Favorite moment of argument so far:
SEC— “the tokens themselves are not a security”
Failla— “that’s what the folks in the back table think (Coinbase). And they are wondering why we are here”
The
@SECGov
just entered a proposed settlement in their case against Ishan Wahi, the former Coinbase employee, which is a complete surrender and shows the weakness in the SEC's theories about secondary market trading of crypto
This is a meaningful development for the industry
Gensler’s SEC wants to brute force crypto into an ill-fitting disclosure framework
In our latest piece, we show why this is a bad policy that fails to give crypto users and investors the info they need, or provide entrepreneurs w/ a viable path to comply
Today,
@paradigm
commented on the
@SECGov
's proposed redefinition of “exchange"
Through haphazard rulemaking, the SEC inappropriately attempts to bring crypto trading platforms, including DEXs, under its remit and regulate them as securities exchanges
Today, we are excited to launch the Paradigm Policy Lab 🚀🧪
Led by
@brendanpmalone
and myself, the Lab will be a gathering place for academics, policy experts, lawyers, and technologists to study how to address the biggest policy challenges in crypto
Paradigm filed an amicus brief in the SEC suit vs. Terra and Do Kwon
Paradigm was not an investor in Terra and our brief was filed in support of neither party’s motion—our only interest was to push back against the SEC’s continued attempt to expand its jurisdiction over crypto
Today
@Paradigm
and
@a16zcrypto
filed a joint amicus brief in
@SECGov
's case against
@coinbase
that demonstrates why the SEC’s approach is unsupported by case law and represents a significant and problematic expansion of its regulatory authority
Today SCOTUS granted cert to a case that will decide the legality of
@SECGov
's in-house administrative court, showing once again that the Court intends to curtail administrative overreach
The great thing about the American political system is that it’s designed to curtail administrative overreach
In the face of an intransigent
@SECGov
, the courts will ensure crypto has a future in the US
In other words, the SEC completely folded when faced with a spirited defense pushing back on their claims that tokens trading in secondary markets were securities
The SEC is having a really hard time making a principled argument that tokens, which they admitted are not securities in and of themselves, should be regulated as securities when they trade
Founder of Prometheum is testifying
@FinancialCmte
hearing on digital assets today
He will argue he represents the “compliant path for crypto” and those asking for updated regs are just scofflaws
However, he is wrong on the law and his approach cannot work as advertised
.
@SECGov
wants to regulate crypto through pronouncements made in proceedings w/ 3rd parties that are practically unchallengeable by those most affected
This is fundamentally unfair. Due process is not upheld when regulators look to score cheap points while the other team is off…
Last week,
@GaryGensler
and
@HesterPeirce
issued two public statements that show radically different understandings of the application of securities law to crypto.
While Comm'r Peirce has proven constructive and shown a willingness to improve regulatory shortcomings, Chairman…
Today Paradigm filed an amicus brief in support of Coinbase’s lawsuit that seeks to compel the SEC to respond to the company’s pending rulemaking petition
-- Reporting from the 🧪Paradigm Policy Lab🧪 --
Yesterday we filed an amicus brief in the
@SECGov
lawsuit against
@binance
.
@paradigm
was not an investor in Binance. However, we think it's critical to stand against government overreach regardless of the defendant.
CoinBASED just filed suit against the SEC in the 3rd Circuit demanding the SEC respond to their rulemaking petition
CB argues that the SEC has already made up its mind to deny the petition, but is delaying responding formally to avoid judicial review of their decision
SEC now trying to argue that crypto is not a significant part of the economy for purposes of Major Question Doctrine
"With all due respect to the crypto industry, it does not meet the economic significance test. They are a rounding error" (e.g., "your size is not size")
"They…
.
@paradigm
filed a brief in the suit
@NewYorkStateAG
brought against KuCoin, which alleged that tokens traded by KuCoin, including ETH, are securities
We highlight the unfairness of the OAG’s tactics, which deprive the most affected parties a chance to defend themselves
Favorite moment of argument so far:
SEC— “the tokens themselves are not a security”
Failla— “that’s what the folks in the back table think (Coinbase). And they are wondering why we are here”
Today
@Paradigm
filed a comment to FinCEN’s Notice of Proposed Rulemaking, which labels all “convertible virtual currency mixing”–defined very broadly–as a primary money laundering concern, and seeks to impose a new reporting requirement on all related transactions
On the heels of Grayscale’s victory over the SEC, Yesterday Judge Failla dismissed a class action suit that had been filed against
@Uniswap
, Hayden Adams and various investors, including
@Paradigm
.
