Coinbase CEO Brian Armstrong Expresses Concern Over Rumors of SEC Ban on Crypto Staking for Retail Customers

February 9, 2023 Bitcoin.com

Crypto exchange Kraken faces probe over possible securities violations: Report

February 9, 2023 Coin Telegraph

The probe is reportedly looking at certain offerings that Kraken has made to its United States customers that could be in breach of securities laws.

Cryptocurrency exchange Kraken is reportedly being probed by the United States Securities and Exchange Commission over whether it breached rules around the offering of securities.

According to a Feb. 8 Bloomberg report, the probe relates to certain offerings that Kraken has made to U.S. clients. A person with knowledge of the matter said the probe is at an advanced stage and could reach a settlement in the coming days.

However, at this stage, it is not clear which offerings are being scrutinized by the securities regulator.

When asked about the alleged probe, an SEC spokesperson told Cointelegraph, "The SEC does not comment on the existence or nonexistence of a possible investigation.”

Kraken did not immediately respond to a request for comment.

*The SEC’s Washington headquarters. Source:* *Wikipedia*

Gensler said in December that his main goal for regulating crypto throughout 2023 was to make crypto exchanges and lending platforms come into compliance, which he said could occur through firms registering with the SEC or through enforcement actions.

Kraken CEO Dave Ripley argued in September that he didn’t see a need to register Kraken as an exchange with the SECbecause it does not offer securities, adding “There are not any tokens out there that are securities that we’re interested in listing.”

SEC Chairman Gary Gensler has repeatedly said, however, that he considers most cryptocurrencies other than Bitcoin (BTC) to be securities.

The SEC however recently conceded during a Jan. 30 appeal hearing in the LBRY v SEC case that the sale of LBRY Credits (LBC) in the secondary market doesn’t constitute a security, after the judge was persuaded by an argument from attorney John Deaton highlighting that the courts had never deemed the underlying asset to be a security in similar cases.

The regulator often refers to the “Howey test” to determine what constitutes a security. The name comes from the SEC v Howey case from 1946, which set a precedent in the U.S. for what transactions are considered securities.

It held that a transaction qualifies as an investment contract — and therefore is considered a security — where there is an investment in a common enterprise with profits earned exclusively through the work of others.

Former Coinbase manager slams SEC in motion to dismiss insider trading case

February 7, 2023 Coin Telegraph

Coin Telegraph

The attorneys for brothers Ishan and Nikhil Wahi want the case thrown out, arguing that the Securities and Exchange Commission was wrong when it charged the pair.

A former product manager at cryptocurrency exchange Coinbase has moved to dismiss charges of alleged insider trading, with his lawyers arguing the tokens he allegedly traded were not securities.

Lawyers representing ex-Coinbase employee, Ishan Wahi, and his brother, Nikhil Wahi, filed a motion on Feb. 6 in the United States District Court for the Western District of Washington to dismiss charges laid by the Securities and Exchange Commission.

The SEC charged the brothers and their associate, Sameer Ramani, with insider trading last July, alleging the trio made $1.1 million using Ishan’s tips on the timing and names of tokens in upcoming Coinbase listings.

In an over 80 page document, the lawyers outlined how the SEC was “wrong” in its charges.

They argued the cryptocurrencies allegedly traded by the Wahi’s did not fit the legal definition of a security, as they had no “investment contract [...] Written or implied,” comparing them instead to baseball trading cards and beanie babies.

*Lawyers for the Wahi brothers argued the tokens allegedly purchased by the pair are akin to physical baseball cards, such as those pictured, which can sell for thousands. Source:* *Twitter*

They argued that token developers have “no obligations whatsoever” to buyers on the secondary markets, adding:

“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”

The tokens, the lawyers argued, were also all utility tokens. They emphasized the tokens’ primary use is on a platform rather than as investment products.

“None of the tokens were like stock [...] The very object of each token was to facilitate activity on the underlying platforms and, in so doing, enable each network to develop and grow.”

