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.
For the first time in about a month, the SBF trial didn’t dominate the news headline as the case crossed the halfway point and we get ready for the prosecution to rest their case. Instead, the news focused on the SEC filing a surprise dismissal in Ripple for the remaining claims against executives, and the makers of the MetaMask wallet getting hit with another lawsuit. Also, a ton more “Other Stories” worth mentioning than the past few weeks, and a lot of green on the price charts which is a welcome (even if momentary) relief from all the red the past year and a half.
Here’s everything that happened last week in Web3 law:
SEC Moves to Dismiss Remaining Claims Against Ripple
The SEC has agreed to dismiss the remaining claims in the agency’s litigation against Ripple regarding the alleged aiding and abetting of securities law violations by Ripple executives Christian Larsen and Bradley Garlinghouse. This means the only remaining issues for the underlying case would be measures of damages related to the SEC’s summary judgment win against the company for certain non-programmatic sales.
Tl;dr: While Ripple is calling this a win (which is certainly is), the case against the executives was always weak, so it seems like this is just a strategic move by the SEC to allow them to appeal after their request for interlocutory appeal was denied. So when I said there was “no chance of appellate review prior to 2024 as the SEC hoped for” last week that was under the mistaken belief that the SEC actually thought it would win against the executives. I didn’t anticipate the agency going all wild card. It shows how scared the agency is of the programmatic sales ruling remaining in the ether unchallenged at the appellate level, the weakness of the SEC’s claims against Ripple executives, or both.
ConsenSys Sued by Former Employees Regarding Transfers of Assets which devalued Employee’s Equity
Joseph Lubin, one of the founders of the Ethereum Blockchain, formed a company in 2014 to develop tools for that network. These tools included the hugely popular MetaMask wallet. As many start-ups do, early contributors were granted equity in the original companies (which were a Delaware entity, and a Swiss “hub” entity”). However, in 2020 The Swiss entity transferred a vast majority of its assets to a new Delaware entity (CSI) in a $46.6 million sale. Even at the time, this was a controversial sale. The employees of the first two entities are now suing, saying this deal was a way to rob them of their equity.
Tl;dr: Back in August a similar lawsuit was filed by a former employee, and Joel Dietz also filed a lawsuit in August claiming invention of the MetaMask wallet, so this is another round of expected litigation over a highly successful start-up. Considering CSI raised in a Series D at $7B valuation last year, it is unclear if these are rightfully upset early developers or vultures circling, but time will tell. Either way, the earlier Swiss litigation is going to raise some early challenges for the employees to overcome.
Other Stories
Yuga labs has already won in the underlying case and is just waiting for an award amount to be entered, but the appeal of an earlier ruling was argued this week! Defendants’ motion to stay pending appeal was previously denied. I think nerds like me are the only ones excited to watch this, but here we are. The judges seemed skeptical that you can do any criminal act with no liability so long as you say it is done as a protest, but we will need to wait to see how they rule.
In a sad turn of events, LBRY has announced it is abandoning its appeal and shuttering its business completely. Honestly, it sucks to see one of the seemingly good actors in the space that just wanted to democratize video publication get crushed under the financial boot of litigating against the U.S. government. But it may be for the best, as an underfunded appeal could result in sub-optimal appellate rulings.
The SBF trial went into its third week and thankfully it didn’t dominate the news cycle. The big news was the FTX’s former lawyer testifying that SBF asked him to find creative “legal justifications” for the missing balance sheet funds. The DOJ is expected to rest their case this upcoming week, then its SBF’s team’s turn to present witnesses.
Speaking of FTX, it looks like around 90% of customer funds will likely be returned? Guess the attorneys are really working for their over $300 million in fees so far.
Uniswap is starting to charge fees on certain interface and wallet features. Wasn’t that the plan for the Uni token fee switch proposal that got voted down? Kind of feels like the protocol developers want fees for me, but not for thee? Meanwhile, dYdX is getting rid of fees entirely and converting to a public benefit corporation.
Cathie Wood recently appeared on a podcast to say the quiet part out loud: the SEC staff are largely tech neutral and have no issues with a spot Bitcoin ETF product, but Chair Gensler is standing in the way.
Sandbox hires gaming industry executive veteran as a part of its creator economy initiative. Was digital land a dumb idea? Time will tell (full disclosure, I own a good amount of digital land and still believe in many of the projects I own land in) (even more full disclosure, I own a lot of stupid things, in hindsight). But the digital asset gaming space is going to be huge in the coming years, and Sandbox remains a leader there.
This Complaint from August against Pollen Mobile and its failed attempts to create decentralized wireless internet with rewards paid in Pollen Coin was recently sent around a Web3 lawyer group I am in and raises the age old question: can you get specific performance on an agreement for a self-described Ponzi scheme venture? Apparently not, as the case was dismissed already.
For anybody with assets still on Binance.US I have a simple question: what are you doing?
Add this paper on NFTs as Decentralized Intellectual Property to my never-ending list of articles to read.
Google has filed a Motion to Dismiss in the case against them over the use of information to train their AI bot Bard. Also, Anthropic got hit with a lawsuit by Universal Music Corp. and others alleging copyright infringement of various musical compositions (but not recordings). As always, @franklingraves on X does a great job breaking the lawsuit down. Let’s go beep boop law!
Somebody needs to tell Elizabeth Warren that back in April of this year, Hamas expressly told its supporters not to send funds in crypto because it was too easily traceable and seized. But never let the truth get in the way of a good narrative.
Honestly, these updates are half to provide you all with information, and half for me to bookmark useful resources for myself. Consider this (probably outdated, but insanely helpful) DAO Legal Entity Matrix as a bookmark entry which I hope you also can find helpful. Same with this International Journal of Blockchain Law latest volume.
Treasury is apparently considering extending the comment period for the proposed tax rules I discussed in last week’s update? As it should, because expecting the best substantive comments on a 300 page proposal in 60 days or less in not reasonable.
This was an interesting piece about moving beyond a coin voting system to other forms of reward system governance in Web3.
The New York Attorney General has brought a lawsuit against Gemini, Genesis, Digital Currency Group and various executives alleging fraud and violation of New York securities laws. This is the same attorney general that alleged Ether to be a security in a separate lawsuit, so take this Complaint with a political grain of salt.
Not a crypto specific article, but really interesting new article from a former professor of mine using machine learning to predict the outcome of private securities class actions with relatively high accuracy from simply the text of the Complaints and even higher accuracy when combined with publicly available extrinsic information.
It will be interesting to see what the court in Grayscale does now that the SEC has let the appeals deadline pass. @SGJohnsson (who is a great follow for all things securities law) had a really great thread breaking down the questionable area of law the SEC is in and whether the decision’s finalization will result in the Grayscale application being “deemed to have been approved by the Commission” simply on procedural/timing grounds.
This new FinCEN proposed designations of mixers is…suboptimal. Single use transaction wallets is just good wallet hygiene in many situations. But since it only applies to registered entities, it’s not sky-is-falling bad.
The Chamber of Digital Commerce is a little late to the party, but it did file a proposed amicus in support of Binance recently regarding the SEC’s litigation against the exchange. I don’t think it really moves the needle, but worth adding to the list.
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 