Gensler’s Crypto Mess: It’s Time For Congress To Teach The SEC What “Clarity” Means

By Jared Whitley. September 16, 2021. (Seeking Alpha).

The U.S. Securities and Exchange Commission (SEC) is playing a ridiculous game with the blockchain and cryptocurrency industry and the millions of investors it claims it’s trying to protect. The agency insists there is “clarity” on the rules it applies to digital assets, but will only communicate them through lawsuits. It tells the best, most innovative U.S. blockchain companies to “come in, talk to us,” and share the details of their product development line under the false pretense of guidance on being compliant, only to slap them with subpoenas instead. Not even the highest-priced securities lawyers can tell these companies what compliance looks like with any certainty. It’s driving exasperated American innovators overseas, and putting our economic future in danger.

If previous SEC Chairman Jay Clayton was the “most conflicted chairman in history”, then Biden’s pick – Gary Gensler – is the most clueless. Ever since he was confirmed he’s been saying that the rules on what makes a digital asset a security are “clear” and that he’s dedicated to “protecting investors”. But ask any retail digital asset investor and you’ll know that nothing is clear and none of them feels protected by Gensler. Quite the contrary, they see Gensler as the danger they need protection from.

It doesn’t even help to register your blockchain enterprise with the SEC to list it on the stock market. Coinbase, the leading crypto exchange platform, went public earlier this year and subjected itself to the full SEC cavity search. It competes with many non-listed blockchain companies offering lending products who haven’t faced any enforcement action from the SEC. Coinbase’s CEO Brian Armstrong shared his proposed lending product with Gensler’s people and they warned him if he started offering it, they’d drag him into court unless he registered the offerings as securities. He asked for guidance on why, and they refused to answer. A Wells notice followed, which is how the SEC warns you a lawsuit is coming. This behavior by the SEC was so shocking that some of Coinbase’s fiercest competitors rose to its defense.

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The Crypto Uprising The SEC Didn’t See Coming

by Roslyn Layton. August 31, 2021. (Forbes).

When the U.S. Securities and Exchange Commission (SEC) filed its bombshell lawsuit against cryptocurrency innovator Ripple Labs in December 2020, it didn’t expect blowback. But during the pre-trial phase, Ripple’s legal team has put the SEC itself on trial after years of conflicting and confusing guidance on the rules for cryptocurrencies. No one expected the tsunami of legal, political and social media action from retail cryptocurrency investors, outraged by the betrayal from an agency claiming to protect their interests. The meltdown of the SEC’s credibility with this $2 trillion global investor community exposes a costly SEC miscalculation.

Indeed, official Washington has been back-footed by the size, scale and diversity of the crypto investor class and the industry they support. Lampooned by mainstream media and the U.S. government for years, the crypto community has built a media ecosystem that connects millions of investors, consumers, developers and entrepreneurs across the globe. It’s fitting that the pioneers of the blockchain economy would apply consensus protocols to their communication. This decentralized social media apparatus has proven powerful — just ask Congress after the backlash of the infrastructure bill over a badly written crypto tax provision. When the Ripple lawsuit was filed, that ecosystem galvanized an independent battlefront unexpected by the SEC.

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When We Face the Government, the Crypto Community Must Unify and Rise

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

The apparent defeat over the crypto tax reporting measure in the infrastructure bill was a vivid warning.  The U.S. government doesn’t know what it’s doing on crypto, but it’s taking action anyway.  A $2 trillion economic sector is too ripe a target for a government that has spent the last decade ignoring its extraordinary birth and expansion around the globe.  But their ignorance to the potential of these technologies has become dangerous, and no digital asset is safe anymore.

From Bitcoin Maxis to the XRP Army, there finally was a realization that we’re all in danger without a clear regulatory framework, one which puts guard rails around the regulators just as much as it does around the scammers and the criminals. I’ve said it over and over since last year – the SEC v. Ripple case is the most impactful SEC enforcement action in a generation because the agency is coming after all of us, not just XRP. They made a mockery of standards for due process and fair notice and erased $15 billion in value for the investors they said they were protecting in a case that had no allegations of fraud. Many in the XRP Army express resentment towards Ethereum because of the notorious William Hinman speech on Ether in 2018. Hinman classified the 2018 speech as personal opinion and went on to claim that the SEC has never declared ETH not to be a security in a recently filed sworn affidavit.

As the case against Ripple drags on it’s becoming increasingly clear that the SEC is more than ready to come after ETH without any warning for its 2014 ICO. Regulators can give speeches in front of a room of 1,000 market participants giving their blessing to a digital asset and then slap a lawsuit on any company and any investor the very next day and laugh at you for thinking the speech meant anything as they issue subpoenas for your bank records. SEC Chairman Gary Gensler offers no coherent message on the assessment of existing clarity in crypto. Concurrently,  U.S. senators who claim to support democratization of global finance also claim to support a ban on decentralized finance in all its forms and want to tighten the centralized control of money.

