SEC Chair Gensler: Crypto Firms Had Fair Notice of Illegality, Made "Calculated Economic Decision"

“We’ve Seen This Story Before” — Remarks before the Piper Sandler Global Exchange & Fintech Conference

We’ve also provided years of guidance to market participants on what does or does not constitute a crypto asset security, including the DAO report in 2017 and the staff’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” in 2019. More than 100 Commission orders, settled actions, and court decisions also have made clear when the offer and sale of a token is a security, including our actions against Telegram, LBRY, and Kik.

In fact, we alleged just this week that Binance’s chief financial officer and chief compliance officer were aware of the Kik case’s relevance to their own business. According to our complaint against Binance, as a result of the SEC’s action against Kik, Binance insiders realized that they would need to “start prepping everything” for a subpoena and Wells notice relating to their exchange token, BNB, including a “War chest.”

When crypto asset market participants go on Twitter or TV and say they lacked “fair notice” that their conduct could be illegal, don’t believe it. They may have made a calculated economic decision to take the risk of enforcement as the cost of doing business.

Binance US to Be Cut Off From Banking System After SEC Crypto Suit

Binance.US is being cut off from its banking partners in the fallout from a Securities and Exchange Commission lawsuit against the cryptocurrency exchange.

In an email to customers, the platform said its payment and banking partners have signaled an intent to pause US dollar fiat channels as early as June 13.

That means “our ability to accept USD fiat deposits and process USD fiat withdrawals will be impacted,” the company said, while adding that it maintains 1:1 reserves for all customer assets.

Three years after Liu v. SEC, disgorgement is still a potent remedy for the SEC

When the Supreme Court in 2020 issued its decision in Liu v. SEC, placing limits upon the Securities and Exchange Commission’s ability to obtain disgorgement, many observers believed that the decision would significantly diminish the SEC’s capability to seek and obtain significant disgorgement recoveries in civil enforcement actions alleging violations of the securities laws. Now nearly three years since Liu, it is clear that the decision has had no real significant effect on disgorgement awards.

Post-Liu cases reveal that district courts have largely retained their pre-Liu approach to disgorgement, including allowing a “reasonable approximation” of net profits to substitute for a more precise analysis of unjust gains and placing any risk of uncertainty about the disgorgement amount upon the defendant. The retention of these and other elements of the pre-Liu approach to disgorgement have substantially blunted the impact of Liu.

UnTRustworthy

I guess one trade you could do is, like, you incorporate a company called Renaisssance Technologies LLC, and you register a domain like rentech.com, and you send out letters to a bunch of big institutional allocators and high-net-worth individuals saying “good news, Renaisssance Technologies is opening its prestigious Medalion Fund to a few selected investors, you are one of them, wire us some money, the fees are 5 and 50.” All of the typos in that sentence are intentional. And some people who get the letter miss the typos and think that Renaissance Technologies is opening its prestigious Medallion Fund to them, and they wire you $100 million, and then you have $100 million. You could steal it. Or, much better, you could invest it in a diversified portfolio of stocks and keep 5% of the assets plus 50% of the gains for yourself. Stealing it is a crime; investing it and charging the fees that you agreed to is … I mean … I don’t recommend it, but it’s an interesting idea.

Is it? Is this a thing? We talk sometimes around here about people who put out fake press releases announcing fake mergers, and sometimes the fake buyer is like KRK & Co. or Carlisle Group or Cerebrus or Blackst0ne or whatever, but I don’t think I’ve ever heard of someone intentionally creating a confusing company name to try to solicit investors. Until now!….

Crypto Winter: Maybe Coinbase Should Never Have Gone Public

Yet maybe we should debate a more fundamental requirement when it comes to an IPO like Coinbase. Given those identifiable dangers, does this look like a company that’s suitable for investor consumption — a sustainable business model, with non-material compliance risks, that serves some kind of utility beyond speculative trading? In hindsight, maybe not. Martin Finnegan, a partner at Punter Southall Law, says that while it’s obviously Coinbase’s responsibility to not break the law, it’s also true that stock exchanges are a “first line of defense” when it comes to the suitability of an IPO — and that, in this case, the legal risks might have deserved more than just a list of red flags.

Justice Department Launches Corporate Crime Database

The Justice Department under President Biden has said that cracking down on corporate crime is a priority. Soon it could be easier to see if prosecutors are measuring up to that promise.

The federal law enforcement agency has launched a corporate crime database, which for the first time aggregates all the cases and enforcement actions related to corporate wrongdoing. The database comes after a trio of Democratic lawmakers last year pushed the Justice Department to create such a resource, arguing that it would help strengthen law enforcement and provide benefits for researchers and the public.

New Crypto Banking System Emerges as Regulators Crack Down on Coinbase, Binance

Two months after the collapse of Silvergate Capital Corp. and Signature Bank, a new banking landscape for crypto companies is taking shape amid an expanding crackdown on the industry in the US.

In the US, crypto firms are turning to a handful of smaller regional lenders to open bank accounts. Customers Bancorp Inc., a Pennsylvania lender, has become a popular destination. Swiss and Asian banks are also playing a bigger role, though they still remain selective about their crypto clients. In the UK, where access to banking has also worsened, companies are instead turning to payment-service providers to bridge the gap.

As a result, crypto’s new banking system is more fragmented, less US-centric and, at times, less advertised….