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 feels like everything Web3 law last week involved the SEC (sigh) with the ongoing declaratory judgment action in Texas moving forward, the Agency’s head of enforcement’s abrupt departure, and the notice of appeal filed in SEC v. Ripple. There were also some interesting financial privacy updates from the Senate and betting on federal elections is back on!
Here’s everything that happened last week in Web3 legal:
SEC Responds to Declaratory Judgment Action in Texas
The SEC has filed its reply in support of the Agency’s two motions to dismiss a declaratory judgment action brought by cryptocurrency exchange hopeful LEJILEX. This lawsuit started in February of this year, and since then various amicus were filed in support of LEJILEX including an amicus filed a coalition of seven state Attorney Generals (including the AG’s of neighboring states Oklahoma and Arkansas). The Agency’s primary argument is that regulation by enforcement is not challengeable in court and shielded by sovereign immunity under the Administrative Procedure Act (“APA”) while LEJILEX argues the APA is inapplicable as this is a case brought under the Declaratory Judgment Action (“DJA”) not the APA.
Tl;dr: The SEC’s claim that there is no concrete or imminent threat that the agency would bring a lawsuit against a cryptocurrency exchange while currently suing the three biggest cryptocurrency exchanges in the U.S. is…interesting. Generally, the Agency is correct that the law prevents bringing a lawsuit against a federal agency for fear of future lawsuits by that agency. However, the APA was “designed to provide guarantees of due process in administrative procedures” and those guarantees are skirted when an agency engages is regulation by enforcement rather than rulemaking. LEJILEX cited to solid case law in Bear Creek for the proposition that one can bring a pre-enforcement challenge when an agency brings lawsuits against others for the conduct that the challenging party plans to engage in itself. As stated by Commissioner Peirce: “[u]sing enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.”
Other Stories
SEC Files Notice of Appeal in Ripple– The SEC has filed its notice of appeal in the Ripple litigation, where the District Court ruled that certain sales of $XRP tokens on secondary platforms failed to satisfy Howey. Once we get the full appellate brief this will get Major Story attention, but until then not much to discuss here.
Geofencing Guide– I don’t love that we are at a place where the best advice for many companies is to geofence against U.S. individuals from being able to access goods/services, but this was a nice little writeup on how to do it “right” if you are going to do it.
Federal Election Prediction Markets are Back On– After previously obtaining a stay of judgment pending appeal, the CFTC lost its bid to prevent Kalshi from offering prediction contracts on federal election results.
Section 230 Online Exchanges– eBay won dismissal of a case brought by the EPA seeking to hold the online marketplace liable for allegedly unlawful items sold on its website. So maybe hairbrained theories about using Section 230 protection for online publishers as a defense for OpenSea and other NFT platforms is slightly less hairbrained after all.
Harris Crypto Pivot– There are reports that Vice President Harris has “solicited feedback from crypto executives as well as Hill Democrats seeking to steer the vice president away from the Biden administration’s crackdown on a resurgent sector that’s lavishing cash on the 2024 election.” Which would be a great pivot for the industry, as she is actively being lobbied by DeFi participants. I will keep saying it until I’m blue in the face: crypto (and related tech) shouldn’t be a partisan issue.
Saving Privacy Act Introduced to Senate– Senators Mike Lee (R-UT) and Rick Scott (R-FL) introduced the Saving Privacy Act, which would dramatically pair back the power of government officials to obtain Americans’ financial information without a warrant under the Bank secrecy Act (“BSA”). As always, great work by @CapHillCrypto breaking it down. Long overdue. The BSA’s $10,000 threshold from 1970 (which hasn’t changed) would be ~$80,000 in 2023 dollars. Douglas was on point in his dissent in California Bankers Ass’n. MakeTheFourthAmendmentGreatAgain.
Trump Backed DeFi Opens Registration– World Liberty Financial, the DeFi project being launched with the backing of the Trump family, has started KYC process for token sale. Only accredited investors and non-U.S. persons will be permitted to participate in token sale. According to The Block “During a “launch” event on X Spaces last month, World Liberty Financial said it will sell a non-transferable governance token called WLFI and will be distributed as 63% sold to the public, 17% for user rewards, and 20% for team compensation.”
SEC Director of Enforcement Departs– SEC Enforcement Director Gurbir S. Grewal is apparently stepping down. After three years with the agency, the public being told this with less than 2 weeks’ notice is odd. But he will not be missed in the crypto industry where his division recommended enforcement actions against many in the space.
9th Circuit Revives SIM Swap Case-The 9th Circuit has revived a case brought by an individual who lost $24 million against AT&T after a sim swap was used to gain access to cryptocurrency wallets that had password information stored in an outlook account connected to his phone number provided by AT&T. The story of the teenager who pulled off the heist and is somehow not in jail or dead is crazy.
HBO Claims to Know Who Satoshi Is– There is apparently an HBO documentary coming out that claims to have uncovered the true identity of Satoshi Nakamoto. Spoiler alert- they don’t know but have hunches like everybody else, but only my hunches are correct (it was the CIA, or a group primarily led by Hal Finney or some combination of those). The timing with these Satoshi-era Bitcoin transfers is intriguing, though.
Hundreds of Millions Sent to Iran Through SWIFT– $250 million in illicit transactions from Iraq to Iran were facilitated by the financial messaging system SWIFT (which is not under any legal obligation to do KYC/AML for these transactions despite having full control over who can and cannot send messages on their network). But yeah, crypto is the real problem.
EigenLayer Investigates Early Sales– EigenLayer is investigating a sale of tokens which may violate lockup schedule terms. Umm, you all know these things called smart contracts can prevent this, 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 
Great newsletter! Thank you!
LikeLike