Crypto advocates file brief against SEC’s investor tracking database

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Blockchain Association files support in suit to lift Tornado Cash sanctions

November 21, 2023 Coin Telegraph

The crypto advocacy group said OFAC must act within its statutory authority by sanctioning bad actors, not open-source software tools.

The Blockchain Association has thrown fresh support behind six plaintiffs suing the United States Treasury Office of Foreign Assets Control (OFAC) over its sanctions on the crypto mixer Tornado Cash.

In a Nov. 20 amicus curiae brief to a U.S. appellate court, the crypto advocacy group argued OFAC’s decision to sanction the privacy protocol was not only unlawful but exceeded its statutory authority and was both “arbitrary and capricious” — contrary to the U.S. Constitution.

It’s the second amicus brief filed by the Blockchain Association supporting a group of Tornado Cash users appealing a lower court’s ruling that upheld OFAC’s decision to add the cryptocurrency mixer to its list of sanctioned entities.

Today we filed an amicus brief in the 5th Circuit appeal of Van Loon v. Treasury regarding OFAC’s sanctions against Tornado Cash.

Read Senior Counsel @MTCoppel's thread below for more. https://t.co/1pmSAt1Bds https://t.co/c5ScaTDr9N pic.twitter.com/e9ySvcKdeM
— Blockchain Association (@BlockchainAssn) November 20, 2023

Blockchain Association senior counsel Marisa Coppel emphasized in a Nov. 20 statement that OFAC needs to focus on sanctioning bad actors rather than outright banning tools, which she claimed it has no authority over.

“OFAC must see Tornado Cash for what it is: a tool that can be used by anyone,” Coppel said. “Rather than sanctioning a tool with a lawful purpose, OFAC should remain focused on the bad actors that misuse such tools.”

“OFAC’s action sets a dangerous new precedent that drastically exceeds their authority and jeopardizes law-abiding Americans’ right to privacy.”

In its brief, the Blockchain Association suggested OFAC should act within the bounds of the law by seeking approval from Congress to ban crypto mixers such as Tornado Cash.

“The proper remedy is to seek legislation from Congress that would provide supplemental authority in the uniquely decentralized digital asset context — not to improperly stretch its existing authorities,” it said.

“Such a power-grab would be a slippery slope that could threaten all manner of internet-based tools that have heretofore been freely available.”

The Blockchain Association has long held that Tornado Cash has no owner or operator and can function automatically without human intervention or assistance.

5/ OFAC’s authority only extends to persons or property…the Tornado Cash software is neither.

There is no owner.
No operator.
It functions autonomously.
And immutably.
— Marisa Tashman Coppel (@MTCoppel) November 20, 2023

OFAC first sanctioned Tornado Cash in August 2022. It alleged that individuals and groups had used the mixer to launder more than $7 billion in cryptocurrencies since 2019, including the $455 million stolen by the North Korea-affiliated Lazarus Group.

Crypto exchange Coinbase also backed the suit, pledging to

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Crypto advocates file amicus brief to address users’ Fourth Amendment privacy rights

October 22, 2023 Coin Telegraph

Advocacy

The amicus brief was filed to support an appeal against the Internal Revenue Service in relation to a 2017 court order where Coinbase was forced to hand over data from more than 14,300 of its users to the IRS.

Cryptocurrency advocacy group DeFi Education Fund (DEF) has urged a United States court to consider the unique aspects of blockchain technology when evaluating the privacy rights of cryptocurrency users under the Fourth Amendment.

DEF filed an amicus brief to the U.S. Court of Appeals (First Circuit) on Oct. 20, supporting James Harper’s appeal against the Internal Revenue Service as part of a fight to prevent the U.S. government from having unfettered access to a user's transaction history on cryptocurrency platforms.

Harper was one of 14,355 Coinbase users whose data was handed over by the cryptocurrency exchange to the IRS following a court order in 2017, which sparked a fight for stronger digital privacy rights.

DEF is proud to support the industry by filing amicus briefs in precedent-setting cases, such as Harper v. IRS, which involves a John Doe subpoena to Coinbase that resulted in over 14,000 users’ private financial information being sent to the IRS.

