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.
Happy Yom Kippur to those who celebrated yesterday! It was a fairly slow week, with the only major story being the Binance motions to dismiss, which were very well written briefings but did not raise many (if any) arguments that we haven’t seen raised before, most recently through the Coinbase Motion for Judgment filed in its own case against the agency. With Gary Gensler to testify in front of the House this week, and with this Congress racing towards an end of session, I expect the pending digital asset legislation to take a front and center role in the upcoming news cycle.
Also, make sure you check out the Blockchain+ B-Weekly, where I have been taking the biggest stories and summarizing in a more academic format. Here’s everything that happened last week in Web3 law:
Binance Moves to Dismiss SEC Lawsuit
Binance Holdings Limited (“BHL”) and its founder Changpeng Zhao (“CZ”) filed a Motion to Dismiss in the SEC case against them. Its U.S. counterparts also filed their own Motion to Dismiss. Both motions stated the secondary trading in digital assets at issue do not meet the “investment contract” standard from Howey, and that the SEC’s overreach into the digital asset industry represents a violation of the Major Questions Doctrine. The U.S. entities also argue that the SEC failed to adequately plead its fraud allegations, and BHL argues that as an international entity it is jurisdictionally immune to most of the SEC’s claims.
Tl;dr: The motions follow largely the same format at the motion for judgment raised by Coinbase. Namely, that blind bid-ask secondary sales cannot be seen as an investment into a common enterprise as there is no way to know the money is going to some entrepreneurial effort, that there cannot be an “investment contract” if there is no contractual ongoing obligations on some third party, and that if this definition of “investment contract” is to be expanded to fit those asset classes then Congress must be the entity to do so and not and administrative agency. The BHL motion also raises interesting jurisdictional challenges, and that the SEC must allege the transactions at issue are not “predominantly foreign” to survive. It will be interesting to see if a Court ever addresses what a website must do to block U.S. users to avoid U.S. jurisdiction.
Other Stories
You can’t make this stuff up. Rep. Maxine Waters, who tried to kill the stablecoin legislation in committee and has staunchly opposed the FIT for 21st Century Act, is accusing House Republicans of being anti-innovation due to the anti-CBDC bill proposed by House Republicans.
I haven’t had a chance to read yet, but I very much respect the opinions of the author of this law review article titled Bridging Policy and Practice: A Pragmatic Approach to Decentralized Finance, Risk, and Regulation so looking forward to digging in when I find time to.
This filing in the FTX Bankruptcy estate to claw back money from SBF’s parents is the most interesting development in the FTX saga I have seen in a while. Lots of bombshell accusations. @davidzmorris does a great job breaking it down. If even half the filing’s allegations are proven true, SBF’s parents (Stanford law professors) may be looking at a jail cell next to their son’s.
Blockchain Capital raised $580 million for two new funds, showing that VC funding in blockchain has diminished but not disappeared.
The SEC’s head of Crypto Assets and Cyber Unit, David Hirsch, said the agency is still considering further charges against additional exchanges and DeFi providers. In other news, water is wet and the sky is blue.
The SEC and Binance continue to exchange jabs in their pending litigation. With the skeletons in Binance’s closets, I expect that dispute to drag on through various discovery related fights while the Coinbase litigation moves forward on the legal arguments. Which is honestly, probably in the industry’s best interests.
JPMorgan is exploring the use of private blockchain tech for institutional clients. Not sure the benefits of blockchain tech for private ledgers as opposed to, you know, basically anything else. But I guess that is for JPMorgan to decide.
This Chainalysis Global Crypto Adoption Index is fun. If I had to guess, the areas who move up the index most next year are going to be in Africa and Europe for very different reasons (regulatory certainty in Europe, ease of access and functionality in Africa). Remind me of this next year.
Vivek Ramaswamy brought his crypto policy idea front and center at Mainnet. It’s becoming an issue that politicians can’t ignore, but I just don’t want tech to be a partisan issue.
Former Sen. Pat Toomey delivered some tough but likely accurate news that crypto legislation has a tough path to passage through this year’s Congress. I agree with him, despite movement in the House there simply is not enough momentum or support to push it through the Senate in the little time left this year.
SBF’s trial is coming up in 2 weeks, and while I have consciously avoided adding the near daily updates in that case to this rundown (it’s more a story about fraud than a story about crypto), I will start putting out updates (like this catch up in the case) because it is something legal Web3 will be talking about.
The Compound DAO securities lawsuit was allowed to continue after a Northern District of California judge denied the defendants’ Motion to Dismiss. The named Plaintiffs own $100 in the tokens in question, and are also named Plaintiffs in the Intuit and Juul Labs class actions. Welcome to the Plaintiffs’ Class Action bar, crypto.
Miles Jennings of a16z is saying DAOs need to take a lesson from Machiavelli in their thoughts on governance and structure. I’m not sure I agree; the current corporate entity is set up using Machiavellian guiding lessons? It’s worth a read, but the corporate lawyer saying DAOs need to be structured more like corporations feels like a hammer finding a nail situation.
So after previously stating there was no present intention to create a token for the Coinbase-incubated Ethereum Layer 2 network Base, Paul Grewal has now said it hasn’t been ruled out? Might be a statement the chief legal officer wants to take back, even if we all know if they ever want to decentralize validation on the network they will need a token to do so.
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 