The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings — of which at least nine the SEC asserts are securities — before selling them for a profit shortly after their listing.

Lawyers slam SEC for regulatory muscling

The Wahi’s lawyers lambasted the SEC for its apparent attempt at “trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.”

They said that the regulator “lacks clear congressional authorization to deem the tokens at issue to be ‘securities,’” adding:

“If the SEC really believes digital assets are securities, it should engage in a rulemaking or other public proceeding explicating that view and providing guidance to regulated parties on its implications.”

Commodity Futures Trading Commission Commissioner Caroline Pham has previously expressed concern at the possible “broad implications” of the case.

She said the SEC’s actions don’t address the question of whether some cryptocurrencies are securities through a “transparent” process that develops “appropriate policy with expert input.”

The Wahi brothers and Ramani also faced charges from the U.S. Attorney’s Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.

Ishan Wahi and his legal team at Jones Day filed a strong motion to dismiss in the SEC's enforcement action regarding alleged insider trading of 9 tokens. https://t.co/s4WZuZThAp pic.twitter.com/kFJjYvdyJc
— Marisa Tashman Coppel (@mtcoppel) February 7, 2023

Nikhil pleaded guilty to the charges and was sentenced to 10 months in prison for wire fraud conspiracy in January. Ishan pleaded not guilty to the charges in August. Ramani seemingly remains at large.

The motion was signed by 10 attorneys from five separate law firms.

If the motion to dismiss is denied by District Judge Tana Lin, the case will continue.

Ripple CEO: XRP lawsuit resolved by June, SEC conduct ’embarrassing’

January 19, 2023 Coin Telegraph

Brad Garlinghouse

Ripple CEO Brad Garlinghouse said the firm's XRP lawsuit could come to an end within "single-digit months."

Ripple CEO Brad Garlinghouse expects the firm’s long-running dispute with the Securities Exchange Commission (SEC) will be finalized within “single-digit months” and remains confident in securing a favorable outcome.

Speaking to CNBC on Jan. 18 at the World Economic Forum in Davos, Switzerland, Garlinghouse said the verdict could come as soon as June this year now that both parties have “fully filled and fully briefed” their arguments before the U.S. District Court:

“We expect a decision from a judge certainly in 2023. You don’t really have control over when a judge makes their decisions. But I’m optimistic that sometime in the coming single digit months we’ll have closure there.”

While Garlinghouse and investors believe the facts, law and the court will ultimately side with Ripple, the Ripple CEO also took the opportunity to ridicule the SEC’s “embarrassing” behavior displayed throughout the lawsuit, noting:

“The SEC’s behavior in some of it has been embarrassing as a U.S. citizen. Just some of the things that have been happening, like you’ve got to be kidding."

Garlinghouse also argued the firm was betrayed by the regulator, as it filed the lawsuit despite their efforts to meet with them on three separate occasions seeking regulatory clarity:

“Not once did they say to me we think XRP may be a security. So to later go back and say hey the whole time we thought XRP was a security we just didn’t tell you… that doesn’t feel like a genuine partnership between public sector and private sector.”

While noting that the outcome of the case also has huge implications for the cryptocurrency industry, Garlinghouse reiterated that Ripple would only settle if it was made clear that XRP is not a security.

However, “the SEC and Gary Gensler has very outwardly said he views almost all crypto as a security” Garlinghouse said, “so that leaves very little space in the Venn diagram for settlement,” he added.

*Garlinghouse speaking with CNBC at the World Economic Forum in Davos, Switzerland. Source:* *CNBC.*

Garlinghouse added that the U.S. SEC should take note from some of the more crypto-friendly countries who are piecing together more “positive” regulation that doesn’t stifle innovation.

Among the countries he spoke highly of included the the United Arab Emirates, Japan, Singapore, Switzerland and the U.K.

The lawsuit was initiated by the SEC in December 2020, claiming that Ripple illegally sold its XRP token as an unregistered security.

Ripple has long disputed the claim, arguing that it doesn’t constitute an investment contract under the Howey test.

