SEC Cited For Abuse Of Power In DEBT Box Case; Fed Chair Bitcoin

unprecedented sanctions

Fortune’s Leo Schwartz reported on X late yesterday that District Judge Robert Shelby, an Obama appointee, has sanctioned the SEC for a “gross abuse of power” in the DEBT Box lawsuit. Schwartz says Judge Shelby “found the agency misrepresented facts to obtain a restraining order against a Utah-based crypto firm.” Read more (subscription).

The Block notes that the SEC will have to pay DEBT Box’s legal costs and “sanctions.” But, is it all too little, too late for DEBT Box?

Retweeting the sanctions news, House Financial Services Chair Patrick McHenry (R, NC) didn’t hold back on X last night: “Chair [Gary] Gensler’s enforcement team’s egregious misconduct will have broad implications on SEC authority beyond his crypto crusade. Gensler requested more funding for enforcement last year, now a judge calls out the SEC’s abusive and deceptive legal practices. This must end.”

what you should know: But, is it all too little, too late for DEBT Box? The company’s business was destroyed due to the Temporary Restraining Order (TRO) put on it at the request of the SEC and approved by the Court. The biggest ramifications may be the political calculus going forward between Chair Gensler and Democratic leadership. Do they soften their digital assets stance?  The rumored April HFS oversight meeting with Chair Gensler ought to be good theater.

SEC overreach

A House Financial Services (HFS) Capital Markets Subcommittee hearing tomorrow titled, “SEC Overreach: Examining the Need for Reform” will be something to keep an eye on even though the focus is not digital assets, specifically. But, the just-announced DEBT Box outcome will no doubt be top-of-mind.

Overall, the House majority Republicans appear to be upping the ante against the SEC and its Chair Gary Gensler at the hearing with 12 new bills and another joint resolution devoted to reining in the securities agency. From the hearing memo: “This hearing will examine Chair Gensler’s approach to policymaking at the SEC, which has sparked significant concerns.”

See the hearing page. And, read the Committee Memorandum.

The list of witnesses to appear in front of the Subcommittee and its Chair Ann Wagner (R, MO) will include the following at least (more to come… Better Markets from Dem leadership, perhaps?): Jennifer Schulp, Director of Financial Regulation Studies, Cato Institute; David Burton, Senior Fellow, The Heritage Foundation; John Gulliver, Executive Director, Committee on Capital Markets Regulation.

what you should know: Last month, a Joint Resolution [H.J.R.109] rescinding the Securities and Exchange Commission’s (SEC) SAB 121 made it successfully out of an HFS markup with bipartisan support and rebuked the SEC for its overreach when it comes to crypto custody for traditional financial firms. A House Floor vote is next for the resolution as well as progress in the Senate.

state vs. crypto

Binance just got hit with court order to release user data as Nigerian crisis worsens – DL News

use case: play-to-earn

Yesterday, The New York Times covered the re-emergence of crypto gaming in the Philippines where players can “play-to-earn” twice the usual daily wage of $11 a day. It was only a few years ago that the crypto game Axie Infinity soared in popularity, and then crashed and burned in the Philippines. A $620 million hack in 2022 by North Korean hackers didn’t help.

But now, Chainalysis tells the NY Times about traction for a new game called Pixels which involves digital farming: “The Philippine player base for Pixels spiked to over 830,000 in March from 80,000 players in November, according to the game’s developers. About 30 percent of the world’s crypto-earning video gamers are based in the Philippines.” Read about it.

what you should know: This another example of the pronounced impact that digital assets can have in underserved, underbanked and/or under-developed countries.

Fed Chair Bitcoin

The next Federal Reserve Chair may be an admirer of Bitcoin if the Wall Street Journal is right and former President Donald Trump wins in November.

Reagan-era economist Arthur Laffer has suggested three names for the role of Chair should Trump win according to the WSJ: “Kevin Warsh, an economic-policy adviser to President George W. Bush who later served on the Fed’s board of governors; Kevin Hassett, a former chairman of the Council of Economic Advisers during the Trump administration, and Laffer himself.”

Blockchain Association policy executive Dan Spuller noted on X yesterday, “Art Laffer, a mentor to [renowned investor Cathie Wood]  believes bitcoin – the return to private rules-based money – could become the most positive step forward in global monetary history.”

more tips:

    • The Banking Crisis and Crypto with Art Laffer (podcast, March 2023) – ARK Invest

Ether ETF addition

The next crypto spot market Exchange Traded Fund (ETF) is the focus of discussion on X as the crypto chorus hems and haws as to whether the SEC will approve ETF applications in May.  But, Fidelity is throwing a bit more complexity into the Ether ETF conversation with its application which includes a staking component.

CoinDesk quotes from Fidelity’s newly-amended application, “According to the Registration Statement, the Sponsor may, from time to time, stake a portion of the Fund’s assets through one or more trusted staking providers, which may include an affiliate of the Sponsor (‘Staking Providers’)…” Read more.

Kraken ran afoul of the SEC due to staking and questions around Ethereum staking’s security status which led to an SEC complaint.

more tips

    • CBOE Form 19b-4 in regards to Fidelity Ethereum Fund –

what you should know: The sanctioning of the SEC over DEBT Box could encourage the SEC to back away from a delay of Ether ETF applications. The delay might risk more  court battles.

SIFMA and crypto

At SIFMA’s Compliance & Legal Conference in Orlando today, digital assets makes the agenda with a panel titled, “Crypto and Cybersecurity: Emerging Enforcement and Legislative Trends” and promises to cover “SEC priorities; SEC enforcement actions; Regulatory and legislative trends; Cybersecurity risks and threat landscape.”

Participants include JP Morgan counsel Joey Lipton, lawyer Anita Bandy of Skadden, Andrea Griswold of the Southern District of New York and Jason Harrell of DTCC.

what you should know: SIFMA – or the  Securities Industry and Financial Markets Association – is “a United States industry trade group representing securities firms, banks, and asset management companies.” See their “About Us.”

still more tips

CCI Files Amicus Brief Supporting Coinbase’s Challenge to SEC’s Denial of Rulemaking Petition – Crypto Council For Innovation

CEO Paolo Ardoino Interview – Tether USDT’s Rise To The World’s Largest Stablecoin & Future Outlook – Thinking Crypto

Figure raises $60M in bid to build a ‘differentiated’ crypto exchange – Blockworks

Bakkt Replaces CEO as NYSE Threatens to Delist Crypto Exchange – Bloomberg