Our CLO @amandatums breaks down… https://t.co/JidwyPMzcj
— DeFi Education Fund (@fund_defi) October 20, 2023

DEF argued that the Fourth Amendment needs to be revised to rebalance law enforcement’s investigative powers and an individual’s right to financial privacy in the digital age.

“When old precedents meet new technology, courts must ‘assure preservation of that degree of privacy against government that existed when the Fourth Amendment was adopted.’”

The Fourth Amendment of the U.S. Constitution serves to protect people from unreasonable searches and seizures by the government.

DEF also pointed to the case of Carpenter v United States to argue that the Fourth Amendment limits the U.S. government’s capacity to obtain data from third-parties platforms like Coinbase.

The advocacy group further explained that because cryptocurrency transactions are traceable on public ledgers, it is possible to connect real-life identities to their pseudonymous addresses.

This impacted the livelihoods of all 14,355 users in the Coinbase case, DEF explained:

“The government’s request in this case therefore implicated every user’s every transaction, now and forever, including their ‘familial, political, professional, religious, and sexual associations.”

“It gave the government a “detailed, encyclopedic, and effortlessly compiled” synopsis of the lives of Harper and 14,354 others,” DEF added.

This degree of insight far exceeds what is attainable through traditional banking records, the lobby group argued.

4/ We argue that the Court must take into account core differences between crypto technology and TradFi because blockchain data provides the government with an intimate view into a person’s financial life in the past, present, and future. pic.twitter.com/KORSLRhqNY
— Amanda Tuminelli (@amandatums) October 20, 2023

The DeFi Education Fund's mission is to educate policymakers about the benefits of decentralized finance and to achieve regulatory clarity for the DeFi ecosystem.

The final decision of Harper v Werfel and Internal Revenue Services is expected to set a precedent for digital privacy rights and law enforcement measures in the U.S.

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Crypto Lobby Group Files Amicus Brief in SEC Lawsuit Against Binance, Likens Exchange to E-Commerce Giant Amazon

October 20, 2023 The Daily Hodl

Securities regulators oppose special treatment of crypto in Coinbase case

October 11, 2023 Coin Telegraph

amicus brief

A body representing North America’s state securities regulators took aim at arguments made by crypto exchange Coinbase in its defense against the SEC.

Digital assets should not be seen as “somehow special,” nor should action against Coinbase be seen as “novel or extraordinary,” argues an association of North American securities regulators.

In an Oct. 10 filing in the United States District Court for the Southern District of New York supporting the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) argued that digital assets need not be given any special treatment when it comes to applying securities laws.

TradFi grey hairs file Amicus Curiae on behalf *drum roll* the SEC, in SEC vs. Coinbasehttps://t.co/ukeHcfcX8B

NASAA landing page screenshot and story attached. PROTECT. pic.twitter.com/DczmmRVlm5
— Mikko Ohtamaa (@moo9000) October 10, 2023

In June, the SEC sued Coinbase, accusing the publicly traded crypto exchange of violating federal securities laws. Coinbase fired back, arguing that digital assets and services it provided did not qualify as securities and that the agency was overreaching.

However, NASAA general counsel Vincente Martinez argued the SEC’s position is neither “novel or extraordinary.”

“The SEC’s theory in this case is consistent with the agency’s longstanding public position [...] It is also well within the bounds of established law.”

The agency argued that the SEC doesn’t have to get explicit congressional authorization before applying established law to digital assets.

Howey test sufficient

One of the cornerstones of the lawsuit is expected to come from the judge’s interpretation of the Howey test, which is used to determine what qualifies as an investment contract. Coinbase has argued digital assets don’t satisfy all prongs of the test.

Martinez argued the Howey test was designed to be flexible enough to encompass all manner of technological advancements in the securities markets, including securities sold and traded on blockchains — similar to arguments previously made by the SEC.

“The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework in order to avoid being subject to the same regulatory obligations as all other participants in the Nation’s securities markets,” Martinez said, adding:

“The Court should decline to treat digital assets as somehow special.”

Crypto impact overstated

Martinez also took a swipe at Coinbase’s argumen t invoking the “major questions doctrine,” which claimed executive agencies like the SEC need congressional approval when it comes to issues of major political or economic significance.

