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Securities and Exchange Commission

Ripple CEO Angry Over SEC’s Disregard For Investors

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Ripple’s Chief Executive Officer Brad Garlinghouse expressed shock as the legal dispute has developed and believed that the SEC’s objective isn’t about “a faithful allegiance to the law”. It’s about power under the garb of interest protection, he alleged.

There is no regard for those companies and people that this approach has harmed. We all should be outraged. The SEC has clearly forgotten that the government works for the people.

Garlinghouse also brings light to the agency’s glaring disregard for the people and businesses that have been harmed by the agency’s strategy. The SEC charged Ripple and its top executives with selling unregistered securities in a 2020 lawsuit.

Last week, during DC Fintech Week, event, the CEO said he expects the court to rule on the lawsuit in the first half of 2023.

“I think we’ll have an answer in the first half of next year. Whether that’s the first quarter or second quarter, we shall see,” he said. 

SEC filed a formal lawsuit against Ripple in December 2020 for allegedly breaking securities laws. According to the regulator, between 2013 and 2020, the blockchain firm and two of its executives raised $1.3 billion by selling unregistered securities to foreign investors through the sale of XRP tokens.

Ripple and the entire crypto industry were taken aback by the SEC lawsuit because there had been no indication that the watchdog was keeping an eye on the business.

Ripple CEO- SEC’s Decision Will Only Benefit China

The SEC regulations, according to Ripple, were not broken because XRP is not a security. Garlinghouse asserted following the lawsuit that his business was specifically chosen for close examination.

The regulator “should not be able to cherry-pick what innovation looks like (especially when their decision directly benefits China),” Garlinghouse continued.

A motion to access internal records, including emails and drafts, pertaining to a 2018 speech by former SEC executive William Hinman was granted by Ripple last month.

Because the commissioner believed that Ether, like Bitcoin, is not a security, Hinman made comments about Ether’s legal status in the documents that the Commission wished to keep private.

The SEC lawsuit is an assault on the cryptocurrency industry, and the outcome will determine the future of the sector, the Ripple CEO emphasized once more.

What’s Next For SEC In Coinbase Insider Trading Scandal?

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The SEC has filed a case against a former Coinbase product manager, his brother, and one of his close associates, alleging that the trio raked $1.5 million in profits from insider trading.

In a separate complaint filed on 21st July, the apex regulator said that nine of the 25 tokens allegedly traded in the scheme were securities, sparking a huge debate online.

Ian McGinley who works as a partner at a law firm stated that the financial watchdog would now have to prove the alleged tokens are in fact securities.

“They don’t have a wire fraud statute as the DOJ does,” McGinley said, referring to wire fraud charges brought by the U.S. Department of Justice on the same date.

The charges were issued to Ishan Wahi, a former product manager at Coinbase, who engaged in wire fraud and conspiracy to commit wire fraud.

Ishan Wahi, who worked on Coinbase’s asset-listing team, had prior knowledge of the timing and public announcements of assets the exchange planned to list.

Wahi then began sharing confidential Coinbase information with his brother Nikil Wahi and associate Sameer Ramani under the garb of numerous crypto accounts and anonymous digital wallets.

The defendants were finally busted after one of them tried to flee India a day before a scheduled meeting with the exchange, according to the indictment.

SEC taking on individual actors rather than token issuers- Expert

Some in the industry feel the regulator is unlikely to move court against Coinbase, which has the means and the resources to pursue litigation against the former.

It still put Coinbase on notice that the SEC views these tokens as securities which on conviction would pressurize trading platforms to delist these tokens.

Although such a scenario would not be legally binding on the token issuers or Coinbase or other exchanges, the agency can leverage this decision against its more challenging enforcement targets.

Echoing similar sentiment, Joshua Rivera, General Counsel, Blockchain Capital expressed concern,

In an alarming strategy, the Commission directly pursues only the individual actors (as opposed to Coinbase and the token issuers) who lack the resources and the motivation to litigate the securities laws implications of the case. The SEC can expect an easy win and a federal opinion (or settlement) in fact, which the they can then leverage against its more challenging enforcement targets.

