Crypto Goes to Washington

By Molly Ball. October 3, 2022. (TIME).

To the untrained ear, Hester Peirce’s comment sounded anodyne, but everyone in the audience knew what she was doing: selling out her boss. “It’s fairly clear,” the U.S. Securities and Exchange commissioner said from the Washington conference stage, “that we’ve been taking an enforcement-first approach in an area where we should be taking a regulatory-first approach. I think we’ve got the balance wrong right now.”

Peirce was speaking at the D.C. Blockchain Summit in May, to an audience of the cryptocurrency faithful. Outside the auditorium, geeks, lobbyists and investors mingled in a cavernous converted warehouse. “Trust is non-fungible,” read a banner for the accounting firm Deloitte, hung from a balcony where the company was sponsoring a lavish spread of snacks. Most attendees were done up in D.C. drag—conservative suits and dresses, more boardroom than Burning Man.

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Calendar of former official provides insight into SEC regulatory intent, Satoshi stumble

By Eleanor Terrett , Charlie Gasparino. September 29, 2022. (Fox Business)

The meeting schedule of a former official of the Securities and Exchange Commission provides a detailed roadmap into the agency’s thinking as it began to weigh how best to reign in the burgeoning digital-asset business, but it could also buttress the growing sentiment that Wall Street’s top cop unfairly targeted a leading crypto outfit in its crackdown.

The itinerary of former SEC Director of Corporation Finance William Hinman hasn’t been reported before, and it shows the SEC casting a wide net in seeking advice from key crypto officials, including the person they thought was crypto’s founding father, the elusive Satoshi Nakamoto, FOX Business has learned.

From 2017 through 2020, Hinman was at the center of the agency’s crypto regulation efforts under former SEC chair and Trump appointee Jay Clayton. During those years, the commission began to navigate its regulatory authority over the business, which was growing exponentially and posing problems for government officials worried the anonymous nature of the blockchain would finance illicit activities. 

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Ripple vs. SEC: 189 Page Hinman Calendar Revealed Covering His Entire Tenure

By Lele Jima. September 28, 2022. (The Crypto Basic)

Eleanor Terrett, a Fox Business journalist, shared some interesting information about the public calendar of SEC’s Bill Hinman, covering his entire tenure at the commission. 

“I have received a copy of Bill Hinman’s public calendar covering his entire tenure while at the @SECGov,” Terrett said.  

Some of the interesting details of Hinman’s public calendar include a series of meetings he had with Ethereum-related officials.

Hinman’s Meetings with Ethereum

According to Terrett, in the first two years of Hinman’s time in office, four meetings were scheduled with Ethereum blockchain software company ConsenSys and other officials related to the leading blockchain project.

On March 29, 2018, at 12:30 PM, Hinman had a scheduled meeting with ConsenSys and Amy Starr, an official of the SEC Corporation Finance.

A week later, the former SEC Corporation Finance director had a scheduled meeting with the title “ETH.” Another meeting dubbed “Ether” was also scheduled for Hinman on April 12, 2018, at 4:30 AM. On April 23, 2018, at 5 PM, Hinman had a scheduled meeting with Ethereum co-founder Joseph Lubin.

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The SEC’s Reckless Crusade to Crush the Cryptocurrency Market

By Gerard Scimeca. September 26, 2022. (Real Clear Markets)

The laws of physics dictate that nature abhors a vacuum, an interesting phenomena considering how many federal regulatory agencies simply love one. Harkening back to the New Deal, it has become accepted that wherever a gap may exist in the regulation of human activity, a federal agency will soon appear, mobilizing its vast and frequently questionable powers to fill the space.

Whether it is the Department of Energy deciding to pull the plug on a popular type of light bulb, or the Environmental Protection Agency dictating the allowable volume of water in toilets, our vast administrative state lurks behind every corner, poised to assert itself within every nook, crevice, and cranny that presents an opportunity for regulatory interference. Last year federal agencies created over 74,000 pages of new rules and regulations to fill the perceived vacuums in our lives, and we are currently on track this year to surpass that tree-crushing total.

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Gensler Says Crypto Treated Just Like The Market; 200 SEC Lawsuits Say Otherwise.

By Roslyn Layton. August 28, 2022. (Forbes)

By law, regulatory agencies should only regulate that which they have authority to regulate. Deference is allowed to some degree, should the agency’s justification be reasonable and ideally evidenced. Notably Congress promulgated the Administrative Procedure Act (APA) in 1946 to guide agency process to publish notice of rulemaking in the Federal Register and provide opportunity for public comment. This standard process seems to have never have happened for crypto assets at the Security and Exchange Commission (SEC). The SEC website does not include an entry for regulation for crypto, either completed or proposed.

In May 2022, the SEC beefed up its Cyber Unit to the Crypto Assets and Cyber Unit, budgeted for 50 dedicated officers and more than doubling the department’s headcount. The unit counts some 200 lawsuits since its founding in 2017, with fraud being the subject in at least 80 investigations. The agency also reports restoration of $2 billion in monetary relief.

