From Ripple and XRP to Filecoin: The SEC is Simply Illogical

By John Deaton. May 26, 2023. (Blockworks).

If the crypto industry hadn’t yet appreciated the scale of the danger posed by the SEC’s legal theory at the heart of its long-running lawsuit against Ripple and the XRP token, it seems to have finally hit home for many when news broke about Grayscale’s attempted SEC registration of its Filecoin Trust. 

When you consider the Grayscale news, the SEC’s recent claim that Algorand constitutes an unregistered security, and the Coinbase Wells notice, the SEC’s war on crypto becomes clear.

As amicus counsel for 75,000 plus XRP holders, I’ve spent more than two years warning anyone who would listen about the outrageous arguments being made by the SEC. 

The SEC’s central theory in the Ripple case is that the XRP token itself is a security. The allegations are not limited to transactions offered by Ripple or its executives. The SEC is arguing all sales of XRP, regardless of the seller or the circumstances surrounding the sale, constitute the transfer of securities. From the very first one in 2013, onward into perpetuity — including on the secondary markets between parties who have nothing to do with nor even knowledge of a company called Ripple.

The SEC based this on the allegation that the “very nature” of a digital asset is to be a security and nothing else, making XRP “the embodiment” of an investment contract with Ripple no matter who holds it, uses it or sells it. 

Read the full article here.

Ripple Wins Battle For ‘Hinman Documents’ in Bitter SEC Case

By Sebastian Sinclair. May 17, 2023. (Blockworks).

Ripple has secured a small victory against the US Securities and Exchange Commission (SEC) — shutting down the agency’s motion to seal internal files known as the “Hinman Speech documents.”

Those documents consist of SEC drafts and emails relating to a speech given by William Hinman, former Director of the SEC’s Division of Corporation Finance, more than four years ago. 

Hinman’s speech reportedly indicated the agency did not consider ether a security at the time. Ripple lawyers have fought to learn more about how Hinman came to that conclusion, which could impact XRP’s own classification.

According to Tuesday’s filing, the SEC made an attempt to justify the need for confidentiality, contending their lack of relevance to the summary judgment motions and potential disclosure could significantly harm the agency’s interests.

Judge Analisa Torres disagreed in the filing, which triggered an 8% rally for XRP.

“Regardless of whether the court ultimately determines that the Hinman Speech Documents are admissible, or whether the court relies on the documents in ruling on the summary judgment motions, they are judicial documents subject to a strong presumption of public access because they are ‘relevant to the performance of the judicial function and useful in the judicial process.’”

Read the full article here.

Leak Reveals Secret Democratic Plan For A Game-Changing U.S. Crypto Crackdown That Could Hit The Price Of Bitcoin And Ethereum

By Billy Bambrough. May 12, 2023. (Forbes).

Bitcoin BTC -1.2%, ethereum and other major cryptocurrencies have been grappling this year with a U.S. crypto crackdown that some think could “destroy all value of bitcoin.”

The bitcoin price has climbed over the first few months of 2023 but remains far from its late 2021 all-time highs, with traders hailing a “new market regime.” The fate of ethereum and other cryptocurrencies are meanwhile hanging in the balance as U.S regulatory agencies battle for control of the market.

Now, a leaked memo circulated to Democratic House financial services committee members has revealed the “key messages” lawmakers were told to stick to that could see almost all cryptocurrencies categorized as securities.

The document, passed to committee members by the Democratic party ahead of Wednesday’s joint House hearing on crypto policy, was leaked by Fox Business reporter Eleanor Terrett on Twitter. “The problem isn’t ambiguity—it’s mass non-compliance with existing laws,” the memo reads. “We can’t invent new accommodating regulatory structures simply because crypto companies refuse to follow clear rules of the road.”

Read the full article here.

Why the Politics of Crypto Feels Different This Time

By Noelle Acheson. April 26, 2023. (CoinDesk).

Last week’s appearance by Securities and Exchange Commission Chair Gary Gensler before the House Financial Services Committee was his first in more than a year, and his first since the current Congress took over. The political shift in the House of Representatives to Republican control rapidly became glaringly obvious as the tone was markedly hostile. The agency’s approach to digital assets was a key point of contention.

As with most congressional hearings, the event was largely about making political points and grandstanding for the cameras. But it felt significant in that it revealed the scale of Republican dissatisfaction with Gensler’s administration, suggested several points that are likely to become campaign platforms, and publicly weakened the SEC chair’s credibility. That, in turn, could prompt some modifications to the agency’s approach.