Should the two sides fail to settle, the New York-based District Court will either make a standalone ruling or put the matter before a jury in a trial.

Ripple, SEC case heads for conclusion after ‘summary judgment’ filed

September 19, 2022 Coin Telegraph

Brad Garlinghouse

Ripple argued that XRP profits came from “market forces of supply and demand” rather than any contract between Ripple and XRP token holders.

The U.S. Securities and Exchange Commission (SEC) and Ripple Labs have both called for a federal judge to make an immediate ruling on whether Ripple’s XRP sales violated U.S. securities laws.

In separate motions filed on Sept. 17 by Ripple and the SEC, both have called for a summary judgment in the U.S. District Court Southern District of New York.

Summary judgments are submitted to the courts when a party involved believes there’s enough evidence at hand to make a ruling without the need to proceed to trial.

Both parties have called on Judge Analisa Torres to make an immediate ruling as to whether Ripple’s XRP sales violated U.S. securities laws. Ripple has argued that the SEC has run out of answers to prove XRP sales constituted an “investment contract," while the SEC has held strong on its beliefs that it does.

Ripple CEO Brad Garlinghouse in a Twitter post on Sept. 17 said the filings made it clear that the SEC “isn’t interested in applying the law.”

“They want to remake it all in an impermissible effort to expand their jurisdiction far beyond the authority granted to them by Congress,” he said.

Today's filings make it clear the SEC isn’t interested in applying the law. They want to remake it all in an impermissible effort to expand their jurisdiction far beyond the authority granted to them by Congress. https://t.co/ooPPle3QjI
— Brad Garlinghouse (@bgarlinghouse) September 17, 2022

Meanwhile, Ripple general counsel Stuart Alderoty noted that “after two years of litigation” the SEC is “unable to identify any contract for investment” and “cannot satisfy a single prong of the Supreme Court Howey test.”

In its motion for summary judgment, Ripple claimed that the SEC’s case “boils down to an impermissibly open-ended assertion of jurisdiction over any transfer of an asset."

The motion also argued that the SEC cannot establish that XRP token holders could not “reasonably expect profits” based on Ripple’s efforts as there were no contract obligations between Ripple and XRP token holders.

On the other hand, the SEC’s own motion for summary judgment argued that there can be an “investment contract” without a contract, any rights granted to the purchaser, and without any obligations to the issuer.

But Ripple argued in its motion “that is not and should not be the law, because without these essential features there is nothing to which the Howey test can sensibly be applied.”

Ripple instead pointed to profits coming from “market forces of supply and demand,” something that the SEC “conceded” according to the Ripple motion.

The significance of this admission was highlighted by U.S. Attorney Jeremy Hogan in a Sept. 17 post on Twitter, stating that “these concessions are perfect for a summary judgment.”

Community reaction

The filing of the Ripple and SEC motions brought about mostly positive sentiment from the XRP community, with one Twitter user believing “the end is near”:

The end is near….Better make sure those bags are packed!!! #XRPArmy #xrpthestandard #Tothemoon https://t.co/9aUEex67V0
— Paul Macrae (@PaulMac_1975) September 18, 2022

The motion for summary judgment comes nearly two years after the SEC sued Ripple, former CEO Christian Larsen and current CEO Brad Garlinghouse in Dec. 2020 for allegedly raising $1.3 billion through unregistered securities sales through XRP.

If the court executes the summary judgment, the court ruling will have a profound impact on determining which cryptocurrencies constitute a security under U.S. securities laws.

The XRP token rose to highs not seen since July following the motion filing — reaching nearly $0.40, but has fallen slightly since then and is currently priced at $0.34, according to CoinGecko.

Ripple counsel: SEC’s shakedowns leave consumers holding the bag

August 30, 2022 Coin Telegraph

Coin Telegraph

The response comes as Ripple Labs and other critics believe the SEC has overstepped its mark on the enforcement of the crypto space.

