America Requires Regulatory Clarity Before Blockchain Bears Its Bounty

By Dan Ikenson. (Forbes). May 2, 2024

Innovation is essential to economic growth and higher living standards. Better tools and techniques that make us more productive are requirements of wealth creation. Still, innovation attracts its fair share of skeptics whose fears about where new technologies may lead are ripe for exploitation.

Helming the regulatory agencies in Washington, today, are many who seem to prey on fears about the nefarious misuse of technology or how innovation will send our jobs and way of life into obsolescence. Yet, with every new wave of technological uptake, the U.S. economy has created more and better paying jobs than existed before, owing to the increasing abundance produced and invested. Such progress would be impossible without entrepreneurs and their innovations.

Consider blockchain – one of the most important innovations to emerge from the financial technology revolution of the past couple decades. Blockchain is most commonly associated with cryptocurrencies—digital currencies that users exchange through decentralized computer networks—and is valued for its ability to reduce the time, cost, and security risks of transactions. But new and evolving applications will amplify the utility of blockchain in a wider variety of industries – that is, unless regulators kill it in the crib.

Read the full piece here: Forbes

The SEC Came to Destroy Crypto, Not to Regulate It

By Roslyn Layton. (DC Journal). April 3, 2024.

Following the Securities and Exchange Commission’s effort to stretch, bend and twist the law to grant itself authority to regulate cryptocurrencies has been like watching an exhausting video game. By the last level, the monster has grown so grotesque and ridiculous that you’re just waiting for the relief of seeing it explode so the comforting words “game over” can finally appear.

Unfortunately, it’s not a game for many innovative U.S. Financial Tech companies. The SEC has mobilized all its resources to carry out a policy against crypto companies that is not designed to protect investors from fraud or even to clarify what legal compliance means. It is practicing what professor J.W. Verret of George Mason University has called “enforcement by destruction,” trying to turn courts into execution chambers for an industry it never intended to regulate but to destroy.

It comes down to a bait-and-switch strategy by two successive SEC chairmen to claim that every digital asset, no matter how it is designed, is itself a “crypto asset security,” and that gives the agency full authority to require they be registered like stocks. Nothing in nearly a century of securities law provides the SEC such all-encompassing authority over an entire asset class. But the SEC’s strategy was never to prove this theory in court so much as to have a pretext to launch enforcement actions never meant to bring anyone into compliance.

Read the full piece here: DC Journal

The SEC Is Engaging In Regulation By Destruction

By J.W. Verret. (Law360). April 1, 2024.

The term “regulation by enforcement” was coined in 1990 by Harvey Pitt in his days as a Yale law professor, about a decade after he served as general counsel of the U.S. Securities and Exchange Commission and before he became chair of the SEC. The warning was eerily similar to President Dwight D. Eisenhower’s farewell address cautioning about the growth of the military-industrial complex.

Regulation by enforcement has become manifest in the SEC’s approach to the emerging technology of cryptocurrencies, using lawsuits instead of rulemaking to claim that all digital assets are unregistered securities and fully under the commission’s authority.

Pitt’s term doesn’t fully capture what the SEC’s strategy on crypto has evolved into: “Enforcement by destruction” is more apt.

Read the full piece here: Law360


J.W. Verret is an associate professor at the George Mason University Antonin Scalia Law School. He is a former member of the SEC’s Investor Advisory Committee.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

America must lead on cryptocurrency

By Dave McCormick. (Washington Examiner). March 26, 2024.

Across my career at the intersection of national security and our economy, I have witnessed firsthand several game-changing technological revolutions. From GPS to the internet and from smartphones to artificial intelligence, our nation’s unmatched capacity to innovate has created unprecedented benefits for the economy and security.

Another wave is upon us: Blockchain and crypto offer America the chance to lead another generation of critical innovation, but policymakers must do their part, or this opportunity will slip away. If the Biden White House and Congress don’t provide the support and regulatory certainty this burgeoning industry requires, there is little doubt it will develop and thrive elsewhere.

Blockchain is a technology that provides a transparent ledger for something of value. Crypto uses blockchain to enable transactions between people online. The benefits of America leading in blockchain and crypto are clear. 

First, these technologies are grounded in principles such as individual freedom, limited government, and privacy, which, as a conservative, I hold dear. Conducting transactions through blockchain eliminates powerful and oftentimes expensive intermediaries, making the financial system more accessible.

While the ledgers showing transactions are public, the identity of account holders is anonymous, providing privacy for accounts doing legal transactions while exposing illicit transactions to significant scrutiny. This balance between privacy and the free flow of data is sorely needed in an age in which social media platforms and other tech companies have unparalleled data on every user.

Read more here: Washington Examiner.

Judge slams SEC for ‘gross abuse of power’ in crypto case, imposes sanctions

By Leo Schwartz. (Fortune Crypto). 3/18/24.

On Monday, a federal judge took the unprecedented step of imposing sanctions on the Securities and Exchange Commission related to a lawsuit the agency brought against the Utah-based crypto company DEBT Box in July.

The case drew widespread attention after the defendants accused the SEC of misrepresenting key facts when the agency obtained a temporary restraining order to freeze assets on the crypto platform. After U.S. District Judge Robert Shelby ordered the SEC to explain its actions, lawyers for the agency admitted the SEC had committed errors, but asked Shelby not to issue a formal punishment.

