Last month, Ethereum incubator ConsenSys sued the U.S. Securities and Exchange Commission (SEC) seeking an injunction in federal court to prevent regulators from investigating its MetaMask offering and declaring Ether (ETH) a security. Ta. The company is the latest to follow a growing trend of preemptive lawsuits against the SEC.
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Investigations and enforcement actions by the U.S. Securities and Exchange Commission (SEC) against crypto companies have now escalated into a full-scale legal battle, with crypto companies filing lawsuits and a media-wide approach to confronting the SEC. I don't think it's an exaggeration to say that we are expanding.
It seems increasingly unlikely that Congress will actually pass legislation addressing the cryptocurrency industry's woes in the near future. As a result, as federal judges, courts of appeals, and (perhaps) the U.S. Supreme Court begin writing case law for companies and businesses, the industry's growth strategy for courtroom victories could be vindicated, so to speak. be. This will be one of his ways to ensure what the cryptocurrency industry calls regulatory clarity.
Last month, Ethereum developer ConsenSys sued the SEC seeking pre-emptive injunctive relief. The company asked a federal court in Texas to block a regulatory investigation, sue the MetaMask wallet and MetaMask service, and declare that Ether (ETH) is not a security. In an unredacted version of the lawsuit filed subsequently, ConsenSys claimed that the SEC had launched a formal investigation into whether ETH is a security (although, according to filings, the SEC actually has not yet (I don't seem to have reached a conclusion.)
This is a growing tactic among crypto companies, who have sharply criticized federal constituencies known for not fully supporting the administrative state.
Last month, the Blockchain Association and attorney (Massachusetts Republican Senate candidate) John Deaton also filed amicus briefs in support of an interlocutory appeal of one of Coinbase's SEC lawsuits.
Coinbase wants the Court of Appeals to rule on how the Howey Test applies to digital assets. Both court briefs primarily argue that the courts currently disagree on the issue and that a higher power would need to intervene to at least bring the various federal judges to a consensus.
The next question is how successful these lawsuits and arguments will be.and the real answer is who knows. Federal courts have so far issued a variety of rulings regarding cryptocurrency issues. The SEC has had some notable victories, including early motion (and one trial) wins against Terraform Labs and Coinbase, not to mention past wins against Telegram and Kik. There have been some wins for the industry, including the SEC's split decision in the Ripple case and the class action lawsuit against Uniswap (written by the same judge overseeing SEC v. Coinbase and USA v. Roman Storm).
The fact that these various lawsuits all ask for slightly different things certainly does not immediately make some of these issues clear.
Meanwhile, the SEC itself continues various investigations. In recent weeks, Robinhood and Uniswap both announced that they had received Wells notices from agencies related to their cryptocurrency offerings. These notices are documents stating that the SEC believes there is sufficient evidence to bring an enforcement action, and the recipient typically is given an opportunity to argue against the enforcement action.
The 30,000-foot view suggests that despite all the enforcement actions the SEC has brought over the past year, it is beginning to finalize further investigations and is ready to hand them over to the courts. Dew.
It's worth pointing out that SEC Chairman Gary Gensler has been pretty clear about his views on cryptocurrencies: He has said over and over again that most tokens are securities. He reiterated this point on CNBC on Tuesday, contrasting token issuers with publicly traded companies.
“Not to prejudge anyone, but as interpreted by the U.S. Supreme Court, many of those tokens are securities under local law. So we follow that law,” he said. said, “And you, investors, are not getting the required or required disclosures on those assets… Where are the disclosures from these crypto tokens as well as these seasonal earnings announcements?'' do you have?”
During the interview, Gensler did not answer questions specifically about ETH.
There are several reasons behind this legal dispute. First, as mentioned above, Congress does not appear to be that close to passing a stablecoin bill, let alone a market structure bill.
There are also about six months left until the US general election and seven months until Inauguration Day. I'm not suggesting that the SEC may be running out of time ahead of what appears to be a close election, but I am certainly suggesting that the election is close.
