 2022 – H&M Group and Lululemon Lead Investment in Climate Fund

H&M Group and Lululemon are among the leading investors in a Fashion Climate Fund spearheaded by nonprofit Apparel Impact Institute. The $250 million fund aims to “support new programs and solutions with a structured pipeline for getting from pilot to scale,” Apparel Impact Institute stated in a release. “We believe it provides a powerful mechanism to overcome the challenges of getting new solutions implemented by the industry, and thereby accelerate the progress on climate action.”

According to Axois, the fund has “attracted $40 million from H&M Group and Lululemon, plus the H&M Foundation and the Schmidt Family Foundation,” noting that further lead partners are expected to each invest a minimum of $10 million over the next eight years.

June 2, 2022 – Pinterest Acquires The Yes

Pinterest will acquire AI-powered shopping platform The Yes. The deal, the terms of which have not been disclosed comes as the San Francisco-based image sharing and social media service looks to double-down on the shopping aspect of its platform. In furtherance of its mission to “learn what you like and get smarter as you shop,” The Yes, which was founded in 2018 by former Stitch Fix COO Julie Bornstein and Amit Aggarwal, maintains “an extensive fashion taxonomy that uses human expertise and machine learning to power a comprehensive algorithm in fashion.”

“THE YES team are experts in building an end-to-end shopping experience. They share our vision of making it simple to find the right products that are personalized for you based on your taste and style,” Pinterest co-founder and CEO Ben Silbermann said, noting that in the months following the closing of the transaction, “Pinterest plans to sunset the THE YES app and website to allow the merged teams to focus on technology integration and evolving our shopping vision.”

May 17, 2022 – B2B Fashion Supply Chain Marketplace Fashinza Raises $100M

Fashinza has raised $100 million in a Series B round that co-led by Prosus Ventures and Westbridge with participation from Accel, and Elevation, among others, valuing the B2B fashion marketplace at $300 billion valuation. The Delhi, India-based company describes itself as the “fastest apparel manufacturing platform” that “solves apparel/fashion supply chain challenges by connecting fashion brands to experienced manufacturers.”

The round brings Fashinza’s total funds raised to $135 million, which CEO Pawan Gupta says the company will use to “refine the company’s supply chain technology and expand into new markets, including raw materials procurement.”

May 4, 2022 – Kering Invests in Alternative Leather Startup VitroLabs

Gucci-owner Kering is one of the investors in a $46 million Series A round raised by VitroLabs, along with actor Leonardo DiCaprio, agriculture-focused VC Agronomics, Bestseller’s Invest FWD innovation arm, Khosla Ventures, New Agrarian, and Regeneration VC, among others. California-based VitroLabs, which makes cellular-cultivated leather that “replicates the structure of animal hides,” will use the funding to scale-up its operations and expects to start pilot manufacturing this spring.

“At Kering, a chapter/pillar of our sustainability roadmap is dedicated to sustainable innovation and actively looking for alternative materials that can reduce our environmental impact over the long term is part of the solutions we have been exploring for years. We believe that innovation is key to addressing the sustainability challenges that the luxury industry is facing, which is why we are very interested in the potential of biomaterials such as cultivated leather,” Marie-Claire Daveu, Chief Sustainability and Institutional Affairs Officer at Kering, said in connection with the finding announcement.

May 2, 2022 – G-III to Acquire Remaining 81 Percent Stake in Karl Lagerfeld Label

DKNY and Sonia Rykiel-owner G-III Apparel Group will acquire the outstanding 81 percent stake in the late Karl Lagerfeld’s eponymous label for $210 million in cash in a deal that will make it the sole owner of the brand. G-III, which first acquired a 19 percent stake in the brand in 2016 after launching a joint venture in 2015, says that it expects that retail sales for the Karl Lagerfeld label could eventually surpass $2 billion.

