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.

Read the full article here.

The FTX Scandal: Accountability and Regulatory Clarity Are What We Need Now

By John E Deaton

I started CryptoLaw to provide everyday investors with a “clearinghouse of information, news and analysis on key U.S. legal and regulatory developments for digital asset holders”. After the massive fraud at FTX was exposed, something that unfolded right under the nose of the Securities and Exchange Commission (SEC), I am only more passionate about continuing this work for the digital asset holders.

It still seems that we don’t have anyone protecting us. Now more than ever we need to press Congress to hold bad actors and government agencies accountable for what they’ve done and what they failed to do.

Sam Bankman-Fried defrauded millions of customers and investors of billions of dollars while he was the toast of Washington. SEC Chairman Gary Gensler has been claiming “the rules are clear” on crypto and that his agency has the authority to regulate the whole space. He said FTX should have been registered, and that would have somehow prevented this from happening. But when lawmakers from his own political party ask him what compliance and registration actually means, they get no answers, only more talking points.

Gensler repeats over and over that for retail holders and investors, like those defrauded by Bankman-Fried, the solution is for exchanges to “come in and register” but the details end there. If Gensler is telling the truth that the “rules are clear”, then he failed miserably at enforcing them. His Enforcement Division has spent much of its resources suing Ripple and LBRY in long, non-fraud cases that failed to protect a single investor while the FTX fraud was happening right under its nose.

Through the “decentralized justice” of hundreds of digital asset holders investigating government documents, we learned that Gensler and the SEC met with Bankman-Fried at least three times. Good journalists and Congressional offices took that information and discovered that the subject of those meetings was a regulatory deal that would recognize FTX as a sanctioned crypto exchange. Gensler refuses to answer questions or release notes and documents from those meetings that will clarify what was discussed, or why the fraud was never detected.

Bankman-Fried is a fraud. He’s been arrested and will face prosecution and likely a long prison sentence. But that’s only part of what went wrong here. The SEC’s mission statement is “to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.”. In this instance, and in the crypto overall, Chairman Gensler and the SEC failed on every point.

Accountability and regulatory clarity are the two most important things that we need now. The bipartisan hearing of the House Financial Services Committee on December 13 was a positive step forward, where it seemed most of the committee members agreed that they have to step in and write the rules that Gensler has refused to produce. The also promised to investigate Gensler’s repeated misfires and distractions that do little or nothing to protect anyone. Those lawmakers need our support, collaboration and pressure to get it done.

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.

Read the full article here.

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.

(Read the full article)

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.

Crypto lobby groups say they’re fighting ‘unworkable’ crypto reporting language in infrastructure bill

By Michael McSweeney. July 29, 2021. (The Block Crypto).

Crypto-related language said to be contained in a still-in-flux bipartisan infrastructure spending bill has spurred activity lobby groups in Washington, D.C. 

On Thursday, the Blockchain Association derided the proposed spending package as one that “threatens crypto innovation.” As previously reported, one of the bills “pay-fors” is tightened tax reporting requirements for crypto companies, which are estimated to raise some $28 billion to be used to fund infrastructure projects over a period of years.

But the controversy centers around which types of crypto companies would be considered “brokers” under the proposed changes, based on drafted language obtained this week by CoinDesk’s Nik De. The prevailing concern is that miners, decentralized finance startups and others not involved in the actual brokerage of digital assets will be hit with overly heightened compliance burdens. According to a fact sheet reviewed by The Block, the language “[updates] the definition of broker to reflect the realities of how digital assets are acquired and traded.”

Read the Full Article Here.

Beyer Introduces New Legislation to Regulate Digital Assets

By Rep. Don Beyer (D, VA-8). July 28, 2021. Rep. Don Beyer (D-VA) today introduced the Digital Asset Market Structure and Investor Protection Act, legislation that would protect consumers and promote innovation by incorporating digital assets into existing financial regulatory structures.

“Innovation in the digital asset sector is creating new goods and services every day as well as many new, high-quality jobs. The United States should provide a legal and regulatory environment which promotes this type of innovation and growth,” said Rep. Beyer. “Digital assets and blockchain technology hold great promise, and it is clear that assets like Bitcoin and Ether are here to stay. Unfortunately, the current digital asset market structure and regulatory framework is ambiguous and dangerous for investors and consumers. Digital asset holders have been subjected to rampant fraud, theft, and market manipulation for years, yet Congress has hitherto ignored the entreaties of industry experts and federal regulators to create a comprehensive legal framework. Our laws are behind the times, and my bill would start the long overdue process of updating them to give digital asset holders and investors basic protections.”

Since the introduction of Bitcoin in late 2008 digital assets have evolved from technological curiosities into financial instruments used by millions of ordinary Americans. Today there are over 11,000 separate digital asset tokens in existence, with a market capitalization of over $1.5 trillion.  An estimated 20-46 million Americans own Bitcoin and other digital assets, and that number is expected to grow. Many of these digital asset market participants, who are primarily average Americans rather than large institutional investors, have been victims of theft during trading platform hacks, or been exposed to significant market manipulation or frauds such as ponzi schemes.

Digital assets have also been widely used for money laundering and other illicit purposes. For instance, in May 2021, the Colonial Pipeline, which provides gasoline to much of the eastern United States, had its computer system hacked and was forced to pay a $4.4 million ransom in Bitcoin, which is the preferred currency for ransomware attacks.

Read Rep. Beyer’s Full Statement Here.