The Torres Doctrine: crypto assets are not securities in themselves, but can be sold as part of investment contracts that may qualify as securities transactions
🚨 Needless to say, regulating digital assets through enforcement only had a dreadful day in court last week.
In the wake of the resounding decision out of the SDNY Ripple case,
@SECGov
must reassess its continued assault on the crypto industry.
My letter to Chair Gensler:
Yesterday,
@paradigm
filed an amicus brief supporting
@coinbase
's lawsuit against the
@SECGov
, which seeks judicial review of the agency’s refusal to provide rules for crypto
Failla--I have "a real fear that the SEC's argument is sweeping too broad" and raises "the specter of collectibles or commodities being regulated as securities." Jokes about being faced with a securities class action about beanie babies 👶
SEC--when you are buying a collectible…
Today's SEC settlement (i) doesnt admit any legal conclusions about the security status of tokens; (ii) doesnt require Wahi to pay any additional penalties (in addition to those due for separate criminal case); and (iii) includes immaterial injuction not to violate Section 10(b)
"crypto proponents make not-unconvincing arguments about the securities laws that may convince the Court to narrow Howey"
READ: crypto proponents are right on the law
Crypto proponents make not-unconvincing arguments about the securities laws that may convince the Court to narrow the Howey test. This would not only allow crypto assets to be considered commodities, but also allow the securities laws to, effectively, be considered optional.
Failla--"I have a lane, the SEC has a lane, Congress has a lane."
"I received an amicus brief from a sitting Congresswoman (Lummis) saying 'dont do this Failla.' I need to take that seriously"
The
@CFTC
announced a package of 3 "DeFi" settlements today, 2 with DeFi perps protocols (Opyn, Deridex) and 1 with a DEX (0x)
What can we learn from these latest enforcement actions?
@GaryGensler
@SECGov
The proposal to REdefine "exchange" veers far outside the
@SECGov
's statutory jurisdiction & violates the Administrative Procedure Act, a key law that protects the American public against autocracy and bureaucratic whim—it should therefore be promptly withdraw…
Gensler's speech was enraging for many reasons.
Not only did he imply that hiring a lawyer is somehow evidence that a project should be regulated under the securities laws, but the whole event seemed designed to intimidate enforcement lawyers from representing crypto projects
Remarkably, Gensler suggested that a crypto project retaining a lawyer is a security. That’s wrong as a matter of law, not to mention common sense. And it’s a not so subtle and outrageous threat to everyone’s right to consult with counsel.
.
@adamscochran
- we agree that standing for crypto *visibly* to the outside world matters given the regulatory fight we are in.
Here's what
@paradigm
has done in the last year:
-> amicus briefs in CFTC vs. Ooki (x2); SEC vs. Ripple; SEC vs. Wahi; TC lawsuits vs. OFAC (x2);…
@gakonst
I like your tools and think you’re tech researchers and OS contributors are genuinely the best and make this space better.
You all add immense value to this space.
That doesn’t mean I can’t be disappointed that when crypto got a bad wrap your leadership scrubbed their brand.…
Great work by
@TeamPOSA
publishing the updated staking principles
Industry-led efforts at self-regulation are critical while we wait for new regulations
🧪
@paradigm
Policy Lab 🧪 was proud to support this effort
Today we are proud to announce our updated Staking Industry Principles & call on all builders, founders, & technologists in the staking space to align with them to enhance consumer protection, foster responsible innovation, & support the sustainable growth of PoS networks.
👇🧵
Yesterday,
@bankpolicy
(BPI) filed a brief in the suit that Tornado Cash users brought against OFAC.
The fact that BPI felt the need to go on record in this case is evidence of how threatened TradFi is by crypto. We are certainly entering the “... and then they fight you” stage
Wahi pled guilty to DOJ charges and settled, but strongly contested SEC charges
@paradigm
filed a brief supporting Wahi's defense against SEC, arguing the tokens could not be deemed securities even if they were initially sold in securities transactions
We are at a critical juncture in the national discourse about crypto policy.