XRP and SEC battle: Congressman Sherman caught in the feud

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XRP and the Securities and Exchange Commission (SEC) have been on opposite sides for quite some time now. While Ripple and the token deal with their battle, a new member seems to have gotten caught up in this feud.

Brad Sherman, a congressman from California, became a trending topic on Twitter on Thursday after a senior journalist for Fox Business Network (FBN) claimed that Sherman had spoken publicly about his opinion that Ripple would be easily defeated in the SEC’s legal challenge to its unregistered sales of XRP. As a result, the congressman was in touch with SEC Chairman Gary Gensler to develop the case, according to the media site. Sherman, though, denounced this on Twitter as fake news.

Source: Twitter

According to the congressman, the news source “has it partially wrong.” While he frequently interacts with SEC Chair Gensler, he also brings up cryptocurrency in those conversations, he continued. Sherman insisted, though, that he has never spoken with anyone about the token. After that, he determined that Director Gurbir Grewal’s testimony was the only interaction he had with an SEC official regarding the token.

Source: Twitter

Sherman questions SEC about XRP lawsuit

Congressman Sherman questioned Gurbir Grewal, the SEC’s director of enforcement, earlier this week to find out why the agency was pursuing Ripple and the altcoin when it could have been looking into crypto exchanges that dealt in the altcoin cryptocurrency. Sherman said,

“You’ve gone after XRP because XRP is a security, but you haven’t gone after all the major crypto exchanges that process tens of thousands, if not far more, transactions”. He added that “if XRP is a security — and you think it is, and I think it is — why are these crypto exchanges not in violation of the law?”

Grewal did not reply appropriately and stated that he was bound by secrecy and could not discuss the issues that the SEC was looking into or not looking into. However, he also brought up the SEC’s lawsuit against Poloniex, a cryptocurrency exchange, for providing unregistered securities. Despite this, Sherman argued that the SEC is targeting tiny fish because it’s practical.

He further asserted,

“It’s easier to go after the small fish than the big fish, but the big fish operating the major exchanges did many, many, tens of thousands of transactions with XRP. You know it’s [a] security, that means they were illegally operating a securities exchange.”

Sherman further pointed out that a lot of cryptocurrency exchange platforms have stopped offering XRP exchanges.

Ripple Hires More Attorneys To Boost Its Legal Team

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Blockchain payment firm Ripple has hired two Kellogg Hansen lawyers Kylie Chiseul Kim and Clayton J. Masterman to strengthen its legal fight against the U.S. Securities and Exchange Commission [SEC].

The new addition of the attorneys indicates that legal proceedings may drag on for some time.

But Stuart Alderoty, general counsel of the payment giant, stated that a final resolution would likely come in 2023.

The lawsuit filed by the SEC in late 2020, alleged that founders of Ripple Labs Inc, Brad Garlinghouse, and Chris Larsen had illegally sold XRP as unregistered security to raise $1.3 billion. The tussle continued back and forth.

In mid-April, the blockchain firm appeared to have gained a small victory in its case after Judge Sarah Netburn denied SEC’s request to reconsider its decision to surrender certain documents that showed its former Director William Hinman’s declaring Bitcoin and Ether as Non- Securities.

Things took a new turn when the SEC managed to keep Hinman’s documents out of Ripple’s reach citing the latter’s specific conflicts of interest with those cryptocurrencies.

Ex Ripple Exec Jed McCaleb’s XRP Stash Down By 81.5M

In other news, former Ripple CTO Jed McCaleb was left with only 81.53 million XRP to sell.

Since his exit from the firm in 2014 Caleb, once held billions of XRP tokens in 2014, after which he went on to start Stellar’s blockchain project.

In February 2021, reports showed that McCaleb sold large quantities of XRP. It was assumed his stash would eventually dry up by May 2021, if the selling persisted at that rate.