Apr. 20, 2022 – Destree Raises Series A from Beyonce, Rihanna, Sequoia Capital China

Destree, the Paris-based fashion brand founded by Géraldine Guyot and Laetitia Lumbroso, announced a Series A round that includes big-name investors, such as venture capital firm Sequoia Capital China, Beyoncé, Rihanna, Reese Witherspoon, Gisele Bündchen, Gabriela Hearst, Carmen Busquets, Jessica Alba, Glossier founder Emily Weiss, and Amy Griffin of G9 Ventures. Financial terms were not disclosed, per WWD, but it is understood Guyot and Lumbroso retain majority control of the business, founded in 2016. WWD reports that the funding will be used to “almost double the size of their small team; open Destree’s first freestanding stores; expand into new or underdeveloped markets like the Middle East, China, Japan and the U.S., and supercharge e-commerce operations and digital-native marketing.”

Apr. 5, 2022 – Farfetch Takes Stake in Neiman Marcus Group

Farfetch announced that it will make “a minority common equity investment of up to $200 million” in Neiman Marcus Group in furtherance of a global strategic partnership.” According to a statement from the two retailers, “The partnership builds on Farfetch’s Luxury New Retail vision and advances Neiman Marcus Groups’ pioneering strategy to revolutionize integrated luxury retail, with an initial focus on re-platforming the Bergdorf Goodman website and mobile application to expand its global capabilities and services.” Neiman Marcus says that it will use the proceeds to “further accelerate growth and innovation through investments in technology and digital capabilities.”

In a note about the deal, Bernstein analyst Luca Solca stated that it provides Farfetch “a strategic opportunity to stand out among service providers and to benefit from the strength of the local US customers,” namely by way of its and its Luxury New Retail and Farfetch Platform Solutions, its suite of commerce solutions and retail technology for luxury brands and retailers.

Mar. 14, 2022 – Kering to Bolster Eyewear Unit with Maui Jim

Kering Eyewear has signed an agreement to acquire Maui Jim, Inc., the French luxury goods conglomerate revealed without disclosing the terms of the deal. On the heels of Kering snapping up Danish eyewear brand LINDBERG in July 2021, the group says that “this second key acquisition is also a major step for Kering Eyewear, which has now become unparalleled in its market segment, further validating the strategy that laid behind its creation by Kering in 2014.” The transaction is subject to the clearance by the relevant competition authorities and is expected to be completed in the second half of 2022.

Jan. 28, 2022 – Farfetch to Acquire Violet Grey

Farfetch will acquire beauty brand Violet Grey for an undisclosed sum, the e-commerce platform announced. In a nod to larger implications of the deal, Violet Grey founder Cassandra Grey will act as chairwoman for the brand, while also becoming Farfetch’s global beauty advisor and the co-founder of NGG Beauty, a division of Farfetch’s New Guards Group, with both entities seemingly ramping up their intentions to launch into the beauty space. The launch of a beauty category on the Farfetch marketplace is scheduled for later in the year.

“Farfetch has a really strong track record for acquiring really special, founder-led brands and celebrating and protecting that kind of brand equity,” Grey said in statement inn connection with the confirmation of the deal.

Jan. 27, 2022 – Kim Kardashian’s SKIMS Raises $240 Million

Kim Kardashian’s shapewear label SKIMS raised $240 million in an unknown-series round that was led by hedge fund Lone Pine Capital and that also included D1 Capital Partners, along with existing investors Thrive Capital, Natalie Massenet’s Imaginary Ventures, and Alliance Consumer Growth. The round doubles the barely three-year-old brand at $3.2 billion, up from $1.6 billion in April 2021. Kardashian and SKIMS CEO Jens Grede will retain a controlling stake in the company after the investment, according to Bloomberg.

Jan. 18, 2022 – LVMH Luxury Ventures Invests in Aimé Leon Dore

LVMH’s Luxury Ventures investment vehicle has taken a minority stake in budding New York-based fashion brand Aimé Leon Dore. While the terms of the investment – which appears as though it might be the latest deal to have been brokered by Alexandre Arnault – have not been disclosed, LVMH typically Luxury Ventures typically targets investments ranging from €2 million to €15 million. In a statement on Tuesday, Aimé Leon Dore founder Teddy Santis stated, “LVMH’s vast network of global leaders across the industry and its rich history in growing exceptional storied brands offers a truly unique partnership opportunity to fuel the next chapter of growth for Aimé Leon Dore.”

