big Ripple ruling
One of the standard-bearers among digital assets lawsuits is the Securities and Exchange Commission (SEC) battle with Ripple over its XRP token. Yesterday, a judge ruled that XRP was not a security in certain instances which could significantly change the dynamic for digital assets legislation in the United States. Read a summary from Decrypt.
And, read the 34-page order here (PDF).
CoinDesk, calling it a “partial win” for Ripple, summarized the court ruling and its effects: “The SEC’s motion for summary judgment was granted by the court as it applies to the institutional sale, and otherwise denied.” Read that one.
On that note, the SEC saw a bright side to the ruling and intimated the potential for an appeal in a statement: “We are pleased that the court found that XRP tokens were offered and sold by Ripple as investment contracts in violation of the securities laws in certain circumstances.” Read more about those circumstances in The Block.
House Majority Whip Rep. Tom Emmer (R, MN) immediately took to Twitter and said, perhaps with some relief, “The Ripple case is a monumental development in establishing that a token is separate and distinct from an investment contract it may or may not be part of. Now, let’s make it law.” Digital assets has been a significant part of the Republican legislative agenda in the U.S. House of Representatives in the 118th Congress. Meanwhile, the digital assets industry has clearly been clobbered in the past year beginning with the implosions of Terra Luna and FTX and its related fraud as well as regulatory pressure.
Ripple CEO Brad Garlinghouse, who has led an unremitting campaign in defense of his company and the XRP token, quoted from the ruling on Twitter, “The most important part of this ruling: “XRP, as a digital token, is not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the Howey requirements of an investment contract. This is a now a matter of law (not up for trial.).”
big Ripple ruling – more reaction
Coinbase quickly announced that trading of XRP would start back up on its exchange as of yesterday.
Mike Selig, a self-described crypto lawyer and Wilkie Farr tweeted, “Massive win by the Ripple team against the SEC. Judge Torres clearly affirms the view that the same crypto asset may be sold as an investment contract (and therefore a security) and as a standalone good. The investment contract is the security, not the crypto asset.” Read his entire Twitter thread.
Stephen Palley, a partner at law firm Brown-Rudnick, expressed caution through his Twitter account saying, “A word of caution: that order in the Ripple case is a partial summary judgment from a single district court judge. While persuasive, it’s not binding precedent on other courts and will likely be appealed and could be reversed. don’t yolo into anything based on that decision.”
Not holding back, policy director Justin Slaughter at investment firm Paradigm tweeted, “Man, this probably just shifted the math on McHenry-Thompson and Lummis-Gillibrand. The secondary market decision is striking.”
Torres investigates Prometheum
Rep. Ritchie Torres (NY), a Democratic member of the House Financial Services (HFS) Committtee, is asking for two investigations into Prometheum and its ATS (Alternative Trading System) license according to Forbes yesterday. Torres apparently believes that the license may have been a “political ploy.” Read more.
Questions surrounding Prometheum have been bubbling and its license have been bubbling since the appearance of its co-founder and CEO Aaron Kaplan at a June 13 HFS hearing on digital assets and a separate inquiry initially led by Senator Tommy Tuberville (R, AL) beginning in early June.
Later in the day yesterday, Rep. Torres didn’t mince words and tweeted, “[The Securities and Exchange Commission (SEC)] is acting like an overzealous traffic cop arbitrarily ticketing drivers while keeping the speed limit a secret. It prefers to communicate by enforcement rather than by rules or guidance. But that’s no way to regulate digital assets. I’m calling for an investigation.” And, see the letter.
The request for investigation will be sent to the SEC’s Office of the Inspector General and to the Government Accountability Office (GAO), says Forbes.
Torres investigates – reaction
Consensys General Counsel Matt Corva tweeted about Torres call for investigation: “This may go under the radar today, but an important development. Dozens of qualified REAL applicants for ATS who have been rejected or told to withdraw their apps. But the aptly described potemkin project gets in just in time to appear in front of congress?…” Read it.
Gillibrand-Lummis – interview
In support of their newly re-introduced Responsible Financial Innovation Act (RFIA) announced Wednesday, we have since discovered that Senator Cynthia Lummis (R, WY) and Senator Kirsten Gillibrand (D, NY) appeared together in two other televised interviews of note in addition to Senator Lummis’ Squawk Box hit we linked to yesterday.
