The "Sword of Damocles" Hanging Over the Entire Crypto Industry

Crypto’s nightmare scenario is here

And in the months leading up to the petition, executives had been howling for more explicit SEC guidance, with the threat looming that the federal government would conclude much of the industry amounted to trafficking unregistered securities.

”That’s the Sword of Damocles over this trillion dollar industry,” said Jay Verret, professor of law at George Mason University and a critic of the SEC’s approach to crypto, who said the issue has hung over the industry for the past five years.

But the industry was not looking for the sort of guidance that came in last week’s insider trading complaint against a former Coinbase employee, which declared that several crypto tokens offered by the exchange qualify as securities — or the sort that could come from the logical consequence of that finding: The investigation of Coinbase for possible listing of unregistered securities, whose existence Bloomberg reported on Monday.

Is the SEC’s In-House Court System in Jeopardy?

The significance of the Jarkesy decision cannot be overstated, and for that reason the SEC on July 1 asked the full Fifth Circuit to reconsider the ruling. Depending on the outcome of the petition, the commission could also seek US Supreme Court review.

If the Jarkesy decision stands, it could lead to fundamental changes in the way the SEC has operated for decades. In the wake of Lucia v. SEC, which held that the commission’s ALJs had been unconstitutionally appointed, the SEC began to bring the bulk of its contested enforcement actions in federal court.

If Jarkesy were to become the law in other circuits, what may have been a temporary move to federal court could become permanent, given the continued success defendants are having in challenging administrative proceedings.

Carson Block Sued Over $14 Million SEC Whistle-Blower Award

Short seller Carson Block was sued for allegedly failing to share a $14 million whistle-blower award he received from the US Securities and Exchange Commission for exposing an ongoing fraud.

Kevin Barnes said in a lawsuit filed Tuesday in New York state court that he co-authored the report that netted Block and his firm Muddy Waters LLC the March 2022 award. Barnes accused Block of breach of partnership and is seeking half of the amount.

Bankrupt Crypto Brokerage Voyager Ordered to Cease False Promises About U.S. Banking Insurance

U.S. regulators issued a joint letter ordering bankrupt cryptocurrency broker and lender Voyager Digital Ltd. to cease and desist from marketing itself as insured by the Federal Deposit Insurance Corp., saying statements on its website and elsewhere were false and misleading.

The joint letter released Thursday, from the Federal Reserve and FDIC, said the company’s statements “likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds.”

SPAC Execs Allegedly Misrepresented Target Company’s Business to Complete Deal

According to the latest statistics from SPACInsider, there are currently over 580 SPACs seeking merger partners. Financial media reports have already speculated that many of the searching SPACs may not find a suitable merger partner within the applicable search period. One concern from this combination of circumstances is that some SPACs may feel pressure to do whatever they have to do to complete a deal, any deal. As I have noted in prior posts, deals completed under these kinds of circumstances can later subject the SPAC managers to scrutiny and perhaps even litigation.

US Tech Bill Creates White House Blockchain Adviser Role

A U.S. bill to boost computer chip manufacturing that’s heading to President Joe Biden’s desk will also establish a crypto advisory role inside his administration.

The bipartisan legislation, which cleared both chambers of Congress after a House vote on Thursday, will establish a new adviser on blockchain and cryptocurrency issues who will work in the Office of Science and Technology Policy.

Ex-CFTC Chairman Sees Europe’s MiCA Bill as Threat to US Crypto IndustryFormer Commodity Futures Trading Commission chief Chris Giancarlo is worried that the European Union’s fast-moving Markets in Crypto Assets (MiCA) bill could lead to the global export of European-style crypto regulation, hurting U.S. regulators’ ability to effectively create rules of their own.

The landmark legal framework, which hasn’t been made law yet, aims to provide regulatory clarity to the growing crypto industry in Europe.

“I’m very concerned with the rapidity of MiCA’s evolution,” Giancarlo said at Solidus Labs’ annual DACOM summit in New York on Thursday. “It’s got some very expansive provisions that would, in a sense, export its approach to crypto assets to the United States.”