Edition No. 12

SEC's new lawsuits & power struggles; UK's Stablecoin Proposal; Lummis Bill Timeline; the Solana Lawsuit; and more. Here's what happened from 7/18/2022 - 7/25/2022.

Welcome to another edition of Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories and projects directly to your browser.

Table of Contents:

1. On the Docket (Top 5 Stories of the Week)

2. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)

3. Bird Watching (Tweet, tweet!)

4. Motion to Compel (Meant to provoke thought and action)

5. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)

6. Closing Statements

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On the Docket

Five things you might have missed last week:

1. SEC Calls 9 Cryptos 'Securities' in Insider Trading Case

Regulation by Enforcement:

On Thursday, the U.S. Securities and Exchange Commission used its first insider-trading case as grounds to label nine digital tokens as "securities." This is part of the agency's ongoing practice of using enforcement actions to define its crypto oversight.

The federal securities regulator filed a complaint Thursday alleging a former Coinbase (COIN) product manager conducted insider trading by telling his brother and a friend which digital assets the exchange would soon list. In a significant development for the wider industry, the SEC also made clear it views nine of the listed crypto assets as securities; Flexa's AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, and KROM.

The SEC has previously asserted specific cryptocurrencies are securities, but it usually did so as part of an enforcement action or a settlement with the specific issuer. But Thursday's complaint is the first time the SEC has alleged numerous cryptocurrencies are securities without charging the issuers themselves or, for that matter, the exchange listing the so-called securities. Blockchain Barrister attorney Birdnals put together an excellent thread on the case which can be found here:

Birdnals @BirdnalsLAW

Some quick thoughts on the SEC's action against an ex-Coinbase employee and others for selling "crypto asset securities" in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder. Complaint: sec.gov/litigation/com… 🧵

In a tweeted statement, Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham called the action a

“Striking example of ‘regulation by enforcement.”

2. The Same Law Firm Is Representing Celsius, Voyager and Babel Finance

Fancy seeing you again, stranger:

Filing for Chapter 11 bankruptcy, insolvent crypto lenders Celsius and Voyager Digital have both retained behemoth corporate law firm Kirkland & Ellis, , while Babel Finance has retained Kirkland to advise its restructuring.

Legal experts say the crypto lenders chose Kirkland for its demonstrated  success in Chapter 11 proceedings, , and Kirkland, for its part, took on the high-profile  cases to forge a reputation as a leader in crypto firm restructurings — which could become more frequent unless prices soon recover.

“My guess is they’ve chosen Chapter 11 because they’re hoping the price of crypto goes back up, which takes them out of the situation they’re in. It’s like a delay tactic.”

3. SEC has become 'Power-Hungry Regulator': Rep. Emmer

With great power comes…ambiguous regulatory policies?

In this video, CoinDesk’s Nikhilesh De discusses what took place at a U.S. House Committee on Financial Services hearing and how it could impact the crypto markets. According to Rep. Emmer:

“The SEC has become a power-hungry regulator, politicizing enforcement, baiting companies to ‘come in and talk’ to the Commission, then hitting them with enforcement actions, discouraging good-faith cooperation.”

The recent spate  of what  SEC critics have decried as regulation by enforcement has further increased calls for more regulatory clarity in the crypto space. - Moreover, critics question with whom such regulatory authority should reside a question of particular relevance with the proposed Lummis-Gillibrand bill potentially going to a vote this Year.

See also: crypto-law.us; zcrypto.com

4. UK’s Financial Services Bill Will Make Stablecoins a Regulated Form of Payment

Stabilize the Stablecoins

Stablecoins are set to be regulated as forms of payment in the UK according to a bill introduced in parliament on July 20th. The bill aims to recognize Digital Settlement Assets (DSAs A.K.A. Stablecoins) in law and grants new powers to the Treasury to issue regulations in connection with DSAs. This includes the power to issue ‘recognitions orders’ to DSA service providers when disruption in the provision of that service could threaten financial stability. 

“Bringing stablecoins into the scope of regulation is a significant milestone,” said Harry Eddis, global co-head of fintech at law firm Linklaters.

This is the first time the UK has introduced licensing requirements specifically for a crypto asset as issuers of stablecoins will have to seek a license from the Financial Conduct Authority (FCA). 

It seems the UK is keenly aware that stablecoins are likely to play an increasing role in the finance industry and is laying the groundwork for policing the stablecoin sector accordingly.