To address the regulatory gaps that have been created by fast developing technology, several serious and thoughtful legislative proposals have been recently put forward by
@PatrickMcHenry
,…
🧪 Back in the Lab 🧪
Today,
@paradigm
filed an amicus brief in Harper vs. IRS, a case in the 1st Cir. which challenges the agency's ability to use "John Doe" summons as a dragnet to surreptitiously obtain the private records of large groups of crypto users
As a reminder, Wahi, his brother, and a friend were charged by both the SEC and the DOJ for "insider trading" tokens based on confidential information about future listings that Wahi got from Coinbase
Therefore, Prometheum’s ATS won’t be able to trade ANY TOKENS unless projects first register the tokens with SEC
And as we have pointed out, there are effectively no tokens registered with the SEC because the current regime is not a viable option
Judge Failla expressing some real skepticism about the SEC's allegations that Coinbase's staking program should be regulated as a security.
"this seems the least like investment activity"
Crypto policy runs the risk of becoming increasingly partisan... it does not need to be so
While crypto has become a favorite punching bag of some progressives, decentralization actually aligns with progressive values
h/t to
@sheila_warren
and
@JBSDC
for having the courage to…
Seeing some great roles open for lawyers that want to join crypto projects.
Get at me if you want to explore new opportunities at the forefront of tech and regulation...
#NEW
: Chairman
@PatrickMcHenry
led Republicans on the Financial Services Committee in letters to
@FINRA
and
@SECGov
regarding the shady approval of Prometheum as the only Special Purpose Broker-Dealer for digital assets.
👇 Read more 🔗
The
@SECGov
's argument that ETH is a security is premised on the flawed understanding that there is a company or person that is responsible for Ethereum's "code base"
Friendtech renaming "shares" to "keys" is a good move since it better describes the utility of the tokens
But many of the critiques miss the more important point that calling something a "share" doesn't make it a security
Coinbase--For the sale of a token to be a securities transaction, there has to be a statement by the promoter that creates an enforceable promise.
That is the irreducible minimum of what can comprise an investment contract.
Bittrex settlement, like Wahi settlement before it, is effectively a total capitulation by the SEC that makes you wonder why they even brought the case in the first place
For context, SEC sued Bittrex AFTER a 6 yr investigation and once the company had already entered bankruptcy
Today we announced that crypto asset trading platform Bittrex Inc. and its co-founder and former CEO, William Shihara, agreed to settle charges that they operated an unregistered national securities exchange, broker, and clearing agency.
As our comment letter highlights, the SEC’s rulemaking proposal veers far outside its statutory jurisdiction & violates the Administrative Procedure Act, a key law that protects the American public against autocracy and bureaucratic whim—it should therefore be promptly withdraw
We hope that
@FinancialCmte
will see through Prometheus’ mischaracterizations of the law and understand they do not represent a viable path for crypto compliance
Gensler's overeagerness and belief that regulators are "not pushing hard enough if they arent losing cases" is going to end up not only with big
@SECGov
defeats, but ultimately unravel the administrative state
I'm eagerly awaiting this outcome
A must watch. Former SEC Chairman Jay Clayton describes the new and deeply un-American ethos of the
@SECGov
under
@GaryGensler
— if we're not losing cases, we aren't suing enough businesses. This is a total abuse of power.
The SEC's attempt to regulate crypto is fundamentally flawed in (at least) 2 ways:
1) it fails to achieve the goal of "investor protection"; and
2) SEC leadership is politically motivated to bring enforcement actions they will not have to see through
Since their approval, they have described themselves as the only compliant alternative for crypto asset trading in an industry full of willful lawbreakers
E.g., the cringe interview on
@Unchained_pod
that is rife with misstatements of law
@laurashin
This episode has a bunch of inaccuracies and is at some points misleading
@laurashin
you should consider having someone else on to correct the record. This “securities lawyer” can’t even explain basic concepts like rule 144 🤡 and is only interested in talking his own book
Last week,
@Paradigm
filed an amicus brief supporting
@Kalshi
's lawsuit against
@CFTC
, which stems from the Commission's prohibition of the listing of a prediction market re: which party will control Congress
Read on to learn why we felt the need to intervene in this case
While the testimony spends a lot of effort distancing Prometheum from its Chinese investors, it fails to mention a CRITICAL fact:
an ATS cannot facilitate trading for any unregistered securities not offered under a valid exemption—which is exactly what they allege tokens are
.
