Coinbase Argues Crypto is No More of a Security than Beanie Babies

Coinbase Trades Beanie Babies

But even if Coinbase wins, there’s something a little hollow about the victory. Bloomberg News reports:

“William Savitt, a lawyer for Coinbase, told US District Judge Katherine Polk Failla that tokens trading on the exchange aren’t securities subject to SEC jurisdiction because buyers don’t gain any rights as a part of their purchases, as they do with stocks or bonds. ‘It’s the difference between buying Beanie Babies Inc. and buying Beanie Babies,’ Savitt said. …”

***

The SEC’s argument here is that crypto tokens are an investment, promising some upside from some business building some network with some potential to do good things. Coinbase’s argument is that they aren’t, that it lists tokens that give investors no rights and that have no claim on any economic activity. Coinbase’s argument is that crypto is a trillion-dollar market for Beanie Babies, that it is not a way to raise money to fund real business ideas but simply a way to gamble on collectibles. “No, see, if you buy a crypto token, you get nothing, so there’s nothing for the SEC to regulate.” A good legal argument! But weird marketing!

Wall Street Counterattack on Gary Gensler Hits SEC’s Foundations

Nearly everyone who follows Gensler says he wants to go down as the most consequential SEC chair since Joseph Kennedy. Which is saying something, seeing as Joe Kennedy, father of JFK, was the very first chair of the SEC, the one brought in during the dark days of the Depression to root out fraudsters and get-rich-quick schemers and restore America’s faith in Wall Street.

Gensler insists, over and over, that he’s not racing any clock. But after one career on Wall Street, and well into a second in Washington, time is short.

***

If former President Donald Trump or another Republican wins the White House in November, Gensler, like many Democrats, will likely be forced to move on. If President Joe Biden prevails, Gensler might serve out his SEC term into 2026, at which point he’ll be pushing 70.

Either way, Gensler will almost certainly leave Washington without ever getting the job many suspect he’s always burned for: US Treasury Secretary.

***

The SEC said the suggestion that Gensler secretly wants to be Treasury Secretary is being used by opponents to attack his policy agenda. “As Chair Gensler has said multiple times, he couldn’t be more honored to be the SEC chair,” the agency added.

Sullivan & Cromwell Wins Big in FTX, Silicon Valley Bank Wrecks

The elite Wall Street firm has billed more than $180 million since November 2022 in leading FTX Trading Ltd. and Silicon Valley Bank’s parent through Chapter 11, according to an analysis of fee requests. The $180 million is equal to 10% of revenue the firm told The American Lawyer it collected in all of 2022.

For Sullivan & Cromwell, the huge fees are a sea change from slightly more than a decade ago, when the firm had never represented a bankrupt entity. Wall Street firms once considered Chapter 11 work beneath them and left it to other shops until “Big Law realized this was an incredibly lucrative business,” said Robert Keach, a former president of the American Bankruptcy Institute.

Former OpenSea Exec Argues NFT Insider Trading Conviction Violated Law

Nathaniel Chastain, the ex-OpenSea executive who was convicted last May of fraud and money laundering after profiting off several NFT collections he chose to highlight on the marketplace’s homepage, has asked a federal appeals court to overturn his conviction on the grounds that it improperly designated information about NFTs as “property.”

In a brief filed this week in the United States Court of Appeals for the Second Circuit, Chastain’s attorneys attempted to make the argument that the insider information Chastain used to his advantage in trading NFTs—namely, which NFT collections he planned to feature on OpenSea’s homepage—was not of particular value to OpenSea, and therefore not the company’s property.

Despite SEC’s novel alignment on bitcoin ETF vote, it’s regulatory politics as usual

A recent SEC vote to approve a spot bitcoin ETF was both typical – in that the agency split, 3-2, on a controversial decision, and extraordinary – in that the three “yeas” consisted of SEC Chair Gary Gensler and the two Republican commissioners.

But rather than representing a tectonic shift in the politics of regulation, the alignment of the five-member SEC on the bitcoin decision signals that the stark divisions that have characterized major rulemaking under Gensler will continue as the Securities and Exchange Commission wrestles with explosive pending regulations. That effort will unfold, however, with the looming threat of lawsuits by opponents and court decisions like the one that drove the bitcoin ETF outcome.

***

The bitcoin vote was different. For the first time in his nearly three-year tenure, Gensler sided with the two Republicans to approve 11 spot bitcoin ETFs. The alignment was startling but not a harbinger of Gensler’s shifting to the right in oversight.

“This vote is not going to usher in a new era of strange alliances on votes on rulemakings or other applications to list and trade products,” said Kurt Wolfe, counsel at Quinn Emanuel Urquhart & Sullivan.

Robinhood settles Massachusetts regulators’ trading case for $7.5 million

Online brokerage Robinhood on Thursday agreed to pay a $7.5 million fine and overhaul its practices to resolve allegations by Massachusetts’ securities regulators that it encouraged inexperienced investors to place risky trades.

Massachusetts Secretary of State Bill Galvin filed an enforcement action in 2020 alleging Robinhood’s app-based service used strategies that treated trading like a game to lure young, inexperienced customers into placing risky trades.

Galvin, the state’s top securities regulator, said such “gamification” strategies including having confetti rain down for each trade made on Robinhood’s app.

Best Short Call of 2023 Belongs to Amateur ‘Dirty Bubble’ Sleuth James Block

Block, now a second-year resident in psychiatry at the University of Michigan hospital, considers the collapse of the whole crypto edifice — what he views as little more than a collection of “pyramids and ponzis” — inevitable. In the meantime, faced with the current resurgence, he now views his role as chronicling the madness rather than curing it.

“It sounds kind of depressing, but I recognize how impotent facts are in these kind of scenarios,” he says. “It really doesn’t matter what’s true and what’s not true to people. They only care about what will make them money.”

Regulatory Reckoning: Navigating the New Era of Crypto Compliance and Maturation in 2024

2023 was a year of both challenge and stabilization in crypto. Traditional financial services (“tradfi”) entities scaled back their engagement with crypto and DeFi, exploratory partnerships never materialized, legislators cheered and raged at the industry, and more entities and individuals sought safe, trusted choices in crypto. Now, with the recent spot BTC ETF approval bringing more institutional and lower-risk investors into at least tangential engagement with crypto, what will the 2024 U.S. regulatory environment bring to bear, and how will that affect investment and engagement with crypto?

Regulatory Focus

Regulators have indicated that they will continue to focus on anti-money laundering, DeFi, financial intermediaries and conflicts of interest. To potentially avoid enforcement, regulated entities in crypto will need to have best-in-class transparency and compliance, and unregulated entities in crypto must either have a clear justification for the lack of regulation or must have no ties whatsoever to the U.S. – or, at the very least, no engagement or marketing to prospective U.S. clients and affirmative steps to block such activity.

Ex-Pfizer Employee Convicted of Insider Trading on Covid Pill

A former Pfizer Inc. employee was convicted of using confidential information about the company’s Covid-19 treatment to make illegal options trades, giving federal prosecutors yet another victory in their attempts to clamp down on insider trading.

Amit Dagar was found guilty on securities fraud and conspiracy following a one-week trial in federal court in New York before US District Judge Andrew Carter. He faces as much as 20 years in prison on the securities fraud charge at sentencing.

Dagar, of Hillsborough, New Jersey, was charged in June with four counts of securities fraud and one count of conspiracy for trading on confidential news about positive clinical trials for the drug, Paxlovid, and passing it on to a friend, Atul Bhiwapurkar, a day before the results were announced in November 2021.