Danger for U.S. Crypto Markets Rises As SEC’s Credibility Falls

By Hassan Tyler. (RealClear Markets). November 30, 2023.

The conviction of Sam Bankman-Fried for the fraud that destroyed the once mighty digital asset exchange FTX may have been a low point for public opinion on the cryptocurrency industry. But a potentially game-changing upside event for crypto could be coming soon which could bring trillions of dollars in reliable capital into the emerging industry. Bloomberg’s James Seyffart reports a high likelihood that the first spot exchange-traded fund (ETF) for cryptocurrencies in the United States could be approved by January.

This story of two extremes is reflexive of the federal agency tasked with regulating it and calls into question whether the Securities and Exchange Commission (SEC) can act appropriately and carry out its mission under current leadership.

SEC Chairman Gary Gensler, according to his public schedule, met with Bankman-Fried and his top brass several times to discuss regulation. Rep. Tom Emmer (R-MN), a senior Republican on the House Financial Services Committee, said his office has received reports that Gensler “was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly.” According to the court record, Bankman-Fried’s fraud and theft of customer funds was in full bloom at the time of those meetings. But Gensler was too busy at the time waging an all-out war on crypto companies like LBRY, Ripple, and Coinbase, none of whom are accused of fraud.

Gensler inherited an SEC that was covered in doubts on its crypto regulation in the previous administration. The agency under his predecessor, Jay Clayton, put out guidance on crypto trading that gave a free regulatory pass for the trading of Ethereum’s native token, ether. William Hinman, Clayton’s director of corporation finance, gave a high-profile speech in 2018 laying out the SEC’s reasoning why “we believe that current offers and sales of ether are not securities transactions”. But on his last day in office, Clayton filed the Ripple lawsuit despite Hinman’s guidance applying to XRP as well as ether. Instead of clarity, it caused confusion and fear.

Read the full piece by Hassan Tyler here: RealClear Markets.

Binance Founder Changpeng Zhao Agrees to Step Down, Plead Guilty

By Dave Michaels, Patricia Kowsmann and Vivian Salama. (The Wall Street Journal). November 21, 2023.

The chief executive of Binance, the largest global cryptocurrency exchange, plans to step down and plead guilty to violating criminal U.S. anti-money-laundering requirements, in a deal that may preserve the company’s ability to continue operating, according to people familiar with the matter. 

Changpeng Zhao is scheduled to appear in Seattle federal court Tuesday afternoon and enter his plea, the people said. Binance, which Zhao owns, will also plead guilty to a criminal charge and agree to pay fines totaling $4.3 billion, which includes amounts to settle civil allegations made by regulators, the people said.

The deal would allow Zhao to retain his majority ownership of Binance, although he won’t be able to have an executive role at the company. He would face sentencing at a later date.

The outcome resembles an earlier case that prosecutors brought against the executives of BitMEX, an exchange for trading crypto derivatives that was based in the Seychelles. Its former CEO, Arthur Hayes, pleaded guilty to violating anti-money-laundering law and was later sentenced to two years probation, avoiding a possible prison term of six to 12 months. 

Read the full story here: The Wall Street Journal.

Gary Gensler and the SEC Lose Again

By Editorial Board. (The Wall Street Journal). November 1, 2023.

Is Gary Gensler ever going to win a case? On Tuesday the Fifth Circuit Court of Appeals handed the Securities and Exchange Commission Chairman another legal defeat by scuttling the agency’s stock-buyback rule (U.S. Chamber of Commerce v. SEC.)

The SEC in May finalized a rule requiring public companies to disclose their daily share repurchases and the reason for buying back their stock. Mr. Gensler claimed companies might buy back their stock to boost executive compensation, which is sometimes tied to accounting metrics such as earnings per share.

