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 tl;dr overviews and insights into the biggest stories from the past two weeks. I post the weekly updates on my personal blog every Tuesday, where I also provide links to more obscure legal developments and otherwise discuss industry trends and stories. 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.
It was a great week for web3 litigation nerds (kinda) as there were oral appellate arguments in the SEC rulemaking and Uniswap civil cases, and Judge Failla gave an oral ruling on the motion to dismiss in the Tornado Cash criminal matter, rather than making people wait for her full written opinion (spoiler alert, it wasn’t great for the Tornado Cash developers). SEC Chair Gensler also faced some tough questions in Congress, and we got an updating in the seemingly ongoing Chokepoint 2.0.
Here’s everything that happened last week in Web3 legal:
SEC and Coinbase Face Off in Third Circuit Over the Agency’s Rejection of Rulemaking
The SEC and Coinbase had oral arguments heard by the Third Circuit in Coinbase’s appeal of the SEC’s denial of rulemaking for digital assets. This case follows a separate mandamus action in which Coinbase successfully sought to compel the SEC to rule on Coinbase’s Petition for Rulemaking, so that Coinbase would have standing to appeal should the Agency deny Coinbase’s request (which the Agency did, in a 2-page letter).
Tl;dr: The Agency has vast deference to set its rulemaking agenda, so Coinbase’s requested relief (an Order from the Court for the SEC to engage in formal rulemaking on digital assets) has a slim (but not zero) chance of being granted. Notably, though, the Judges expressed some criticisms of the agency’s approach, stating “[The SEC doesn’t] have the time to [rulemake] but you have time to bring 80 enforcement actions against cryptocurrency people. So it’s not that the agency isn’t interested in the area. It’s just interesting in picking off a lot of individual ones without giving higher level guidance.”
All SEC Commissioners Testify in Front of Congress.
While the SEC Chair regularly testifies in front of various Congressional committees, for the first time since 2019 all five commissioners were present for the SEC’s testimony to the House Financial Services Committee on September 24, 2024. The hearing covered many aspects of the SEC’s actions over the past year outside of digital assets, but a large portion of questions did focus specifically on cryptocurrency and the agency’s approach of rulemaking by enforcement rather than more traditional rulemaking and comment procedures.
Tl;dr: There were some notable clashes between Chair Gensler and Representatives Torres (D-NY), Emmer (R-MN), Nickel (D-NC), McHenry (R-NC), and others regarding the SEC’s treatment of the digital asset industry under Chair Gensler’s leadership. Also notable was an exchange between Committee Chair McHenry and Ranking Member Waters regarding outstanding stablecoin legislation which both members agreed should be passed this year (while acknowledging there is still some disagreement on what that stablecoin bill will entail). Republican Commissioners Hester Peirce and Mark Uyeda being there to give digs at Gensler’s agenda was icing on the cake.
Other Stories
One of the primary actors behind the FTX collapse, Caroline Ellison, was sentenced to two years in prison following her cooperation with the prosecution of her boss, Sam Bankman-Fried (who hilariously is currently sharing a cell with P-Diddy). She was also issued a $11 billion fine which she will almost certainly be paying for the rest of her life.
Stand With Crypto has released its House and Senate election endorsements. Both sides of the aisle have people that understand the technology’s benefits outweigh its cons.
Green United lost on its Motion to Dismiss. But if you read the decision, this isn’t exactly the attack on all crypto mining that social media made it out to be.
The SEC entered a judgment against MNGO DAO, Blockworks Foundation, and Mango Labs. We knew the DAO settlement was coming, so this isn’t a surprise. I need to read the Complaint still, but didn’t feel like being mad/confused on the Friday it came out so that’s a future me task.
The Uniswap civil class action appeal oral arguments happened (which you can listen to here) and it is unclear if these Plaintiffs attorneys don’t understand how the code works or are trying to mislead the judges. Either way, Judge Failla’s underlying decision was well grounded so I would expect it to be upheld.
Judge Failla was less sympathetic in the Tornado Cash criminal matter, rejecting the Motion to Dismiss and Motion to Compel production of documents filed by Roman Storm’s attorneys in a 1 hour oral ruling from the bench. The written decision should come out in the next few weeks, but this was an expected (but still disappointing) result based on the standard of being required to accept the Government’s accusations as true. I wrote up some THOUGHTS on a Twitter thread. I’ll give a Major Story breakdown when the written opinion is released. This was also a great article on the importance of privacy preserving technologies.
Nic Carter released his follow-up piece on Chokepoint 2.0, providing documentation and support for earlier reporting on a concerted effort by federal regulators to shut off digital asset industry participants from banking.
Vice President Kamala Harris says the U.S. should “remain dominant in AI and quantum computing, blockchain and other emerging technologies.” Which is not nothing after her long silence on her stance on digital assets. Now if only Treasury would follow her lead…
Various members of Congress once again are asking Chair Gensler to withdraw SAB 121. This came leading up to the above referenced House Financial Services Committee interrogation of Chair Gensler, where Gensler went on record to refuse to retract the accounting rule opposed by a bipartisan majority in both the House and Senate.
The panel hearing in Hermes International v. Rothschild was set for argument on October 23, 2024. Looking forward to listening in on that.
The SEC settled charges brought against TrueCoin LLC and TrustToken Inc. for making allegedly fraudulent statements regarding the solvency of assets backing the stablecoin issued by the entities.
Another great piece of scholarship to save for a rainy day on the regulation of NFTs under the EU’s comprehensive digital asset laws (“MiCA”). One of those things as a U.S. attorney I hope I don’t ever have to know, but good to have background on just in case.
The House Foreign Affairs Committee marked up (around 3:18 mark) and advanced a resolution urging the Nigerian government to immediately release Tigran Gambaryan. He is a former federal employee who was lured into Nigeria on false pretenses and arrested for alleged crimes of his employer, Binance. It is long past time he is brought home.
CZ is free while SBF will likely be in jail the rest of his life. Lesson in that.
Credit card companies and traditional finance supporting their regulatory monopoly?! No way! Shocking!
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 