Court Grants SEC Summary Judgment in LBRY Crypto Case, Rejects "Fair Notice" Defense

SEC wins suit against LBRY in major blow to crypto token issuance

The Securities and Exchange Commission has prevailed in a courtroom battle with decentralized publishing platform LBRY after arguing that its token was subject to regulatory oversight.

The court found that LBRY’s LBC token was an investment contract, even though the project did not sell it via an initial coin offering, or ICO. The project began in 2016 with the stated aim of decentralizing publishing.

“LBRY is mistaken about both the facts and the law,” the New Hampshire District Court said in the decision. Judge Paul Barbadoro granted the SEC’s motion for summary judgment, sealing the fate of a case that begin last March.

The decision is a major blow to crypto issuers, many of whom have argued that the SEC is pursuing a course of “regulation by enforcement….”

U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud

U.S. Attorney Damian Williams said: “James Zhong committed wire fraud over a decade ago when he stole approximately 50,000 Bitcoin from Silk Road. For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery. Thanks to state-of-the-art cryptocurrency tracing and good old-fashioned police work, law enforcement located and recovered this impressive cache of crime proceeds. This case shows that we won’t stop following the money, no matter how expertly hidden, even to a circuit board in the bottom of a popcorn tin.”

IRS-CI Special Agent in Charge Tyler Hatcher said: “Mr. Zhong executed a sophisticated scheme designed to steal bitcoin from the notorious Silk Road Marketplace. Once he was successful in his heist, he attempted to hide his spoils through a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the ‘darknet.’ IRS-CI Special Agents are the best in the world at following the money through cyberspace or wherever our financial investigations lead us. We will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice.”

Theranos Founder Elizabeth Holmes Is Denied a Bid for New Trial

A federal judge denied Elizabeth Holmes’s bid for a new trial, the latest setback for the Theranos Inc. founder who was convicted of fraud in January.

U.S. District Judge Edward Davila, who oversaw Ms. Holmes’s trial which began last year, said in a ruling late Monday that the arguments in her three motions for a new trial didn’t introduce material new evidence or establish government misconduct, adding that a new trial was unlikely to result in an acquittal.

Ms. Holmes is scheduled for sentencing on Nov. 18. Earlier Monday, a court probation officer submitted a presentence report, an investigation into Ms. Holmes’s legal and personal background.

MoviePass Was Not a Good Business

It is an unusual sort of securities fraud. The basic allegation is that Farnsworth and Lowe were constantly asked if MoviePass could make money with a $9.95 unlimited monthly subscription, and they constantly said “sure probably somehow,” and it never did. Which is all true. But also its financial statements were public, and more or less accurate. They never claimed that MoviePass did make money. They just claimed that maybe one day it somehow could make money, with some hand-waving about big data and artificial intelligence.

They were totally wrong, as it turns out, and prosecutors allege that they never believed it themselves. But it was the sort of thing that everyone was saying. They were just doing what they were supposed to do, selling a product below its marginal cost in order to get lots of subscribers quickly. It worked really well, and they got a lot of subscribers quickly and lost money on all of them, and then they went bankrupt. It was not a good idea. But it was kind of what the market demanded.

Meanwhile they were flailing around in private trying to figure out how they could make money….

Supreme Court Seems Poised to Streamline Challenges to Agency Power

A majority of the justices seemed prepared to say that people and companies subject to agencies’ enforcement actions should not have to wait until administrative proceedings are completed before they can raise at least some constitutional objections to the agencies’ structures in federal trial courts.

“What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process?” Judge Samuel A. Alito Jr. asked.

SolarWinds says it’s facing SEC ‘enforcement action’ over 2020 hack

In a recent 8-K filing with the U.S. Securities and Exchange Commission, SolarWinds said it reached an agreement with shareholders, who sued the company alleging they were misled about the 2020 hack. Investors accused the software house, which makes network management tools used by corporations and government departments, of misrepresenting its security and failing to adequately monitor cybersecurity risks. SolarWinds will not accept any liability or admit fault as part of the shareholder suit, if a court agrees to the settlement.

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In the same filing, SolarWinds also said it received a Wells notice from the SEC, informing the company of the regulator’s intention to file enforcement action “with respect to its cybersecurity disclosures and public statements, as well as its internal controls and disclosure controls and procedures.” SolarWinds said its disclosures and public statements at the time of the breach were “appropriate,” but did not elaborate.

Wood Products Company Hit with ESG “Greenwashing” Securities Suit

The hot button topic in both the investing world and the D&O insurance world these days is “ESG.” Setting aside the fundamental problem that nobody actually knows what ESG is, there is the inextricably related problem that the D&O claims risk related to ESG is fundamentally misunderstood. The current basic premise in the D&O insurance world is that companies that are “good” on ESG (whatever that means) represent better D&O insurance risks. Yet, as I have documented in numerous posts on this site (most recently here), it is not the ESG laggards that are getting hit with D&O claims; the claims are in fact being filed against companies that are proactive on ESG issues.