The Proposed Private Fund Advisers Rule that VCs Hate

A Proposed SEC Rule is Roiling the VC World

A potential new rule from the US Securities and Exchange Commission is unsettling the venture capital class.

The change would make it easier to sue investors for negligence, and could make VCs more culpable for failures at the startups they back. The rule, designed to address “lack of transparency, conflicts of interest” and other problems in the private markets, could be particularly impactful in a turbulent market environment. Recent months’ spate of startup scandals includes (but isn’t limited to!) the implosion of the now-disgraced crypto exchange FTX, which drew praise and dollars from some of the top names in venture capital.

Blowback to the proposed rule has been fierce. VCs say it would get in the way of one of their core functions: providing assistance to portfolio companies. According to the industry trade group the National Venture Capital Association, if the change goes through with its current wording, the more involved a VC is in a company, the more culpable that VC could be for problems down the line.

McDonald’s, SEC Saga Creates Reporting Headaches for Companies

The SEC’s unprecedented finding that McDonald’s didn’t disclose enough information about a CEO firing is prompting questions about whether companies have sufficiently clear guidance on what to tell investors in similar situations.

The fast food giant deemed its 2019 firing of Steve Easterbrook—for having a relationship with a subordinate—as termination “without cause.” That allowed Easterbrook to leave with tens of millions of dollars in compensation that would’ve otherwise been forfeited, the SEC said.

McDonald’s decision to not publicly reveal more information about its exercised discretion violated federal securities law, the SEC said last week.

The finding is a novel interpretation of the Securities Exchange Act and is inconsistent with how companies often approach disclosures, attorneys said.

SEC Tightens Cryptocurrency Enforcement

The Securities and Exchange Commission continues to make cryptocurrency-related enforcement a top priority under Chair Gary Gensler, bringing 30 enforcement actions against digital-asset market participants in 2022, up 50% from the 20 actions brought in 2021 and the highest number since 2013, according to a Cornerstone Research report released today.

The report, SEC Cryptocurrency Enforcement: 2022 Update, found that the SEC brought 24 litigation actions in U.S. federal courts and six administrative proceedings in 2022. The number of litigations particularly increased from 14 the previous year. According to the report, which is based on data from Cornerstone Research’s Cryptocurrency Enforcement Database, in 2022 the SEC also issued two delinquent filing orders, two follow-on actions, and one stop order pursuant to Section 8(d) of the Securities Act.

SEC Comes for Gemini Too LateThis is easy stuff. People in crypto don’t like it, but that’s because they are wrong. More specifically, they have an intuition like “if a crypto platform pays you interest on your crypto deposits and uses them to make loans, that is like a bank account, and a bank account is not a security.” But that’s because IT’S A BANK ACCOUNT. Like:

Securities regulator: Your Earn product is a security and needs to be registered with us.

Crypto platform operator: That’s ridiculous, Earn is just like a bank account, that’s not a security.

Banking regulator: Hi! I couldn’t help overhearing. Did you just say that YOU WOULD LIKE US TO REGULATE YOU AS A BANK?

Crypto platform operator: [screams, dives out window]

Winklevoss Twins Deflect Blame as Gemini Faces Lawsuit

As crypto experiences its version of the Great Comeuppance, the tidal wave of schadenfreude I wrote about two weeks ago, everyone is blaming everyone else but themselves. Even so, the deflections of the Winkelvii are especially rich, given that the brothers spent years telling anyone who would listen that they would never, ever do anything that might be perceived as reckless or risky, often using their old foe, Facebook—which paid them $65 million to settle a lawsuit that claimed Zuckerberg stole their idea for his social network—as their preferred marketing foil.

Whereas Facebook once urged employees to “move fast and break things,” Cameron and Tyler bragged that their exchange was about embracing regulations….

Crypto is back — in Davos, at least — as redemption tour rolls on

After a year of massive losses, arrests and unfolding legal troubles, many of the world’s largest cryptocurrency and blockchain companies are back in Davos this year, hoping to shore up — or resuscitate, if necessary — the industry’s image and attract new investors.

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“We’re coming in with guns blazing,” said Dante Disparte, chief strategy officer for Circle, a digital currency and payments company. He added, “2022 was crypto’s dot-com-bust moment. Now we’re bringing in key executives and putting on a lot of content that shows that the technology is here to stay. It’s durable. It’s a crucial part of modernizing the global financial system. This is an agenda-setting moment that matters.”

Congress’ FTX Problem: 1 in 3 Members Got Cash From Crypto Exchange’s Bosses

More than one in three of the 535 senators and representatives in the U.S. Congress showed up to the new session with FTX baggage, having received campaign support from one of the senior executives of the fraud-ridden crypto giant.

CoinDesk has identified 196 members of the new Congress – many of whom were just sworn in last week – who took cash from Sam Bankman-Fried or other senior executives at FTX, a crypto exchange that filed for bankruptcy in Delaware in November after CoinDesk revealed unusually close ties between FTX and Alameda Research, an affiliated hedge fund. The names in Congress range from the heights of both chambers, including new Speaker of the House Kevin McCarthy (R-Calif.) and Senate Majority Leader Chuck Schumer (D-N.Y.), down to a list of recipients new to high-level politics.

A Crypto Magnate Saw the Risks and Still Was Hammered

A year ago, Barry Silbert’s 40% stake in Digital Currency Group Inc., or DCG, was valued at more than $3 billion. A crypto conglomerate, with tentacles in nearly every corner of the industry from lending to bitcoin mining, DCG worked out of plush Connecticut offices featuring a marble-countertop kitchen with a coffee barista and a French chef.

Mr. Silbert is a 46-year-old finance veteran who began his career working on restructurings and dealing with downturns. Unlike many crypto executives, he tweeted warnings about the risky behavior he saw in digital assets, suggesting he anticipated what could go wrong.

Today, Mr. Silbert is trying to keep DCG’s lending firm out of bankruptcy. Other DCG businesses, such as fund manager Grayscale Investments, bitcoin miner Foundry and media-and-events provider CoinDesk also face significant challenges.

FTX Collapse Puts Focus on Ripple Case for Who Should Regulate CryptoIn the wake of the implosion of cryptocurrency exchange FTX, one urgent question keeps resurfacing: Who should regulate the industry?

An upcoming ruling in New York federal court could help determine the answer, along with the fates of numerous crypto investors and companies. The case hinges on whether a prominent digital token should be treated as a security, which would fall under the Securities & Exchange Commission’s jurisdiction.

The dispute dates back to 2020, when the SEC accused San Francisco-based Ripple Labs Inc. of selling unregistered digital tokens without adequate disclosure.