The Breakdown - Is the FDIC Whistleblower Account Real?

Episode Date: January 9, 2025

Some disturbing allegations about the FDIC coverup about its role in Operation Chokepoint 2.0 are gripping cryptotwitter. But how much credibility is there behind the claims? Sponsored by: Ledn Need liquidity without selling your Bitcoin? For 6+ years, Ledn has been the trusted choice for Bitcoin-backed lending. With transparency, security, and trust at our core, we help you access your BTC’s wealth while HODLing. Discover what your Bitcoin can do at ledn.io/borrowing. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Wednesday, January 8th, and today we are talking about some crazy rumors of malfeasance coming out of the FDIC. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to Biddle. bit.ly slash breakdown pod. All right, friends, we are staying in policy realm today. We have a couple stories.

Coinbase granted approval to appeal in their legal battle against the SEC. The CFTC chair announcing his resignation. But where we're going to start is with something that I should be very clear is fully in the realm of rumors so far, but is still pretty fascinating and related to stories that we've been covering quite a bit here. One note, we are going to be saying FOIA Freedom of Information Act quite a bit. I'll probably use the FOIA pronunciation, so if I mentioned FOIA, I am talking about the Freedom of Information Act. So, back to these rumors of malfeasance coming out of the SEC. Of course,

the banking regulator has faced a significant amount of scrutiny over their conduct surrounding Operation Chokepoint 2.0 in recent months. Earlier in the week, we covered newly unredacted documents obtained by Coinbase under Freedom of Information laws. Generally, they show that the FDIC had put the brakes on a huge rage of innovative crypto products in the banking industry. They also put their thumb on the scale in a big way to make sure banks couldn't offer Bitcoin accounts to their customers. The agency's conduct around those freedom of information disclosures was also highly suspect. The judge went so far as to warn the agency that they need to be more thoughtful in their redactions. This was a very polite way of saying that the agency was on thin ice when it comes to compliance with

the law. Further, during a congressional hearing last year, it was suggested that FDIC staff were being instructed to deliberately communicate in a way that would make Freedom of Information act searches difficult to perform. On Tuesday, an X account called FDIC exposed published a series of bombshell allegations about the agency's conduct. Once again, this entire segment needs a strong disclaimer that these are rumors claimed to be sourced from FDIC whistleblowers, and while the poster includes a lot of specific information that adds to their credibility, for the moment we have to treat them, I think, as unverified information. The account claims to be a Washington-based journalist and has been on X since the middle of last year. Yesterday, they began posting their most damning allegations yet.

The first post regarding the Coinbase FOIA request claimed, At the direction of senior executive management sent through Microsoft Teams only to avoid FOIA, the FDIC is hiding responsive documents to the FOIA request. FDIC instructs individuals to label documents as a deliberative process or attorney-client privilege. Moreover, they conveniently did not run a complete search in regional automated document distribution, usually citing technical issues. Documents and collaboration platforms such as Microsoft Teams are also missed.

In meetings, FDIC attorneys brief participants on how to avoid creating FOIA-A-A-Bult documents, disgusting lack of oversight. We had a contact internally run a query and said at least 150 responsive documents were not submitted as part of the FOIA request. The situation at FDIC is far worse than you can imagine. That post went immediately viral, but that was only the beginning. Later in the day, the account commented, After the recent blow-up of our post, we've received credible information that the

FDIC is engaged in a disinformation campaign behind the scenes against numerous PRF. adversaries, including Paul Grewell, Austin Campbell, Nick Carter, Caitlin Long, and Veronica Irwin. This individual claims he and several others have been personally assigned to investigate the tractors of the FDIC online to determine if they threaten the FDIC and the deposit insurance fund. We must FOIA FDIC's social media monitoring contracts and its cyber investigation teams have been investigating these individuals. You'll see that FDIC will claim exemption 7C, which protects personal information and law enforcement records. Why does the FDIC open investigations on these individuals using computer forensics tools. Why should FDIC corporate funds be used to

investigate individuals who hold them accountable? Thank you to the warrior who sent us these details. The idea that FDIC funds are being used to investigate those individuals who hold it accountable is horrible, although not unsurprising. The account posted an affidavit prepared by a former FDIC employee while they were still with the agency. It confirmed a social media monitoring operation conducted by the agency between November 2022 and July 2023, although it didn't include details of who was being monitored. Essentially, it only proved that the FDIC was conducting social media surveillance. Throughout the posts, the account suggested the FDIC considers these people, quote-unquote, online detractors. Keep in mind, the agency is supposed to be a banking supervisor, not a law

enforcement agency. Some of the targets found it amusing that FDIC employees were forced to sift through their irreverent and irrelevant tweets. Coinbase chief legal officer Paul Grewell wrote, Oh dear, pity the poor FDIC minion tasked with reviewing my 9,000 posts moaning about the Cleveland Browns. No one deserves that. Nick Carter of Cassidy. Russell Island Ventures tweeted, The idea of the FDIC having a dossier on me and my tweets is immensely amusing. FDIC intern tasked with crafting the Nick Carter-Oppo research dossier, seed oils, tungsten cubes, hating sunscreen.