See also: Finextra.com; pyments.com

5. Bill Giving CFTC Crypto Powers Could Go to Vote This Year

Wen Crypto Regs??

The Responsible Financial Innovation bill published on June 7th is unlikely to be considered in full until next year according to co-sponsor Senator Lummis but elements of the bill will likely be voted on this year. 

“It’s a big topic, it’s comprehensive, and it’s still new to many US senators,” Senator Lummis stated at the Bloomberg Crypto Summit on Tuesday. 

The bill covers a wide range of topics including regulatory jurisdiction and stablecoin provisions and elements of the bill are being finalized now. The Senate Agriculture Committee is working on the portion which would give the Commodity Futures Trading Commission authority to oversee coins that are deemed commodities, likely including Bitcoin and Ether. This could be voted on by the end of the year. The stablecoin provisions will make their way through the Senate Banking Committee over the next few months. 

Any progress on regulatory clarity will be welcomed in the industry.

See also: Decrypt.com; Bloomberg.com

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Podcasts, Videos, and Blogs

The brightest voices & sharpest pens:

• Episode #56 of the Law of Code Podcast: Kelsie Nabben (@kelsiemvn) is a researcher of decentralized technology communities. As an ethnographic researcher, she is interested in the human outcomes of digital infrastructure, blockchain community culture, and algorithmic governance. Kelsie is also a recipient of a PhD scholarship at the RMIT University Centre of Excellence for Automated Decision-Making & Society, a Fellow at the DAO Research Collective, and a researcher in the Digital Ethnography Research Centre and Blockchain Innovation Hub.

• The Bankless Podcast team covers Tesla’s Bitcoin sale; Minecrafts NFT Ban, Polygon’s new zkProof concept; Genesis & 3AC, and more in this weeks ROLLUP:

• The Unchained Podcast, hosted by Laura Shin, covers the events of this week in crypto:

• The DOI Foundation Podcast interviewed Around the Blockchain author Kyler Wandler about his role in Sporos DAO and their Sweat Equity Distribution Platform:

• Ann Sofie Cloots brings all the latest Cryptolaw news in edition number 56 of Cryptolaw:

Crypto insolvency lawyers working overtime. Triple ECB report: stablecoins, DeFi and climate impact. BIS-IOSCO on DeFi. Singapore to tighten rules. Where's Binance again?

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Bird Watching

Tweet, Tweet, Tweet!

SEC v. Coinbase has awoken DeFi Legal Twitter:

• Miles Jennings offers his insights on the complaint and the implications for the rest of Web3 in this thread:

miles jennings @milesjennings

Having read through yesterday’s SEC complaint, my biggest takeaway is that it’s remarkable how little new information/guidance can be taken from the allegations... Nevertheless, the allegations are a good reminder of the rules of the road for web3 builders. Here are 5👇

• Jake Chervinsky offers his interpretation as well here:

Jake Chervinsky @jchervinsky

1/ The SEC filed a complaint yesterday accusing ten companies of violating the securities laws: nine digital asset issuers & one exchange. None of them are defendants in the case. None of them will get their day in court. If this isn't regulation by enforcement, nothing is 🧵

• Ross Campbell explores alternative language to the Howey Test in his thread on the ‘Bahamas Test’:

ross @z0r0zzz

Re: Coinbase Complaint and 'is my token a security' . . . 'Bahamas Test' is best heuristic for whether a token will be regulated by SEC as an investment contract, gateway.pinata.cloud/ipfs/QmYBzZZjM…

• Faryar Shirzard, Chief Policy Offer of Coinbase, speaks on behalf of the exchange and calls for the SEC to clarify the standards and rules by which digital assets are defined in the scope of securities:

Faryar Shirzad @faryarshirzad

1/ We have long been calling for a workable crypto securities framework. Today, @coinbase is formalizing those calls in a petition to @SECGov, requesting rules that work for digital asset securities. 🧵blog.coinbase.com/the-crypto-sec…

blog.coinbase.comThe Crypto Securities Market is Waiting to be Unlocked. But First We Need Workable Rules.TL;DR:

• CFTC commissioner Caroline Pham releases a statement on the CFTC’s position regarding SEC overreach:

Caroline D. Pham @CarolineDPham

Read my statement on #SEC v. Wahi, regulation by enforcement & #CFTC authority #crypto #digitalassets #DAO

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Motion To Compel

What makes a common enterprise?