Jan. 13, 2022 – LVMH Luxury Ventures Takes a Stake in Heat

Mystery boxes are the latest target of investment for LVMH’s Luxury Ventures, with the French luxury goods conglomerate’s fund among the parties to a $5 million round raised by Heat. OTB Group board member and BVX CEO Stefano Rosso, Singapore-headquartered VC firm Antler, L Catterton partner Michael Mitterlehner, Spotify Director of Global Growth Sven Ahrens, and the Hermès family are some of the other investors in London-based Heat’s seed round, the funds from which will be used to “implement gamification, AI-driven personalization, and interactive drops, all while driving sustainability,” the company revealed.

Nov. 22, 2021 – CVC Capital, HPS Investment Take Stake in Authentic Brands

Private equity firms CVC Capital Partners and HPS Investment Partners have acquired “significant equity stakes” in Authentic Brands Group, putting a a $12.7 billion enterprise value on the company and prompting it to postpone a previously-planned planned initial public offering until at least 2023. In a statement, ABG said that “since its founding in 2010, [it] has experienced significant growth by implementing a proven playbook that connects strong brands with best-in-class licensees and a network of partners to optimize value in the marketplace.” Among the 30 or so brands under its ownership umbrella are Forever 21, Barneys New York, Aeropostale, Brooks Brothers, and Vision Street Wear.

Sept. 23, 2021 – G-III to Acquire Sonia Rykiel

G-III Apparel Group revealed that it has entered into an M&A agreement to purchase Sonia Rykiel, with plans to accelerate the relaunch of the French fashion brand primarily in Europe, for the fall of 2022, with collections across multiple categories. The transaction, which comes less than two years after brothers Eric and Michael Dayan successfully bid to acquire all of the bankrupt brand’s assets via a court-administered process. (Those assets included the brand’s intellectual property rights (namely, its various global trademark registrations, and decades of archives and product prototypes); the commercial leases for its brick-and-mortar outposts in France – from its Saint Germain flagship to a glitzy boutique in Cannes, among others; and its remaining stock of garments and accessories.)

The fashion-centric M&A deal is expected to close by the end of October 2021.

Aug. 24, 2021 – Chanel Takes Majority Stake in Paima

Chanel has taken a majority stake in Italian knitwear company Paima, a move that falls in line with a larger pattern of luxury giants looking gain greater control over their supply chains by bringing key third-party companies under their own roofs. “This decision has been motivated by converging interests,” Chanel asserted in a statement, noting that while Paima, which has been a supplier for the French fashion brand for 25 years, “has seen its development accelerate in recent years, it seemed appropriate to have a solid partner to help it grow [further] and invest.” More than that, Chanel revealed that the investment “provides a more sustainable collaboration framework by continuing an already established relationship.”

Aug. 12, 2021 – Authentic Brands Group Buys Reebok

Adidas is selling its Reebok brand to Authentic Brands Groups for up to 2.1 billion euros ($2.46 billion), with the German sporting wear group looking to “focus on its core brand after the U.S. fitness label failed to live up to expectations,” per Reuters. Authentic Brand, which filed its preliminary IPO documentation in July, has been on a buying streak in the past few years, with the brand developer buying up an array of fashion and apparel companies, ranging from Juicy Couture and Judith Leiber to Jones New York, Volcom, and Aeropostale.

Jul. 28, 2021 – Aeffe Takes Full Control of Moschino 

Italian fashion and luxury goods group Aeffe S.p.A. acquired the remaining 30 percent of Moschino in an M&A deal that will see it pay 66.6 million euros ($78.51 million), and bring its holding of the company to 100 percent and the valuation of the Jeremy Scott-designed brand to $261.7 million. Aeffe also owns Alberta Ferretti, Philosophy by Lorenzo Serafini and Pollini.

In a statement, Aeffe Executive Chairman Massimo Ferretti said, “The operation we have just concluded has long been considered an important step in our medium-long term growth strategy. With the full control over MOSCHINO brand, we are now in the best conditions to manage all activities related to the brand’s value chain, from product to quality and with positive effects on image, distribution and communication.”

Jul. 20, 2021 – LVMH Takes Majority Stake in Off-White

LVMH announced on Tuesday that it is taking a majority stake in Off-White, the upscale fashion/streetwear brand that Virgil Abloh launched in 2013 via a new M&A deal. In a statement, LVMH revealed that in addition to taking a 60 percent stake in Off-White, it has entered into a new “arrangement” with Abloh to “jointly pursue new projects across luxury categories.” 