Last week, I flew to Seattle with Danny Nelson and several other reporters to cover the sentencing hearing of former Binance CEO Chao Changpeng.
As a reminder, in November last year, Mr. Zhao pleaded guilty to violating the Bank Secrecy Act and resigned from the exchange he founded. Binance itself agreed to pay $4.3 billion in fines and fines and submit to a court-appointed monitor (which has not yet been appointed). On Tuesday, Zhao was sentenced to four months in prison.
I live tweet The Verge's Liz Lopatto liveblogged the hearing. If you want to know more about what happened, you can read these play-by-plays. Short version: Judge Richard Jones asked Mr. Zhao's representatives and the Department of Justice to consider the Department's request to apply enhancements to Mr. Zhao's base-level sentencing guidelines. The Justice Department argued that the guideline recommendation of less than 18 months was too lenient for Mr. Zhao's conduct.
Justice Department lawyers appeared largely unprepared for the judge's questions. I don't know how else to express it. The justices asked questions about the enhancements at the outset, and the Justice Department table was required to briefly discuss them before taking the podium.
When the lawyer did so, his argument was a little tense, to say the least. At one point, he argued that the judge should be able to infer that Mr. Zhao was aware of his misconduct on the platform, after the judge said there was no evidence to support that claim. . If this explanation seems harsh, my main comparison at the moment is a (figuratively) bloodier case, FTX's Sam Bankman, which involved a team of Justice Department lawyers in New York. It is important to note that this is against the team that prosecuted Fried. Clinically dismantling the very image of Bankman Freed.
The defense's argument was a little simpler. Instead of resisting extradition, Mr. Zhao voluntarily turned himself in to the United States, voluntarily pleaded guilty, apologized, and had already begun taking steps to atone for his misdeeds (including resignation from Binance, $50 million agree to pay compensation) okay).
There were many things left unsaid. Last month's defense motion contained heavily redacted sections, and defense attorneys hinted at factors that could reduce Zhao's sentence. The judge didn't want to discuss it, so we're all left to speculate as to what exactly that mitigating factor was. It's clear that Mr. Zhao cooperated in at least one, and likely other, federal investigations, so there's probably plenty of speculation there.
As many have pointed out, one of the reasons for the light sentence is the fact that Mr. Zhao only pleaded guilty to one count of violating the Bank Secrecy Act (BSA). One lawyer described this as a “huge benefit.”
The Justice Department never alleged fraud, and the sentencing memorandum alluded to concerns about sanctions violations, which the Justice Department also did not charge. The time for the Justice Department to allege more serious crimes would have been last year, when it revealed the charges against Zhao and Binance, rather than in last month's sentencing memorandum.
“The fact that he did not plead guilty to sanctions violations is a huge benefit to him… If he had not shown contrition, this would not have happened.” said the lawyer who had not done so.
On the other hand, the Justice Department seemed determined to lose the argument for a harsher sentence than the guidelines. The law enforcement agency has already begun lobbying Congress for stricter sentencing guidelines for bank secrecy violations, and last week's ruling is no doubt evidence for stronger guidelines.
“This is the first time a CEO has gone to prison for violating the BSA,” a Justice Department spokesperson said in a statement.
It was really interesting to see how much the judge praised Mr. Zhao even as he read through the crimes to which he had pleaded guilty. Mr. Zhao's famous line, “It's better to ask for forgiveness,” was a problem for the judge, but Judge Jones ultimately found that Mr. Zhao was instrumental in founding Binance and that the Department of Probation and Pretrial Services' decision He said he believed he had shown sufficient remorse and good character to warrant the following sentence. Recommended (5 months).
At some point in the future (not yet determined), Mr. Zhao will serve four months in federal prison.
And he finished this whole episode.
If you have any thoughts or questions about what to discuss next week, or any other feedback you'd like to share, feel free to email me at nik@coindesk.com or find me on Twitter. @Nihileshude.
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