John Reed Stark’s Post

Today the SEC proposed a new rule reiterating the applicability of existing SEC rules to so-called crypto trading platforms. https://lnkd.in/ejFh8hp2 Per SEC Chair Gensler: “Make no mistake: many crypto trading platforms already come under the current definition of an exchange and thus have an existing duty to comply with the securities laws.” Whenever any government law, rule, or regulation gets specific about crypto, crypto lobbying groups protest and file interminable lawsuits challenging the action. Consider the following five examples during the past few years involving Big Crypto’s challenges to: --The Infrastructure Investment and Jobs Act (“Infrastructure Act”); --SEC Rule 3b-16 (in January 2022); --OFAC Sanctions Against Tornado Cash; --A Proposed Bitcoin Spot-ETF; and --FinCEN Anti Money Laundering (AML) Crypto-Rules. https://lnkd.in/gKH6UQxS Consider for example, the original 2022 SEC 3b-16 proposal, which would put more so-called “alternative trading systems” under the SEC's purview as exchanges, including crypto trading platforms. https://lnkd.in/gBPvVWDq The SEC adopted Regulation Systems Compliance and Integrity and Form SCI in November 2014 to strengthen the technology infrastructure of the U.S. securities markets. Specifically, the rules are designed to: --Reduce the occurrence of systems issues; --Improve resiliency when systems problems do occur; --Enhance the SEC’s oversight and enforcement of securities market technology infrastructure. In response, the Blockchain Association wrote a scathing comment letter, claiming that the SEC lacks the authority to define an exchange so broadly, stating: “First, the expansions to Rule 3b-16 under the Proposal exceed the scope of the SEC’s statutory authority under the Exchange Act by subjecting actors and activities not covered by the definition of “exchange” under Section 3(a)(1) of the Exchange Act to substantial regulation. Second, the SEC’s promulgation of the Proposal violates statutory rulemaking requirements by eliminating the opportunity for meaningful stakeholder engagement in the rulemaking process, both by providing an insufficient comment period and by offering insufficient analysis relating to the detrimental, and potentially fatal, impact of the Proposal on an entire industry. Third, we are concerned by the vagueness of the Proposal with respect to decentralized finance in light of the SEC’s recent efforts to regulate the industry.” https://lnkd.in/eiacQ6Hy In all of their lawsuits, the Big Crypto cartel demands regulatory clarity, but whenever regulators actually deploy meaningful crypto-regulatory initiatives, the Big Crypto cartel does everything possible to strike down and cancel those initiatives. My take: Be careful what you wish for Big Crypto, because you just might get it. (Oh, and the SEC's relentless crypto-regulatory onslaught continues.)

Hot off the presses: Big Supreme Court decision today against the SEC, shining an excess of sunlight on what some experts deem an unfair SEC administrative process, where the odds are heavily stacked against alleged wrongdoers. The Supreme Court has now allowed for a new line of attack for SEC respondents who might: 1) Feel victimized by the extraordinary lack of due process afforded in SEC administrative proceedings; 2) Lament the injustice of being denied the fundamental right to be tried by a jury of their peers in an Article III Court; or 3) Seek to take on the alarming mission-creep of SEC administrative overreach. This is a good decision IMHO and shout out/hats off to Russ Ryan who has fought relentlessly in this arena with the heart of Alexander Hamilton and the pertinacity of Andy Dufresne. Read the decision at: https://lnkd.in/ex-SKfe2

The SEC legal team just wrote an interesting letter in the Ripple case. Specifically, the SEC notified US District Judge Analisa Torres, who is overseeing the matter, of an April 7, 2023, decision in the SEC's case against Commonwealth Equity Services over alleged disclosure violations. The Judge presiding over the Commonwealth matter found that the adviser had received fair notice of disclosure guidelines by way of SEC v. Capital Gains Research Bureau, a 1963 US Supreme Court decision. The SEC asserts that this precedent bolsters its position that Ripple received fair notice of what constitutes a security, and therefore must be registered with the SEC per the Howey Test. Per the SEC: "[The Commonwealth decision's] holding that longstanding Supreme Court precedent can provide fair notice is identical to the SEC's position in this case: that Howey and its progeny provided defendants with sufficient fair notice to defeat their constitutional defense.” The SEC’s Letter is compelling and also a salient reminder of not just the weakness of the so-called Fair Notice defense but also a judicial cue that “ignorance of the law is no excuse.” It is also important to note that with respect to digital assets, never in its history has the SEC taken such drastic measures to make its views known. Along these lines, the SEC (under Clayton & Gensler) have used multiple distribution channels to share SEC concerns regarding crypto, digital trading platforms and other digital asset products and services. For instance, with respect to crypto generally, the SEC has publicized its position through dozens of speeches and Investor Alerts, a rare Section 21(a) Report of Investigation, staff guidance, Congressional testimony, and several official SEC statements/proclamations. There are also tens of thousands of pages of comprehensive pleadings and fillings associated with the 140+ SEC crypto-related enforcement actions and the SEC’s undefeated crypto-track record, which include five of the most notorious SEC crypto victories — Telegram, Kik, BlockFi, LBRY and the SEC’s 2021 Wells Notice of Coinbase (regarding its crypto-lending program). https://lnkd.in/eGSR5icm To claim a lack of clarity and fair notice amid such a concerted SEC effort for crypto-related transparency, discourse and candor seems not only disingenuous and ill-advised — but also seems part and parcel of an old-fashioned get-rich-quick scheme targeting the most vulnerable. https://lnkd.in/erDpbmyG Under any circumstance, if Ripple wins their summary judgment motion, the crypto-world will surely laud the decision as a watershed and may even gain some momentum. While if Ripple loses, it will be yet another SEC win which, though energizing for SEC staff, probably won’t alter the course of relentless, stubborn, nonsensical and exploitive Big Crypto bluster. SEC Letter: https://lnkd.in/eBZyMTvU Commonwealth decision: https://lnkd.in/ejgtX4bt Capital Gains Research Bureau decision: https://lnkd.in/eNcxPg-N