But to everyone’s surprise, the top exec was still dumping XRP and one observer noted on June 29, 2022, that around 22 million of the tokens were sold in three days.

Since his stint at Ripple, he held roughly 9 billion XRP and has been selling the tokens since then.

At one time, Ripple and McCaleb signed an agreement that required the latter to lock some of his funds in order to protect the XRP from price swings. 

Although, when the U.S. Securities and Exchange Commission [SEC] filed the suit against Ripple, McCaleb responded by pausing the ‘Tacostand’ selling for a period.

SEC on a hiring spree, adds 20 positions for its new Crypto Cyber Unit

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The U.S. Securities and Exchange Commission, SEC is planning to allocate 20 additional positions that would be responsible for protecting investors in crypto markets and from cyber-related threats. The newly renamed Crypto Assets and Cyber Unit in the Division of Enforcement will grow to 50 dedicated positions, the press release said.

“The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,” SEC Chair Gary Gensler said.

By nearly doubling the size of this key unit, it will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity, he added.

The cyber unit which was first created in 2017 claims to successfully crack 80 enforcement actions related to fraudulent and unregistered crypto-asset offerings and platforms, that resulted in monetary relief totaling more than $2 billion.

Gurbir S. Grewal, Director of the firm’s Division of Enforcement said, “The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.

The expansion drive comes after Gensler in April said the agency was exploring how it could extend investor protections to users of exchanges and alternative trading platforms. Crypto trading platforms could also be covered, he said.

SEC named Crypto an Exam Priority for 2022

On March 30th, the Securities and Exchange Commission published a report listing crypto assets as an examination priority for market participants this year.

Gensler explained that the examination priorities identify key risk areas that the SEC expects registrants like investment advisers, broker-dealers, clearing firms, and self-regulatory organizations “to address, manage, and mitigate with vigilance.”

In the past few years, the top regulator has maintained an aggressive stance by keeping a hawk-eye over the digital assets industry with Chair Gary Gensler frequently commenting that he considers many of them to be securities and subject to his agency’s rules.

The financial watchdog has launched probes into marketplaces offering certain types of nonfungible tokens, or NFTs, and firms behind crypto-lending products.

BlockFi to shell out $100M to SEC for violating these rules

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Crypto lending platform BlockFi Inc. will have to pay $100 million as part of its settlement for SEC and other state regulators’ accusations that it illegally offered a product that promises customers high-interest rates to lend out their digital assets, according to sources familiar with the matter.

Bloomberg which first broke the news also revealed that the New Jersey-based firm will pay a $50 million fine to the SEC and another $50 million to various states, said the people asking to remain anonymous because the deliberations are private.

The penalties of this size are among the toughest levied on a cryptocurrency firm that also comes in the backdrop of a U.S. clampdown on the industry. The SEC and various state investigators have increased scrutiny on several companies, including Celsius Network and Gemini Trust Co. that have gained immense popularity with retail investors for paying yields sometimes exceeding10%.

As part of its deal with regulators, BlockFi will no longer be able to open new interest-yielding accounts for most Americans. Speaking on the development, BlockFi spokesperson Madelyn McHugh stated,

“We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors. We can confirm that clients’ assets are safeguarded on the BlockFi platform and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”

BlockFi and Co. facing the heat

Crypto-lenders, in particular, have come under the prying eyes of the regulators as they have attracted several billions of dollars in deposits by promising yields much higher than those available through traditional savings accounts.  

A representative of Gemini Trust said the firm was cooperating with an “industry-wide inquiry” into crypto-yield products. Celsius also stated that it was working with regulators to “operate in full compliance with the law”.

Downplaying reports of SEC going after the firm, Voyager spokesman said it was normal to be in ongoing communications with financial watchdogs. The SEC as of now hasn’t accused any of the above companies of wrongdoing but the fear remains.

