Tag: Jay Clayton

With Washington recommitted to innovation, cryptocurrencies need a congressional fix

Posted on

By Former Rep. George Nethercutt. June 20, 2021. (The Hill).

Congress just achieved a rare bipartisan feat in passing the “Endless Frontier Act” through the Senate. This bold legislative package recommits the U.S. to technological innovation and global leadership in the race against Chinese domination. At the very least, Republicans and Democrats understand that the U.S. must do more to win this fight. However, unless the Biden administration and Congress change their current attention deficit on cryptocurrencies, America’s efforts may be in vain.

Beneath the headlines and outside of the halls of Congress, federal bureaucrats are actively circumventing Congress and using the courts to regulate the U.S. cryptocurrency industry. The total lack of regulatory clarity in the Securities Act is the main culprit and consensus is building. This is especially evident to observers of the Securities and Exchange Commission’s (SEC) December 2020 lawsuit against San Francisco-based enterprise software company Ripple over its distribution of the cryptocurrency XRP.

Read the Full Article Here.

We Need A Ripple Test To Stop The SEC’s Overreach On Cryptocurrency

Posted on

By Roslyn Layton. May 18, 2021. (Forbes).

The regulatory future of cryptocurrency seems destined to be decided by the courts, thanks to an ill-conceived lawsuit filed by the Securities and Exchange Commission. If Ripple’s arguments prevail in the Southern District of New York and on appeal, this case could give the Supreme Court a chance to review the 1946 Howey decision which set a standard for what constitutes a security. 

Courtroom Showdown

I’ve covered the SEC’s case against Ripple Labs case since it was filed by the SEC in December 2020 because it had all the hallmarks of classic enforcement overreach. Ripple and cryptocurrency investors have fought back with robust arguments while the SEC has stumbled and exposed its former leaders’ troubling conflicts of interest. It looks like something bigger than a mere lawsuit. The historical moment adds urgency to resolving whether XRP is a currency or security, a question which financial innovation makes difficult, but also demonstrates the SEC’s abuse of its authority.

The total market cap of all cryptocurrencies, including the XRP digital token at the heart of the Ripple case, tops $2 trillion dollars. The sum of these digital assets is now worth more than the total number of U.S. dollars in circulation. Global companies like Goldman Sachs and PayPal are racing to adopt the technology for consumer products. But more ominously, China has already rolled out a central bank digital currency (CBDC) called the Digital Yuan for domestic commercial and consumer use on a big scale. Mastercard has opened talks to act as a financial bridge for China to expand the Digital Yuan’s global network, export its applications and compete against both cryptocurrencies as the U.S. dollar in the emerging digital economy.

Read the Full Article Here.

Ripple case seen as precedent for cryptocurrency regulation

Posted on

By Keith Lewis. May 4, 2021. (Roll Call)

Cryptocurrency experts are closely watching a legal battle between Ripple Labs Inc. and the Securities and Exchange Commission, anticipating the case could establish precedent and clarify the regulatory landscape for digital coin offerings.

The SEC last year sued the company, CEO Brad Garlinghouse and Executive Chairman Chris Larsen in the U.S. District Court for the Southern District of New York, alleging they should have registered XRP under securities law. Ripple and its executives have asked the court to dismiss the case.

Ripple scored wins in preliminary rulings in the federal court, including gaining access to internal SEC documents and shielding its executives’ personal bank records from discovery. Holders of Ripple’s XRP cryptocurrency at issue in the litigation were also granted permission in April to intervene in the case.

Read the Full Article Here.

Was there corrupt intent at the SEC?

Posted on

By John E. Deaton, Founder and Host of CryptoLaw.

You would think that blatant government corruption and self-dealing was the stuff of a Hollywood movie, but when you peel back the layers of the Ripple case, examine its origins, and review key facts related to some of its central figures at the Securities and Exchange Commission, a larger story emerges that can’t be ignored.