Over 1,600 professionals have already registered for the April 20, 2023, 8th Annual Incident Response Forum Masterclass, an extraordinary, once-a-year virtual event that you can watch from anywhere while seamlessly interacting with the panelists and fellow attendees. The day includes a session I am moderating entitled: "Responding to Cyber-attacks at Cryptocurrency, NFT, DeFi and Other Digital Asset Trading Platforms," featuring Former SEC Cyber/Crypto Unit Chief Kristina Littman together with cyber-superstars Daron Hartvigsen, Tara Swaminatha and Anthony Lewis. Speakers hail from major US law firms; tech giants like Meta and Equifax and U.S. government agencies like the U.S Treasury's Office of Foreign Assets Control, the U.S. Securities and Exchange Commission, the U.S. Federal Bureau of Investigation and the U.S. Department of Justice (National Security Division). Speakers include: Jennifer Carroll Archie, Christopher Cwalina, Luke Dembosky, Jamil Farshchi, Evan Roberts, Bryan Smith, David Lashway, Joe Bruemmer, Kate Doty Hanniford, Megan Kayo, Kelly Kimberly, Travis LeBlanc, Jennifer Coughlin, Scott Godes, Sean Hoar, Scott Lashway, Kari Sawyer, Robert Hudock, Paul Luehr, Edward R. McNicholas, Sean Spaniol, Luke Tenery, Ashden Fein, Dan Greene, Laurie Iacono, Dominic Paluzzi, Michelle Visser, Amelia Gerlicher, Natasha Kohne, Matt Reid, William Ridgway, Aravind Swaminathan, Carolyn Purwin Ryan, John Carlin, Joseph Santiesteban, Arsen Ablaev Find more details and how to register at: https://lnkd.in/eUgKBGZF The first 20 people to DM me on LinkedIn will receive a coupon code which allows for 100% free attendance to all sessions. (And if you have a compelling reason for a free coupon to attend, and miss out on my promotion, DM me and I will take care of you.) See you there! -- Stark

It’s time for the SEC to add SBF’s parents at least as “relief defendants” to the SEC complaint, probably should have done so initially under any circumstance.

Hot off the presses: Wondering what the SEC case against Coinbase might look like? Look no further than the registration charges in today’s SEC case against crypto trading platform Beaxy and its executives relating to their operating an unregistered exchange, broker and clearing agency. Clearly, the SEC crypto-related enforcement sweep runneth over. I have written time and again in these pages that for any crypto-platform operating in the US, the SEC can asphyxiate their grift forthwith by applying its existing robust arsenal of broad statutory weaponry to all crypto-trading firms and facilitators, including filing enforcement actions for failing to register as 1) an "exchange;" 2) a "broker-dealer;" 3) a "market-maker." or 4) an "investment company." https://lnkd.in/gJyumsgw Flexibility of regulation is not just an SEC edict, it is the SEC’s hallmark – and has been so for decades. In fact, identical notions of regulatory flexibility were championed: In 1993 by Georgetown Law professor Don Langevoort, in "Rule 10b-5 as an Adaptive Organism;” in 1996 by then SEC Enforcement Director Bill McLucas and SEC staffer Mark Lewis, in "Common Sense, Flexibility and Enforcement of the Securities Laws;" and in 1998 by then SEC Enforcement Deputy Director Steve Cutler and then SEC Chief of Internet Enforcement (me) in “The SEC’s Statutory Weaponry to Combat Internet Fraud.” As for SEC enforcement sweep enforcing existing statutes, crypto-enthusiasts will undoubtedly brand this recent crypto-related SEC action as yet another example of rogue SEC “regulation via enforcement.” But just as the SEC has done for almost 90 years, from Howey (1946) through LBRY (2022), litigating statutes that codify basic tenets of investor protection is precisely how securities regulation works. As SEC Chair Gary Gensler stated today: “This case serves as yet another reminder to crypto intermediaries that their business models must comply and adapt to the law, not the other way around.” From policing foreign bribery payments (before the Foreign Corrupt Practices Act), to municipal securities fraud, to derivatives scams and unlawful insider trading, to fictional prime bank instruments and subprime grifts, to non-existent eel farms and bogus ostrich farms, the SEC has addressed emerging issues without the benefit, or the hindrance, of precise prescriptions. Instead, the SEC has relied on the general principle of federal securities laws and applied them practically and with common sense. https://lnkd.in/g2SmSSyQ Securities law can always use improvement. But in the meantime, no need to continue Waiting for Godot. Be it Internet or crypto, SEC enforcement must combat new technologies and innovations that threaten investors. And securities regulation does not require an overhaul to do so. https://lnkd.in/eDSz7mAh