The top agency has separately issued a warning to Coinbase Global Inc., the biggest U.S. crypto exchange, against going forward with a lending product, prompting the firm to halt the project last September.

Ripple announces $15B shares buyback; What next?

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Blockchain-based tech firm Ripple’s CEO Brad Garlinghouse announced via Twitter that it repurchased a December 2019 series C equity shares at a whopping $15 billion valuation. At the time of the previous raise, Ripple’s valuation stood at $10 billion. Interestingly the firm buying back the stock from investors includes Tetragon, a firm that filed suit against the tech firm last year.

It needs to be mentioned that Tetragon a UK-based investment management group was among the leading investors in the Series C round and in January 2021, sued Ripple to force it to buy back $175 million in shares. A lawsuit that Ripple Labs representatives deemed ‘opportunistic.’ But on March 5 2021 a Delaware Chancery Court judge rejected the redemption request by Tetragon Financial Group Ltd.

Having said that, Garlinghouse in a series of tweets mentions that the buyback reflected Ripple’s robust position stated,

“2022 “slow down” is not in our vocabulary. Even with 2021’s headwinds, it was our best year on record, and Ripple’s financial position [$1B in the bank] is the strongest we’ve ever been.”

The latest move also comes in the middle of its current legal battle with the SEC which is being closely watched across the world for its potential to legally define XRP and many other cryptocurrencies.

Ripple and SEC ongoing skirmish update

In December 2020, the SEC sued Ripple Labs and two leading executives, alleging that its sale of XRP token comes under unregistered securities offering worth over US$1.38 billion. The payments technology firm in its defense argued that the SEC did not provide fair notice and accused it against bias behavior.

The ongoing tussle took a surprise turn when on January 13, 2022, U.S. Magistrate Judge Sarah Netburn ordered the top agency to hand over the documents, that includes notes of private SEC meetings with third parties over Ethereum and the draft of a controversial 2018 speech by then SEC director William Hinman that declared Bitcoin and Ether were not securities.

But the federal agency in its response asked for more time to argue against the disclosure order and Netburn is now giving the commission nearly a month time to do so.

Terraform Labs receive Subpoena Enforcement Action for creation of MIR tokens

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Terraform Labs, the firm behind the Mirror Protocol, has received a Subpoena Enforcement Action by the United States Securities and Exchange Commission [SEC]. The co-founder and CEO of the firm, Do Kwon, also received a similar response from the monetary authority.

Mirror Protocol began its journey in 2020, and the platform had a unique use case in its mind. Terraform Labs built the Protocol on the Terra (LUNA) blockchain. The native governance token of the decentralized, community-driven Protocol was termed the MIR token.

Terraform Labs violation of federal securities law

According to the statement by the SEC, there are doubts if the firm has broken federal securities law. Terraform Labs protocol allows users to create and trade assets referred to as “mAssets.” These assets “mirror” the price activity of real-world assets in the U.S., allowing users to gain exposure to them.

“The SEC is investigating whether Terraform Labs, Kwon or others violated the federal securities laws by, among other things, not registering the offer or sale of securities, selling security-based- swaps outside of a national security exchange, acting as an unregistered broker or dealer, or engaging in securities transactions by an unregistered investment company.”

Said the SEC in their statement

The SEC claims that the Mirror Protocol is actually offering trading services to users, acting as a broker, without approval from proper authorities. Since the firm is not registered as a broker, dealer, or exchange, it is not authorized to allow the sale of these “mirrored” assets.

The SEC staff served Terraform Labs and its CEO Kwon with investigative subpoenas, compelling them to produce certain legal documents required for the investigation. However, the firm and its CEO failed to comply, refusing to produce any strong defense or the required documents.

As a result, the monetary authority has now filed a lawsuit against Terraform Labs and Kwon in the U.S. District Court for the Southern District of New York “to show cause why the court should not compel them to produce documents as required by the subpoenas and compel Kwon to appear for testimony.”

The investigation is still ongoing as the SEC hasn’t reached a conclusion.