Normally the public doesn’t care too much about financial regulation. But the rhetoric witnessed last week indicates that politicians could start to make sure they do. No longer is it just about financial disclosures and settlement rules: It is rapidly becoming about individual freedom and U.S. pride.

Read the article here.

It’s Time for Tough Questions to Gary Gensler About Crypto

By Todd Tiahrt. April 17, 2023. (Real Clear Markets).

When federal regulators seriously overreach, the other two branches of government have the duty to hold them in check. That’s the way the Founding Fathers intended our system to work.

The Securities and Exchange Commission (SEC) is the latest regulator that has gone way past the mark by waging a war on cryptocurrency technology. The Agency has filed an avalanche of enforcement actions and warnings against companies big and small in the crypto space, claiming they are selling securities that should have been registered like stock offerings. It’s time that Congress fulfil their constitutional duty and rein in the SEC.

The heart of the issue revolves around claims by SEC Chairman Gary Gensler that many crypto companies are non-compliant and in violation of federal securities laws. He believes they should “come forward and register” their tokens, whether they issued them or not, and asserts that all sales involving these tokens are securities transactions, even between parties completely unrelated to the companies being targeted. The reality is quite different.

Evidence has come out in several cases that show the SEC’s legal arguments are ridiculous. Crypto tokens that have a utility are not like stocks and don’t give their users any voting rights in a company, so they are not securities and Gensler has no right to regulate them. Furthermore, the SEC can’t punish secondary market holders of cryptocurrencies for the actions of an unrelated company like it is trying to do in case after case.

Read the full article here.

S.E.C. Charges Crypto Companies With Offering Unregistered Securities

By Ephrat Livni. January 12, 2023. (New York Times).

The Securities and Exchange Commission on Thursday charged the cryptocurrency lender Genesis Global Capital and the cryptocurrency exchange Gemini Trust with offering unregistered securities through a program that promised investors high interest on deposits.

The S.E.C. said that Genesis, a subsidiary of Digital Currency Group, and Gemini, which is run by Tyler and Cameron Winklevoss, had raised billions of dollars of assets from hundreds of thousands of investors without registering the program, which was called Gemini Earn.

By doing so, Genesis and Gemini bypassed “disclosure requirements designed to protect investors,” Gary Gensler, the S.E.C. chair, said in a statement. He added that the charges should “make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.”

Read the full article here.

SEC Spin Doctors Trying To Hide Crypto Regulation Disaster

By Roslyn Layton. January 8, 2022. (Forbes).

Over the last two U.S. administrations, the U.S. Securities and Exchange Commission (SEC) has promoted an all-encompassing policy of “regulation by enforcement” for U.S.-based digital asset markets like Coinbase and the enterprise blockchain industry that develops fintech solutions like Ethereum, Ripple, Stellar and Circle. Two successive chairmen – Jay Clayton and Gary Gensler – said that every digital asset except bitcoin is a security and should register at the SEC like a stock. The details end there, unless you end up on the wrong side of an SEC lawsuit. The SEC banks on a quick settlement from the parties it charges. Parties which dare to challenge the SEC need financial reserves, superstar lawyers, and years of patience for litigation to play out court. This “enforcement” produces little clarity for the market or protection of investors, which is the ostensible point of the regulatory exercise.

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.

Gary Gensler’s PR stunts can’t hide how he botched crypto regulation

By Jeff John Roberts. December 14, 2022. (Fortune).

The Securities and Exchange Commission sent a statement to reporters early Tuesday—2:10 a.m. ET to be precise—to announce its charges against Sam Bankman-Fried. The timing of the email didn’t make much sense since these sorts of communications typically go out between 6 a.m. and 9 a.m. But it did make sense if you’re familiar with the motives of Gary Gensler, the SEC’s embattled chairman.

It’s only a guess, but the unusual timing of the email was likely an effort to preempt the Justice Department, which had announced it would unveil criminal charges against Bankman-Fried on Tuesday morning. By getting his agency’s complaint out first, Gensler was presumably hoping he could soak up credit on a day when SBF was being brought to justice.

Such behavior is par for the course for Gensler, who in October took the unusual step of making a Twitter video to announce an SEC fine against Kim Kardashian, releasing it early on a Monday morning for maximum publicity. The Kardashian fine involved a relatively minor crypto boondoggle from June of 2021, but it did involve an A-list celebrity, so Gensler was all over it.

Read the full article here.