Lawsuit Filed Against Solana Alleging $SOL to Be an Unregistered Security:

By Nick Corso

The ongoing debate of whether the underlying digital assets of smart-contract protocols should be categorized as securities has come to the forefront of cryptolaw in the form of a recent lawsuit filed against Solana, which has the potential to massively impact the smart-contract platform legal landscape. 

READ THE FULL LENGTH SUMMARY HERE.

Nick is a fellow Blockchain Barrister Law Student, and is a 2L at the University of Miami School of Law. Coming from an engineering background, Nick is interested in intellectual property law and crypto law. Twitter: @nick_corso2.

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The Public Ledger

Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:

General News and Opinion

• Celsius gets approval for a new Bitcoin mining plant as it seeks financial stability

• What Are NFTs and Why Are They So Controversial?

• Will intellectual property issues sidetrack NFT adoption?

• From $25 billion to $167 million: How a major crypto lender collapsed and dragged many investors down with it

• Downturn Of Cryptocurrency Could Lead To Spike In Crypto M&A

• Crypto's next secrecy frontier- POLITICO

• How The Government Seizes Assets And Why Bitcoin Is A Problem For Statists

• FBI Warns of Fake Cryptocurrency Apps Stealing Millions from Investors

• Accepting Ethereum By Gaming Industry is Legal?

• Trademark Protection Within Blockchain Domains

U.S. - Federal

• Crypto Regulation Bill May Face Senate Vote Only Next Year: Senator Lummis

• Amici status update: SEC's latest filing aims at XRP holders

• FBI Seizes $500,000 Ransomware Payments and Crypto from North Korean Hackers

• How can insiders sue an amorphous crypto collective? They can't, say bZx

• defendants

• US Federal agency issues legal advisory on NFTs

• Regulators should address crypto 'garbage' first, former SEC Chairman Clayton says

• Democratic lawmakers want crypto mining companies to report more energy usage info

• Spot bitcoin ETF approval hinges on big ask

• Grayscale CLO says firm is ‘laser focused’ on preparing arguments against SEC ETF rejection

U.S. - State Law

• Maryland House primary winner promises ‘even-handed’ crypto regulation

• These 10 states are leading America in creating a crypto economy

• Kansas audit points to complexity of enforcing state income tax law on cryptocurrencies

International

• Southeast Asia crypto exchange Zipmex to resume withdrawals

• Indonesia Plans Wholesale Digital Currency to Improve Transfers

• Chinese court rules bitcoin mining harms the climate

• Crypto use an aggravating factor for sentencing: Aussie court study

• Paraguay crypto framework one step away from becoming law

• Netherlands fines 3 million euros on cryptocurrency exchange Binance

• Fraud claim for millions in missing crypto launched by NFT in legal first

• Singapore's crypto aspirations shaken by Three Arrows collapse

• Security Service of Ukraine Shuts Down Crypto Mining Farm Near Front Line in Kharkiv

• Andora passes digital assets act greenlighting blockchain and Bitcoin

NOTE: For your convenience, we have started identifying articles that require a subscription or site registration (paid or free) with ** preceding the article link, and the linked site in () after.

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Closing Statements

We want to hear from you:

If you enjoyed what you read today, subscribe to receive the weekly publication and give the authors a follow on Twitter for updates on what’s next for the newsletter!

If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler & Chris

Quote of the Week:

“He is no lawyer who cannot take two sides.” - Charles Lamb

Ok, all done! You can go ahead and check your P/L now (Coin Market Cap)

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This newsletter is curated, annotated, and edited by Christopher Foreman (Twitter - @CryptlessInSEA) and Kyler Wandler (Twitter - @KylerW56); with consultation and input from Jacob Robinson of the Law of Code Podcast; editing courtesy of TΞxas ₿l◎ckchain LawyΞr ; in collaboration with Ann Sofie Cloots; and support from the Blockchain Barristers Law Student Collective and the Stetson Blockchain & Law Society.

The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.

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Special thanks / image credits:

Law / Scale Image; Twitter Image; Blockchain Image; Podcast Image; P / L Image; Tea GIF; Stable JPEG; Law JPEG; Hacker GIF; Folder GIF; Angry GIF; Celsius GIF;