“Coinbase dubiously casts the ‘digital asset industry’ as ‘a significant portion of the American economy,’” Martinez said.

However, Martinez said digital assets can’t be reasonably considered a significant component of the American economy as there is no practical economic use case or wide adoption of the vast majority of digital assets other than for speculation.

“With very few exceptions, digital assets are not widely accepted to pay for goods or services, nor can they be used to satisfy obligations to the government such as fees or taxes,” he wrote.

“As a class of assets, digital assets are not economically useful,” he said, adding:

“Coinbase overstates both the size and significance of this ‘industry,’ particularly the portion that securities regulators oversee.”

NASAA’s submission joined the SEC in asking the judge to deny Coinbase’s attempt to dismiss the SEC lawsuit.

Under the leadership of NASAA President Claire McHenry, NASAA members are advocating for investor protection in an era of technological innovation. Learn more about our legislative and regulatory priorities in this changing landscape: https://t.co/yNPvjGrUhC pic.twitter.com/4Gs5XU0NDt
— NASAA (@NASAA) October 10, 2023

NASAA comprises 68 members, inclusive of securities regulators from all 50 U.S. states, along with securities regulators in Canada, Mexico and several U.S. territories.

“NASAA and its members have a substantial interest in this case,” added Martinez.

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Crypto lobbyists still fighting to axe ‘unlawful’ Tornado Cash sanctions

June 5, 2023 Coin Telegraph

amicus brief

The crypto industry advocacy group has placed its support behind Coin Center and its lawsuit against the U.S. Treasury over its Tornado Cash sanctions.

The Blockchain Association and the DeFi Education Fund have become the latest industry advocates to file their support of Coin Center’s lawsuit against the United States Treasury over its “unlawful” sanctions against Tornado Cash.

On June 2, the two cryptocurrency industry advocacy groups filed a joint amicus brief in support of Coin Center, arguing that the U.S. sanctions against the crypto mixer should be dropped.

1/ Today, my colleagues and I at @BlockchainAssn and our partners at @fund_defi filed an amicus brief in support of @coincenter's lawsuit against OFAC fighting against sanctions of the Tornado Cash software protocol.

https://t.co/mSZW7nVDOb pic.twitter.com/Y4CxjJtBrq
— Marisa Tashman Coppel (@MTCoppel) June 2, 2023

They called the sanctions imposed by the Treasury’s Office of Foreign Assets Control (OFAC) “both unprecedented and unlawful,” and added:

“OFAC’s sanctions are unlawful. OFAC lacks statutory authority to sanction software like Tornado Cash, and regardless, its decision lacks any factual predicate that could render the sanctions lawful.”

The associations argued Tornado Cash is software and while OFAC has the legal authority to sanction people or property, it cannot sanction a decentralized protocol.

“The core Tornado Cash software is not and cannot be owned by anyone,” they argued, claiming that OFAC “conjured” up a “person” so it had a basis to sanction the crypto mixer.

5/ By sanctioning the Tornado Cash software protocol, OFAC infringes on the right to free speech and due process.

Americans who wish to engage in anonymous speech or association can no longer do so.

Nor did they have notice when they were blocked from accessing their assets.
— Marisa Tashman Coppel (@MTCoppel) June 2, 2023

The brief admitted there was malicious use of the protocol for money laundering, mostly by North Korean-affiliated hackers, but also pointed to the other less nefarious uses — namely to enhance privacy on the publicly viewable Ethereum blockchain.

The groups argued the sanctions should be declared unlawful and the enforcement of them should be legally prohibited by the courts.

In April, the two groups similarly filed an amicus brief in support of a nearly identical lawsuit brought by six individuals against the Treasury Department over its Tornado Cash sanctions.

The lawsuit, filed in September, is backed by the crypto exchange Coinbase, which is similarly wanting to remove the ban on the mixer.

The Treasury, however, claimed such crypto mixers are a national security threat and Tornado Cash repeatedly failed to create controls to stop money laundering.

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Coinbase wins $470K restitution in insider trading case

April 12, 2023 Coin Telegraph

Coinbase wins 0K restitution in insider trading case

amicus brief

The brother of a former Coinbase employee allegedly profited from an insider trading scheme and now has 20 years to repay the funds.