Everyone in the U.S. crypto space needs to see the big picture, and it’s this: we have to get out of our crypto bubble and start ensuring that our voices are heard by elected Members of Congress in every state and every district. They must be given notice that starting immediately, and tomorrow, and next week, that the crypto community is not some anarchic fringe or group of “shadowy super-coders”. We are people from all walks of life who believe in this technology and how it will transform the economy for the better.  We use digital assets of all kinds for a variety of important uses. We get paid in these coins, and we buy groceries and pay bills with them. We are building companies that use them to allow banks, companies and everyday consumers move money around the world in an instant at almost no cost, with better security and transparency than the banks. We are also investors, of course, and we want laws against scammers and fraudsters. The crypto community is not involved in crime and terrorism – we are law enforcement’s best allies in catching those people and bringing them to justice. We are that first group of true believers that every huge innovation needs to get off the drawing board and into the mainstream economy, sharpening all the benefits and working through all the bugs, building markets for how to use it and build on it.

That is the reality of our community that has been missing for the last decade in Washington, and it’s the only thing that is going to turn our situation around there. A million screaming tweets of incoherent anger are worth less than one sincere conversation with your elected representative about what crypto means to you, how you use it and what you need from them. It isn’t partisan, it isn’t ideological and it isn’t even complicated when it comes down to you and your story. 

A community as big as ours, built around decentralized technology, should know it can’t rely on a handful of lobbyists or a group of influencers.  We need to get to work today, and every day forward. I don’t care which coin you favor or which crypto “tribe” you’re in – everyone needs to do this.

The first action you should consider is to find your House member and your two Senators on Twitter, and tweet at them that you are a constituent and crypto is important to you. Then tomorrow, if you really want to scare them, call the U.S. Capitol switchboard at (202) 224-3121 and ask to be connected to their office. When they answer, very calmly tell them your name, that you’re a constituent, and you need to talk to someone about crypto and why it’s important to you. Those Members of Congress may seem like they don’t do much, but every one of them employs people whose only job is to listen to you if you’re from their district or state. They are usually very nice, thoughtful people who have those jobs. They have to listen to you. If you’re not a U.S. citizen, then take your story directly to U.S. officials on social media or call the U.S. embassy in your country. The actions they are taking are impacting all of us, everywhere. They need to hear it and understand it.

In the end, if they don’t understand who we are and what this community is about, they will continue to blunder their way through screwing up one of the greatest economic innovations in history and opening the door for the truly shadowy figures of global finance to crush it and all the good it will bring to billions of people.

The SEC’s Fair Notice Farce, Starring William Hinman

By Roslyn Layton. July 19, 2021. (Forbes)

Covering the U.S. Securities and Exchange Commission’s (SEC) ill-conceived enforcement action against Ripple Labs is never dull, and last week offered another development in the case. When the agency accused the San Francisco-based software company of seven years of unregistered securities trades by its distribution of the XRP digital currency, it unwittingly opened the door to replacing the SEC’s antiquated Howey Test for defining securities. Moreover, it appears that the judge agrees with the defense’s argument that the SEC failed to provide fair notice to Ripple (or any market participant) that XRP was, in the agency’s view, a security since 2013.

Throughout the pre-trial phase of the case, Ripple’s legal team has demonstrated that the SEC denied fair notice not just on XRP, but cryptocurrencies in general. When Ripple filed an intention to present a fair notice defense, the SEC launched a series of desperate filings to stop Ripple, knowing that if that defense is permitted, the trial case against Ripple will be dead on arrival.

Read the Full Article Here.

Ripple Labs Can Question Former SEC Official in Suit Over XRP

By Chris Dolmetsch. July 15, 2021. (Bloomberg)

Ripple Labs Inc. can question a former Securities and Exchange Commission official about the agency’s policy decisions as the company fights a lawsuit accusing it of misleading investors about its XRP cryptocurrency, a federal judge ruled.

The SEC sued Ripple, co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse in New York last year, saying they had created a “vacuum” that allowed them to sell XRP into a market with limited information they chose to share. The agency alleges that the two men personally profited by about $600 million and ignored legal advice that the cryptocurrency could be considered an investment contract and therefore a security. It accused them of selling the virtual tokens without registering them as such.

Ripple has said the SEC can’t regulate XRP because, as a virtual currency used in international and domestic transactions, it’s a medium of exchange and not a security.

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SEC v. Ripple Key Hearing Today: John Deaton Offers Line of Questioning

By Rick Steves. July 15, 2021. (Finance Feeds) Judge Sarah Netburn will hold a hearing today to discuss the SEC’s motion to quash the deposition of former SEC Division of Corporation Finance Director, William Hinman. The scheduled telephone call, which was deemed “bad for Ripple” by attorney Jeremy Hogan, is expected to clear the way for the deposition on July 19 following Ripple’s re-notice as the defendant grows impatient.

