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.
We finally got a judgment in Ripple which was seemingly positive for the industry at large in another otherwise quiet week in legal developments. Like the stock market, the Japan/yen carry trade shakeup caused some market disruptions. But the industry has continued to chug along, mostly looking to address various policy proposals by agency officials and a continued effort of the industry to woo Vice President Harris to change the current administration’s negative treatment of digital asset participants.
Here’s everything that happened last week in Web3 legal:
Ripple Damages Ruling Released
Ripple Labs was issued a civil penalty of $125,035,150 for illegal sales of securities in the form of $XRP tokens and other contractual arrangements (a total of 1,278 transactions) with institutional investors, falling short of the roughly $2 billion which the SEC was seeking in the action. This comes after the same Court ruled that blind bid/ask sales of the digital asset $XRP were not securities transactions. This is now a final judgment in the action, so it can be expected both sides will appeal certain aspects of the various rulings in the case.
Tl;dr: While it’s hard to look at a 9 figure damage number and call it a win, this was objectively a win for Ripple. This is the first time the SEC litigated to a final judgment against a digital asset industry participant without the end result being a complete shutdown of the development company. While there will be appeals and the litigation will continue, Ripple was one of the most aggressive with their initial coin offering (ICO) and has one of the more centralized validator sets out of most current major blockchain projects with a token, so seemingly a win for the industry as a whole as well.
Other Stories
All my homies hate the SEC on anything crypto, but even I looked at the first few pages in their opposition to Coinbase’s discovery request and found it persuasive. Feels like both sides are going to get a stern talking to about discovery disputes from Judge Failla, if I was reading tea leaves. The FOIA action is another story, though.
Cool to see Operation Chokepoint 2.0 still ongoing. Not at all scary that the federal government can cut off entire segments of legal businesses and individuals from accessing traditional banking because the government doesn’t like them. Without any due process or subpoenas; just force businesses to discriminate on the government’s behalf through burdensome compliance and subpoenas if the businesses refuse.
Senator Warren’s latest fight is with prediction markets. Sure, manipulating social media or biased polling into showing results counter to public perception only costs a few thousand dollars to reach millions of eyes, but the real problem is people lighting money on fire in prediction markets to bet on something they don’t think is going to happen.
Speaking of prediction markets, Coinbase has commented to the CFTC’s proposal regarding the regulator imposing itself on the space which has been traditionally left to the states to regulate. Others in the space have also joined in the opposition to the CFTC’s proposed expansion of authority.
Molly White is taking her campaign finance complaints about Coinbase to the feds. Causing Coinbase’s head of legal to fire back. I don’t think these two like each other much! Either way, no denying that crypto money is having a large effect on the upcoming elections.
The Avi Mango exploit case has been fascinating. What he did was wrong and very likely illegal, but Avi’s lawyers make a good point about the government venue shopping and lack of fraud issues.
The push continues to get Vice President Harris to adopt crypto-friendly policies, with the latest effort headed by Mark Cuban. Crypto should not be a partisan subject. The reporting seems to indicate the Whitehouse staff there got a stern talking to from people in the industry, but seemed like people walked away feeling positive?
Tornado cash, despite sanctions and all of the main developers arrested or under house arrest, continues to run. Because its software. And making neutral software which can be used for both legal and illegal purposes, is dumb and like saying locks should be illegal because some criminals use locks.
It looks like the SEC is now investigating various VC firms who are active in crypto start-up investments. It would not surprise me at all to see a bunch of lawsuits dropped when Gensler is on his way out, as a final poke in the eye of the industry he has gone after aggressively during his tenure as SEC Chair.
The IRS has updated its crypto brokerage tax form. I am not a tax guy so I cannot provide much commentary on this other than alerting it happened.
Adding this thought piece from a16z on avoiding predatory deals in early-stage financing for crypto companies. Something worth a read for founders or attorneys representing founders in the space.
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 