The brother of a former Coinbase employee has agreed to pay the cryptocurrency exchange nearly $470,000 for his role in an insider trading scheme.

According to a New York District Court filing signed on April 6 and made public on April 10, Nikhil Wahi — brother of former Coinbase product manager Ishan Wahi — will be required to begin making restitution payments while serving time in prison in what is believed to be the first insider trading case involving crypto.

The amount must be paid in full within 20 years of Nikhil’s release from prison and represents the amount Coinbase spent on legal services relating to the Department of Justice’s investigation.

In September 2022 Nikhil pleaded guilty to initiating trades based on confidential information obtained from his brother and is currently serving 10 months in prison for wire fraud conspiracy charges after being sentenced on Jan. 10.

2/ As a result of our investigation we identified 3 suspects and provided this information to law enforcement. One person was a Coinbase employee who we terminated. Today, the DOJ has criminally charged this former employee and the two other individuals for this abusive conduct.
— Brian Armstrong (@brian_armstrong) July 21, 2022

Because of his position at Coinbase, prosecutors alleged Ishan knew when the exchange would be listing new cryptocurrencies and informed his brother Nikhil and an associate of theirs, Sameer Ramani, prior to the asset listings being publicly announced.

The prices of the listed cryptocurrencies generally rose after their listing, netting Nikhil $892,500 in profit, according to prosecutors. As part of his sentencing, Nikhil was required to forfeit these funds to the United States government.

In a separate civil case, Coinbase defended the brothers and Ramani after the trio was sued by the Securities and Exchange Commission for violating antifraud provisions of U.S. securities laws.

In a March 13 amicus brief, Coinbase said that it condemns the defendants’ conduct but was supportive of a motion to dismiss the case as it argued the SEC had no jurisdiction to file a lawsuit given the tokens in question do not pass the Howey test — a U.S. legal doctrine that evaluates whether an asset is a security.

Last week I testified to Congress about Coinbase’s futile effort to register with the SEC so we can begin to offer digital asset securities. Today we filed an amicus brief in SEC v. Wahi that explains why this misguided suit only makes things worse. 1/5https://t.co/9iWYrWwpiI
— paulgrewal.eth (@iampaulgrewal) March 14, 2023

The SEC noted in an April 3 filing that it had reached an “agreement in principle” with Ishan to resolve the SEC’s claims and was also in “good faith discussions” with Nikhil.

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Trade group accuses SEC of ‘stealthy’ overreach in Coinbase insider trading case

February 23, 2023 Coin Telegraph

amicus brief

The Chamber of Digital Commerce has accused the SEC of trying to impose securities regulations via the “back door” of an insider trading lawsuit.

The United States Securities and Exchange Commission has again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in its insider trading case against ex-Coinbase employees.

In an amicus brief filing on Feb. 22, the U.S.-based Chamber of Digital Commerce argued the case should be dismissed as it represented an expansion of the SEC’s “regulation by enforcement” campaign and seeks to characterize secondary market transactions as securities transactions.

We have serious concerns about the SEC’s attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets. This is not a healthy policymaking process. Dismiss! https://t.co/06WAJ65Ckl
— Perianne (@PerianneDC) February 22, 2023

“This case represents a stealthy, yet dramatic and unprecedented effort to expand the SEC’s jurisdictional reach and threatens the health of the U.S. marketplace for digital assets,” wrote Perianne Boring, founder and CEO of the Chamber of Digital Commerce.

The Chamber highlighted the “SEC’s encroachment into the digital assets market” was never authorized by Congress, and noted in other Supreme Court cases it has been ruled that regulators must first be granted authority by Congress.

“By acting without Congressional authorization, [the SEC] continues to contribute to a chaotic regulatory environment, harming the very investors it is charged to protect,” it wrote on Twitter.

The Chamber also argued that in bringing claims of securities fraud, the SEC was essentially asking the court to uphold that secondary market trades in the nine digital assets mentioned in an insider trading case against a former Coinbase employee constitute securities transactions, which it suggested was “problematic.”

This novel attempt by @SECGov to impose securities regulations via the “back door” of an insider trading action raises serious due process concerns & will result in an array of consequences that will harm investors and threaten digital assets. Thus, it should be dismissed!
— Chamber of Digital Commerce (@DigitalChamber) February 22, 2023

“We have serious concerns about [the SEC’s] attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets,” Perianne added.