Former Chairman Jay Clayton, ex-Corporation Finance Director William Hinman, and former Enforcement Director Marc Berger took very specific actions while they were in office, related to very specific cryptocurrencies. In parallel, they have very specific financial interests related to cryptocurrencies, which were benefited by those actions, while millions of retail holders of a specific cryptocurrency were directly harmed. 

Those are the indisputable facts, and taken together they point very clearly to something very troubling behind the SEC’s filing of the Ripple case on Clayton’s last day in office. How can we look at these facts and just dismiss the idea of corrupt intent? 

Here is what we know, in detail:

  • Before joining the SEC, we know that both Clayton and Hinman earned massive fees to support Chinese tech giant Alibaba Group carry out its 2014 IPO on the New York Stock Exchange. Alibaba’s Alipay is the largest digital mobile payments platform in the world, and its New York IPO set the stage for China’s intended dominance in global digital payments.
  • By 2016, Chinese-controlled bitcoin miners had moved to control 65% of the bitcoin network hash rate.  Since bitcoin is a proof-of-work token, this gives China control of its network.
  • On May 9, 2017, William Hinman was named the Director of Division of Corporation Finance at the SEC. Upon his appointment to the SEC, Hinman left his post at the law firm Simpson Thacher – which sits on the Enterprise Ethereum Alliance and represents cryptocurrency-related financial interests – but continued to receive millions in financial payments from the firm.  In short, Hinman had a clear financial interest in any regulatory action by the SEC related to cryptocurrencies – while he was serving in a top SEC position!  This was something one former SEC ethics lawyer said was “a little unsettling.” (A little?) 
  • In 2018, Clayton publicly declared bitcoin not a security, sending the price of bitcoin soaring.
  • During a 2018 Yahoo Finance summit in San Francisco, Hinman declared that the Ethereum token, ether, is not a security.  The price of ether skyrocketed.
  • In 2019, Simpson Thacher led Chinese-based crypto mining company Canaan to their IPO. Canaan provides the technology used for mining bitcoin, and is publicly bullish on Bitcoin.  Hinman was still at the SEC when this happened, and still collecting checks from Simpson Thacher.
  • In early November 2020, then-Director of National Intelligence John Ratcliffe wrote Chairman Clayton to express his growing concerns over China’s dominance in crypto and the risk it poses for U.S. national security.
  • On December 4, 2020, Hinman resigned from the SEC.
  • On December 22, 2020 – Clayton’s last day in office – the SEC Enforcement division led by Berger filed its lawsuit against Ripple and its executives alleging that XRP sales over seven years were unregistered securities trades.  The complaint indicates “all sales” were illegal, therefore ensnaring millions of retail XRP holders who have never heard of Ripple but traded the digital currency for years.  The price of XRP plummeted.
  • On January 12, 2021, Acting Enforcement Director Marc Berger announced his resignation from the SEC, departing the agency at the end of the month.
  • As of March 2021, the People’s Bank of China (PBOC) had edged closer to the full-scale launch of their Digital Yuan, releasing millions of dollars of the digital currency in trials.
  • On March 29, 2021, Bloomberg reported that Clayton had accepted a position at One River Asset Management, a digital asset hedge fund focused exclusively on bitcoin and ether.
  • In its case against Ripple, SEC attorneys have been fighting tooth and nail not to adhere to the One River Asset Management subpoena, more than likely in an attempt to keep potentially incriminating evidence about Clayton’s compensation from coming to light.  
  • On April 15, 2021, Bloomberg reported that Berger was joining Hinman as a partner at Simpson Thacher.

Neither Clayton, nor Hinman, nor Berger, nor the SEC have disputed any of these facts or the chronology of how this all unfolded.  Any objective reading clearly suggests that these three had and/or currently retain financial interests linked to the officials’ actions they took at the SEC. 

Why haven’t these individuals, Simpson Thacher and One River been challenged to explain these facts? 

