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.
All,
No real major stories which dominated the headlines this week, as everybody in the industry and the economy as a whole tried to get their arms around the banking situation we find ourselves in. Or I could have just been distracted by my Mizzou Tigers YET AGAIN losing to a 15-seed in the tournament. No way to know for sure. Still a busy week of “Other Stories” though. Here is what happened last week in Web3 legal:
Coinbase Files Amicus Brief in SEC Case Against Former Employee
Coinbase filed an amicus brief in the Wahi case this past week. You can read our coverage of the case in the Bitblog here. Coinbase’s legal head announced the filing on Twitter, stating “Instead of focusing on practical, lasting solutions like developing rules or registration options, the Commission has prioritized actions like this one that distort the legal definition of an investment contract beyond recognition.”
Tl;dr– This has to be the first time a company fires an employee for fraud and later files an amicus on the employee’s behalf in the SEC’s fraud case against that former-employee. As we covered in the prior blog, the SEC bringing this case to dunk on a seemingly vulnerable defendant may have been a strategic error. Coinbase brings up largely similar arguments as in the Wahi MTD, but it is especially powerful when the company which has affirmatively asked for regulatory clarity explains to the Court the lack of regulatory clarity in the space.
Other Stories
Barney Frank (yes, that Barney Frank) has issued some fightin’ words, claiming Signature Bank was shut down by regulators because they “wanted to send a very strong anti-crypto message…We became the poster boy because there was no insolvency based on the fundamentals.” This was further supported as a legitimate argument when regulators refused to cite to solvency as a reason for the shutdown, and are apparently requiring any acquirer give up all crypto business at the bank (which is what ended up happening when Flagstar acquired the bank). If it wasn’t readily apparent before, we are certainly in the “then they fight you” stage of the Gandhi quote.
Meta announced it was winding down its short lived NFT integration. It was never a good fit. Meta is building its own walled garden metaverse. The platforms were rife with scams due to a user-base that largely wasn’t aware of how those scams work in NFTs. I don’t think this changes the general NFT ecosystem in the slightest. Amazon and other online retailers always seemed like a better fit.
The CFTC has created a tech advisory group which has executives from Circle, TRM, Fireblocks, and others. It is chaired by Carole House. On one hand, it is good to see the agency trying in earnest to understand the tech. On the other hand, there is justifiable fear that these industry players will be incentivized to focus on self-serving regulatory monopolies (FTX-syndrome) rather than promote what is best for the ecosystem as a whole.
Wyoming passed a law last week which prohibits the compelled production of private keys except as required in a lawful court proceeding. It is unclear what situations that could apply to, as I am fairly sure you can’t be compelled to do anything except in lawful proceedings, but even if not super effective (like the Wyoming DAO LLC) it at least shows politicians trying to learn the technology and erring on the side of protection as opposed to prohibition.
Every lawyer in the space has seen the reality of developers moving some (or all) of their operations off-shore due to US crypto policy. It seems like the recent actions of limiting banking options to the industry have accelerated that process. Anybody know how to get a law license in Gibraltar?
Back in September, rapper Tyga was sued for breach of contract after he allegedly ghosted the project after taking his paycheck. Tyga has fired back, saying the project didn’t fail because of his lack of contractually agreed to promotion, but instead because the market crashed; and now the project is seeking a bail out from Tyga. Sounds like this lawsuit is getting juicy.
On his way out the door, recently retired Wilson partner Rob Rosenblum says SEC Needs to Support Crypto Gatekeepers. The article both takes umbrage with the SEC’s failure to provide sufficient guidance and seemingly punishing project who “come in and talk” while also throwing attorneys under the bus who are providing clients the best advice available under the current state of uncertainty. I don’t agree with the entire article, but I do like the line: “This SEC has caused, or at least strongly facilitated, this regulatory version of ‘Alice in Wonderland’ by its almost comical mishandling of its regulatory responsibilities as they apply to digital assets.”
The Plaintiff who last year was approved to serve notice via NFT airdrop in his federal lawsuit against scammers has obtained a default judgment against those scammers. Now we see if they can actually collect on the judgment.
Tom Emmer penned a less than friendly letter to the Chairman of the FDIC about what appear to be attempts to “weaponize recently instability in the banking sector” to “send a message to get people away from crypto.” While I am a big fan of Emmer sticking up for the industry, it appears this is becoming an increasingly partisan issue which seems suboptimal. This is politically neutral technology. Crypto needs to do a better job of getting people on the left side of the aisle to see that.
As I posted last week, the Voyager Bankruptcy judge summarily denied the SEC’s objection to Binance.us’s acquisition of certain Voyager asset in bankruptcy. But the written opinion was released this week and it’s a doozy. A highlight was the judge on pg. 9-10 saying “I do not know how any party could possibly be expected to address the SEC’s comments [about VGX potentially being a “security” or Binance.US potentially operating an unregistered securities exchange] with the limited guidance that the SEC has provided.”
Yuga Labs filed for Summary Judgment in their trademark infringement case against the RR/BAYC project. You can read the Motion here and the Statement of Facts here. @LAIPAttorney wrote a nice summary here.
If you are looking for some podcasts to pass the time, this interview with SEC Commissioner Hester Peirce and this interview with Coinbase CEO Brian Armstrong are must listen.
Youtubers, including BitBoy, got hit with a lawsuit this week for advertising FTX without proper disclosures. He probably could have avoided service if he stayed down in the Bahamas camping out outside SBF’s penthouse.
The U.S. patent office has granted CoinRoutes’ patent application for Distributed Crypto-Currency Smart Order Router with Cost Calculator. IP attorneys rejoice!
The Blockchain Association has submitted a FOIA request directed at certain banking regulators after it seems increasingly likely that Operation Chokepoint 2.0 isn’t just another crypto bro crackpot conspiracy theory. Jake Chervinsky posted a pretty solid rundown of the various actions by banking regulators seemingly targeted at crypto companies recently.
Last week, I shared the Polygon Labs “Policy Principles” on the company’s guiding thoughts when approaching legislators about Web3 policy updates. This week, their head of policy Rebecca Rettig gave an interview to The Block explaining the policy and her thoughts on getting regulators to embrace the technology.
Microsoft is testing self-custodial wallet features for its web browser. It makes sense, as more transactions use these types of self-custodial wallet for browsers to try to seamlessly integrate the tech.
Conclusion
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.
The NFTtorney 