Jul. 18, 2021 – L Catterton Takes Majority Stake in Etro

Italian fashion brand Etro announced on July 18 that it entered into a binding M&A agreement to partner with L Catterton. Under the terms of the agreement, LVMH-affiliated L Catterton Europe will acquire a majority stake in Etro, while the Etro family will retain a significant minority. Etro Founder Gerolamo Etro will be appointed as Chairman of the company.

Jul. 12, 2021 – LVMH Takes Minority Stake in Phoebe Philo

Phoebe Philo announced that she is launching her own label after spending three and a half years out of the spotlight following her 10-year tenure with Celine, and revealed that LVMH has taken a minority stake in her soon-to-launch label. The size of LVMH’s minority position and the terms of the deal have not been disclosed.

Jul. 11, 2021 – Nordstrom Takes Stake in Four ASOS Brands

Nordstrom announced that it has acquired a minority stake in four apparel brands owned by British fashion group ASOS. Topshop, Topman, Miss Selfridge and the activewear label HIIT, which ASOS acquired from Arcadia Group for £295 million ($407.21 million) in February 2021, will enable the U.S. department store chain to target millennial and Gen-Z consumers. Financial terms of the M&A deal have not been disclosed.

Jul. 8, 2021 – Kering Acquires LINDBERG

Kering is bolstering its eyewear division by way of a deal in which Kering Eyewear will acquire 100 percent of the share capital of LINDBERG. The acquisition is “an important milestone in the successful expansion of Kering Eyewear and perfectly fits with its development strategy,” according to Kering, which launched its eyewear division in 2014, a venture that it says consists of “an innovative business model that has enabled [it] to reach a critical size in the market with close to €600 million wholesale external revenues” as of FY2019.

Jul. 7, 2021 – Glossier Raises $80 Million in Latest Round

Glossier announced that it has raised $80 million in Series E funding. The round, which was led by Lone Pine Capital with participation from existing investors Forerunner Ventures, Index Ventures, IVP, Sequoia Capital, and Thrive Capital, values the millennial-focused beauty company at $1.8 billion.

Jun. 30, 2021 – Richemont Acquires Delvaux

Cartier owner Richemont announced on Wednesday that it has acquired a 100 percent stake in Belgian luxury leather goods brand Delvaux in “a private transaction.” Founded in 1829, Richemont says that Delvaux is the oldest luxury leather goods Maison in the world. The Swiss conglomerate revealed that the transaction has “no material financial impact on [its] consolidated net assets or operating result for the year ending March 31, 2022,” and that Delvaux’s revenues will be reported within its “Other” business area.

The M&A deal appears to be a sign that Richemont is looking to bolster its softer luxury (and maybe even fashion) offerings, having built its name in the hard luxury (i.e., jewelry and watches) segment of the market.

Jun. 24, 2021 – GOAT Nabs $3.7 Billion Valuation with New Round

Online sneaker and apparel marketplace GOAT Group has raised $195 million in a new funding round, which has “more than doubled its valuation to $3.7 billion,” per Reuters. The Los Angeles-based company, which was founded in 2015, boasts some 30 million customers across 170 countries, and “posted gross merchandise value, which represents the total volume of goods sold, of $2 billion over the past year as sales of sneakers and apparel surged.”

The buzzy platform made headlines early this year when it announced that it had welcomed a “strategic investment” from Groupe Artemis – the controlling shareholder of Gucci, Balenciaga, Saint Laurent, and Bottega Veneta’s parent company Kering – as it “continues its expansion in fashion apparel and new categories.” (It also garnered attention in connection with a settlement in the trademark lawsuit filed against it by London-based brand Goat Fashion.)

Jun. 24, 2021 – Kering Takes Stake in Luxury Rental Co. Cocoon

Kering has taken an undisclosed stake in a luxury rental company. In a statement on Thursday, Kering announced that it has invested in Cocoon, a London-based startup that specializes in facilitating rentals for luxury handbags – including offerings from upwards of 30 brands, such as Kering-owned Gucci, Balenciaga, and Bottega Veneta – with the investment coming as part of a larger $3.5 million round that also included participation from resale platform Depop’s founder Simon Beckerman, among others. Kering’s chief client and digital officer Gregory Boutte said the deal is part of a larger strategy by the conglomerate to invest in innovative young companies. 