A 10-minute video appearance on Yahoo! Finance was particularly intriguing for the depth with which the Senators delved into the bill.
Senator Gillibrand gave a good sense of why RFIA is important to her constituency and seemed to send a message to the SEC (similar to Rep. Torres’ message) in the process saying, “Without a regulatory framework, there are no consumer protections. There’s nothing to protect U.S. based consumers and U.S. based businesses. And what I’ve heard from a lot of the New York businesses is that they have sought regulation, they have sought to register. They want to be broker dealers and they’ve been ignored by our regulatory agencies who, because there’s no legislation, don’t have the framework from us as to how they should regulate.”
Gillibrand continued, “And that’s really created enormous challenges that cannot be overcome. So, a lot of those really strong New York businesses and national businesses are going to go abroad because they have consumer protections, they have certainty. And uncertainty is one of the biggest enemies of any business because you cannot innovate. You cannot offer products to customers, you cannot really have a going concern if you don’t have rules of the road.” See the entire interview.
Also, see a clip from the Senators’ appearance on “Your World with Neil Cavuto” here.
Gillibrand-Lummis – taxes
Crypto tax lawyer Jason Schwartz of law firm Fried-Frank breaks down the Lummis-Gillibrand RFIA bill with a tax lens on Twitter. He notes the ironic timing of this week’s Senate Finance inquiry on crypto tax initiated by Chair Senator Ron Wyden and Ranking Member Senator Mike Crapo (R, ID).
Schwartz tweets about one element of RFIA which addresses a long sought after diminimis exemption of sorts: “The bill would exempt personal txn gain from tax, up to $200. The $200 limit conforms to the limit for FX gains when we use Euros on vacation. Without this change, we’ll be taxed each time we transact in on-chain games or use on-chain reward points.” Read the whole thread.
There have been many attempts at diminimis exemption legislation for crypto in the past six years. For example, Rep. David Schweikert (R, AR) has been trying to drive a diminimis exemption bill through the House since 2017 – his last effort with Rep. Suzan DelBene (D, WA) was “H.R.6582 – Virtual Currency Tax Fairness Act of 2022.”
Also, last Congress, Senator Pat Toomey (R, PA) and Senator Kyrsten Sinema (I, AZ) introduced “S.4608 – Virtual Currency Tax Fairness Act.”
Read our past coverage on diminimis exemptions.
number down, hopium up
PwC’s “2023 Global Crypto Hedge Fund Report” says, “While the percentage of traditional hedge funds investing in crypto-assets fell from 37% in 2022 to 29% in 2023, the confidence in the value proposition and long-term sustainability of crypto-assets appears robust.” What does that mean, you ask? The PwC report follows up, “Traditional hedge fund respondents that are currently invested in crypto-assets note they will either increase or maintain exposure, regardless of underlying market volatility and regulatory barriers”
See the press release. And, get the report (PDF).
crypto arrest
It may have seemed like a long time coming, but Alex Mashinsky of bankrupt crypto lender Celsius was finally arrested and charged yesterday by the Department of Justice over alleged fraud. According to CoinDesk, “Mashinsky and others are charged with seven counts including securities fraud, commodities fraud, wire fraud and conspiracy to manipulate the price of Celsius’ token CEL..” Read more.
The SEC (see charges), Commodity Futures Trading Commission (see charges) and Federal Trade Commission (see charges) also chimed in with suits of there own.
The Federal Trade Commission (FTC), arguably, hasn’t been very active in crypto like other agencies to date. Start of a trend?
The FTC statement (see it) laid out some of the alleged malfeasance which has resulted in a $4.7 billion settlement with the company: “Far from securing customers’ cryptocurrency deposits, Celsius took title to and misappropriated these deposits totaling more than $4 billion, according to the complaint. The company used consumer deposits to fund its operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments, which even the company acknowledged often lost money.”
CoinDesk points out that Mashinsky had already been named in a separate January lawsuit by New York State Attorney General Letitia James.
more tips:
How the fall of Celsius dragged down crypto investors (July, 2022) – CNBC
see more tips
Statement of Commissioner Kristin N. Johnson: Taking Action to Prevent Fraud By Digital Asset Services Firms – CFTC.gov
“Crypto Round Two” (The Lummis-Gillibrand bill) – Politico’s Digital Future Daily
Telegram Wallet bot enables in-app payments in Bitcoin, USDT and TON – Cointelegraph
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