Raising the stakes in the @custodiabank case.

A former Solicitor General of the U.S. has filed an amicus brief supporting @custodiabank in its case against the Federal Reserve Board.

The brief raises serious constitutional questions about aspects of the Federal Reserve system. The brief questions the manner of appointment & powers of Fed Bank presidents.

"The decision below raises serious constitutional problems as it affords Federal Reserve Bank presidents preemptive powers that cannot be squared
with Article II’s appointment and removal requirements."

Will anybody actually be held accountable for the travesty that is the Debt Box Scandal?

This is the question I have been asked most often in the last 48 hours.

Here are 7 things I believe should happen to bring a measure of accountability for the SEC's misconduct.👇 1. A Criminal Investigation is Warranted.

The US Attorney for the District of Utah (Trina Higgins) should open a criminal investigation.

The Judge documented numerous instances of false statements made by SEC lawyers and staff.

Certain of those false statements are directly tied to sworn Declarations signed by SEC personnel under penalty of perjury.

IF an investigation confirms that sworn Declarations include intentionally false statements--the signers of those statements could potentially be charged with perjury under 18 U.S.C. Sections 1621 or 1623.

Government attorneys do not get a free pass to commit perjury. They are not supposed to be above the law.

[Trina Higgins will need to show some courage. She is a Biden appointee, so there could be political risk for her.]

SEC v. @Coinbase, Update

The hearing on Coinbase’s Motion for Judgment on the Pleadings will be held on Wednesday, Jan 17.

There are four possible outcomes, with potential permutations to each. 👇 Option 1. Judge Denies the Coinbase Motion. 

It’s a low bar for the SEC. 

To win, all the SEC has to show is they have alleged facts making their claim “plausible.” 

The case moves on to discovery for a year or more until motions for summary judgment (like in @Ripple).

New Crypto Regulation Bill.

Senators Lummis (R. WY) & Gillibrand (D. NY) have introduced comprehensive legislation to regulate the crypto asset space.

This is a revised version of a Bill the Senators introduced last year.

Here are 3 key takeaways... 1. The Bill would make clear that crypto assets that do not represent a financial interest in the underlying project would be commodities--not securities.

If a token carries with it no rights to dividends or interest payments or ownership in the issuer-it's a commodity.

Crypto Litigation Update.

A lot will happen in crypto court cases in the next several months.

Each court decision that comes down potentially impacts other pending cases.

Here's a status report and upcoming deadlines in some of the key cases... 1. SEC v. @Ripple: Waiting for critical ruling from Judge Torres on cross-motions for summary judgment. Open question whether the Judge will address secondary sales of $XRP.

2. SEC v. Bittrex: (June 30) Deadline for Bittrex to file motion to dismiss.

In an aggressive move, @Binance has gone on offense against the SEC in the federal court case.

Lawyers for the @Binance defendants have filed a motion accusing the SEC of engaging in unethical conduct.

This is a big deal.

Let me explain... @Binance has accused the SEC of violating Court rules by making statements outside of court that are:

1) false;
2) designed to harm @BinanceUS's customers; and
3) likely to taint the jury pool.

Binance asks the Court to order the SEC to comply with the applicable Court rules.

1/ The SEC complaint against @binance appears to solve the mystery of why Brian Brooks abruptly resigned as CEO of @BinanceUS in 2021.

CZ allegedly reneged on promises that Brooks would be given autonomy to run Binance.US independently from @binance. 2/ The Complaint cites an unnamed source who ran @BinanceUS briefly in 2021.

We know from the dates in the complaint that the source must be Brian Brooks, who ran @BinanceUS for 3 months in mid-2021.

The complaint quotes testimony Brooks gave about his brief stint as CEO.

1/ A Modest Proposal to Reform the SEC.

The draft Digital Assets Bill released yesterday by Congressmen @PatrickMcHenry @RepFrenchHill & @CongressmanGT presents--

A Golden Opportunity to begin to reform the SEC and rein in its tendency for regulatory overreach.

Here's how... 2/ Amend the Bill to say:

"At the conclusion of every litigated SEC case, the Court shall determine which party is the 'prevailing party.'

If the Court determines that the Defendant is the prevailing party, then the SEC shall pay all attorneys fees incurred by that Defendant."

1/ BREAKING: The U.S. Chamber of Commerce has just filed a brief in the @coinbase v. SEC case, calling out the SEC for acting "unlawfully" in the digital asset space.

This is The U.S. Chamber of Commerce--not the Chamber of Digital Commerce.

This is a Big Deal.

Here's why... 2/ The U.S. Chamber is a highly influential organization representing companies in all industries across the U.S.--not just crypto.

The brief opens with:

"As it stands today, nobody knows for certain which digital assets, if any, are 'securities' under federal law."

Exactly!

1/ If the SEC follows through on its threat to sue @coinbase, I believe the SEC will lose.

The SEC's case has a fatal flaw.

And the problem is entirely of @GaryGensler's own making.

Let me explain... 2/ After he was confirmed to his post as Chairman of the SEC, Gensler testified to Congress, on May 6, 2021, that:

THE SEC DOES NOT HAVE AUTHORITY FROM CONGRESS TO REGULATE CRYPTO EXCHANGES.

