The SEC Came to Destroy Crypto, Not to Regulate It

By Roslyn Layton. (DC Journal). April 3, 2024.

Following the Securities and Exchange Commission’s effort to stretch, bend and twist the law to grant itself authority to regulate cryptocurrencies has been like watching an exhausting video game. By the last level, the monster has grown so grotesque and ridiculous that you’re just waiting for the relief of seeing it explode so the comforting words “game over” can finally appear.

Unfortunately, it’s not a game for many innovative U.S. Financial Tech companies. The SEC has mobilized all its resources to carry out a policy against crypto companies that is not designed to protect investors from fraud or even to clarify what legal compliance means. It is practicing what professor J.W. Verret of George Mason University has called “enforcement by destruction,” trying to turn courts into execution chambers for an industry it never intended to regulate but to destroy.

It comes down to a bait-and-switch strategy by two successive SEC chairmen to claim that every digital asset, no matter how it is designed, is itself a “crypto asset security,” and that gives the agency full authority to require they be registered like stocks. Nothing in nearly a century of securities law provides the SEC such all-encompassing authority over an entire asset class. But the SEC’s strategy was never to prove this theory in court so much as to have a pretext to launch enforcement actions never meant to bring anyone into compliance.

Read the full piece here: DC Journal

Government’s Attack Vectors

By Kristi Warner

The government’s approach to remedies and bitcoin mining are similar examples of agencies utilizing tools at their disposal to attack the crypto industry. 

Remedies

In July 2023, the SEC lost in the Ripple case on the main legal theories – Judge Torres ruled that secondary market sales were not sales of unregistered securities and XRP itself is not a security. 

Individual XRP holders got their resolution.

Now the case is really at a point where institutional sales and remedies are the focus. The SEC utilizes remedies and reliefs in many cases, and the type of remedies asked for typically varies based on the type of litigation. 

In the Ripple case, the SEC after losing on the legal theories, and vindicating the two executives still wants the company to pay a lot of money in remedies so they can hold the company “accountable”, and right any wrongdoing. 

The irony is that the people the SEC are supposed to be protecting (you and me) were not harmed by any of Ripple’s actions. Instead, it was the SEC’s action that resulted in restricted access, delistings and actual harm to us. 

That is because the SEC has weaponized its authority in an attempt to destroy innovation. Thankfully what we have been seeing in a lot of the cases are ourts keeping the SEC in check. 

The American Government was designed to be a system with checks and balances between the three branches. 

So while I agree we can look beyond the SEC v. Ripple case, I still think lawsuits in general are important to pay attention to as they are key to keeping the government agencies accountable and allow the industry to fight back. 

Bitcoin Mining

Another recent example of this is the RIOT Platforms and Texas Blockchain Council suit against the Biden Administration in a Texas court

The backstory is the U.S. Dept. of Energy had decided to conduct an “emergency” survey of the energy use by crypto miners based on its own unwarranted assertion that mining is a threat to the power grid. Allegedly the agency threatened companies with criminal fines and civil penalties if they did not answer the survey. The survey was requested without proper procedure established by law including public notice and comment requirements.

Once again we’re faced with a government agency trying to sidestep the law and bully crypto companies into submission by misusing tools at their disposal.

Solution

How can we combat that? 

In today’s world one solution to maintain the system of checks and balances is heading to Court. That’s what RIOT and Texas Blockchain did and while it was not the exact relief they were seeking, the lawsuit forced the government to halt their survey and destroy the sensitive and confidential information they had already acquired through the survey. 

Same with Ripple – they exposed government overreach by fighting back against the SEC in court. 

These are both huge blows to the government’s war on crypto because when these agencies are committing government overreach, the courts are putting that power in check and forcing them to follow the law. 

Watch the full livecast here: https://www.youtube.com/watch?v=eQxoBShe2CI&t=2s

Gary Gensler’s Blundering SEC Mirrors Biden’s Incompetence

By Gerard Scimeca. (RealClear Markets). March 6, 2024.

Touting historically low approval ratings rivaling that of paper cuts and hay fever, one might think Joe Biden and his handlers cared enough about voter sentiment to address the more problematic areas of his administration serving to inflame his unpopularity. 

An obvious place to start would be to cut bait with the capricious, reckless, and rogue Chairman at the Securities and Exchange Commission (SEC), Gary Gensler. That Biden has yet to remove the haughty Gensler is an affirmation of all that is wrong with his presidency and the SEC itself, whose continued bungling has drawn the ire of millions of American investors. 

After 10 years of denials, last month the SEC approved a number of spot Bitcoin exchange-traded funds (ETFs), even as Gensler himself continued to denounce them. While the occasion represents a watershed moment for digital assets in the U.S., the approval was given grudgingly by a Commission boxed into a legal corner.

Read more here: RealClear Markets

To Restore the SEC’s Credibility, Appoint a New Chair

By Rep. Todd Tiahrt. (RealClear Policy). February 21, 2024.

Economic uncertainty is one of the top issues facing the country today. Many Americans have been forced to rethink their spending habits while concerns about job stability and fluctuating market conditions are leading families to focus more on savings and debt reduction as they prepare for potential financial challenges ahead.  

To guide the United States through this tumultuous period, it is crucial to have trustworthy and reliable regulators who can stabilize markets during a crisis and who will collaborate with American businesses throughout such instability. That is why it is difficult to comprehend why Gary Gensler remains President Joe Biden’s chair of the Securities and Exchange Commission (SEC). It is even a puzzle why President Biden selected him in the first place.