Not sure what to make of it, boss. Maybe the most concerning name in the list, however, is Veronica Irwin. She is a young journalist with bylines and Forbes protocol in the San Francisco Examiner. Last year, she provided some of the best crypto-political reporting on Laura Shin's unchained website. The articles were all extremely well-sourced and covered a range of topics including Operation Chokepoint 2.0. While some were critical of the FDIC's actions, none seemed biased or unfair. If these allegations are true, it appears the FDIC has been spending money to monitor the tweets of a journalist, which raises some

elevated First Amendment issues. Irwin has not commented directly on the rumor, and I can't say I blame her. The Trump administration has already flagged that an investigation into Operation Chokepoint is coming, if this new information would add a ton of fuel to the fire. The FDIC's General Counsel has already resigned, perhaps seeing the writing on the wall. Taking this all at face value, there appears to be a ton of people willing to speak out about FDIC conduct. Caitlin Long of Custodia Bank tweeted, Whistleblower Alert, more are coming. A lot of good people inside the FDIC, Fed, and OCC are disgusted by politically motivated

debanking and will do things like this. FDIC exposed suggested more is coming, posting late in the day that, quote, we have an internal contact pulling down the documents and taking photos with their phone. If we can ensure plausible deniability to shield this person's job, we will share the unredacted documents here. While the potential breach of First Amendment protections is troubling, these allegations suggests there's still ongoing effort to avoid public accountability laws even after a court ruling. Nick Carter tweeted, we know the FDIC dragged their feet on answering court-compelled FOIAs.

We know they lied about the need to heavily redact documents. There was no real cause for it. Is the FDIC still concealing court- compelled disclosures? The cover-up is almost worse than the crime. Not quite yet, but starting to look that way. After reviewing the FOIA documents more closely, Paul Greerle tweeted, as terrible as OCP 2.0 itself was, the FDIC's abuse of FOIA exemptions to cover it up has arguably been even worse. If we would, want government accountability, we need government transparency. As explained below, FDIC's redactions of its responses to our FOIA requests reflect blatant misrepresentations. TLDR, the FDIC lied. I don't say that lightly, but the redactions clearly weren't about protecting confidential

supervisory information. They were about covering up evidence that they tried to kill Bitcoin transactions, the development of blockchain tech, and even a bank account for stablecoin reserves. This arrogance on display doesn't just insult the public. It insults the courts in Congress and undermines their independent oversight authority. This cannot and must not stand. We will, of course, wait and see what the inevitable investigation turns up, but the general feeling was summed up by Nick Carter again, who tweeted, the entire agency has to be completely overhauled. If you've been around Bitcoin for long enough, you've heard the term hoddle and the name

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decision in New York federal court in their legal battle against the SEC. Judge Catherine Fela granted the motion to appeal the decision she handed down last March regarding Coinbase's attempt to dismiss the case. That decision hinged largely on the premise that secondary sales of crypto tokens on the exchange are plausibly covered by securities law. Fala therefore ruled that a full trial was necessary and moved the case into the discovery phase. The Second Circuit Appeals Court is not required to accept the case, but the lack of legal

precedent around token sales makes it appropriate to send to a higher court. In her decision, Fala cited the ripple and terraform cases, which decided the issue seemingly in opposite directions. She wrote that the presence of, quote, conflicting decisions on an important legal issue necessitate the Second Circuit's guidance. Fala acknowledged that the case met the legal standard for appeal, that there was a, quote, possibility of reversal of the decision. One of the most notable points of this decision is that Fela has approved an interlocutory appeal. This means the appeal will be heard before the trial has played out on a preliminary point of law. Interlocutory appeals are rarely granted and suggest a strong view from Fela that the legal issue of secondary token

sales is something that should be decided in a higher court. The remainder of the Coinbase lawsuit will be stayed or put on hold until the appeal is decided. From here, there's broadly two ways the legal process can play out. This case is deeply connected to the Ripple case, which is currently awaiting an appeal to the same court. Both appeals will be fought over secondary token sales. The appeals court could decide to fast track the Coinbase appeal to settle the matter quickly, as it has much narrower issues. Or it could hear the more comprehensive Ripple case first and apply that precedent to other token cases. Either way, we should have a solid understanding of how the Howie rule applies to token sometimes towards the end of this year.