The Chamber cited the LBRY v SEC case in its brief, in which the judge had ruled that secondary market transactions would not be designated as securities transactions.

The judge had been persuaded by a paper from commercial contract attorney Lewis Cohen, which pointed out that no court had ever acknowledged the underlying asset was a security at any point since the landmark SEC v W. J. Howey Co. ruling — a case which set the precedent for determining whether a security transaction exists.

The latest amicus brief follows a similar filing from advocacy group the Blockchain Association on Feb. 13, which also argued that the SEC had exceeded its authority in the case and claimed it was “the latest salvo in the SEC’s apparent ongoing strategy of regulation by enforcement in the digital assets space.”

An amicus brief is filed by an amicus curiae, or “friend of the court,” which is an individual or organization not involved with a case but can assist the court by offering relevant information or insight.

The SEC in July sued former Coinbase Global product manager Ishan Wahi, brother Nikhil Wahi, and associate Sameer Ramani, alleging that the trio had used confidential information obtained by Ishan to make $1.5 million in gains from trading 25 different cryptocurrencies.

You have our swords: 12 independent entities pledge legal support for Ripple

November 4, 2022 Coin Telegraph

amicus brief

The evidence is mounting as “friends of the court” line up in support of Ripple Labs.

Fintech firm Ripple is garnering more support from the crypto and finance industry in its ongoing battle with the United States Securities and Exchange Commission (SEC).

On Nov. 4, Ripple chief executive Brad Garlinghouse proudly tweeted that the number of companies, developers, exchanges, associations, and investors officially supporting the firm has reached 12.

The pile of amicus briefs being filed is mounting up according to Ripple Labs general counsel Stuart Alderoty.

An amicus brief is a legal document filed in appeals cases to aid the court by providing extra relevant information or arguments. These briefs are filed by amicus curiae, a Latin phrase that translates to “friend of the court.”

“It’s unprecedented (I’m told) to have this happen at this stage,” Garlinghouse exclaimed.

For those of you keeping count, 12 (!) amici briefs submitted. It’s unprecedented (I’m told) to have this happen at this stage. They each explain - in their own unique way - the irreparable harm the SEC will do to every facet of the US crypto economy if it gets its way. https://t.co/Na9fWq3GvO
— Brad Garlinghouse (@bgarlinghouse) November 3, 2022

On Nov. 3, the SEC filed a motion to extend the time to file all reply briefs until Nov. 30. It asked Judge Analisa Torres to order that any additional amicus briefs be filed by Nov. 11.

Alderoty mocked the SEC’s response claiming that the agency “needs more time, not to listen or engage, but to blindly bulldoze on.” Garlinghouse had previously hoped for a conclusion in the first half of 2023, but with the evidence mounting, the SEC could drag it out longer.

The most recent amicus brief was filed by Cryptillian Payment Systems on Nov. 3 as confirmed by defense lawyer James K. Filan.

#XRPCommunity #SECGov v. #Ripple #XRP Cryptillian Payment Systems, an online digital wallet service for retail customers and commercial retail businesses using XRP, asks to file an Amicus Brief supporting Ripple's Opposition to the SEC's Motion for SJ.https://t.co/brFjNVmUmq
— James K. Filan 124k (beware of imposters) (@FilanLaw) November 3, 2022

Veri DAO also joined the list of Ripple supporters on Nov. 3 with its own amicus brief.

That growing number of supporters that have already filed briefs include Coinbase, the Chamber of Digital Commerce, the Crypto Council for Innovation, the Blockchain Association, Valhil Capital, I-Remit, Spend The Bits, Tapjets, the Investor Choice Advocates Network (ICAN), and John Deaton on behalf of more than 75,000 XRP (XRP) investors.

The U.S. securities regulator took action against Ripple in December 2020, accusing the company and its executives of conducting an unregulated securities sale of its XRP token.

Almost two years later, the battle is still raging on but support for Ripple is growing as its case strengthens. Garlinghouse has previously stated that Ripple would consider a settlement with the SEC, providing that XRP is not classified as a security.

amicus brief

Howey test sufficient

Crypto impact overstated

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