SEC v. Ripple: Did The Government Fail To Prove Its Case?

By Hassan Tyler. January 19, 2023. (ValueWalk).

The saga for what Forbes has called “ the cryptocurrency trial of the century” looks as if it is about to enter its closing stages. Final briefs on summary judgment were filed in November of last year by the U.S. Securities and Exchange Commission (SEC) and the payments software company Ripple Labs in SEC v. Ripple .

Nearly two years of arguments are now in the hands of Judge Analisa Torres of the Southern District of New York, who is expected to rule sometime in the first quarter of this year.

SEC v. Ripple

The issue revolves around how Ripple uses the XRP token and its decentralized ledger as a tool for its cross-border payments software that it sells to international banks and money transmitters. The company and two of its executives sold large amounts of the token to exchanges starting in 2013, which fed a substantial secondary market for the cryptocurrency and an ecosphere for the XRP Ledger for businesses and individuals without the involvement or permission of Ripple.

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A Question for Congress: Why Didn’t the SEC Stop FTX?

By Hal Scott and John Gulliver. January 18, 2023. (Wall Street Journal).

The Securities and Exchange Commission brought an enforcement action last week against the cryptocurrency brokerages Genesis Global Capital and Gemini Trust. As with the failure of crypto exchange FTX, the SEC is late to the game—likely too late for the 340,000 U.S. customers affected by Genesis’ decision to halt all withdrawals.

Genesis’ financial problems stem from large holdings with FTX, and it is unlikely to be the last crypto firm caught in FTX’s wake. Who is to blame and what can be done to protect U.S. retail investors in crypto?

Rep. Patrick McHenry, the new chairman of the House Financial Services Committee, can answer that question by investigating the SEC’s failure to prevent the FTX disaster. The harm to U.S. investors from the alleged theft of FTX customer assets by Sam Bankman-Fried is likely to be enormous. FTX’s global operations held more than $8 billion in customer assets, and there were 2.7 million U.S. customers of FTX’s U.S. operations alone. FTX customers have had their assets frozen in bankruptcy and now face large losses. They deserve to know why the SEC failed to be the “cop on the beat.”

In 2008, after Bernie Madoff’s Ponzi scheme was revealed, SEC Chairman Christopher Cox promptly initiated an internal investigation into the commission’s failures to uncover the fraud. Gary Gensler, the current chairman, has so far failed to do the same. Madoff’s evasion of applicable SEC regulations was a surprise. FTX’s state of nonregulation was the reddest of flags. Madoff was largely cheating rich sophisticated investors. FTX’s retail investors were left helpless.

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S.E.C. Charges Crypto Companies With Offering Unregistered Securities

By Ephrat Livni. January 12, 2023. (New York Times).

The Securities and Exchange Commission on Thursday charged the cryptocurrency lender Genesis Global Capital and the cryptocurrency exchange Gemini Trust with offering unregistered securities through a program that promised investors high interest on deposits.

The S.E.C. said that Genesis, a subsidiary of Digital Currency Group, and Gemini, which is run by Tyler and Cameron Winklevoss, had raised billions of dollars of assets from hundreds of thousands of investors without registering the program, which was called Gemini Earn.

By doing so, Genesis and Gemini bypassed “disclosure requirements designed to protect investors,” Gary Gensler, the S.E.C. chair, said in a statement. He added that the charges should “make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.”

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SEC Spin Doctors Trying To Hide Crypto Regulation Disaster

By Roslyn Layton. January 8, 2022. (Forbes).

Over the last two U.S. administrations, the U.S. Securities and Exchange Commission (SEC) has promoted an all-encompassing policy of “regulation by enforcement” for U.S.-based digital asset markets like Coinbase and the enterprise blockchain industry that develops fintech solutions like Ethereum, Ripple, Stellar and Circle. Two successive chairmen – Jay Clayton and Gary Gensler – said that every digital asset except bitcoin is a security and should register at the SEC like a stock. The details end there, unless you end up on the wrong side of an SEC lawsuit. The SEC banks on a quick settlement from the parties it charges. Parties which dare to challenge the SEC need financial reserves, superstar lawyers, and years of patience for litigation to play out court. This “enforcement” produces little clarity for the market or protection of investors, which is the ostensible point of the regulatory exercise.

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Where Was Biden’s SEC Sheriff on Sam Bankman-Fried?

By Allysia Finley. December 18, 2022. (Wall Street Journal).

Securities and Exchange Commission Chairman Gary Gensler is trying to spin the FTX blow-up as a cautionary tale about the crypto “wild West.” But where was the SEC sheriff when Sam Bankman-Fried was funneling FTX customers’ funds to his Alameda Research trading house to finance risky bets and a lavish lifestyle?

In September 2021, Mr. Gensler rejected major industry players’ contention that he needed congressional authorization to regulate crypto products. “We have robust authorities at the Securities and Exchange Commission and we’re going to use them,” he told the Washington Post. “We’ll also be the cop on the beat, bringing those enforcement actions.” And the commission has—but not against FTX.

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FTX crypto implosion focuses scrutiny on SEC chief Gensler

By Peter Whoriskey. December 14, 2022. (Washington Post).