No one denies that crypto assets, like any asset or technology, can be used fraudulently. The very features that make crypto assets desirable can also be exploited, including but not limited to ease of startup and use, anonymization, and lack of intermediaries. Plus, some users can undoubtedly be greedy and gullible. It does not help that some have disguised crypto scams as legitimate services.

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Gary Gensler’s gross SEC overreach

By John Deaton. August 21, 2022. (FOX Business).

The Supreme Court may have recently struck down overreach by the Environmental Protection Agency, but at the Securities and Exchange Commission, chairman Gary Gensler remains undeterred in expanding the agency’s power beyond its constitutional boundaries.

For proof, you need no better example than his all-out assault on the cryptocurrency space.

It doesn’t take a constitutional law expert to understand that the SEC has limited jurisdiction over the crypto industry; barring congressional action, front line regulation of digital assets belongs with the Commodity Futures Trading Commission – the main regulator of investments that are not deemed traditional securities.

Read the full article here.

The SEC Treats Crypto Like the Rest of the Capital Markets

By Gary Gensler. August 19, 2022. (Wall Street Journal).

What do car manufacturers have to do with crypto lending platforms? Consumers and investors deserve protection—that’s true of motor vehicles and investment vehicles alike.

In September 1966, President Lyndon B. Johnson signed the National Traffic and Motor Vehicle Safety Act. Nearly six decades later, seat belts and other basic safety features remain standard. That’s true despite many innovations in automotive technology. Whether a car runs on gasoline or electricity, drivers and passengers deserve to be protected.

Similarly, our federal securities laws, which President Franklin D. Roosevelt signed in the depths of the Great Depression, were designed to protect investors. There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.

Recent market events show why it is critical that crypto firms comply with securities laws. In recent months, some crypto lending platforms have frozen their investors’ accounts or gone bankrupt. When it comes to bankruptcy, these investors have to get in line at the court.

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What the Supreme Court’s EPA ruling could mean for crypto

By Sam Sutton. August 15, 2022. (Politico)

The crypto industry can prod Washington regulators for tailored rules and regulations all it wants. It won’t be on terra firma until there’s a digital asset law on the books.

That’s the lesson crypto and Web3 lobbyists should be taking from a Supreme Court ruling that stripped the Environmental Protection Agency’s ability to regulate greenhouse gas-spewing power plants under the 52-year-old Clean Air Act, says Tomicah Tillemann, a former State Department official who’s the chief policy officer at Haun Ventures.

The June 30 decision has been interpreted as a rebuke to federal agencies that have developed new rules for industry without getting an explicit green light from Congress. With the SEC seeking to regulate the crypto exchanges and Web3 startups through wide-reaching securities laws, Tillemann — whose firm is a major investor in digital asset businesses — is contending that the crypto lobby needs to direct its efforts toward securing the passage of digital asset legislation.

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For Clarity on Cryptocurrency, Look to Congress or the Supreme Court

By Curt Levey. August 1, 2022. (The Federalist Society)

With the rapid growth of cryptocurrencies have come increasing calls for its regulation and both uncertainty and overreach concerning the applicability of existing rules. If Congress doesn’t address the regulatory confusion, that job may fall to the Supreme Court.

Most of the attention has focused on the Securities and Exchange Commission, which has sued a number of companies in the cryptocurrency field, citing its authority to regulate securities under the 1933 Securities Act and the 1934 Securities Exchange Act. But that’s quite a stretch. Unsurprisingly, those 90-year-old statutes did not include anything like crypto—that is, digital assets existing only on a decentralized ledger (the “blockchain”) that’s distributed across disparate computers—in their definition of a security.

Instead, the Acts defined a “security” by listing well-understood examples, such as “stock” and “bond,” then adding a catch-all term, “investment contract.” Because cryptocurrency is not among the examples, the SEC argues that crypto is sometimes an investment contract.

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1 big thing: Regulation by enforcement

By Brady Dale and Crystal Kim. July 25, 2022. (Axios).

The Department of Justice yesterday announced the arrests of three people in relation to insider trading on privileged information that belonged to Coinbase, the leading crypto exchange in the U.S. (No doubt, as a reader of this newsletter, you know this already.)

  • But also: The U.S. Securities and Exchange Commission brought a civil suit against the three for insider trading of unregistered securities.
  • There’s lots of subtext, Brady writes.

Driving the news: Nine cryptocurrencies were named as securities in the SEC’s case, out of 25 that Justice and the SEC said were traded using privileged information.

  • More on each in the next section of this newsletter.

Why it matters: What is or isn’t a security (as opposed to a commodity) has been the central question for cryptocurrency companies aiming to operate in compliance with U.S. law and regulation.

  • Securities have onerous rules around who can own and trade them such that they would be of little use in a startup’s product.
  • Blockchain startups would prefer a way to go to market that didn’t amount to saying “YOLO,” launching and waiting to see if they get sued.

Read the full article here.