The Crypto Security Debate Goes to Court

By Paul Kiernan. May 26, 2022. (Wall Street Journal)

WASHINGTON—Investors are asking the courts to decide an existential question for the cryptocurrency industry: whether digital tokens are, for legal purposes, more similar to stocks or to gold.

Attorneys for cryptocurrency-trading platform Coinbase Global Inc. COIN 9.47% filed a motion this month to dismiss a class-action lawsuit arguing that 79 of the tokens listed on the firm’s platform are unregistered securities. 

The group of Coinbase users is demanding reimbursement for trading fees and market losses and seeking to prevent the assets from continuing to trade on the platform. 

Outside of enforcement actions, the Securities and Exchange Commission hasn’t indicated which cryptocurrencies it considers to be securities. But federal statutes passed in the 1930s deputize ordinary investors to help the SEC do its job, by giving buyers of unregistered securities the right to sue the seller for their money back. 

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SEC Can’t Shield Ex-Official’s Speech Drafts, Ripple Says

By Elise Hansen. May 16, 2022. (Law360)

The U.S. Securities and Exchange Commission can’t use attorney-client privilege to shield early drafts of former official Bill Hinman’s speech about cryptocurrencies, since Hinman gave the speech in his personal capacity, Ripple Labs told a New York federal court.

Attorney-client privilege doesn’t cover communications about Hinman’s personal remarks, and Hinman can’t be considered a “client” of the SEC’s attorneys for activities outside his official duties, Ripple and its executives argued Friday.

The letter was the latest shot in the discovery battle between the SEC and Ripple after the agency accused the blockchain-based payments company and its executives of violating federal securities laws in their sales of Ripple’s signature digital asset, XRP.

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Former SEC director Hinman made millions from a pro-Ethereum firm during tenure

By Protos Staff. May 13, 2022. (Protos)

A Freedom of Information Act (FOIA) request by a whistleblower has revealed former Securities and Exchange Commission (SEC) director William Hinman was receiving millions of dollars in retirement benefits from a pro-Ethereum law firm during his tenure.

Hinman worked as the SEC’s corporate finance division chief from mid-2017 to late-2020. In June 2018, Hinman famously stated, “The Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions,” (our emphasis).

However, information obtained by Empower Oversight Whistleblowers & Research shows Hinman was receiving substantial retirement benefits from his previous employer at the time of his statement. Law firm Simpson Thatcher & Bartlett is a member of the Enterprise Ethereum Alliance, a group that supports Ethereum projects. Hinman returned to the entity after his time at the SEC, serving as a senior advisor.

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SEC Asked To Probe Ex-Official’s Crypto Statements

By Al Barbarino. May 10, 2022. (Law360)

A nonprofit watchdog asked the U.S. Securities and Exchange Commission to investigate its former corporate finance head, Bill Hinman, now a Simpson Thacher & Bartlett LLP senior adviser, claiming statements he made about cryptocurrencies while at the agency may have presented a conflict of interest. 

Empower Oversight Whistleblowers & Research claims Hinman didn’t follow instructions that the SEC’s ethics office gave him to avoid conflicts tied to his financial interests in Simpson Thacher, including the firm’s connection to the Enterprise Ethereum Alliance, or EEA, according to a letter the group sent Monday to the SEC’s Office of the Inspector General.

“Directives without compliance monitoring and sanctions for noncompliance are not meaningful; they are window dressings,” said Jason Foster, president of Empower Oversight, in an announcement about the letter.

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Empower Oversight Requests SEC-OIG Conduct Investigation into the Failure of the SEC’s Ethics Office to Prevent Cryptocurrency Conflicts of Interest by Senior Staff

By Empowr Oversight. May 10, 2022. (Empowr)

WASHINGTON — Empower Oversight sent a letter to the Office of the Inspector General of the Securities and Exchange Commission (SEC-OIG) requesting a comprehensive review of the SEC’s ethics officials to properly manage SEC official William Hinman’s potential conflict of interest regarding cryptocurrency issues. The letter describes in detail instructions that the SEC’s Ethics Office provided to Mr. Hinman and actions by Mr. Hinman that are inconsistent with the instructions.