Watch this 👇

1/ Here's what you should know about the @coinbase suit against the SEC.

This will move fast--unlike the @Ripple case.

This case begins in the appellate court, not the trial court.

There will be no discovery (depositions and document exchange), just briefing and a hearing. 2/ @coinbase has an All-Star legal team led by Eugene Scalia--former Sec. of Labor and son of deceased Supreme Court Justice Antonin Scalia.

Scalia has experience defeating government agencies, including the SEC, in court.

The Petition filed yesterday is quite persuasive.

When the history of crypto is written, this may be a March to remember.

This all happened in the last 18 days:

March 7: BTC: $22,000; XRP $.37; ETH: $1,550

March 8: Silvergate (primary bank for many in the crypto industry) announces it will shut its doors and liquidate 3/8 @SenWarren tweets: “regulators should step up against crypto risk”

3/10 Regulators shut Silicon Valley Bank

3/12 Regulators seize last crypto-friendly bank (Signature) to “send a message”

3/20 White House releases Economic Report with scathing attacks on crypto

I just finished reading Judge Torres' 57-page ruling on the admissibility of expert testimony in SEC v. Ripple.

As a trial lawyer who handled a number of securities cases in the Southern District of New York, I have 5 takeaways from the Judge's Order. 1/ The Judge's rulings on admissibility are legally sound and unlikely to be disturbed on appeal--which is no surprise.

The Judge demonstrates a good grasp of XRP and the related technology and excellent command of the legal issues, claims and defenses in the case.

1/ Shocking New Case Filed by the SEC

The SEC has just filed a case alleging that:

Selling crypto mining equipment and offering hosting services for the equipment constitutes an "investment contract" under Howey.

Yes. You read that right.

Here's what you need to know. 👇 2/ The case was filed in federal court in Utah.

Some of the mining machines at issue are Bitcoin Antminers.

To my knowledge, the SEC has NEVER issued guidance (formally or informally) that even hinted that selling mining equipment could be an unregistered securities offering.

And the worm turns. Again.

1/ The creditors who object to Sullivan & Cromwell serving as Debtors’ counsel have filed an emergency request to delay the hearing scheduled for later this morning.

The reason for the requested delay is the last minute filing by Daniel Friedberg. 2/ The objectors say they had no prior knowledge of Mr. Friedberg’s intent to file the declaration.

And they need time to investigate the shocking allegations Mr. Friedberg has made against Sullivan & Cromwell.

Well, I just finished reading the Declaration of Daniel Friedberg.

It is fair to say that this is one of the more shocking sworn statements I have read in a good long while.

If half of what Mr. Friedberg says is true, he has just blown the top off of this bankruptcy case. Let's first just stipulate that there may be some serious credibility issues with Mr. Friedberg.

I don't know whether what he is saying is true, false or somewhere in between.

That being said, here is a list of just some of what he has sworn to:

1/ There's something off with the FTX bankruptcy.

And it's happening tomorrow.

Here's what you should know. 2/ Tomorrow at 10 a.m., Sullivan & Cromwell will be heard on its motion to be appointed Debtors' counsel for FTX.

And John J. Ray is all in favor of this appointment.

And that is weird. Here's why...

8 key takeaways from SBF substack statement.

(Important Caveat: Who knows if anything SBF says is accurate?)

1) When the bankruptcy was filed, FTX.US had excess liquidity (above 1:1 coverage of customer deposits) in the amount of $350 million. 2) FTX.US only held $497 million in customer assets.

3) https://t.co/aUcDOvQEAS was solvent with a significant buffer.

My commentary: It is Possible that parts of this are true. https://t.co/aUcDOvQEAS had subsidiaries that were regulated by US authorities.

1/ As a securities trial lawyer, I have cross-examined many conmen and financial fraudsters over the last 30 years.

@andrewrsorkin will have his chance to question SBF on Wednesday.

Here are 6 questions I would ask--but doubt he will. 2/ Stealing Customer Funds

The FTX Terms of Service are very clear that customer assets belong to the customer--not to FTX.

You realize it was illegal for you to misappropriate assets from your customers' accounts, right?

1/ Why doesn't the US GOVERNMENT just BAILOUT #FTX?

Crazy idea?

I'm not saying it's a great idea.
But let's explore it--just for fun.

And remember as you read this-- #FTX could be bailed out, and EVERY CUSTOMER MADE WHOLE at a total cost in the range of $2 to $10 Billion. 2/ Any recent precedents for such a Crazy Idea ?

Well...

President Biden's student loan bailout program is estimated to cost between $400 Billion (CBO) and $900 Billion (Penn/Wharton).

Remember--a bailout that saves every #FTX customer would cost between $2 and $10 Billion.

Wait, another FTX scandal???
Yes, but its not what you think.

FTX filed bankruptcy in Delaware, USA today.

FTX must soon publish a Complete List of Names of its account holders and the Value of Assets in each account--because these account owners are all creditors. So, I imagine this could get a little uncomfortable for some of these people.

- If you are a Hedge Fund, you should probaby break the news to your investors before they read it in the papers.

- If you are a Pension Fund, you might want to tell your retirees, pronto.