Podcast: Carol Van Cleef with Carole House: Encouraging Responsible Digital Assets Innovation in US CyberSecurity and Infrastructure Policy. (June 2024)
Coinbase Ups The Ante In Its Campaign Against The SEC To Save Crypto In The U.S.
Carol Van Cleef, Washington DC lawyer and CEO of Luminous Group, said in an interview that “Any company suing the SEC faces an uphill battle…even if they win, any outcome on the merits – actual rules – could be years away. The crypto community is seemingly encouraged that Coinbase has gone on the offensive against the much demonized SEC for what the crypto community perceives as years of regulation by enforcement. However, Coinbase is not directly going on the offensive to attack the issue that most likely will underlie future litigation against it if or when its discussions with the SEC reach that point.”
Sometimes people file lawsuits not because they think they will win, but because they know the lawsuit is the only way to ignite the kind of conversation that will effect meaningful change.
In recent days Coinbase took two important steps to accelerate the conversation on how crypto assets in the U.S. will be regulated. First it responded – and made public its response – to a “Wells Notice” served by the SEC on the company in late March. Then, it took the bold step of suing the SEC, albeit on a “narrow” administrative matter in a U.S. federal court, to underscore the issues it asserts are adversely impacting U.S. residents and their access to and use of crypto.
While acknowledging that the Wells Notice “is not a formal charge or lawsuit,” the Company said “it can lead to one” and outlined several areas of SEC focus including operating an unregistered exchange, clearing agency and broker as well as its wallet offering and staking activities. On each point, its publicly available response made convincing arguments against the SEC’s positions.
The question is what is the long game here – minimize corporate disruption from potentially crippling enforcement actions, delay any type of enforcement action for as long as possible, force a quick turnaround on the agency’s apparent positions contrary to the interest of the Company’s customers, or provide a catalyst for accelerated Congressional action. While SEC Chair Gary Gensler may be long gone by the time any of these issues wind their way through the agency or the courts, in the short term, substantial corporate resources are being deployed in what increasingly looks like war. Or, at the very least a massive offensive to encourage broad scale discussions on the issues, including the formation of the Crypto 435 (whose first opponent may be Elizabeth Warren’s Anti-Crypto Army).
As Coinbase is trying to enlist the crypto community through its grassroots efforts to get involved in advocacy, it is also adding some heavy artillery to its front line to carry on the legal offensive. It has hired an ex-Trump Cabinet member and two former federal enforcers. Coinbase’s outside legal team now includes former U.S. Labor Secretary Eugene Scalia, who is a Gibson Dunn partner, and two former enforcement directors—Steven Peikin (SEC) and James McDonald (Commodity Futures Trading Commission), both of whom now are Sullivan & Cromwell partners and who with colleague Kathleen McArthur, filed the Wells response on behalf of Coinbase. Each of the three charges clients more than $2,100 per hour, based on filings the firm made as part of its representation of FTX in the collapsed crypto exchange’s bankruptcy. Jay Clayton, the former SEC chair, is also of counsel at Sullivan & Cromwell, one of Wall Street’s priciest and best-known law firms.
The lawsuit filed by Scalia and his team at Gibson Dunn in the Third Circuit asks the court to compel the SEC to respond to a rule-making petition Coinbase filed last year to address a number of issues raised by the Company. Coinbase makes clear that it “is not asking the Court to instruct the agency how to respond. We are simply requesting that the Court order the SEC to respond at all, which they are legally obligated to.” Coinbase argues that the SEC is violating the Administrative Procedure Act by failing to respond within a reasonable time.
Carol Van Cleef stated that “Any company suing the SEC faces an uphill battle…even if they win, any outcome on the merits – actual rules – could be years away.”
In the meantime, shareholders of Coinbase may question the utility of the lawsuit and whether it is more of a distraction for the coming battle whose lines appear to be drawn in the Wells Notice. Should Coinbase be using funds for this purpose? There is precedent for shareholders suing Coinbase. In 2021, a derivative suit was filed in Delaware over executive mismanagement against CEO Brian Armstrong, CFO Alesia Haas, and Chief Account Officer Jennifer Jones. Additionally, directors Fred Ehrsam, Marc Andreesen, Kathryn Haun, Gokul Rajaram, and Fred Wilson were listed as defendants. The lawsuit sought to have the executives pay damages to Coinbase itself. Various other lawsuits have been filed against Coinbase regarding its IPO, including one in New Jersey and one in the Northern District of California.
What is clear from all of this is that the battles to gain greater real or perceived regulatory clarity will continue to use resources on both sides.