A 2020 SEC staff study found scant evidence for Mr. Gensler’s suspicion, explaining that repurchases help issuers “maintain optimal levels of cash holdings and minimize their cost of capital” and “on average” have “a positive effect on firm value.” Nonetheless, Mr. Gensler claimed that investors would benefit from knowing why and when shares were being repurchased.

His real motivation appears to have been to shame companies and help his friends in the securities litigation bar sue companies over their buybacks. Companies faced potentially hefty legal bills defending against lawsuits challenging the motivation and timing of their share buybacks, especially if they resulted in higher executive compensation.

Read the full piece from the Wall Street Journal here: Gary Gensler and the SEC Lose Again.

After Mounting Court Defeats, the SEC Needs to Change Course on Crypto

By Todd Tiahrt. (RealClear Policy). October 27, 2023.

There is a strong, bipartisan desire in Washington to adopt a clear set of rules for regulating cryptocurrencies and blockchain technology. Unfortunately, the Securities and Exchange Commission (SEC) and its allies in the Biden administration have been fighting to halt it in its tracks, arguing that the SEC is “the cop on the beat” and already has full authority over digital assets. But after years of legal wrangling, this game of regulatory domination is now hitting a wall in the courts, leaving SEC Chairman Gary Gensler increasingly isolated.

Gensler has repeatedly claimed that the SEC’s authority over what he calls “digital asset securities” is total, that the rules are “clear,” and that every crypto company is non-compliant. But when pressed before Congress to explain those rules, he can’t answer the most basic questions. Gensler has further told companies they have to register their products or digital tokens, but he and the SEC staff are incapable of explaining the process when asked. Court filings by crypto companies show ample evidence of years of frantic attempts by companies to “come in” and understand how to comply with these allegedly clear rules to little avail.

Read former member of Congress, Todd Tiahrt’s piece here: RealClear Policy

How Ripple Execs’ Grit & Litigation Forced SEC To Back Down

By Aislinn Keely. (Law360). October 27, 2023.

The U.S. Securities and Exchange Commission called off a looming trial against executives of blockchain firm Ripple this month after counsel at Cleary and Paul Weiss made clear their clients were eager to have their day in court and intended to force the SEC to face a record of evidence that didn’t support the claim the defendants knowingly violated securities laws when they sold Ripple’s crypto token.

It’s rare for the SEC to drop a case once it has brought a complaint, and the regulator made headlines when it did just that, dismissing claims that Ripple co-founder Christian Larsen and company CEO Brad Garlinghouse “aided and abetted” sales of Ripple’s digital token XRP to institutions.

Martin Flumenbaum of Paul Weiss Rifkind Wharton & Garrison LLP, who represented Larsen, called the Oct. 19 dismissal an “unprecedented victory.”

Read more on the unprecedented victory here: Law360

National Security In Question: SEC’s Crypto Approach Sparks Concern in Congress

By Elena R. (CoinPedia). October 25, 2023.

In a recent interview, Ron Hammond of the Blockchain Association shed light on the bustling crypto-related developments in Washington, D.C. Hammond highlighted two significant hearings this week, one involving the Securities and Exchange Commission (SEC) and the other addressing digital assets more broadly.

Speaking to Thinking Crypto, Hammond emphasized a central concern shared by several members of Congress – the SEC’s approach to cryptocurrency and private equity. Recent rules implemented by the SEC have stirred industry-wide concerns, leading to an increased focus on these issues within the Financial Services Committee. Patrick McHenry, the committee’s leader, has been a vocal opponent of the SEC’s stance.

The National Security Subcommittee is set to host another critical hearing, with the primary focus being on the funding mechanisms employed by Hamas for their activities. The objective is to investigate the sources of these funds and whether cryptocurrencies play a role in supporting their actions. Given the pressing nature of national security, this issue has raised concern among policymakers from both sides of the aisle.

Read the full article, with Ron Hammond’s interview included, here: CoinPedia

In Landmark SEC Surrender, Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen Are Cleared Of All Baseless Allegations

Business Wire. October 19, 2023.