The arrest of FTX founder Sam Bankman-Fried this week amid charges of a billion-dollar fraud corroborates long-standing warnings from critics who have likened the cryptocurrency markets to the Wild West. The question is: Where was the sheriff?

Leaders of the Securities and Exchange Commission, the nation’s primary financial regulator, have stated plainly for years that most digital coins are legally obliged to be registered with the government in the same way that stocks and bonds are. Yet only a tiny fraction have: Of an estimated 10,000 crypto tokens, fewer than 10 are registered with the SEC.

Among the exchanges such as FTX where crypto is traded, enforcement is likewise scant. None of the largest exchanges have registered with the SEC, and the agency has not taken legal action to force them to do so. This gap in enforcement means that thousands of entrepreneurs have been allowed to pitch crypto products without being compelled by financial regulators to disclose key information about the risks or even the identities of the people behind them.

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Gary Gensler’s PR stunts can’t hide how he botched crypto regulation

By Jeff John Roberts. December 14, 2022. (Fortune).

The Securities and Exchange Commission sent a statement to reporters early Tuesday—2:10 a.m. ET to be precise—to announce its charges against Sam Bankman-Fried. The timing of the email didn’t make much sense since these sorts of communications typically go out between 6 a.m. and 9 a.m. But it did make sense if you’re familiar with the motives of Gary Gensler, the SEC’s embattled chairman.

It’s only a guess, but the unusual timing of the email was likely an effort to preempt the Justice Department, which had announced it would unveil criminal charges against Bankman-Fried on Tuesday morning. By getting his agency’s complaint out first, Gensler was presumably hoping he could soak up credit on a day when SBF was being brought to justice.

Such behavior is par for the course for Gensler, who in October took the unusual step of making a Twitter video to announce an SEC fine against Kim Kardashian, releasing it early on a Monday morning for maximum publicity. The Kardashian fine involved a relatively minor crypto boondoggle from June of 2021, but it did involve an A-list celebrity, so Gensler was all over it.

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Gensler ‘Singularly Responsible’ for Failing To Expose FTX Fraud, Rep. Says

By Casey Wagner. December 7, 2022. (Blockworks).

A member of the House Committee on Financial Services is calling for the Government Accountability Office, known as Congress’ investigation arm, to look into the SEC and its “failure to protect the investing public” from FTX. 

Rep. Ritchie Torres, D-N.Y., drafted the letter, dated Tuesday. 

“Chair Gensler took the position that the SEC had clear authority to investigate crypto exchanges,” Torres told Blockworks via email.

“When it comes to government failure, the public official singularly responsible for failing to expose the FTX fraud is SEC Chair Gary Gensler.”

Torres also referred to the SEC’s handling of FTX as “egregious mismanagement.” 

“If he had clear authority to do so, why did he fail to uncover the largest crypto Ponzi scheme in history?” Torres added. “It is on Congress to pass laws, but it is on the regulators to apply those laws to conduct investigations, and in the case of Gary Gensler, the regulators failed catastrophically. Chair Gensler has some explaining to do.”

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Ripple, SEC make final bids for a quick win in XRP lawsuit

By Jody Godoy. December 5, 2022. (Reuters).

Ripple and the U.S. Securities and Exchange Commission accused one another of stretching the law, as they argued for a ruling on whether the XRP, the world’s seventh-largest cryptocurrency, is a security.

Both sides urged U.S. District Judge Analisa Torres to rule in their favor without sending the case to trial in papers filed on Friday.

The final round of briefs seeking summary judgment brings the case closer to a ruling that could further define what digital assets are considered securities in the U.S.

The judge could grant either side a win without a trial, or decide to narrow the issues that go before a jury.

Ripple’s founders created XRP in 2012. The SEC sued the San Francisco-based company and its current and former chief executives in December 2020, alleging they have been conducting a $1.3 billion unregistered securities offering since the token’s creation.

Ripple argued in its brief that the SEC was seeking a ruling that XRP was an investment contract, but “without any contract, without any investor rights, and without any issuer obligations.”

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The FTX Fallout Exposes Risky Rigamarole Of Registration

By Roslyn Layton. December 1, 2022. (Forbes)

Following the collapse of FTX, the second largest digital asset exchange in the world, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler repeated sensless talking points about crypto regulation, insisting that SEC rules are “very clear” on crypto and that FTX, like Terra Luna and Celsius before it, failed because they were “not registered”. Even as hundreds of billions of dollars in investor holdings vaporize, and the evidence of staggering fraud at FTX was quickly apparent, Gensler still believes that investor protection in crypto begins and ends with a still-yet-undefined (and maybe impossible) process of registering cryptocurrencies.

Few, if any understand what Gensler is talking about. There is no guide on how a line of code that is used on a decentralized blockchain ledger can be registered as a security, or under what circumstances, or who files the forms, how frequently, or what information needs to be included, or what it is supposed to accomplish. Moreover, instead of publishing those rules that Gensler repeatedly insists are “very clear”, his SEC opts to selectively sue companies and individuals. It has been an expensive, grindingly slow, and messy failure, while the FTXs of the world destroy retail investor wealth – and faith in the crypto marketplace – at an enormous scale and speed.

Read the full article here.