Jun. 22, 2021 – Prada, Zegna Take Stakes in Cashmere Supplier

Prada has partnered with fellow Italian fashion company Ermenegildo Zegna Group to acquire a controlling stake in Italian cashmere producer Filati Biagioli Modesto in furtherance of a quest to “secure a domestic supply chain and luxury-goods manufacturing expertise.” The two big-name fashion entities will each take a 40 percent stake in the Montale-based supplier, which is known for its Italian cashmere and “noble yarns,” while the Biagioli family will hold on to 15 percent of the company, and newly-appointed CEO Renato Cotto – who recently served as a director at LVMH’s Loro Piana – will assume a 5 percent holding. 

Jun. 18, 2021 – LVMH Takes Full Control of Pucci

LVMH Moët Hennessy Louis Vuitton acquired the outstanding 33 percent stake in Emilio Pucci just over two decades after it paid an undisclosed sum for a 67 percent ownership stake in the Italian fashion house in 2000. In a statement on Friday, as first reported by WWD, Toni Belloni, LVMH’s group managing director thanked the Pucci family, and in particular, Laudomia Pucci, the daughter of founder Emilio Pucci, who has served as the Deputy Chairman and Image Director of the brand, “for their friendship and collaboration over the years.” In conjunction with the deal, Ms. Pucci will step down from her current role and “dedicate herself to the archives and promoting the heritage of her late father.”

Jun. 10, 2021 – Fosun Fashion Group Nabs Sergio Rossi in M&A Deal

In a statement on June 10, Fosun Fashion Group revealed that it has signed a M&A agreement to acquire 100 percent of Sergio Rossi S.p.A from from Absolute Luxury Holding S.r.l., an independently-managed investment subsidiary of Investindustrial V L.P., for an undisclosed sum. The Shanghai-headquartered group stated that the acquisition will “further enrich FFG’s luxury brand portfolio, which currently includes Lanvin, Wolford, Caruso and St. John Knits, complementing the group’s core competency through luxury accessories.”

Jun. 8, 2021 – Sequoia Takes Stake in SSENSE

SSENSE announced that it has sold an undisclosed stake in the company to California-based venture capital firm Sequoia Capital in a M&A deal that values the fashion e-commerce retailer at 5 billion CAD ($4.13 billion). As for what the investment might entail, it appears that the high fashion-focused retailer has set its sights on expansion in China, as Angelica Cheung, the former editor-in-chief of Vogue China, who joined Sequoia Capital China as a venture partner in February, will join the SSENSE’s board in connection with the deal.

Apr. 22, 2021 – LVMH Boosts Stake in Tod’s

Tod’s revealed that LVMH will boost its exist stake in Tod’s to 10 percent by way of a new 6.8 percent increase. “A source close to the matter said the French giant does not expect to raise its stake further for now,” Reuters reported, noting that Tod’s founder and chairman Diego Della Valle has been a member of LVMH’s board of directors since 2002. While Della Valle has repeatedly denied longstanding chatter about a takeover, he stated on Thursday that “this may represent an excellent reason to consider further opportunities to be taken in the future ahead,” referring to LVMH’s stake increase.

Mar. 25, 2021 – Made in Italy Fund acquires Dondup

Made in Italy Fund has acquired Milan-based fashion brand Dondup from fellow private equity firm L Catterton for an undisclosed sum. “The fund said it aims at creating a fashion conglomerate with Dondup and other fashion brands it owns – 120%Lino, known for its linen clothes, and jewellery and accessories maker Rosantica – and expanding their foothold in Europe and the United States, Reuters reported. The firm also maintains a majority stake in 6-year old Italian streetwear label GCDS, which it acquired in November 2020.

Mar. 8, 2021 – Ferrari owner Exor takes 24% stake in Louboutin

Exor Group – the $30 billion Netherlands-incorporated investment group run by the Italian Agnelli family and the largest shareholder in Italian automaker Ferrari – announced that it will take a 24 percent stake in the independently-owned Louboutin in exchange for 541 million euros ($640 million), a deal that values the 30-year old Paris-based footwear brand at $2.3 billion euros ($2.73 billion) and sets it up for expansion, particularly in China.