Ripple, the leader in enterprise blockchain and crypto solutions, announced today that CEO Brad Garlinghouse and Executive Chairman Chris Larsen were cleared of all claims brought against them by the U.S. Securities and Exchange Commission (SEC). The SEC voted to dismiss charges with prejudice – a stunning capitulation by the government.

This victory is the third consecutive triumph for Garlinghouse, Larsen, and Ripple, coming on the heels of the July 2023 ruling that declared “XRP is not, in and of itself a security” and a subsequent October decision to deny the SEC’s request for an interlocutory appeal.

“For nearly three years, Chris and I have been the subject of baseless allegations from a rogue regulator with a political agenda,” said Ripple CEO Brad Garlinghouse. “Instead of looking for the criminals stealing customer funds on offshore exchanges that were courting political favor, the SEC went after the good guys – along with our entire company of innovators and entrepreneurs – who are building a regulated business based in the U.S. We look forward to the day this chapter is closed once and for all, now that the SEC has dropped the curtain on their absurd theatrics against Chris and me.”

Read the full article here.

Drama in U.S. Congress over Speaker of the House leaves crypto legislation on pause

By Sarah Wynn. (The Block). October 12, 2023.

The race between Rep. Steve Scalise, R-La., and Jim Jordan, R-Ohio, is tight, as House Republicans gather on Thursday to see if there could be enough votes for Scalise. 

Prospects for a more permanent U.S. House speaker are not looking up, which could kick cryptocurrency legislation further down the road.

The race between Rep. Steve Scalise, R-La., and Jim Jordan, R-Ohio, is tight, as House Republicans gather on Thursday to see if there could be enough votes for Scalise. 

“The general consensus from many folks that we’re talking to is that this does not seem like it’s going to get solved this week,” said Ron Hammond, director of government relations at the Blockchain Association. 

Read the full story from The Block here: “Drama in U.S. Congress over Speaker of the House leaves crypto legislation on pause.”

Crypto Needs Congress, But U.S. Lawmakers Have Opted for Pandemonium

By Jesse Hamilton. (CoinDesk). October 9, 2023.

Without the U.S. Congress outlining a clear system of rules, the crypto industry fears it’ll be relegated as a volatile financial backwater. But Capitol Hill is beset by drama, including a U.S. House of Representatives that fired its speaker and a budget debate that could derail the federal government.

Two crypto bills are carrying a lot of the sector’s hopes, because they’ve made it further than any legislation to date: one House bill that would establish rules for digital assets markets and another that would set up regulations for issuing and trading stablecoins in the U.S. Until now, Crypto lobbyists thought that both pieces of legislation had a shot to reach the House floor in November.

The problems: Nov. 17 is the new deadline for a government shutdown, unless Congress can agree to a spending plan it wasn’t able to execute last month. And one of the top voices in that negotiation is the speaker of the House. Republicans dumped the speaker, Rep. Kevin McCarthy (R-Calif.), in an unprecedented fashion and are yet to pick a new one.

Read the full piece from CoinDesk here: “Crypto Needs Congress, But U.S. Lawmakers Have Opted for Pandemonium.”

Crypto Has ‘No Innate or Inherent Value’, SEC Argues in Coinbase Case

By Nicholas Morgan. (Decrypt). October 8, 2023.

The Securities and Exchange Commission is arguing that cryptocurrencies lack any “innate or inherent value” as part of their case against Coinbase in federal court—prompting eye rolls from Coinbase and crypto watchers.

In response to a motion to throw out the agency’s lawsuit filed over the summer, the SEC petitioned a judge to reject Coinbase’s stance that cryptocurrency trading does not count as an investment contract between parties. It justified its position by repeating its position that federal securities laws are designed to be interpreted flexibly through the legal doctrine known as the “Howey Test.”

Read the full piece from Decrypt here: “Crypto Has ‘No Innate or Inherent Value’, SEC Argues in Coinbase Case