Ripple Labs General Counsel Stu Alderoty has hit back at a recent opinion piece by Security and Exchange Commission chairman Gary Gensler, arguing that the regulator's crypto market shakedowns aren’t protecting consumers.

In an Aug. 28 opinion piece on the Wall Street Journal (WSJ) titled “The SEC Wants to Be America’s Crypto Cop,” Alderoty claimed the SEC is “pushing aside his follow regulators” instead of concentrating on providing regulatory clarity for crypto.

He gave an example of the recent “shakedown” of BlockFi by the SEC, which led to the company ending “up on the auction block” and two other similar companies going “belly up," arguing:

“Consumers weren’t protected, they were left holding the bag.”

The piece came in response to Gensler’s Aug. 19 article “The SEC Treats Crypto Like the Rest of the Capital Markets” which was also published on WSJ a defended the regulator's crackdown on the crypto industry.

The Ripple counsel however argues that the SEC hasn’t provided sufficient clarity over crypto regulation and instead declares itself as “the cop on the beat” for crypto.

He claims the chairman is “pushing aside his fellow regulators” and “front-running” President Biden’s executive order which asks regulators to collaborate on crypto regulation.

The executive order, Alderoty referred to is the “Ensuring Responsible Development on Digital Assets,” which was signed on Mar. 9. 2022 to ensure that both the SEC and Commodity Future Trading Commission (CFTC) coordinate and collaborate on establishing a crypto regulatory framework.

However, Aldetory claims the SEC has neither abided by the executive order nor provided any “regulatory clarity for crypto” and is instead “protecting its turf at the expense of more than 40 million Americans in the crypto economy.”

Gensler argued in his article that U.S. federal security laws were designed to protect investors and that “there’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.”

But many critics disagree, with Forbes writer Roslyn Layton suggesting in an Aug. 28 opinion piece that the SEC’s decision to double its Crypto Assets and Cyber Unit staff and the SEC’s “regulation by enforcement” approach as reasons for the contrary.

Earlier in the month, U.S. Attorney John Deaton also claimed foul play, in that Gensler and the SEC were intentionally targeting cryptocurrencies, and that it has overstepped the mark on what they can currently do to regulate crypto:

“It doesn’t take a constitutional law expert to understand that the SEC has limited jurisdiction over the crypto industry; barring congressional action, front line regulation of digital assets belongs with the Commodity Futures Trading Commission — the main regulator of investments that are not deemed traditional securities.”

Gillibrand and Lummis state that most altcoins are securities

June 9, 2022 Coin Telegraph

Coin Telegraph

“Most cryptocurrencies go to the SEC [...] Bitcoin and Ether would be certainly commodities, and that's agreed upon,” said the U.S. Senator from New York Kirsten Gillibrand.

Senators Kirsten Gillibrand and Cyntia Lummis believe that most altcoins would likely be considered securities under their proposed new legislation — but confirmed that Bitcoin (BTC) and Ether (ETH) will be classified as commodities.

Lummis and Gillibrand both agreed with Securities and Exchange Commision Chair Gary Gensler’s assessment that most cryptocurrencies are securities under the Howey test with Gillibrand stating:

“Most cryptocurrencies go to the SEC [...] Bitcoin and Ether would be certainly commodities, and that's agreed upon. That's agreed with Chairman Gensler as well as the chairman of the CFTC.”

Gillibrand pushed back on reports characterizing the legislation as making the CFTC the primary regulator. “I don't think CFTC is the primary regulator," she said. "They just have the obligation to regulate Bitcoin and Ether, the majority of cryptocurrencies today.”

The pair made the comments during a Washington Post event on June 8, a day after releasing the details of the Responsible Financial Innovation Act.