Mar. 5, 2021 – Margiela-owner OTB acquires Jil Sander

Japanese apparel group Onward Holdings announced that it will sell fashion brand Jil Sander to Renzo Rosso’s luxury group, OTB, the parent of Diesel, Maison Margiela, Marni, Amiri, and Viktor & Rolf. The financial figures associated with the M&A deal remain undisclosed.

Mar. 1, 2021 – Kering leads $216 million Vesitaire round

Kering and American investment firm Tiger Global Management are leading a new funding round that sees secondhand marketplace Vestiaire Collective bring in $216 million in new funding, along with existing investors, including its CEO Max Bittner, Vogue’s parent company Condé Nast, and the Eurazeo Group, among others. The deal gives Paris-based Vestiaire “unicorn status” – i.e., puts a $1 billion-plus value on the privately-held company – and “ideally positions it for its next cycle of accelerated growth.” 

Dec. 9, 2020 – Exor Group acquires Shang Xia

Ferrari owner Exor Group announced that it will invest “around €80 million [$96.9 million] in Chinese brand Shang Xia via a reserved capital increase that will result in it becoming the company’s majority shareholder.” Exor noted that Hermès – which “has accompanied Shang Xia successfully throughout the initial phase of its development – will remain as an important shareholder alongside Exor and [founder] Jiang Qiong Er.”

Dec. 7, 2020 – Moncler acquires Stone Island

Moncler announced that it will acquire Italian fashion label Stone Island for $1.4 billion. The Milan-headquartered luxury outerwear company will “purchase 70 percent of Stone Island’s parent company SPW from Chief Executive Officer Carlo Rivetti and other members of his family, [and] then buy the remaining 30 percent from Singapore’s state investor Temasek” in furtherance of a two-step transaction. 

Nov. 9, 2020 – VF Corp. acquires Supreme for $2.1 billion

Three years after Supreme sold off a reported 50 percent stake to private equity giant Carlyle Group, VF Corp revealed that it will pay $2.1 billion to buy popular streetwear brand. The deal – which was formally completed on December 28, 2020 – saw VF Corp. take full ownership of Supreme, with current Supreme investors Carlyle Group and New York-based private equity firm Goode Partners agreeing to sell their stakes in the New York-based brand. 

Nov. 5, 2020 – Alibaba, Richemont invest $1.1 billion in Farfetch

Alibaba Group Holding and Richemont announced that they will invest $1.1 billion in online luxury fashion retailer Farfetch and its new marketplace in China. At the same time, Artemis – an investment vehicle tied to Gucci owner Kering – simultaneously announced that it would increase its stake in Farfetch with a $50 million injection of cash in exchange for Farfetch’s Class A ordinary shares. 

Oct. 29, 2020 – LVMH and Tiffany & Co. agree to $15.8 billion M&A

LVMH Moët Hennessy Louis Vuitton and Tiffany & Co. managed to salvage their meger deal, with the French luxury goods conglomerate agreeing to pay a few dollars less per share to acquire the New York-based jewelry company. In a statement, the parties confirmed that LVMH will pay $131.5 per Tiffany share, down from the $135/share price tag they initially agreed to in November 2019 before the onset of the COVID-19 pandemic.

*This article was initially published on March 1, 2021, and has been updated accordingly.

MyTheresa reported “strong financial results” for the fourth quarter ending on June 30 and the 2022 fiscal year. The Munch-headquartered multi-brand luxury digital platform boasted revenue of 689.8 million euros ($687.49 million) for the year, up 12.7 percent compared to 2021, and 174.8 million euros ($174.21 million) for Q4, while also revealing a 21.3 percent rise in gross merchandise value – the total value of merchandise sold – to €747.3 million, driven largely by gains in Q4 and the retailer’s “high-end luxury customers” – especially in the United States – “buying for double and triple vacations” this summer. At the same time, gross profit for the year was up, growing by 23.7 percent, and full-year profit margin rose to 51.5 percent compared to 46.9 percent last year.