I remain confounded as to why CFA’s are held to a much lighter professional standard than CFP’s (Certified Financial Planners). The CFA credential seems like it is becoming a rubber stamp and entirely second rate while the CFP credential seems a lot more fiduciary and professional in nature. https://lnkd.in/eZdZhuuC For instance, Katherine Molnar is a CFA and has lost tens of millions of dollars investing in crypto-related garbage as a fiduciary to retirement/pension funds to Virginia municipal employees, like police officers. The situation became even more horrendous after the recent bank failures. https://lnkd.in/efRUzkP5 Yet Molnar remains a CFA. If Molnar were a CFP, her credential would be gone, gone, gone. How Molnar still has a job and a gleaming CFA credential is beyond absurd. IMHO, the situation is shocking and the CFA Institute is clearly enabling the corruption. https://lnkd.in/e7zeUMst

As predicted over and over again in posts on LinkedIn and elsewhere, "One need not be Nostradamus to predict that Binance-related civil and criminal prosecutions are imminent. That’s my opinion anyways." https://lnkd.in/ezufaeBw See also: https://lnkd.in/eKH2uzGs https://lnkd.in/ej49ncQW https://lnkd.in/gJnpvZwt Unknown re Binance: Revenue/profit/cash reserves; The role its coin plays on its balance sheet; Its crypto-margin bets/risk exposure; How reserves finance withdrawals/leverage; Where it's based. Known re Binance: Auditor quit; No CFO; Bank run ongoing. If Binance’s reserve stablecoins hold their peg; if Binance can provide true proof of reserves and bona-fide audited financials; if there’s no bank run on Binance; if USDOJ opts not to hit Binance with criminal charges, everything will be fine. https://lnkd.in/gM6FGBgZ One more note: How can the bankruptcy judge in Voyager approve the sale of Voyager to Binance amid dire allegations of commingling at Binance and without basic financial info of Binance (e.g. audited financials/cash reserves/risk exposure) and in light of this scathing CFTC lawsuit? Per the CFTC Release: “Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance. The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,” said Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel. “Today’s enforcement action reflects that the CFTC and its Enforcement Division will pursue those digital asset platforms and individuals who flout and actively attempt to circumvent CFTC regulatory requirements. I thank the Enforcement team for their dedication and hard work in bringing this action.” https://lnkd.in/enmDZg2Q

As I predicted many times in my LinkedIn posts, the U.S. SEC wants to hit Coinbase with charges relating to assets listed on its crypto platform and its staking and wallet services. Not surprising at all. IMHO, Coinbase presents a veritable driver’s-ed film of securities violations and Coinbase's defenses all fail miserably. Here's an exhaustive analytical deep-dive into the who, what, where and why.

A critical notion seems to be getting lost amid the current chaos and media mayhem. Given the mammoth failures of Signature and Silvergate, the officers and directors at any bank doing, or pondering doing, any crypto-related work, are experiencing a dire and overwhelming personal existential crisis. Clearly, crypto poses a global financial systemic threat. Hence, bank executives and bank directors who enagage in any crypto-related work will inevitably face a 24-7 U.S. regulatory colonoscopy, decades of litigation, years of law enforcement and regulatory investigations, enormous potential personal liability, endless and devastating legal bills, varying degrees of possible civil and criminal charges, and irreversable reputational damage. Why would anyone voluntarily take on such misery and ruin? If there is no way to cash-in casino chips after gambling, people will stop going to casinos. Bye crypto (and good riddance). https://lnkd.in/eNbVXtvB