SEC Chair Gensler Emphasizes (Again): Existing SEC Rules Apply to Crypto

SEC Chair Gary Gensler remarks on crypto assets at Financial Markets Conference 2023

In Q&A following a keynote address at the Financial Markets Conference 2023 on May 15, SEC Chair Gary Gensler responded to several questions about crypto assets.

Gensler emphasized the following points:

· Existing SEC rules apply to crypto assets, and crypto entities need to come into compliance.

· The SEC has brought about 140 cases relating to crypto assets. About 80 were before Gensler took office.

· It’s a “false narrative” that crypto is decentralized. The original concept of Satoshi Nakamoto was for crypto assets to be decentralized, but crypto has become increasingly centralized, as finance has tended to do since antiquity.

· Despite skeptical views on traditional authorities, crypto industry participants very much rely on the law when they end up in bankruptcy court.

· Crypto is interconnected with traditional banks. Of the four banks that recently failed, three had significant involvement with crypto.

Former Chief Financial Officer of $21 Billion Biopharmaceutical Company Admits Insider Trading

The former chief financial officer for a biopharmaceutical company today admitted his role in an insider trading scheme, U.S. Attorney Philip R. Sellinger announced.

Usama Malik, 48, of Washington, D.C., pleaded guilty today before U.S. District Judge John Michael Vazquez in Newark federal court to Count One of an indictment charging him with securities fraud/insider trading.

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Malik was among the first, and one of the few, employees who received material non-public information about the breast cancer drug before the public announcement. Within minutes of obtaining that information, Malik passed it along to Lauren S. Wood, 34, also of Washington, D.C. Wood lived with Malik at the time and was formerly employed by the same company as him. Before April 6, 2020, and within hours of receiving the insider information from Malik, Wood placed an order for approximately 7,000 shares of the company’s stock, despite the fact that during the same time period the company’s stock was downgraded by financial experts. After the company announced that its cancer drug had proven effective in pre-market clinical trials, its stock price increased. After selling her shares, Wood realized a significant profit.

The count to which Malik pleaded guilty is punishable by a statutory maximum penalty of 20 years in prison and a maximum fine of $5 million. Sentencing is scheduled for Sept. 18, 2023.

Source: Why Tether Cannot Be Trusted | John Reed Stark

IMHO, Tether is not to be trusted.

Tether, the first stablecoin, apparently headquartered in Road Town, Trinity Chambers, British Virgin Islands, has spent seven years promising transparency, credibility and audits. Yet still has provided none.

Theranos founder Elizabeth Holmes to report to prison in two weeks 

Theranos founder Elizabeth Holmes will begin serving her prison sentence on May 30 for defrauding investors in the failed blood-testing startup once valued at $9 billion.

U.S. District Judge Edward Davila set the date on Wednesday for Holmes, 39, to begin serving 11 years and three months in prison.

Do hypothetical risk disclosures give rise to securities claims?

Risks inhere in every business. That is why Securities and Exchange Commission rules require public companies to specify the material risks that make an investment in it speculative and risky. These required disclosures have become a prime target of securities fraud claims in recent years where already materialized risks are described in hypothetical terms.

The Crypto Market is a Gamble. Regulating It Shouldn’t Be.

At the consumer-protection level, again in theory, gambling-style regulation could also be a boon. Sports teams wouldn’t be able to chase crypto sponsorships as an alternative to advertising for bookmakers. Crypto businesses would have new responsibilities regarding problem and under-age gamblers, on top of tax evasion and money laundering. Advertisers might have to publicize estimates that as many as 81% of users piling into Bitcoin between 2015 and 2022 lost money. As one recovering crypto addict told the Guardian last year: “Trading is gambling, there’s no doubt about it.”

But in practice, re-labeling crypto might trade one set of problems for another. The implication is that the $1.2 trillion crypto industry would find itself on a tighter regulatory leash, but the reality of enforcement tells a different story. The UK’s Gambling Commission, for example, has about 300 employees, or around one-tenth the staff of the Financial Conduct Authority — which itself has had its work cut out dealing with everything from exchanges such as Binance to crypto ATMs. The history of gambling regulation in the UK is also littered with regulatory capture and consumer-protection failures, even if today it’s making a serious attempt at turning over a new leaf.

Filecoin Price Drops After SEC Asks Grayscale to Withdraw Application to Make Trust Reporting

The U.S. Securities and Exchange Commission (SEC) asked Grayscale to withdraw its application to make its Filecoin (FIL) Trust product more like a public company, the asset manager revealed Wednesday.

Grayscale had voluntarily filed a Form 10 to make its Filecoin Trust product a reporting company under which it would have been required to file quarterly and annual reports. The SEC has now asked Grayscale withdraw that application.

Grayscale said in a press release that it had received a comment letter from the federal securities regulator saying FIL “meets the definition of a security.”

Robinhood to Pay $1 Million to Settle Suit Over Hacked Accounts

Robinhood Financial LLC and Robinhood Securities LLC will pay nearly $1 million to settle allegations that they negligently failed to protect online brokerage accounts from hackers, under a deal given final approval by a federal judge.

The deal provides for a fund of $500,000 to cover class members’ claims, and separate payments of $484,000 for attorneys’ fees and $15,460 for litigation expenses.

Magistrate Judge Susan van Keulen of the US District Court for the Northern District of California granted the plaintiffs’ motion for final approval of the settlement Tuesday.

Florida Gov. Ron DeSantis Waging Toothless Campaign Against Digital Dollars, Lawyers Say

The state-level campaign against a U.S. digital dollar made its first foray into established law with Governor Ron DeSantis’ signature on Florida’s effort to block the use of virtual government-backed money in business transactions.

But the Florida governor’s rhetoric that his state is banning central bank digital currencies (CBDCs) as “government overreach and woke corporate monitoring” may not amount to much on paper. Legal experts in this facet of commercial law suggest the state’s effort is nonsensical and potentially harmful for the digital assets sector DeSantis said he’s trying to protect.

“They didn’t ban anything,” said Carla Reyes, an assistant professor at Southern Methodist University’s Dedman School of Law, who has done work in both digital assets law and the Uniform Commercial Code (UCC) that Florida is focused on. “The law does exactly zero of the things that it says that it does.”