@Paradigm
was happy to support this effort by
@fund_defi
to challenge a troll’s patent being used to sue Maker and Compound
The crypto ecosystem will unite to ensure patent trolls don’t see suing DeFi protocols as a new business line
H/t
@amandatums
,
@millercwl
and…
@fund_defi
has petitioned the US Patent & Trademark Office for cancellation of a patent claiming invention of oracle-like tech and being used to sue MakerDAO and Compound. We are excited to talk about this project we have been working on the past few months👇
To be clear — the law hasn’t changed since Gensler argued in front of Congress that there was no regulatory framework for crypto secondary markets
Only thing that changed was Gensler’s political calculus
Almost feeling sorry for
@GaryGensler
. Must get so tiring talking out of both sides of your mouth.
May, 2021: "exchanges trading in these crypto assets do not have a regulatory framework either at the SEC, or our sister agency, the CFTC"
June, 2023: "they know how register"
@laurashin
This episode has a bunch of inaccuracies and is at some points misleading
@laurashin
you should consider having someone else on to correct the record. This “securities lawyer” can’t even explain basic concepts like rule 144 🤡 and is only interested in talking his own book
Back on this point, with the Coinbase lawyers this time.
Coinbase--"the tokens themselves are not securities; this is common ground"
--"but, even though the assets themselves are not securities, transactions in tokens may be investment contracts and therefore securities."…
Excited to participate in
@CoinDesk
's
#StateofCrypto2023
to discuss the crypto enforcement landscape
Reach out if you're in DC and want to chat crypto law
.
@paradigm
's
@RSSH273
role as special counsel places him at the forefront of crypto's legal and regulatory landscape.
We're excited to have him join us at
#StateofCrypto2023
as a speaker.
Check out our full lineup: 🔗
To be clear, we support the development of a regulatory framework for crypto
But it has to be workable for crypto projects, not a procrustean framework that capitulates on the unique benefits of the technology
In honor of my 4th pilgrimage to Marfa next week for
@artblocks_io
weekend, I wanted to share this vignette I wrote (... for my old law firm's paper of all places)
Written shortly after my first visit, the essay captures what The Marfa Trip means to me and why I keep going back
Excited to don my Stetson and head to Austin next week for
@Permissionless
, where I will be joining some friends to discuss crypto regulation
Stop by for our panel on Wednesday or DM me if you want to chat crypto-law and eat Gus' Fried Chicken
First, what is “Prometheum”?
They are a broker-dealer with no real operating history that recently obtained FINRA approval as an alternative trading system (ATS)
Genlser at
@FinancialCmte
hearing repeating his tired line that crypto just needs to "come in and register" ⛽️💡
We checked the tape and found that projects that tried to register all failed or were hobbled and operating at a significant disadvantage
Coinbase--the only way to understand the word "scheme" in Howey, is to understand it as a "scheme of contracts." That argument in our answer was met with silence by the SEC.
Treating tokens as a securities would prevent them from trading on virtually all global exchanges and be the deathknell to the project securing banking relationships
Why would a project want a token trading on an ATS with no liquidity and no foreseeable means to real liquidity?
After suing Coinbase for failing to do the impossible—registering as a securities exchange when there is no path do doing so—the SEC now intends to force DEXs into the same Hobson’s choice
Failla--according to the SEC, token purchasers are aware they are buying into an ecosystem when they purchase tokens (b/c of public statements by promoters re: development of ecosystem)
Coinbase--the purchase of an asset with knowledge of statements by development teams is not…
Prometheum says they will facilitate trading of any tokens that their internal compliance analysis determines are securities
They have even stated that they would allow trading of ETH, which they (mistakenly) argue is a security
Even if Prometheum could offer trading in crypto tokens (and it can’t), no new disclosures would be made available to investors
Therefore, this approach completely fails to address the policy concerns about a lack of information about tokens