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.

Ripple, SEC argue to the very end of years-long legal battle 

By Casey Wagner. (Blockworks). January 25, 2024.

The court has handed down its summary judgment and dropped the remaining charges in the case between the Securities and Exchange Commission and Ripple Labs. Despite these developments, the years-long legal battle is far from over.

Ripple and the SEC continued to spar this week over one of the final steps of the case: what documents the cryptocurrency issuer has to surrender so the court can hand down injunctions and civil penalties. 

The SEC has asked the judge to order Ripple to release its financial statements from 2022 and 2023, and contracts pertaining to institutional sales that are dated after the securities regulator filed its initial complaint in December 2020. 

Read more here: Blockworks.

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

Judge scolds SEC for apparent deception in crypto case, threatens to sanction agency

By Leo Schwartz and Jeff John Roberts. (Fortune). December 1, 2023.

A federal judge has rebuked the Securities and Exchange Commission over its treatment of a crypto firm, expressing concern the agency had made “materially false and misleading representations” in order to freeze millions of dollars in assets belonging to the project.

The case, filed in Utah federal court, concerns a firm called Digital Licensing Inc., or DEBT Box. In its complaint, filed this summer, the SEC alleged the project had defrauded investors out of nearly $50 million by selling unregistered securities called “node licenses.”

As part of the initial process, the SEC successfully obtained a temporary restraining order and asset seizure through a so-called ex parte application—meaning the crypto firm was not informed of the proceedings and was not able to challenge them in court at the time.

These types of one-sided proceedings are uncommon and typically take place when a government agency fears that notifying the defendant will result in their destroying evidence or whisking assets overseas. Meanwhile, a temporary restraining order requires a party to show a high likelihood of “irreparable harm”—a high bar to clear.

Read the full article here: Fortune

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.

After Mounting Court Defeats, the SEC Needs to Change Course on Crypto

By Todd Tiahrt. (RealClear Policy). October 27, 2023.

There is a strong, bipartisan desire in Washington to adopt a clear set of rules for regulating cryptocurrencies and blockchain technology. Unfortunately, the Securities and Exchange Commission (SEC) and its allies in the Biden administration have been fighting to halt it in its tracks, arguing that the SEC is “the cop on the beat” and already has full authority over digital assets. But after years of legal wrangling, this game of regulatory domination is now hitting a wall in the courts, leaving SEC Chairman Gary Gensler increasingly isolated.

Gensler has repeatedly claimed that the SEC’s authority over what he calls “digital asset securities” is total, that the rules are “clear,” and that every crypto company is non-compliant. But when pressed before Congress to explain those rules, he can’t answer the most basic questions. Gensler has further told companies they have to register their products or digital tokens, but he and the SEC staff are incapable of explaining the process when asked. Court filings by crypto companies show ample evidence of years of frantic attempts by companies to “come in” and understand how to comply with these allegedly clear rules to little avail.

Read former member of Congress, Todd Tiahrt’s piece here: RealClear Policy

How Ripple Execs’ Grit & Litigation Forced SEC To Back Down

By Aislinn Keely. (Law360). October 27, 2023.

The U.S. Securities and Exchange Commission called off a looming trial against executives of blockchain firm Ripple this month after counsel at Cleary and Paul Weiss made clear their clients were eager to have their day in court and intended to force the SEC to face a record of evidence that didn’t support the claim the defendants knowingly violated securities laws when they sold Ripple’s crypto token.

It’s rare for the SEC to drop a case once it has brought a complaint, and the regulator made headlines when it did just that, dismissing claims that Ripple co-founder Christian Larsen and company CEO Brad Garlinghouse “aided and abetted” sales of Ripple’s digital token XRP to institutions.

Martin Flumenbaum of Paul Weiss Rifkind Wharton & Garrison LLP, who represented Larsen, called the Oct. 19 dismissal an “unprecedented victory.”

Read more on the unprecedented victory here: Law360

National Security In Question: SEC’s Crypto Approach Sparks Concern in Congress

By Elena R. (CoinPedia). October 25, 2023.

In a recent interview, Ron Hammond of the Blockchain Association shed light on the bustling crypto-related developments in Washington, D.C. Hammond highlighted two significant hearings this week, one involving the Securities and Exchange Commission (SEC) and the other addressing digital assets more broadly.

Speaking to Thinking Crypto, Hammond emphasized a central concern shared by several members of Congress – the SEC’s approach to cryptocurrency and private equity. Recent rules implemented by the SEC have stirred industry-wide concerns, leading to an increased focus on these issues within the Financial Services Committee. Patrick McHenry, the committee’s leader, has been a vocal opponent of the SEC’s stance.

The National Security Subcommittee is set to host another critical hearing, with the primary focus being on the funding mechanisms employed by Hamas for their activities. The objective is to investigate the sources of these funds and whether cryptocurrencies play a role in supporting their actions. Given the pressing nature of national security, this issue has raised concern among policymakers from both sides of the aisle.

Read the full article, with Ron Hammond’s interview included, here: CoinPedia

Since Chairman Patrick McHenry threatened to SUBPOENA Gary Gensler for NON-COMPLIANCE with Congressional oversight.

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