Intro/Disclaimer: In late 2022 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. The firm has started turning these into 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. But for more comprehensive and unfiltered thoughts, I have been 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.
With Congress on break for the week of Fourth of July and federal agencies largely also out of office last week, it was a relatively quiet week in Web3 law. This is likely a calm before the storm, as litigation in the space heats up and both the Senate and House consider various digital asset legislation efforts. The summer doldrums are ending, and it’s about to be back to the grind.
Here’s everything that happened last week in Web3 law:
SEC Responds to Coinbase Intent to File for Dismissal
As expected, the SEC filed a letter with the Court in the agency’s case against Coinbase, providing its intent to oppose Coinbase’s planned Motion to Dismiss. The SEC also stated in its letter that it intends to move to strike Coinbase’s affirmative defenses regarding major questions doctrine, abuse of discretion, equitable estoppel, unclean hands, and laches.
Tl;dr– The intent to oppose was expected, as was the motion to strike affirmative defenses. It was slightly surprising the SEC didn’t also telegraph a motion to strike the 33 page “Preliminary Statement” from Coinbase’s Answer, but they did ask the Court to preclude consideration of the alleged facts in that Preliminary Statement. In what I think was a blunder by the SEC, they cited to the LBRY decision for the proposition “(drawing no distinction between investors who purchased crypto asset securities directly from the issuer and those who purchased them on secondary trading platforms).” However, in the transcript from the damages section of that case, the SEC stated clearly and unequivocally that secondary sales were not at issue in that matter. Additionally, the SEC seems to be hanging its hat on allegations that Coinbase allows direct sales from issuers on its site. As far as I can tell, that allegation is that founders can create Coinbase accounts and sell their founder tokens on Coinbase like anybody else can create accounts and sell tokens? I believe the legal term for that is “hella weak” but my Latin is a bit rusty. Either way, both sides are looking for an early win that neither side is likely to obtain.
Other Stories
Gemini co-founder Cameron Winklevoss issued yet another public demand letter and “best and final offer” to resolve the dispute between Gemini and Digital Currency Group (AKA, Genesis) over $1.2 billion in Gemini Earn funds being frozen from release. At a certain point, either file the lawsuit or stop kicking and screaming about how you are going to. This public theater just makes Gemini look weak.
I already typed the above, so I am keeping it in so everybody knows that Gemini took the advice that I hadn’t published yet and actually filed the lawsuit on Friday. Gemini claims the same things in that lawsuit that it does in the open letters, so it will be interesting what comes of discovery (if the dispute gets to discovery). Gemini was doing everything in its power to settle this out of court without revealing potential skeletons in their own closets.
Lummis and Gillibrand announced their plan to reintroduce their bipartisan crypto bill in the Senate in the near future. Best case scenario: Lummis/Gillibrand works in the practicality and comprehensiveness of McHenry /Thompson bill in the House into something passable, but we’ll have to wait to see if they go that route. Worst case would be having vastly different competing Senate/House bills which are killed by drafting egos of the other chamber rather than legitimate policy reasons.
BlackRock CEO Larry Fink went on Fox this week to explain his rational for the Bitcoin ETF. Considering only 6 years ago the same Larry Flint was saying the only reason bitcoin existed was for money laundering, it seems even crypto haters are coming around to the idea of digital asset value.
Commissioner Hester Peirce remains crypto’s staunchest advocate at the SEC and is seemingly the lone ray of hope for the industry coming out of the agency.
I almost didn’t include this because it is such a “you’re not serious people” moment for NFT holders, but Azuki DAO is considering hiring an attorney for a lawsuit against the Azuki creators due to the flopped Elementals sale. No wonder NFT prices are doing so poorly while cryptocurrencies are rallying.
A California federal court has upheld the IRS’s John Doe subpoena against Kraken and ordered the exchange to hand over the personal details of all users with $20,000 or more of crypo trades between 2016 and 2020. This is keeping with other precedent with Courts upholding similar Joe Doe subpoenas against other cryptocurrency platforms like SFOX and Circle.
Rep. Brad Sherman who semi-recently compared the EU and others being ahead of the US in crypto regulation as the same as being ahead in “cocaine production” and “organ harvesting” is at it again. This time proposing an amendment to the 2024 National Defense Authorization Act which gives the Treasury Secretary authority to prohibit digital asset trading platforms and “transaction facilitators” from transacting with cryptocurrency addresses which might possibly be Russian.
Popular self-custody wallet provider Atomic Wallet got hit with a punitive class action for failure to protect users from vulnerabilities. Atomic’s terms of service have a $50 damage cap but no class action waiver or mandatory arbitration, which seems like an oversight on their part. Will be interesting if this ever gets to the merits as to what duty of care software providers owe their users in situations like this.
Things aren’t looking good at Binance international, as some of its top executives depart amid ongoing regulatory and criminal investigations. The Chief Compliance Officer wasn’t amongst the departing executives, so this may just be coincidental turn-over expected from a company like Binance, but certainly comes up a suboptimal time.
BarnBridge DAO has halted further protocol development citing an ongoing non-public SEC investigation. Not sure if the right move is having your lawyer go on discord and provide legal advice on a public forum while implicitly conceding to liability is the right move, but to each their own I guess.
It’s always fun to see a good FIOA dispute, this time regarding the SEC’s search and production of documents responsive to requests regarding potential conflicts of interest. The Court ordered the SEC to go back and look again, after failing to conduct a reasonable search for certain categories of requested documents.
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 