Ninth Circuit Upholds Dismissal of Law Firm's Case Against SEC on Use of Ether

Crypto law firm loses appeal to force SEC’s hand on Ether classification

United States appeals court has backed a California federal judge’s decision to throw out a crypto-focused law firm’s pre-emptive lawsuit against the Securities and Exchange Commission — an attempt to force the regulator to clarify its classification of Ether.

Hodl Law’s November 2022 complaint against the regulator in a San Diego district court failed to show “a realistic danger” of it facing SEC enforcement action for breaking securities laws just because it used the Ethereum blockchain and its token Ether (ETH), a Ninth Circuit appeals court panel said on Aug. 22.

“Hodl Law’s complaint contains no allegations that the SEC has investigated, prosecuted, or threatened to investigate or prosecute the law firm’s use of Ether or Ethereum,” the three-judge panel wrote in an unpublished opinion.

Harris and Trump Shouldn't Pander to the Crypto Crowd

It’s hard to square this kind of thing with the broader national interest. In the 15 or so years since Bitcoin was invented, digital tokens have proved to be of essentially no practical value. Just 1% of Americans say they used them for a payment or money transfer last year. More often crypto is used to move money outside of government oversight. That’s helpful for criminals, terrorists and anyone under sanctions. But these are hardly the constituencies that a presidential candidate should be soliciting. Nor should policymakers be encouraging people to park their savings in digital wallets instead of stocks, bonds and other assets that support the real economy.

Instead, candidates should promise to work with Congress and regulators to ensure that the rules applied to cryptocurrencies are consistent with existing laws on fraud, money laundering and sanctions enforcement. If the technology is as innovative and useful as its advocates assert, then playing by the rules shouldn’t be a problem. No amount of campaign cash should lead candidates to think otherwise.

SEC Charges Transfer Agent Equiniti Trust Co. with Failing to Protect Client Funds Against Cyber Intrusions

The Securities and Exchange Commission today announced settled charges against New York-based registered transfer agent Equiniti Trust Company LLC, formerly known as American Stock Transfer & Trust Company LLC, for failing to assure that client securities and funds were protected against theft or misuse. Those failures led to the loss of more than $6.6 million of client funds as a result of two separate cyber intrusions in 2022 and 2023. American Stock Transfer was able to recover approximately $2.6 million of the losses and fully reimbursed the clients for their losses. To settle the SEC’s charges, Equiniti agreed to pay a civil penalty of $850,000.

According to the SEC’s order, in September 2022, an unknown threat actor hijacked a pre-existing email chain between what was then American Stock Transfer and a U.S.-based public-issuer client. The threat actor, pretending to be an employee at the issuer, then instructed American Stock Transfer to issue millions of new shares of the issuer, liquidate those shares, and send the proceeds to an overseas bank. The SEC’s order finds that American Stock Transfer followed these instructions and transferred approximately $4.78 million to bank accounts located in Hong Kong, of which American Stock Transfer was able to recover approximately $1 million.

SEC’s former crypto chief gets much needed R & R before switching to private practice

Hirsch said, however, SEC leaders and staff don’t believe crypto to be an inherently violative industry.

“Crypto is inherently a technology, so the question is: How are folks applying that technology?” he said, adding that Gensler and SEC enforcement enforcement director Gurbir Grewal talk about being technologically neutral.

“There are opportunities there to find ways to align the interests of developers and innovators with obligations under the law,” Hirsch said.

For example, Hirsch said blockchain has developed enough during his time at the SEC that it could one day lower costs associated with payments and reduce settlement times.

“The infrastructure of crypto has developed dramatically during that time frame, and continues to mature,” he said.

SEC Enforcement – Top Seven Developments from June 2024

…In this alert, we briefly summarize the top seven securities enforcement and litigation developments from the last month, including:

Two seismic Supreme Court decisions overruling Chevron deference and reshaping administrative law;

The Supreme Court’s recent decision in SEC v. Jarkesy;

The Fifth Circuit’s ruling vacating the SEC’s new private fund rules;

A novel action applying Exchange Act Section 13(b)(2)(B) in the cybersecurity context;

An action targeting misstatements made by issuer regarding its use of artificial intelligence;

A Marketing Rule action arising from misleading performance advertisements;

and The $4.5 billion penalty agreed to by Terraform Labs and its founder following their April fraud verdict.