Diving into its full year and Q4 results, MyTheresa (“MYTE”) says that it saw “above-average gross merchandise value growth again in the United States” with the value of goods sold up by 28 percent compared to the same quarter last year. Also for Q4, the retailer highlighted the “solid number” of first-time buyers, pointing to more than 120,000 new customers, while also achieving strong growth in terms of the number of “top customers” (22.1 percent in Q4 FY22 vs. Q4 FY21), as well as an increase in average GMV per customer (5.8 percent in Q4 FY22 vs. Q4 FY21). 

In terms of the last 12 months, MYTE says that it has witnessed growth of active customers of 16.4 percent, reaching 781,000 customers, and in terms of the average “basket” (or the average amount spent per transaction), that has risen by more than 5 percent, but “not because of more items,” CEO Michael Kliger told Yahoo Finance. Instead, the increase came as a result of customers buying “even more luxury items, more timeless luxury items at higher price points.” Reflecting on prices – which are being raised across the board in the luxury space and beyond (Versace, for instance, is one of the latest to announce plans to hike price tags further), Kliger said this week, “We have seen inflation in the luxury sector, particularly on bags, without any impact so far on the demand side, but prices have gone up in luxury.” 

Geographically speaking, demand in the U.S., in particular, is strong, per Kliger, who revealed that MYTE does “not see any diminishing demand in the U.S., [which] has been one of the best luxury goods market for the last almost now 12 months,” particularly compared to China, for example, where the company has “seen an even more difficult situation for the last 12 months as the sort of fortunes of COVID have turned around in that region.” Depending on the speed of vaccination programs in China, he predicts that sales in the country will “sort of return to normal in the next six, 12 months.” 

Still yet, negative effects in the European market, where “the beginning of this calendar year was clearly impact[ed] by the outbreak of war in Ukraine,” have “diminished,” Kliger says, with sales in the region “continuously improv[ing] since April.” 

Looking ahead, MYTE forecasts net sales of 755 million euros to 800 million euros, representing 10 to 16 percent growth, for the full fiscal year ending June 30, 2023, with GMV in the range of 865 million euros to 910 million euros (up 16 to 22 percent) and gross profit likely to fall within the range of 410 million euros to 435 million euros, representing 16 to 22 percent growth. For the “medium-term,” MYTE confirmed its targets of annual GMV growth of 22 to 25 percent, as well as a “slightly increasing” adjusted EBITDA margin around 9 to 10 percent.

In the wake of stage one of the Farfetch, YNAP merger deal, analysts are optimistic about MYTE. Jefferies analysts Flavio Cereda and Kathryn Parker said in a recent note that “within a digital oligopoly, MYTE is well placed,” stating that “the differentiating factor should never be price but brand and service (this is how you maintain profitability and topline momentum), and MYTE does that well.” They point to MYTE’s opening of a new logistics platform that is three-time the size of the current one, which “shows confidence,” stating that they think that “a U.S. base will follow.” Moreover, MYTE’s expansion of its “category offerings” – to include beauty, lifestyle, and home – which enables it to “target the same wallet makes sense.” 

As for how heavily MYTE will be hit by enduring economic concern and the impact on consumer spending, Cereda and Parker state that MYTE’s “core customers are likely to be less impacted by spending slowdown concerns, but the landscape is set to experience some sequential deceleration in our view.”

The White House released its “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” on Friday, saying that “millions of people globally, including 16 percent of adult Americans, have purchased digital assets” – from cryptocurrencies to non-fungible tokens, putting a value of $3 trillion on the global market for digital assets as of November 2021. Setting the stage in its release, the Biden Administration states that while “digital assets present potential opportunities to reinforce U.S. leadership in the global financial system and remain at the technological frontier, they also pose real risks as evidenced by recent events in crypto markets,” including the May crash of “a so-called stablecoin and the subsequent wave of insolvencies wiped out over $600 billion of investor and consumer funds.” 

In the wake of the release of President Biden March 2022 digital asset-focused Executive Order (“EO”), which outlined “the first whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology,” the White House says that relevant government agencies have worked together to develop frameworks and policy recommendations that advance the six key priorities identified in the EO, namely, “consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.” 