Coinbase Chief Legal Officer Paul Gruel is clearly pleased with the decision, summarizing his feelings with a gif of a relaxed man recline in a courtroom chair. Crypto-legal circles celebrated Fala for acknowledging that this issue needs to be resolved at a higher level. Bill Hughes, a lawyer at Consensus wrote, The Second Circuit has to agree to hear an interlocutory challenge on Fala's order, but I think they will. Fala was correct that this case raises a big legal question about the scope of the Howie test as it is applied to crypto assets. That she has certified the case indicates the SEC's almost boundless expansion of the test to serve whatever purposes the SEC wants vis-a-vis crypto is a giant step too far. The public has been right all along.

Fala stayed, i.e. paused the SEC versus Coinbase case while this plays out and she was right to do so. But it shouldn't end there. Every enforcement case brought by the SEC where this issue would largely determine the outcome should be stayed. The SEC shouldn't waste its own resources or that of various defendants, especially out of spite. In fact, the SEC should be stipulating, i.e. voluntary agreeing to such days across the board. It would if it were acting in the public's best interest. Several crypto lawyers pointed out that this decision verified arguments made by the industry over several years, specifically that the SEC's legal theories were vague and poorly defined. Catherine Minerick, the chief legal officer of Uniswap Labs, commented,

Amazing news. The court's opinion rightly recognizes that the SEC's ecosystem theory is messy, and that district courts continue to land in different places on how to apply Howie to crypto. so it sure would be nice for an appeals court to weigh in. Vela's decision referred to the ecosystem theory directly, suggesting there is no limiting principle that would distinguish crypto tokens from collectibles or other commodities. She acknowledged that it was a, quote, difficult issue more suited for analysis by the appeals court.

The SEC's view that the law is perfectly clear has been particularly galling in light of conflicting court decisions. Catherine Kirkpatrick-Boss, the General Counsel of Starkware, wrote, My favorite line in the recent Coinbase decision is this. There is indeed substantial ground to dispute how Howie is applied to crypto assets and the role of the surrounding digital ecosystem in that analysis. It may not seem like much, but this conclusion is counter to the SEC's position, which states that crypto assets are all investment contracts per Howie and is truly indefensible

at this point. It's nice to see this in print. Outside of legal circles, this is being viewed as another stain on Gensler's record. Rather than pursuing rulemaking to give clarity to the industry, the SEC lined up a series of expensive lawsuits and has very little to show for it. Six-man Ventures co-founder Mike Dutis tweeted, Gary Gensler leaving a legacy of unprecedented levels of losing, losing so much you almost can't believe he had such an endless truckload of your tax dollars to blow on building losing cases at astonishing speed and scale. Finally, today, CFTC Commissioner Raston Benham has confirmed he will step down on

inauguration day. This completes the list of top financial regulators who will stand aside, giving the Trump administration a clean slate. While many of Biden's financial regulators were outwardly hostile to the industry, Benham was one of the few voices calling for common-sense crypto rules. He consistently pushed for crypto legislation, pointing out that spot Bitcoin and Ethereum markets represent a gigantic regulatory gap. The CFTC brought a huge amount of enforcement actions against crypto companies last year representing almost half of the agency's cases.

However, unlike the SEC, the CFTC seemed to at least try to focus on cases of actual fraud and manipulation, with only a few examples of clear regulatory overreach. In March, Benham told lawmakers, it's a staggering statistic that a market we don't directly regulate is taking up half of our enforcement document, and it's not just the Division of Enforcement's resources that are consumed. We need the experts from the different divisions to build a case. Still, more than anything, Benham was one of the first Democrats to assert that crypto is here to stay and needed to be treated as a permanent part of capital markets. Benham's resignation statement was devoid of commentary about the crypto industry, but he did say

that, quote, over the past several years, a multitude of domestic and global events tested the resilience of all financial markets. I'm proud that the Commission consistently made deliberate and intentional decisions to ensure continued strength. We work to address regulatory gaps and uncertainty. We also responsibly engaged new entrants to support innovation. I'm not sure most of the crypto industry would take it that far, but ultimately, Benham's resignation elicited respect from across the aisle.

Former CFTC chair Christian Carlo wrote, I served with Rosted Benham between 2017 and 2019. He brought integrity, intelligence, and dignity to the job. Surely under pressure from the Biden and Harris CryptoD bankers, he never yielded to the SEC over Bitcoin. I didn't always agree on policy, but he was and remains a class act and fine public servant. That's going to do it for today's breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other.

Peace.