Podcast: How are stablecoins different to CBDCs in terms of risk? (April 2023)
Pawel Kuskowski talks to Carol Van Cleef about stablecoins and how they could present systemic risk, the key differences between USDT and USDC and how stablecoins are backed. They also discuss the regulatory considerations when USDT hit the 50 billion mark and why USDT acquired mass adoption.
List to Gatenox Podcast
Podcast: What are the global regulations around VASPs? (April 2023)
Gatenox CEO, Pawel Kuskowski invited Director and Head of Public Affairs, Policy, Regulatory Affairs of Xapo Bank, Joey Garcia to discuss the global regulations around VASPs. Joey shares his viewpoint on why access points into crypto should be regulated and the types of market abuse which can happen in crypto exchanges.
Listen to Gatenox Podcast
Podcast: The State of AML and CFT in Crypto(April 2023)
Pawel Kuskowski talks to Amanda Wick, founder and CEO of The Association of Women in Crypto, former Chief of Legal Affairs at Chainalysis about how more important questions to ask are “How do you detect money laundering?”
Listen to Gatenox Podcast
Never Underestimate the Power of Good Sanctions Compliance
U.S. crypto exchange, Kraken, is suspected of violating sanctions. According to the NY Times, the U.S. Treasury Department’s Office of Foreign Assets Control has been investigating Kraken since 2019 and is expected to impose a fine. Kraken would be the largest U.S. crypto firm to face an enforcement action from OFAC Sanctions against Iran, which the U.S. imposed in 1979.
A good sanctions compliance program can significantly mitigate fines if it’s adequately implemented and effective.
Time to File Your 2022 Annual Report of Blocked Property
Holders of blocked property must file an Annual Report of Blocked Property (ARBP) with the Office of Foreign Assets Control (OFAC) that includes a comprehensive list of all blocked property held as of June 30, 2022, by September 30, 2022. This requirement applies to all U.S. persons who have or have had in their possession any property blocked pursuant 31 C.F.R. § 501.603 of the Reporting, Procedures and Penalties Regulations (RPPR).
Mixing Things Up
As a result of the U.S. Treasury Department’s action, all U.S. properties and interests belonging to Blender.io must be blocked and reported to the Office of Foreign Asset Control (OFAC). The Treasury determined that the Blender.io mixer was used to obfuscate and launder more than $20.5 million from a recent hack.
The U.S. Treasury Department reiterated in connection with its actions against Blender.io, “the virtual currency mixers that assist criminals are a threat to U.S. national security interests. Treasury will continue to investigate the use of mixers for illicit purposes and consider the range of authorities Treasury has to respond to illicit financing risks in the virtual currency ecosystem.”
President Biden’s Executive Order (EO) 14067 titled “Ensuring Responsible Development of Digital Assets,” called for among other things, steps to mitigate the risks discussed in the FRB’s Financial Stability Report.
Who put “Stable” in the word Stablecoins? Coincidence? On the same day the Federal Reserve Board issued its Financial Stability Report addressing stablecoins, all hell broke loose in the cryptocurrency markets due to a stablecoins instability.
The Report identified Stablecoins as vulnerable to runs, and noted the sector continues to grow rapidly. The report was issued against the backdrop of drama surrounding TerraUSD (“UST”).
Read Full Article (June 2022)
Peirce’s Safe Harbor is Worth a Look, But It May Not Be Worth the Effort
Despite our skepticism, the proposal has attracted much attention and significant praise from the crypto community.
The important question is whether the crypto community should invest its time and resources in support of the Peirce proposal.
Alternative pathways. Although a fledgling group in Congress understands the technology and its potential, obtaining a legislative consensus on any one proposal is complicated under the best of circumstances.
Regulatory action involves far fewer people and potential pitfalls but it is not necessarily quicker or more certain.
Additionally, a detailed list of information about each project must be made available initially on a freely accessible public website and updated upon change.
The proposed SH is narrow in scope: simplify the process of raising capital in certain types of token projects involving the development of a functional or decentralized network, thereby encouraging developers to continue innovating in the United States.
To what extent will projects be required to continuously validate platforms’ claims of compliance? Can crypto support change the odds? With the support of the crypto community, can the odds of the SH becoming law or regulation change?
If the community decides this proposal – or another – has value and ultimately should become law, it needs to engage both individually and collectively through industry groups and coalitions.
February 2020
Executives from Celsius Network, TD Ameritrade, Asensys, Amberdata, O(1) Labs, RADAR, Luminous Group, and HerCode comprise initial guest line-up for Season 3 of Crypto Token Talk Podcast