Together, the resulting nine reports that have been submitted to President Biden “articulate a clear framework for responsible digital asset development and pave the way for further action at home and abroad,” the White House asserted on Friday.

The reports consist of: (1) the U.S. Department of Commerce’s report, Responsible Advancement of U.S. Competitiveness in Digital Assets; (2) the White House Office of Science and Technology Policy’s report, Climate and Energy Implications of Crypto-Assets in the United States; (3) another from the White House Office of Science and Technology Policy, entitled, Technical Evaluation for a U.S. Central Bank Digital Currency System; (4) the Department of Justice’s report, The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets; (5) Department of the Treasury’s report, The Future of Money and Payments; (6) the Department of the Treasury report, Crypto-Assets: Implications for Consumers, Investors, and Businesses; (7) another from the Department of the Treasury, entitled, Action Plan to Address Illicit Financing Risks of Digital Assets.

From a risk standpoint, such reports reveal that “sellers commonly mislead consumers about digital assets’ features and expected returns, and non-compliance with applicable laws and regulations remains widespread.” In fact, one study found that “almost a quarter of digital coin offerings had disclosure or transparency problems—like plagiarized documents or false promises of guaranteed returns.” At the same time, the White House contends that “outright fraud, scams, and theft in digital asset markets are on the rise: according to FBI statistics, reported monetary losses from digital asset scams were nearly 600 percent higher in 2021 than the year before.” 

Against that background, and “as outlined in the reports released today,” the White House is calling on the Consumer Financial Protection Bureau and the Federal Trade Commission (“FTC”) “as appropriate, to redouble their efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices,” among other things. Moreover, the reports “encourage agencies to issue guidance and rules to address current and emergent risks in the digital asset ecosystem,” which seems to fall neatly in line with the call by the FTC, for example, for public comment on ways to modernize the guidance to align it with new advances in technology – including virtual reality (“VR”), augmented reality (“AR”), gaming, the metaverse, etc. – and how advertisers now interact with consumers. This comes in light of the agency’s plans to revise its digital advertising guide to include new guidance that may take the metaverse/virtual reality into consideration.

Attention to NFTs

While the bulk of the White House’s release centers on financial risks that come with widespread embrace of digital assets, such as cryptocurrencies, it does make specific – albeit brief – mention of NFTs, stating that the President “will evaluate whether to call upon Congress to amend the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and non-fungible token platforms.” The individual reports, on the other hand, pay a fair amount of attention to NFTs …

The Department of Justice’s report dives into this type of token, as well as the applicability of the Bank Secrecy Act to NFT platforms, like OpenSea, given that such platforms “may take the view that this definition does not apply to their activities—and that they are thus not subject to the BSA’s Anti-Money Laundering/Combating the Financing of Terrorism requirements.”

An excerpt from the DOJ's report

The Department of Commerce’s report states that “in just over a decade, digital assets have emerged as a factor in political, economic, social, and cultural discourse about the future of financial services. Terms such as crypto-asset, digital dollar, and NFT are now prominent in everyday discussion on personal finances and many Americans are increasingly asking whether digital assets should have a place in their portfolios.” The agency sates that “NFTs and smart contract implementations may also offer innovations in product and intellectual property verification,” and notes that “there are outstanding legal questions regarding the purported intellectual property, copyright, trademark rights of NFTs.”

The Department of the Treasury’s “Crypto-Assets” report pays significant attention to NFTs, stating, among other things, “NFTs purport to represent a claim or receipt on an asset or object that has inherently unique characteristics or that differs from similar assets in some distinguishable way. Although NFTs are tradeable, they are not interchangeable.” Proponents of NFTs claim they have “many potential applications, such as representations of collectible items (for example, art or music), digital goods, individual identification credentials, access keys, property deeds or titles, or tickets for travel or events.” However, the Treasury report cautions that “the legal rights afforded by NFTs are unclear and have been subject to litigation.”

Among the issues with NFTs, according to the agency, are “disclosure and integrity gaps, where, for example, consumers can unknowingly buy NFTs that may contain infringements,” with the agency pointing to the Hermès v. Rothschild case. “The industry has seen a significant increase in the number of lawsuits filed,” it notes, “with claims related to deceitful marketing tactics or for sales made under false pretenses.”