These facts suggest glaring improprieties, so why aren’t they being investigated? Given  cryptocurrencies total market capitalization swelling into trillions of dollars, if now is not the time to investigate, then when?

It is up to the millions of retail XRP holders, who were directly impacted by these actions, to demand answers if no one else will.

With Crypto, Congress, Not Agencies, Should Decide What’s Next

Posted on

By Andrew Langer. April 27, 2021. (The American Spectator).

Alongside the public’s newly found fascination with cryptocurrencies (which only sometimes includes their attempts to try and understand what they are — a process for the teacher akin to trying to explain to an AARP member how to program a VCR back in the day), there is serious debate and discussion among scholars and policymakers about how to look at them and treat them for public policy purposes.

From a public policy perspective, the question centers essentially on assigning “crypto” to one of four different categories. Are they

  • Securities? Are they a tradeable “financial instrument” that create some kind of ownership right?
  • Commodities? Are they some kind of raw material gained through a resource-intensive extraction process?
  • Currencies? Are they some kind of unit of exchange backed by some kind of hard asset?
  • Something different entirely, requiring a whole new vocabulary or public policy approach?

All are being considered, and each approach has its adherents and detractors.

The most logical route would be to view cryptocurrency as an entirely new thing (which it is). It doesn’t easily fit into any of the preexisting categories — it’s somewhere, honestly, between a commodity and a currency. Many cryptocurrencies do require intense resource utilization, but they can immediately be used as a standard of exchange.

Read the Full Article Here.

In The Ripple Case, The SEC Is Now On Trial – And Knows It

Posted on

By Roslyn Layton. April 8, 2021. (Forbes)

Some agency chairs find an ambiguous statute hard to resist. They overinterpret their authority to regulate, and Congress too often goes along. The backstop of this excess is the courts, provided that the aggrieved have the wherewithal to defend themselves against the gargantuan administrative state. This familiar story is playing out in the U.S. Securities and Exchange Commission’s (SEC) lawsuit against cryptocurrency innovator Ripple, but the buck stops with Magistrate Judge Sarah Netburn whose discovery hearing in U.S. District Court for the Southern District of New York on Tuesday exposed the SEC’s unfounded and flawed arguments and some inconvenient truths for former SEC Chair Jay Clayton and former SEC Corporation Finance Division head William Hinman.  

The hearing showed that the case the San Francisco fintech was based on an illogical premise. It alleged that XRP, the digital currency that Ripple uses for cross-border payments, has been an unregistered security since 2013 and that the SEC was just getting around to saying so on the last day of Clayton’s tenure last December. With this late in the game regulatory determination, the SEC now deems that every Ripple sale for seven years was an illegal securities trade. And that Ripple, its two top executives named in the suit, along with millions of retail holders, should have known this all along, even though the agency never did. Due process and fair notice were thrown out the window to get the case across the transom on the day that Clayton walked out the door.

Read the Full Article Here.

“Word on the Block”: Lawyer for 11,000 XRP holders pushing to fight SEC in Ripple lawsuit

Posted on

April 8, 2021. Forkast News.

On Christmas Eve of 2020, attorney John Deaton felt rocked by the United States Securities and Exchange Commission’s lawsuit against Ripple and its two executives — CEO Brad Garlinghouse executive chairman Chris Larsen. As he read that the SEC was charging Ripple for selling unregistered securities worth over US$1.3billion from 2013, his surprise turned to disbelief. As Ripple and SEC intensify their legal warfare, attorney John Deaton and his clients want in. Will XRP investors get their day in court?

Watch the episode of “Word On the Block” here.

Ripple Labs Wins Access To SEC Internal Crypto Discussions

Posted on

By Pete Brush. April 6, 2021. (Law360).

Ripple Labs on Tuesday won discovery from the U.S. Securities and Exchange Commission concerning its internal discussions about whether Ripple’s XRP tokens are similar to cryptocurrencies like bitcoin and ether, which have not been officially deemed securities.