In Monday’s decision, Shelby denied the SEC’s request, citing multiple instances of “bad faith” conduct and finding the agency responsible for a “gross abuse of power.” In the 80-page filing, Shelby imposed a sanction in the form of a requirement for the agency to pay for DEBT Box’s attorneys’ fees and costs related to the restraining order. The judge also denied the SEC’s motion to dismiss the lawsuit without prejudice, which would have meant the agency could bring the lawsuit again at a later date.

“[The SEC’s conduct] substantially undermined the integrity of these proceedings and the judicial process,” Shelby wrote.

Read more here: Fortune Crypto.

Wyoming Grants DAOs New Legal Structure

By Jesse Hamilton. (CoinDesk). 3/8/24.

  • Wyoming has extended its legal framework for DAOs even further, setting up a new nonprofit status.
  • A16z says it’ll encourage the DAOs it’s associated with to establish themselves in that state.

Wyoming has established a new legal framework for in-state decentralized autonomous organization (DAO) nonprofits that has crypto investment giant Andreessen Horowitz (a16z) calling the state an “oasis.”

Gov. Mark Gordon signed a bill into state law that adds to Wyoming’s growing codes for DAOs, which were already cleared to establish themselves as limited-liability corporations there. Now DAOs can also secure themselves as unincorporated nonprofit associations.

Read more here: CoinDesk.

Gary Gensler’s Blundering SEC Mirrors Biden’s Incompetence

By Gerard Scimeca. (RealClear Markets). March 6, 2024.

Touting historically low approval ratings rivaling that of paper cuts and hay fever, one might think Joe Biden and his handlers cared enough about voter sentiment to address the more problematic areas of his administration serving to inflame his unpopularity. 

An obvious place to start would be to cut bait with the capricious, reckless, and rogue Chairman at the Securities and Exchange Commission (SEC), Gary Gensler. That Biden has yet to remove the haughty Gensler is an affirmation of all that is wrong with his presidency and the SEC itself, whose continued bungling has drawn the ire of millions of American investors. 

After 10 years of denials, last month the SEC approved a number of spot Bitcoin exchange-traded funds (ETFs), even as Gensler himself continued to denounce them. While the occasion represents a watershed moment for digital assets in the U.S., the approval was given grudgingly by a Commission boxed into a legal corner.

Read more here: RealClear Markets

Binance’s $4.3 Billion Payment in US Plea Deal Approved by Judge

By Sabrina Willmer and Anna Edgerton. (Bloomberg). February 23, 2024.

Binance Holdings Ltd. will pay $4.3 billion after a judge approved a plea deal that levies one of the largest criminal penalties in US history against the world’s biggest cryptocurrency exchange.

“This really is a case where the ethics of the company were compromised by greed,” US District Judge Richard Jones said at a sentencing hearing in Seattle on Friday.

Late last year, Binance and its founder, Changpeng Zhao, pleaded guilty to anti-money
laundering and sanctions charges to resolve a long-running investigation by prosecutors
and regulators. Binance admitted that it allowed transactions with Hamas and other
terrorist groups on the exchange.

As part of the deal, the company’s compliance must be monitored by an independent firm
for as long as five years. The monitor hasn’t yet been apppointed. Bloomberg reported
earlier that New York-based law firm Sullivan & Cromwell was poised to take the coveted
role.

Read more here: Bloomberg

To Restore the SEC’s Credibility, Appoint a New Chair

By Rep. Todd Tiahrt. (RealClear Policy). February 21, 2024.

Economic uncertainty is one of the top issues facing the country today. Many Americans have been forced to rethink their spending habits while concerns about job stability and fluctuating market conditions are leading families to focus more on savings and debt reduction as they prepare for potential financial challenges ahead.  

To guide the United States through this tumultuous period, it is crucial to have trustworthy and reliable regulators who can stabilize markets during a crisis and who will collaborate with American businesses throughout such instability. That is why it is difficult to comprehend why Gary Gensler remains President Joe Biden’s chair of the Securities and Exchange Commission (SEC). It is even a puzzle why President Biden selected him in the first place.

After a scandal-tinged tenure as President Barack Obama’s chairman of the Commodity Futures Trading Commission (CFTC), Gensler has led a series of gaffe-prone crusades against American companies as SEC Chairman with embarrassing results. A recent study found that most of the flurry of proposed and finalized rules under Gensler was not tied to any authority granted to the SEC by Congress. He has mostly freelanced, letting politics and press releases guide his actions rather than the letter of the law.

Read more here: RealClear Policy

CONFIRMED: SEC Inspector General in “Final Stages” of Investigation on Crypto Conflicts Referred by Empower Oversight

By Empower Oversight. February 15, 2024.

The Securities and Exchange Commission (SEC) has disclosed that its Office of Inspector General (OIG) is nearing the end of an investigation related to financial conflict of interest issues identified and referred to the OIG by Empower Oversight in May 2022. It’s the first acknowledgment of an open probe on the matter by the agency’s internal watchdog.

According to the SEC, “OIG has authorized us to inform you that OIG has an open investigation into the matter that they are in the final stages of completing.” Empower Oversight’s referral cited records it obtained through the Freedom of Information Act (FOIA) raising serious questions about the failures of SEC’s Ethics Office and a senior SEC official, William Hinman, to ensure that he avoided participating in matters where he had a financial interest—including a controversial speech declaring that certain digital assets were not securities subject to SEC enforcement.

Click here for the full article.