.@SenLummis tells @ToryNewmyer, “The CFTC, although it will have the lion share by market cap, the majority of the digital assets...have characteristics of securities that will require the SEC's disclosure capabilities....The SEC's role in this is absolutely critical." pic.twitter.com/1B0wnQQ62p
— Washington Post Live (@PostLive) June 8, 2022

Rostin Behnam, chair of the Commodity Futures Trading Commission (CTFC), was also at the event and took a slightly different view on the proportion of altcoins that are securities. He said that while there are “probably hundreds” of coins that replicate security coins, there are also many commodity coins, such as Bitcoin (BTC) and Ether that should be regulated by the CFTC.

“It’s pretty clear that many of the digital assets themselves replicate or look like commodities. They're more like stores of value than they are securities.”

Tony Tuths, head of the digital assets team at KPMG Tax, told Cointelegraph that the legislation, under its current form is unlikely to “move forward” in the foreseeable future, adding it was unclear which coins will ultimately fall within the purview of the SEC versus the CTFC.

“On the regulatory side the legislation calls for the CFTC to be the primary regulator but then carves out a wide swath of tokens that have attributes similar to securities for regulation by the SEC. It will be a struggle to decipher what exactly is in the SEC bucket but it could be the exception that swallows the rule. “

The new bipartisan bill is expected to lean heavily on the Howey Test to determine whether a particular coin is classed as a security or a commodity.

“We’re trying to just fit the digital asset world into our current regulatory framework. […] We spent a lot of time on the definition of the modern Howey test,” said Senator Lummis during a CNBC interview on June 7.

The Howey Test is a framework set by the U.S. Supreme Court to determine whether a transaction qualifies as an investment contract, and thus considered security.

The Howey Test has become a focal point in the SEC’s case against Ripple which began in December 2020, alleging that the company used its digital token XRP to raise funds in 2013, and was an unregistered security token at the time.

SEC’s ‘Crypto Mom’ warns selling fractionalized NFTs could break the law

March 26, 2021 Coin Telegraph

Fractionalized NFTs and baskets of non-fungible tokens could easily be considered investment contracts under U.S. securities law, warns SEC Commissioner, Hester Peirce.

Speaking at Draper Goren Holm’s Security Token Summit on March 25, SEC commissioner Hester Peirce, also known as “Crypto Mom” warned the issuers of fractionalized non-fungible tokens and NFT index baskets that they could inadvertently be distributing investment products.

While Peirce stated that “the whole concept of an NFT is supposed to be non-fungible” — meaning that “in general, it’s less likely to be a security” — she noted that “people are being very creative in the type of NFTs they are putting out there.”

Peirce urged NFT issuers to be cautious if they decide to “sell fractional interests” in NFTs or NFT baskets, stating:

“You better be careful that you’re not creating something that’s an investment product — that is a security.”

With NFTs fetching increasingly exorbitant prices, fractionalized interests in these assets enable smaller investors to still be able to gain exposure to a small share of a high-priced NFT. Earlier this month, Cointelegraph reported on two emerging teams offering novel solutions for fractionalizing non-fungible tokens.

Peirce also criticized the use of the Howey Test to assess whether crypto assets are securities, asserting it “hasn’t worked that well” for the industry.

The Howey Test is frequently used by courts to determine whether an asset is a security, with the test being derived from a landmark 1946 court case concerning real estate contracts issued by the owner of a citrus grove to fund the business’ expansion.

Peirce said that if the test was used in the 1946 case in the same way it is applied to crypto, the courts would have been seeking to determine whether the fruit trees were securities, rather the investment contracts relating to the plants.

Peirce noted she hopes to collaborate with incoming SEC chairman Gary Gensler on developing her “safe harbor plan,” which would reduce regulatory scrutiny of emerging blockchain networks.

The safe harbor plan would allow new token issuers a three-year window in which to build a robust and decentralized network and demonstrate securities laws do not apply. The plan would also require that issuers provide detailed plans regarding the network’s roadmap, token sale, and the individuals and investors behind the project.

You have three years to develop the network so that the token is actually usable or the network is decentralized — and at that point, it's clear the securities laws don't apply. And everything that you say will be covered by the anti-fraud laws under the securities laws.”

Howey Test

Lawyers slam SEC for regulatory muscling

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