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.
While much of the weekly crypto narrative this week was debating the value of celebrity memecoins (or lack thereof), on the legal side of things Terraform Labs may have ended its battle with the SEC by agreeing upon damages, and the DAO that bought the Wu Tang album from Martin Shkreli is now suing him while releasing their own project related to the album.
Here’s everything that happened last week in Web3 law:
Terraform Labs and Founder Settle With SEC
Terraform Labs has agreed to forgo its appeal and damages hearings after a jury found the company and its founder, Do Kwon, liable for securities fraud in April of this year. Instead, the company and founder have asked the Court to approve a settlement of ~$5 billion in fines, interest, and civil penalties. Do Kwon is personally on the hook for $204 million of the penalties, so I guess his size is not size anymore either.
Tl;dr: The SEC is getting basically everything it asked for in its damages briefing so this is about as white flag and waving a white flag gets. Terraform Labs already filed for bankruptcy in January of this year with estimated assets being under $500 million and same amount of outstanding liabilities. So Terraform likely figured out that the difference between their proposed $3.5 million and the SEC’s suggested $5.3 billion was effectively zero since the company wouldn’t be able to pay either of those fines. Apparently Terraform Labs has handed off control to the “community” which begs the question: how is there still a terra/luna “community” at this point? Also, interesting to see Ripple and the SEC exchange jabs on whether this should change the analysis for damages in their case.
Other Stories
PleasrDAO is suing Martin Shkreli (AKA, “Pharma Bro”) regarding the never publicly released Wu Tang album purchased by the DAO during the latter’s DOJ forced asset forfeiture and sell off. This comes after the DAO hosted the first ever listening party for the album. Really enjoyed this thread about the lawsuit as a tl;dr. I don’t agree with it all, but provide solid background and arguments. Also, I went ahead and purchased some of the token copies because I vibe with the idea.
The head of the SEC’s Crypto Asset and Cyber Unit in the Division of Enforcement is leaving the agency. Along with Ladan Stewart, while I am positive he will end up in a high powered position, I am also positive that anybody in the industry should think twice about working with an individual whose views of investment protection are not disclosure, but rather destroying the industry entirely to protect investors from me.
And in another legal shakeup, Uniswap has hired a Coinbase legal executive to lead the DeFi giant through the current regulatory gray area it finds itself in.
Crypto markets were down this week after some bearish interest rate forecasts from the Fed, but that didn’t stop Paradigm from completing its $850 million raise for their latest crypto venture fund. This along with some other notable raises have sent funding back near (but not at) what was normal in the prior bull market.
MetaMask is offering secure and easy pooled staking for users…but not users in the U.S. or U.K because our regulators are “protecting” us from earning interest on our assets.
GREAT work of scholarship here breaking down the qualification for token launches to be exempt from EU securities laws under MiCA.
Gary Gensler said he expects the Ether ETF S-1 forms for issuers should be approved by this summer, but the funny part is this testimony came when the CFTC Chairman was asked if Ether was a commodity which he answered a simple yes, while the SEC Commissioner still refused to give a simple yes or no answer.
Despite that Gensler testimony, the SEC continues to drag its feet on spot Ether ETF S-1 applications by issuers. Not sure what they think the difference is between the product being available tomorrow vs. 3 months from now. It’s inevitable either way, just finish it and move on to trying to put good guys like LBRY out of business again.
Not crypto specific, but this ruling dismissing a case regarding social media influencers pumping and dumping stocks on their followers is worth the read. It’s from last month, but just seeing it now. It has fairly expansive implications on what cases can be brought under federal wire fraud laws, which do not include (according to the Court) alleged violations on “right to control” property through access to necessary information to make informed decisions.
The ZKSync airdrop is coming up and I am once again asking protocol developers give me free money without me making any contributions to their projects. Please and thank you.
Actually comical that the Biden campaign is looking to accept campaign donations through Coinbase while his SEC is trying to sue the entity out of existence.
The Whitehouse is apparently nominating CFTC Commissioner Christy Goldsmith Romero to be the next FDIC Chair, and Commissioner Kristin Johnson to be the Assistant Secretary for Financial Institutions at the Treasury Department. Both were proponents of enforcement actions against various DeFi entities and expansion of the CFTC into event contracts, so I’m non-plussed to see them both in more powerful positions. Even if they are replacing individuals arguably more hostile to crypto.
Franklin Templeton is talking up a few SOL project, showing TradFi is paying attention to the space. Just nobody tell them about the Lil Pump tattoo and scare them off.
So, um, this is a good idea to prevent Sybil attacks on a project which wants to broadcast an upcoming airdrop to users. But selling options on tokens seems like a good way to get some federal authority attention…
In other news, a judge in the U.S. District Court for the Southern District of Florida has agreed to enforce a subpoena issued against the issuer of “Let’s Go Brandon” Coin (“LGBCoin”). I covered this back in JULY OF LAST YEAR which shows how slow courts are sometimes.
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 