Ex-SEC Chairman Clayton To Embark On A New Role As Crypto Advisor

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Former Chairman of the United States SEC, Jay Clayton is all set to join the regulatory advisory council of One River Asset Management.

He has taken the advisory role at the hedge fund’s newly formed Academic and Regulatory Advisory Council.

Stint At The SEC

Clayton had previously as Chair of the SEC from May 2017. He has been at the receiving end of severe criticism after declining Bitcoin ETF proposals throughout his years of service in the federal government agency. During this three-year stint, Clayton has also said that he does not see Bitcoin trading on a major exchange until it is “better regulated”.

He bid adieu to the role in the SEC in December 2020. Before stepping down, the American Attorney had filed the bombshell lawsuit of $1.3 billion against Ripple wherein he accused the blockchain firm of selling XRP as an unregistered security.

Besides, Clayton was recently appointed as the non-executive Chair of Apollo Global Management recently.

Role As A Crypto Advisor

According to the official press release by One River Digital Asset Management, Kevin Hassett, Vice President and Managing Director of The Lindsey Group, and Jon Orszag, Senior Managing Director and member of the Executive Committee of Compass Lexecon, will also join One River’s advisory council along with the former SEC exec.

In a joint statement, the ex-SEC Chairman, Hassett and Orszag reportedly said,

“We were impressed by Eric’s willingness to hear our varying views on the digitization of our monetary, banking, and capital markets ecosystem and One River’s commitment to transparency. We look forward to working with One River as the effects of digitization on our markets play out across the globe.”

With regards to One River Asset Management, the asset manager has emerged as an important player in the cryptocurrency industry, especially in late 2020. It had reportedly raked a whopping $600 million in crypto-assets in one of the largest public transactions with the cryptocurrency. Currently, the firm manages more than $2.5 billion in institutional assets.

Canada’s First Bitcoin ETF Collects $421M In First 2 Days

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Times are changing and Bitcoin ETF’s long-term outlook is brightening, at least in North America. The first-ever Bitcoin ETF that was launched earlier this week has reportedly collected an astonishing $421 million in assets in the first two days of its launch.

This was revealed by Bloomberg’s Analyst Eric Balchunas in his latest tweet about the world’s first Bitcoin ETF by the asset management company, Purpose Investments Inc. It made a debut on the Toronto Stock Exchange on the 18th of Feb.

Soaring Bitcoin ETF

Here’s what Balchunas had to say about the latest figures of the Bitcoin ETF,

“Proportionally speaking it is the equiv of a US ETF taking $8 billion in first two days. If it were to keep up this pace it will be the biggest ETF in Canada in 20 days.”

He also went on to add,

“The premium on this puppy was a mere 0.40% on Friday, or 250x less than $GBTC on Day Two. The beauty of arbitrage. This is about what we thought it would be, 20-60bps depending on day and poss over 100b on crazy days. In short, working as designed”

The figures show the popularity of Bitcoin ETFs in the country as its underlying crypto-asset continued to conquer new highs every week as it sits above the $1 trillion market cap.

The immense popularity can be attributed to the fact that these vehicles offer investors looking for a low risk way of reaping the profits Bitcoin’s bull run.

For the uninitiated, two Bitcoin exchange-traded funds were launched back to back on the Toronto Stock Exchange this week. Leading the charge was Purpose’s ETF, under the ticker “BTCC” launched this Thursday.

The fund witnessed a monumental interest, as it was found to be trading more than $100 million shares on its first day alone. If this continues, the ETF could potentially reach $1 billion in assets by the end of next week.

Just a day later, Evolve Funds Group Inc which happens to be yet another Canadian platform with $1.7 billion in assets under management [AUM], announced the launch of the Bitcoin ETF – EBIT. This Bitcoin ETF, on the other hand, was trading at $1.271 million AUM.

The latest news definitely raises stakes for the US policymakers especially the SEC which is yet put a stamp of approval to a Bitcoin exchange-traded fund.