The SEC argues that Ripple and its co-founders are unable to demonstrate “exceptional circumstances” for the testimony of a high-ranking government official. John E. Deaton, the attorney who has previously filed a Motion to Intervene in the name of XRP holders, admitted that it is “a big deal to subpoena a former high-ranking official for a deposition in order to answer for his actions while in office”. But Hinman’s actions were clearly material for a precedent-setting case such as SEC v. Ripple, he stated, arguing in favor of the deposition. Commenting ahead of today’s hearing, Mr. Deaton offered a “quick, but not exhaustive, review of what XRP holders and crypto holders and investors, in general, deserve to know should William Hinman be permitted to testify under oath”.

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The SEC’s Baseless Utility Argument Lacks Utility

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

The SEC’s lawsuit against Ripple has been flawed from its inception. But few claims in the suit are more egregious than the allegation that XRP lacks utility, or that every XRP holder has engaged in a “common enterprise” with Ripple. These two allegations combined with the SEC’s central argument in their complaint, that Ripple’s offerings and sales of XRP represented dealings of unregistered securities, indicate that the Commission has failed to or chosen not to properly understand the fundamentals of crypto. Unfortunately, the community of XRP holders are paying the price.

Senior SEC Trial Counsel, Jorge G. Tenreiro’s statementnow, the court referenced a utility for XRP. We dispute whether that utility actually exists, your Honor,” during a March 19 hearing stands on even weaker ground than the SEC’s earlier claim regarding Section 5 violations. However, it became clear that Magistrate Judge Sarah Netburn was more informed than the SEC had anticipated, based on her assertion that her understanding of “XRP is that not only does it have a sort of currency value, but it also has a utility, and that utility distinguishes it, I think, from Bitcoin and Ether.” If Judge Netburn and millions of XRP holders, along with companies like Ripple, BitPay, Spend the Bits, Japan’s SBI and others all recognize the utility of XRP, it seems the SEC is the outlier.

The open-source nature of XRP allows users throughout the world to use the token to pay for goods and services without any connection to or reliance on Ripple. According to Cryptwerk, over 1,300 companies currently accept XRP for payment across industries from business services to tourism and travel. After filing our Motion to Intervene in the Ripple case on behalf of XRP holders, I have been contacted by over 19,000 XRP holders from around the world, many of whom receive paychecks in XRP and use XRP-powered debit cards to shop for groceries and pay for gas. These people are not in “common enterprise” with Ripple, despite the SEC’s claims.

The SEC’s argument that there is no XRP without Ripple is not just flawed, it makes no sense. For many XRP holders, the SEC’s lawsuit was the first time they had ever heard of Ripple, leaving many of us to ask: What’s Ripple?

There has been no shortage of valuable insights from these retail holders who the SEC pretends to be defending. For example, one poll by Stedas Crypto found that of the 400 respondents, over 90% said that they did not think they were buying shares or some other ownership in Ripple when they acquired XRP.

If all of this wasn’t enough, then just look at recent cryptocurrency market movement and trends. China intensified a crackdown on crypto mining inside its territory and the bitcoin hashrate plunged 50%. The price of bitcoin fell 43%, dragging down prices in all the major coins including XRP. This fluctuation in XRP’s price could not be linked in any objective way to actions taken by Ripple or its executives. But what does the SEC argue?  It says that XRP has no utility other than serving as an investment contract with Ripple and all holders have entered into an investment contract where the value of this “investment” is determined by the actions of Ripple and its two top executives. Former SEC Chairman Jay Clayton, who filed the lawsuit against Ripple on his last day in office, also declared that bitcoin is not a security because its ledger is decentralized. And yet here we have the Chinese government demonstrating its tremendous influence over both the price of bitcoin with one action and, in quick succession, the prices of many other leading coins including XRP.

Now, the SEC referenced a utility for its case against Ripple and its executives. We dispute whether that utility actually exists, your Honor.

SEC Assault On Ripple Provokes Wider Debate

By Roslyn Layton. June 30, 2021. (Forbes)

The Securities and Exchange Commission’s (SEC) bombshell lawsuit against fintech startup Ripple Labs is now a cause célèbre in the cryptocurrency community, but its sweeping implications about regulatory overreach against innovation is provoking principled debates in some of the country’s most influential policy circles. The Federalist Society’s Regulatory Transparency Program (RTP), an organization dedicated to fostering discussion and understanding of regulation, featured experts in an event titled SEC v. Ripple Labs: Cryptocurrency and “Regulation by Enforcement” last week.

In December, the SEC sued Ripple and two of its top executives for seven years of distributions of the cryptocurrency XRP which the agency labeled as illegal unregistered securities trades. Ripple offers a global payments platform for some 2 million users worldwide for the XRP token and its fully decentralized ledger. The company ferociously disputes the allegations by making clear that the regulatory agency allowed billions of XRP tokens to circulate freely on global cryptocurrency exchanges for seven years without making such a determination, despite being asked in public and in private for that specific clarity for years. The SEC also alleges that XRP’s only utility is to be an investment contract in Ripple and that all XRP holders depend on Ripple’s actions to obtain a return on their holdings. The suit seeks to enjoin the registration of XRP as a security and preclude Ripple’s executives from participation in the market. 

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With Washington recommitted to innovation, cryptocurrencies need a congressional fix

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.

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

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.