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.
As long as you do not look at the charts, it was a relatively good week for crypto in legal developments! But with the market doing market things, the work continues, as artists sue the SEC for a position as to the securities law status of NFTs. Also, the agency is looking for leave to amend its Complaint against Binance, potentially removing claims that tokens like SOL sold on the Binance exchanges were securities transactions. And car title tracking has hit the blockchain in California!
Here’s everything that happened last week in Web3 legal:
Artists Sue SEC Over Agency’s Position Regarding NFTs
Kentucky Law professor Brian Frye and Song a Day creator Jonathan Mann have sued the SEC in a declaratory judgment action regarding determinations by the agency that NFTs can be investment contracts which require registration with the SEC prior to sale. Brian had previously released a contemporary art project where he sold NFT copies of his no-action letter to the SEC regarding this topic, which the SEC did not respond to.
Tl;dr: I am slightly disappointed they didn’t bring up the prior restraint on free speech or other arguments from the Original Public Meaning of Investment Contract article by Edward Lee, but still a great Complaint complete with pictures (I’m a sucker for images in legal filings). The Taylor Swift tickets are a great example on how entitlement to future benefits does not equal investment contract, even if they can be sold for profits based on efforts of the artist. Also highlighting the damages in the SEC’s cases thus far have included burning the art at issue was a nice touch. But it wouldn’t be a Jason Gottlieb filing without “scofflaws” making an appearance (pg. 2 here).
SEC Plans to Seek Leave to Amend Complaint Against Binance Regarding Certain Token Sales
The SEC filed a document in the case against Binance stating the agency’s intent to seek leave to amend its Complaint against various Binance entities “including with respect to the ‘Third Party Crypto Asset Securities’” which the SEC originally named as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI. It is unclear what those amendments will be, but the SEC claims it will “obviate[e] the need for the Court to issue a ruling as to the sufficiency of the allegations as to those tokens at this time.”
Tl;dr– On July 11, the Court held a hearing on whether the claims regarding third party tokens other than BNB survived after the Court dismissed allegations regarding secondary trading of the Binance-issued token. At least one of the tokens named (MATIC) has a migration in the works which could hamper the SEC’s claims for injunctive relief as to that token as currently pled. We will need to wait until there is an actual proposed Amended Complaint to determine how the SEC is planning to address the secondary sales ruling on BNB in its strategy regarding the currently remaining tokens at issue. This seemingly strategic retreat by the SEC very likely has something to do with the ongoing discovery fight in Coinbase over documents surrounding the secondary tokens named.
Other Stories
The Senator Lummis bill teased at the Bitcoin conference in Nashville last week to buy Bitcoin as a strategic reserve was released this week. I get the idea, but I don’t need the government to buy my bags. They did this with gold which led to eventually banning private ownership for a bit. So if we could not do that, that would be great.
Tether disclosing they made $5 billion in profit last quarter the same week competitor Circle is leaked to have $5 billion total valuation is such a flex by Tether…
California is moving car title tracking to the blockchain! Anybody who has purchased a house and paid thousands of dollars just to prove the claimed owner can actually sell you the house you are trying to buy knows it is long past time we move this type of stuff to addendum-only digital ledgers.
The great thing about having exceptionally smart lawyer friends in the space, is when something like the Compound governance attack happens (if this can even be considered an “attack”) I get exposed to great materials in discussions about various legalities like the existence of the Optimism Anticapture Commission and this article on DAOs titled The Contractarian Joint Venture, which I get to learn new stuff and pass on to you all. Also interesting to see how they create value for governance tokens in the future to prevent this issue from repeating.
A few other older articles shared recently worth preserving: this article about copyleft intolerance (big debate on opensource vs. copyleft the past few weeks) and this Crypto Bill of Rights (not to be used in governing documents, because “bills of rights” are dumb and create unnecessary obligation pitfalls when incorporated into governing document imo, but are good ways to ground organizations to maintain crypto ethos).
The Senate crypto bill (which only focused on Commodities aspects and does not involve any changes to securities laws) hit a setback and will not be marked up until after the August recess. Nothing is getting done this year anyway at this point, so this is largely just setting the placeholder for the bills to be worked through in 2025.
Speaking of setting the stage, there is a policy fight in the Democratic party over how to address crypto in the upcoming elections and Vice President Harris’ position. On one side, Democrats like Representatives Torres and Nickel advocate to re-setting and stepping away from the Biden administration’s hostility towards the industry. On the other side are Representative Sherman and Senator Warren who want to effectively kill the industry and see it as having no value to U.S. citizens. With hundreds of millions of dollars on the pro crypto side and effectively zero dollars on the anti-crypto side, I know which one I would bet on.
The once pseudonymous BitClout founder “Diamondhands” (AKA, Nader Al-Naji) has been charged with civil and criminal fraud by the SEC and DOJ. The fact that a social media protocol I never heard of raised apparently $257 million in token sales alone shows how wild funding in 2021 was. Also, the 30-under-30 to jail pipeline is undefeated.
Draftkings is getting rid of its NFT project following a recent ruling against them in the Motion to Dismiss stage regarding a private securities class action. Hate to see it, but I understand the business decision of not using good money to chase bad after less than major impact the NFTs had over business writ large.
I know almost nothing about campaign finance law, so I cannot vouch for the accuracy of this reporting, but I do need to include this recent article from Molly White accusing Coinbase of violating the law with their $25 million donation to crypto super PAC Fairshake. Something Coinbase’s head of legal has disputed.
Crypto start-ups are projected to raise $12 billion from venture capital this year, which isn’t shabby after a tough 2023.
I enjoyed this article on blockchain analytics under Daubert. It was a little too boot-licky of questionable “clustering” from Chainalysis for my taste, but the article lays out the arguments well and is something worth considering. But also worth noting that the DOJ and other agencies frequently misstate evidence from these and other tools, so certainly worth kicking the tires on any tracing claims from such “experts.”
The CFTC is looking to potentially go after Bitboy regarding his meme coin “BEN” which was a whole ordeal about a year ago at this point. Why does the CFTC need further spot authority, again?
Glass if half full. No, I’m not rich on paper anymore, but I get to go back to being pre-rich! Which is the real fun part of crypto, right? Right?!?
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 