Specifically, records that were disclosed to Empower Oversight in response to an August 12, 2021, FOIA request show that the SEC’s Ethics Office cautioned Mr. Hinman that he had a direct financial interest in his former law firm, Simpson Thacher, and thus, he needed to recuse himself from any matters that would affect the firm; and, lest he may have misunderstood its position, the Ethics Office explicitly told him not to have any contact with Simpson Thacher personnel. Further, the Ethics Office provided Mr. Hinman with a draft memorandum, which was to be issued under his name, that established a screening arrangement to ensure that he complied with his obligation to recuse himself from certain matters with which he had a financial interest, or a personal or business relationship.

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She’s not your ‘Crypto Mom’: Hester Peirce’s fight with the SEC

By Benjamin Pimentel. May 9, 2022. (Protocol)

SEC Commissioner Hester Peirce is celebrated in memes as “Crypto Mom.” She’s considered crypto’s staunchest ally on a regulatory body that’s become the industry’s nemesis.

It’s an off-target moniker and a flawed portrait, Peirce said.

“It’s kind of funny because I don’t have children,” she told Protocol in a wide-ranging interview. She denies being an advocate for the crypto industry and thinks it’s a bad idea for people to think of the government “in parental terms.”

But Peirce is sympathetic to the crypto industry’s key complaint about the SEC: that under Chair Gary Gensler the agency has failed to offer adequate guidance to the industry on the regulations that apply to cryptocurrencies and digital assets.

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The Ripple-SEC legal brawl could be a game-changer for crypto

By Benjamin Pinmentel. May 1, 2022. (Protocol)

It’s been more than a year since the SEC stunned the technology world by suing Ripple, kicking off what has become the most closely watched legal battle in crypto.

The case, in which the SEC accused the crypto powerhouse of violating securities laws, has morphed into a protracted brawl, with the future of crypto regulation potentially at stake.

The battle will likely drag on into next year after Ripple and the SEC agreed on a schedule for the next phase of the case: Filings and hearings on motions for summary judgment will extend to December. At that point, a federal judge will either decide the case or have it go to trial.

“It now looks like a resolution will come in 2023,” Ripple general counsel Stuart Alderoty said in a tweet.

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Crypto industry would get its preferred regulator under new bill

By Tory Newmeyer. April 28, 2022. (Washington Post)

As Washington policymakers wrangle over how to oversee cryptocurrency, a new bipartisan proposal would give the rapidly expanding sector a victory by handing authority to the Commodity Futures Trading Commission (CFTC), seen by the industry as a more benevolent regulator.

The bill — introduced Thursday by Republican Reps. Glenn Thompson (Pa.) and Tom Emmer (Minn.) and Democratic Reps. Ro Khanna (Calif.) and Darren Soto (Fla.) — would allow crypto trading platforms to register with the CFTC.

Crypto interests have been pressing for months to empower the relatively small agency tasked with regulating financial derivatives to oversee digital assets.They view it as a friendlier option than the Securities and Exchange Commission, where Chair Gary Gensler has described the crypto industry as rife with scams and pursued aggressive enforcement cases.

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Cryptocurrency Firms Push Back Against Proposal to Police Treasury Markets

By Paul Kiernan. April 27, 2022. (Wall Street Journal)

WASHINGTON—A Securities and Exchange Commission proposal intended to make Treasury markets more resilient has sparked a backlash from cryptocurrency companies, which say it could increase legal risks for so-called decentralized finance, or DeFi, platforms.

The rule, proposed by the SEC in January, would expand the agency’s definition of an exchange to include a broader array of communication systems that enable prospective buyers and sellers of securities to find each other. Such entities would have to register with the SEC either as exchanges akin to the New York Stock Exchange, or as a category of broker-dealers called alternative trading systems, or ATSs, which perform exchange-like functions but face lighter regulations.

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What McHenry Has Planned for the Gavel

By Kate Davidson and Aubree Eliza Weaver. April 26, 2022. (Politico)

McHENRY PLANTING FLAGS — North Carolina Republican Patrick McHenry, who has decided to seek a turn as chair of the Financial Services Committee should the GOP win the House, has already started to put down markers on pressing policy questions that would be in front of the panel next year.

Key among them: what to do about cryptocurrency regulation.

Earlier this month, he also released a report calling for legislation in line with the 2012 JOBS Act, bipartisan legislation signed by then-President Barack Obama that eased rules for companies seeking to raise money in the stock market.

McHenry’s previous role in House GOP leadership, where he served as chief deputy whip, had prompted speculation that he might return to a leadership position rather than pursue the committee chairmanship, our Zachary Warmbrodt reported. With Republicans favored to take back the House, McHenry’s choice will begin to give committee watchers a clearer outlook of the panel’s agenda for the next few years.

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