Intro/Disclaimer: Since late 2022, I’ve prepared weekly updates for attorneys at my firm to stay abreast of the latest Web3 legal developments. The biggest stories are included in Bi-Weekly posts on the firm’s BitBlog, where we provide concise tl;dr overviews and insights into how these developments might ripple through the industry. In pursuit of a more thorough and personal discourse, I also share expanded versions of these updates on my personal blog every Tuesday. Here, you’ll find my unvarnished perspectives, offering a deeper dive into the nuances of these legal narratives. Please note, the views and opinions I express, both on BitBlog and my personal blog, are solely my own. They do not reflect the official stance or endorsement of my firm.
After a few busy weeks, it looks like we have slowed down a little as we wait for the SEC to respond to various offensive suits against the agency and for the courts in the Kraken and Binance matters to rule on the pending motions to dismiss in those cases. After the Consensys bomb drop last week, there was nothing of note this past week which warranted its own major story call-out until the Robinhood new dropped on Monday, so I added that last minute. But still lots of little developments worth following along with.
Here’s everything that happened last week in Web3 law:
Robinhood Served with Wells Notice for Crypto Trading Services
Robinhood Crypto has received a Wells notice from the SEC indicating the agency staff will recommend that the SEC file an enforcement action related to Robinhood’s crypto trading platform. You can read the Robinhood response here and 8-K filing update here. Robinhood is the latest major operator in the space to receive such a notice, with the notice to Consensys discussed last week and the Uniswap notice discussed in my firm’s last Bitblog update. Robinhood Crypto also lists less than two dozen digital assets, and is far more selective with its listings than exchanges like Coinbase, Kraken, and Binance which were previously sued by the SEC.
Tl;dr: The combined actions indicate that offering retail participants access to any digital assets, other than Bitcoin, is viewed by the agency as a violation of applicable securities laws. The fact that the SEC seems to be keen to bring an action against Robinhood even after Robinhood removed the previously offered tokens alleged to be securities in the Coinbase/Binance suit from the Robinhood crypto trading platform shows that merely delisting assets which the SEC claims to be securities is not sufficient. It also is troubling if Robinhood’s CTO’s Congressional testimony on this subject is a part of what led to this action. The Digital Chamber of Commerce and other industry groups have condemned this latest action by the agency.
Other Stories
House Financial Services Chair Patrick McHenry is none too pleased with Gary Gensler after it was revealed when he testified to Congress he wouldn’t prejudge ETH’s status as a security or commodity, the SEC had classified it as a security in an ongoing investigation.
It looks like after all the momentum, the best chance of a stablecoin bill being passed this year has passed us by, with it not being attached to a must-pass FAA authorization bill.
Binance founder gets 4-month sentence after earlier pleading guilty to anti-money laundering violations. Looking forward to seeing what he does next after he gets out. As an aside, this timeline of legal issues that Binance and CZ have run into is phenomenal. Also a good article about the effect on the SEC case here (which I am not just including because I am quoted in it).
House Representatives Drew Ferguson and Wiley Nickel have introduced the Providing Tax Clarity for Digital Assets Act [H.R. 8149] which specifies that digital asset rewards should only be taxed at the point of sale, not when they’re acquired. No more sale pressure immediately upon award to de-risk from future tax obligations! Huzzah!
There was a lot of scuttlebutt about the CFTC sending inquiries to a broad range of minor DeFi players in what seems to be a coordinated sweep. With warnings for upcoming actions, the CFTC seems to be taking a playbook out of the SEC, unfortunately.
Crypto forensics sleuth @zachxbt has released his magnum opus tracing $200 million across 25+ crypto hacks to the Lazarus Group from hack to conversion to fiat. You can mint the results of the findings if you want a piece of history. It looks like peer-to-peer marketplaces like Paxful and Noones along with OTC traders is where most of the funds are converted to fiat.
So Moonbirds has now gone to giving commercial rights on artwork to holders, to making the artwork CC0, to now giving commercial rights to holders again with new art? Make up your minds!
Bitcoin Cash promotor Roger Ver has been charged with a $48 million tax fraud when he left the U.S. and with his accountants serving as cooperating witnesses, he might be going to jail for a long time. Can’t outrun a pivot table.
Rumble Kong League is partnering with Gatorade as a part of its mobile game launch. Would I be including this in my update as a crypto gaming development if I didn’t have heavy RKL bags as a project I minted years ago? No way to know.
I need to dig into the incredibly smart arguments in the Do Kwon case about fines for extraterritorial sales. Wish it was brought in a better case, but it will be in the future I think, and it is a good argument.
Lots of drama around the Eigenlayer airdrop, which allowed users from any region to participate in protocol but then only allowed certain geographies to participate in token airdrop without any prior warning. I get the regulatory concern, but it can’t be too concerning if you are listing on centralized exchanges and allowing U.S. individual to purchase on market.
I need to read through these a16z token launch playbook articles. From an initial skimming, they seem quite good. But not sure I agree with everything in them such as token launch ALWAYS being the starting point for holding requirements under securities rules instead of the focus being on the holding period based off the instrument the tokens are sold in (like a SAFT).
Ladan Stewart claiming that the SEC isn’t on a mission to kill crypto while also saying she headed a litigation unit which, for the first time in history at the SEC, was aimed at suing a single industry (crypto) shows she continues to carry the agency’s water. Just absurd lack of cognitive dissonance.
It looks like the patent fight has hit the courts with the ENS foundation suing to block the Unstoppable Domain blockchain naming service patent. After taking their C&D letter fighting to the court of public opinion a few months ago, it looks like this is going to real courts now.
Conclusion
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Warpcast. 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 