It was a “high-stakes” discovery win, U.S. Magistrate Judge Sarah Netburn said, as she ruled from the bench in the SEC’s suit claiming San Francisco-based Ripple and two top executives sold $1.38 billion of XRP without registering the offering as required by federal securities laws.

“I’m going to grant in large part the defendants’ motion,” she said.

Read the Full Story Here.

Former SEC Boss Behind Ripple Lawsuit Hired by Crypto Hedge Fund That Holds Bitcoin and Ethereum

Posted on

By Alex Dovbnya. March 29, 2021. (U.Today).

Volatility hedge fund One River Asset Management has hired Jay Clayton, the ex-chairman of the Securities and Exchange Commission, as a cryptocurrency advisor.

In a Bloomberg interview, Clayton expressed his astonishment over how fast cryptocurrencies ended up being embraced by big-name investors:

Three years ago, I didn’t believe we would be where we are today—the number of respected investors who have embraced digital assets. I would not have predicted this level of take-up.

As reported by U.Today, One River—which is primarily known for its volatility strategies that brought it hefty profits during the pandemic-induced market collapse—entered the crypto scene in late 2020.

Read the Full Story Here.

The SEC said everything will be decided in New York. So, here we come.

Posted on

By John E. Deaton, Founder and Host, CryptoLaw.

On December 22, 2020, former SEC Chairman Jay Clayton directed the filing of the most significant SEC enforcement action in modern history on his last day. The SEC complaint named defendants Ripple Labs, along with, co-founder Chris Larsen and CEO Bradley Garlinghouse.

The SEC action against Ripple and its executives caused over $15 billion in losses for XRP holders in the days following it.

Clayton’s action against Ripple, and its impact on retail investors, was the culmination of more than a decade of the SEC refusing to set clear rules of the road for the treatment of digital assets or the development of projects that used them.  They have chosen to set policy by enforcement, dismissing the interests of the people they have a mission to protect.

So, on January 1, 2021, I filed a Petition for Writ of Mandamus in Rhode Island Federal District Court, asking the SEC to amend its complaint to limit the impact on XRP holders.

On March 5, the SEC responded with a motion to dismiss my petition. In it, the agency again shirked any responsibility for the catastrophic harm caused by its actions against Ripple and its executives. Instead, the SEC blamed cryptocurrency exchanges for causing the financial harm suffered by XRP holders, despite Jay Clayton himself having been warned of the massive impact by former SEC commissioner Joseph Grundfest.

In its motion to dismiss my petition, the SEC  said that the US District Court for the Southern District of New York is the only forum to weigh all matters related to their actions against Ripple, and XRP holders by default:

“Here, an avenue for judicial review of the Commission’s complaint against Ripple clearly exists. The Southern District of New York will decide whether the complaint warrants any relief. Thus, the Commission’s enforcement proceeding in the Southern District of New York, brought under the Securities Act, supplies the exclusive method for testing the validity of the Commission’s complaint against Ripple.”

If the Southern District of New York is the exclusive venue for decisions that have already proven to have a massive impact on XRP holders and are likely to set the course for the future of all cryptocurrencies in the U.S., then that’s where we must go.

Ripple, Larsen and Garlinghouse are focused on defending their interests against the SEC’s attack, and the $1.3 billion the agency requested from them in damages. It’s not up to them to defend mine, or the interests of any other XRP holders.  We didn’t buy XRP from them, nor did we consider Ripple’s success as a company when we bought it.   It’s up to us to defend ourselves against the SEC.

Today I am filing a motion to intervene in that case in the exclusive venue to represent our interests.  I’m calling the agency on its arguments, and I will see this through to the end. That motion and others related have been uploaded to the CryptoLaw document Library:

If you are an XRP holder and want more information on joining this action, fill out an online form that my law office has made available here.