Intro/Disclaimer: A few months ago I started preparing updates for the attorneys at my firm practicing in the Web3 space regarding what legal stories people were talking about the prior week. I believe eventually we are going to do monthly or bi-weekly posts on the award winning BitBlog summarizing the top stories with tl;dr breakdowns on the stories’ importance and general thoughts on their ripple effects on the industry. In the meantime, I thought I would start putting the weekly updates on my personal blog as well on Tuesdays. Note, any opinions from these (or any of my other) blogs are mine alone, and are not adopted or endorsed by my firm.
Lots of Hopium this week, as Coinbase defeated a securities class action and LBRY got an apparent win on the damages phase of their case. But, as I explain below, these are admittedly small (and in the case of LBRY, insignificantly so) victories. Small victories are still better than no victories, though! Huzzah! Here are the top stories from the past week in the world of crypto:
Securities Class Action Against Coinbase Dismissed
Coinbase obtained a big win against a prospective class action, with a Southern District of New York court dismissing all claims of federal securities law violations with prejudice, and dismissing (but allowing to be re-filed in state court) claims regarding violations of various state securities laws. The Opinion and Order is available here.
Tl;dr– This was a big win, as the case was (mostly) dismissed on substantive grounds as opposed to jurisdictional or some other procedural technicality. The Court primarily based its ruling on the Coinbase terms, which make clear that it facilitates transactions between parties, but does not actually custody or directly sell the crypto-assets purchased on its exchange. There was at least some procedural element to the ruling, as the Plaintiff attempted to amend around this type of ruling, but the Court ignored that attempt under well settled law that you cannot plead amended allegations which directly contradict previous claims. While this case isn’t exactly identical to a potential case brought by the SEC, it does forecast some of the arguments we could expect to see in such a case by both Coinbase and the SEC.
SEC Gives Up on Fight for Library Secondary Sales Injunction
Back in November, crypto-YouTube developer LBRY lost summary judgment regarding its sale of pre-mined LBRY tokens. You can read the firm’s breakdown of that ruling here. This past week, the judge heard arguments from both sides as well as amicus attorneys on what damages the SEC would be entitled to as a part of this ruling. Apparently, the judge stated during that hearing that any injunctive relief would not apply to non-party secondary sales of LBRY tokens. An issue which the SEC allegedly conceded was beyond the scope of the Court’s Summary Judgment ruling.
Tl;dr– We will need to see what Order on damages says, but this was largely overblown in terms of real legal implications of the SEC’s concession. The Court does not have jurisdiction to issue an injunction against non-litigating third-parties over a subject which wasn’t litigated in the case (if the LBRY token is itself a “security” or if secondary sales by third parties are “securities transactions”). The SEC conceding to that legal reality, while better than the Court issuing an overbroad order which exceeds the Court’s jurisdiction, has no real legal significance beyond this case. End of day, there is no clarity on if LBRY token (or any other token) is a “security” making all those token sales “security transactions”, or if only certain sales by certain individuals are “investment contracts” and other sales are something else.
The highly anticipated examiner report in the Celsius bankruptcy case was released this week and it is 689 pages of trashing against actions taken by Celsius founders and insiders. Stephen Rutenberg wrote a solid tl;dr update on the report, available here.
The UK released its long awaited proposed rules and regulations for Web3 industry participants operating in the UK or serving its residents. While some have criticized aspects of the law (such as regulations regarding advertisement of crypto-products), it seems to have fairly positive reception by many industry participants. Unlike the reception about the Craig Wright case against Bitcoin developers going to trial, which is sub-optimal.
The DAO Research Collective released their article on DAO governance models. Great resource for explaining different governance models for individuals looking for information on DAO structures.
The sky is blue, water is wet, and the Independent Community Bankers of America is trying to prevent crypto from being integrated into traditional finance. The powerful lobbying group has put preventing non-bank stable coin issuers from having access to federal payment rails at the top of its priority list. Note, some other banking lobbying groups such as the American Bankers Association have requested congress allow for banks to offer certain crypto services, especially custody services.
Speaking of DAOs, MakerDAO has approved a $5 million fund for legal defense for DAO participants exposed to “novel legal risks” for their involvement with the DAO. That’s almost 100 FTX Margaritaville bills!
A crypto executive charged in 2019 with defrauding investors was convicted in late July of 2022 for bilking $6+ million from a fraudulent cryptocurrency scheme and is now asking for sentencing leniency. In the wake of the various cryptocurrency platform collapses in 2022, I expect ~2025 we will be seeing similar requests for leniency from convictions.
The Hermès MetaBirkin trademark infringement trial started this past week. When both sides lost on their dueling summary judgment motions most expected this case to settle, but it looks like trial is starting and we may get a full verdict. This and the Yuga v. Ryder Ripps lawsuit are the two most heavily watched Trademark lawsuits in the NFT space with implications across the industry.
Related, the judge in the MetaBirkin case already denied Motions for Summary Judgment by both parties, but the formal written opinion was issued this week and seems well-reasoned. Judge ruled Rogers test applied, but refused MSJ on those grounds because there was evidence against artistic intent for the jury to consider. The judge also didn’t separate the digital tokens from the art referenced on the tokens, which makes sense in a trademark case since the average consumer probably also treats both as the same.
SBF was Ordered to cease all communications via encrypted apps such as Signal and prohibited from talking to former FTX co-workers outside the presence of counsel until a hearing can be held to re-asses SBF’s bail conditions. Apparently witness tampering is frowned upon? Who knew? Also, FTX is asking politicians who received donations to return that money. Certainly these politicians won’t keep that money which was (allegedly) stolen from their constituents, right? Right??
Yuga Labs republished an article on their website to counter the claims that Yuga admitted they didn’t own the copyrights to the Bored Ape artwork (they didn’t), and to clarify the distinction between owning a registered copyright, vs. owning a common law copyright. While that part is clear, the article also front-ran arguments against copyrightability of the images regarding human authorship and level of creativity that went into the creation of the 10,000 BAYC images.
The Office of Foreign Assets Control (“OFAC”) has additional digital wallet addresses with suspected ties to Russian arms intermediaries to the OFAC sanctions list.
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.