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.
The long national nightmare is over. With SBF convicted on all counts after just a few hours of jury deliberations, maybe the industry can finally turn that page and get back to focusing on real industry specific legal developments and not a fraudster that happened to use crypto in his fraud. I am sure I will cover the eventual sentencing and appeal, but for now it is nice to get back to business.
Also, shout out to Stephen Rutenberg and Michael DiPietro on this awesome article breaking down the Blockchain bankruptcy cases. Very easy to digest article which will get you up to date in all the crypto-related bankruptcies from the last few years. Kudos to them!
Here’s everything that happened last week in Web3 law:
SBF Trial Comes to an End; Guilty on All Counts
SBF’s defense team closed out their defense on Tuesday, and the trial reached its conclusion with jury instructions set and closing arguments concluded. After these weeks of litigation, it only took the jury a few hours to come back with a guilty verdict on all counts. These verdicts carry a maximum sentence of 110 years, with sentencing scheduled for March 28, 2024. There is also still a trial scheduled for next year on five more charges, plus potential state criminal charges to come.
Tl;dr: While there is still sentencing left and I am sure there will be appeals and ongoing actions, I am happy to have the SBF saga mostly in the rearview mirror. His fraud was a stain on the digital asset industry, so this seems cathartic for it to be over. As the prosecutor stated in closing “This is not about complicated issues of cryptocurrency. It’s not about hedging. It’s not about technical jargon. It’s about deception, it’s about lies, it’s about stealing, it’s about greed.” Goodbye, and good riddance.
SafeMoon Founders Hit with DOJ and SEC Complaints
The SEC has brought a civil action against SafeMoon LLC and executives Kyle Nagy, John Karony, and Thomas Smith for securities fraud and unregistered sales of securities. At the same time, the DOJ has also brought criminal securities fraud, wire fraud, and money laundering charges against Nagy, Karony, and Smith.
Tl;dr: I know next-to-nothing about SafeMoon other than private class actions that were brought and apparently dismissed last year, but the allegations in the Complaint aren’t great. I’ll never understand how people can make millions of dollars is what is seemingly very clearly fraud and stay in the United States. Y’all know there are some awesome island nations to flee to as millionaires, right? If you are going to commit blatant crime, at least try to get away with it?
Other Stories
The President released his Executive Order on AI this week. Fact sheet here and actual Order here. Despite this Executive’s seemingly hostile stance on cryptographic technologies, it is interesting to see the Order list “[s]trengthen privacy-preserving research and technologies, such as cryptographic tools…” as an area of emphasis while the DOJ prosecutes the creators of cryptographic privacy protecting tools…My Polsinelli colleagues Romaine and Cat did a great job breaking down this Executive Order in a recent client alert.
This was a great thread by Jason Gottlieb on how the SEC’s Solar Wind prosecution is at odds with the agency’s posture towards Coinbase’s S-1 filing defenses.
When Rodrigo Seira from Paradigm writes an article, that article goes in these updates. Those are the rules. This time he covered the stark difference between the type of SEC actions in the industry Commissioner Peirce advocates for (common-sense) and the type that Chair Gary Gensler advocates for (political witch hunts to jockey for his next position).
Nic Carter’s relentless pursuit of pointing out the abject falsities from the reporting used to claim Hamas had boat loads of crypto funding (it didn’t) is an inspiration. Hell hath no fury like a crypto bro with a bunch of free time and a bone to pick.
PayPal revealed in a 10-K filing that the SEC has sent a subpoena to the entity regarding their stablecoin. Because the SEC doesn’t have anything better to be looking out for.
Crypto tracing was a primary source in recent justice department crack downs on Hamas-linked terror cells. People who use entirely publicly traceable digital assets for crime or people who say that it is primarily used for crime are exceedingly stupid at this point.
The Government Accountability Office slapped down the SEC’s attempt at rulemaking-without-rulemaking by ruling that the SEC’s Staff Accounting Bulletin No. 121 (“SAB 121”) which required custodied digital assets be listed as liabilities on balance sheets, failed to abide by the Congressional Review Act. Love to see it.
In a pigs get fat/hogs get slaughtered story, the Platypus exploiter is looking at 5 years in French prison when they could have negotiated a return of funds and probably claimed a nice little bounty. Turns out, law is law. Code is law doesn’t work when you live in a country with police and laws and such.
Blockchain gaming is coming to mobile in another week where I am trying to figure out how to get more exposure to an area that I am confident is going to be huge in the next year or so.
This was a great post from Vitalik over the various layer 2 approaches to Ethereum. I am not going to try to claim to fully understand all of it, but the pictures are nice for people only cosplaying as tech savvy like myself!
This interview with Roofstock onChain VP Sanjay Raghavan about the tokenization of real estate was a great listen. It is always a chicken or the egg issue, where platforms need a certain level of tokenized properties to make a viable marketplace, but people won’t tokenize real estate until there is a variable marketplace first. But I am a big fan of what Roofstock is doing.
I love that videos of Gensler keep surfacing where he takes a completely inconsistent view of his current positions, such as this video where he says it doesn’t make sense for there to be Bitcoin/ETH futures ETFs but not spot ETFs.
Reminder that I need to catch up on the various filings in the Terra/Luna case. It involved synthetic stocks, so not exactly an edge case from what I saw originally, but something to definitely keep an eye on.
I am looking forward to people being able to point to the start of the next NFT bull run being when the Simpsons did their NFT episode.
ApeFest was this past weekend, the big party hosted every year by Yuga Labs to celebrate with their NFT holders. Other than the lasers apparently hospitalizing some attendees, it seems like a success, including their partnership with Magic Eden.
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 