After a scandal-tinged tenure as President Barack Obama’s chairman of the Commodity Futures Trading Commission (CFTC), Gensler has led a series of gaffe-prone crusades against American companies as SEC Chairman with embarrassing results. A recent study found that most of the flurry of proposed and finalized rules under Gensler was not tied to any authority granted to the SEC by Congress. He has mostly freelanced, letting politics and press releases guide his actions rather than the letter of the law.

Read more here: RealClear Policy

Is Cryptocurrency Like Stocks and Bonds? Courts Move Closer to an Answer.

By Matthew Goldstein and David Yaffe-Bellany. (The New York Times). January 26, 2024.

For more than a decade, the pioneers of the cryptocurrency industry envisioned digital coins as an alternate branch of finance, a renegade sector that would operate outside the reach of big banks and government regulators.

But as digital currencies like Bitcoin and Ether became more mainstream, the crypto industry collided with a 1946 Supreme Court decision that created what is known as the Howey Test, a legal analysis that determines when a financial product becomes subject to the same strict rules as stocks and bonds.

In recent years, regulators have seized on that legal precedent to argue that cryptocurrencies are just another security, like shares of Apple or General Motors. The crypto industry has fought back, leaving it in a legal gray zone with an uncertain future in the United States.

Now the long-running dispute is edging closer to a resolution, as federal judges begin weighing in on a series of lawsuits by the nation’s top securities regulator against some of the largest crypto firms. This month, judges held hearings in two of the most consequential cases, which could dictate whether the multitrillion-dollar crypto industry can continue growing in the United States.

Read more here: The New York Times.

Stop Ignoring the SEC’s Malfeasance on Crypto

By Roslyn Layton. (RealClear Policy). December 14, 2023.

Securities and Exchange Commission (SEC) Chairmen of both parties, Jay Clayton and Gary Gensler, have asserted regulatory power over digital assets and blockchain. They pursued a ruinous “regulation by enforcement” policy to punish innovators like Ripple, LBRY, Grayscale and Coinbase, while they coddled criminals like Sam Bankman-Fried.  Courts have pushed back, but only in those cases where litigants have the resources to fight the SEC, but there is no recourse for victim companies or individuals. The SEC is still immune to civil liability (what US House Rep. Todd Tiahrt calls “appalling bad faith”). Only Congress or the White House can stop the SEC’s illegal runaway regulatory train.

Publicly available evidence points to rampant conflicts of interest and ethical questions around senior SEC officials. Clayton and former Director of Corporation Finance William Hinman were revealed to have financial incentives to favor Ethereum over the rival network XRP, and the two officials moved to give the former a regulatory pass and file a blockbuster lawsuit against the latter on Clayton’s final day in office (Full disclosure: I filed a legal motion to compel the release of some of those documents which exposed Hinman’s conflicts.) 

Read more here: RealClear Policy.

A Sound Template for Crypto Regulation

By J.W. Verret. (DC Journal). December 11, 2023.

The last few months have seen a seismic shift in the crypto industry, putting the Securities and Exchange Commission squarely in the hot seat. The agency seems to have taken the wrong regulatory approach at every possible juncture: cozying up to fraudster Sam Bankman-Fried while excoriating crypto innovators and companies that seek to do business lawfully in the United States.

We’ve seen in the cases of SEC v. LBRYSEC v. RippleGrayscale v. SEC and others that the commission’s overriding desire to protect entrenched political interests instead of consumers facilitated the demise of well-intentioned companies, the loss of hundreds of millions of dollars in consumers’ wealth and massive fraud going unchecked, like at FTX.

The courts have attempted to right the ship, pushing back on the SEC’s “arbitrary and capricious” rejection of its Bitcoin ETF and issuing a legally sound victory for Ripple on core legal questions in the SEC’s lawsuit against the payments company. In fact, the Ripple decision from Judge Analisa Torres of the Southern District of New York could be considered a roadmap for other crypto companies because she carefully laid out how and why the facts and circumstances of cryptocurrency offers and sales matter under existing securities law.

At its heart, this “Ripple roadmap” recognizes the nuances of how unique digital assets and their trading can be while still applying existing securities law dating back to the 1946 U.S. v. Howey decision, where the Supreme Court defined what makes a security.

Read the full piece here: D.C. Journal

Brad Garlinghouse Is 2023’s Comeback King With XRP’s Win Over SEC

By Jeff Wilser. (CoinDesk) December 5, 2023.

On a rainy Friday night in September, a crowd of thousands filed into Hammerstein Ballroom, the legendary New York concert venue. It’s a place that has hosted the Grateful Dead, Jane’s Addiction and everyone from David Bowie to Taylor Swift.

But the crowd wasn’t here for Taylor Swift. They were here for something far more important. They came for “The Proper Party.” The party’s raison d’être? Months earlier, the CEO of Ripple, Brad Garlinghouse, had promised that if they emerged victorious from the SEC’s lawsuit, he would throw a “proper party” to honor and thank the XRP community.

Again, the crowd roared. Garlinghouse pointed to a tall, bald, muscular, goateed lawyer, John Deaton, who in many ways embodies the heart and soul and brains of the XRP Army.

Deaton raised a fist in solidarity. Pumped the fist. The crowd cheered like he’s a rock star, and to them he is. It was Deaton (with the help of XRP champions like Brad Kimes and “Digital Asset Investor“) who rallied the XRP community to petition the judge that, actually, they were buying XRP (not Ripple) and had never even heard of Ripple, thus (they argue) weakening the SEC’s argument. We’ll never know to what extent this factored in Judge Torres’ decision, but it’s possible that the XRP community saved the day.

So you could make the case that this 2023 Most Influential award should be given not just to Garlinghouse, but also the entire XRP Army.

Read the full article here: CoinDesk

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.

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.