The Wolf Of All Streets - How These 3 Lawyers Are Defending Crypto And How YOU Can Contribute! | Paul Hastings

Episode Date: May 28, 2023

Eric Sibbitt, Nick Morgan, and Lisa Rubin are lawyers from Paul Hastings, a globally recognized law firm heavily engaged in the crypto field. We discussed the firm's influence in crypto, its non-profit initiative - Icanlaw.org, and specific cases such as the Coinbase rule petition to the SEC, the Ripple case, LBRY, among others. We also broached the topic of regulation in the US, the possible threat of a corporate exodus from the US, and additional subjects. Follow the guests: Lisa Rubin: https://twitter.com/lisaerubin Nick Morgan: https://www.linkedin.com/in/nick-morgan-9182744/ Eric Sibbit: https://www.linkedin.com/in/eric-sibbitt-bb23081/ ►► OKX Sign up for an OKX Trading Account then deposit & trade to unlock mystery box rewards of up to $10,000!  👉 https://www.okx.com/join/SCOTTMELKER ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/   ►►NORD VPN  GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets   ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd  ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/   Follow Scott Melker: Twitter: https://twitter.com/scottmelker   Web: https://www.thewolfofallstreets.io   Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #trading  Timestamps: 0:00 Intro 0:55 What is Paul Hastings doing in crypto? 5:10 How to advise when there is no precise regulation 8:05 How to sue SEC if you don’t have money 9:55 LBRY case 13:30 Icanlaw.org, non-profit  Strategic ambiguity 20:00 The role of the SEC 24:12 Crypto exodus 27:45 American investors & consumer protection 30:15 Security is a bad word in crypto 35:17 CFTC vs SEC 39:09 Coinbase & rule petitions to SEC 45:25 Regulatory arbitrage 46:57 How to influence the SEC 50:07 Ripple case 54:57 Every case is unique 56:12 Follow Nick, Lisa, and Eric The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

The Securities Exchange Commission, the SEC, has been attacking the crypto industry, largely trying to regulate by enforcement. We've seen huge actions against companies like Coinbase and Ripple. For most companies, it's impossible to defend themselves because they don't have the money to do so, so they just settle. For some other companies, they need the war chest to go on the attack and to push back against the SEC. The lawyers at Paul Hastings have been handling a number of these cases. I spoke with three of them today, Eric, Nick, and Lisa, about their involvement, both for-profit and not-for-profit,

in defending the crypto industry and taking on regulators like the SEC. You do not want to miss this one. i can say that it's never a particularly comfortable situation to be in a zoom room with three lawyers that usually means you've done something bad or you're or you're in trouble but in this case actually in a room with three lawyers or in a zoom room with three lawyers well i think the zoom room has become the new room right so i mean people who are watching context that we did all sit in a room in advance of this in austin at consensus so we have met in person perhaps one of you should just give us some context as to paul hayes's involvement

in the crypto industry what kind of cases you guys are taking. I think everybody understands it's a really good time to be a lawyer who understands crypto after what happened in 2022. So what is your firm doing in the industry at the moment? I can jump in. I don't want to step on Lisa and Eric. But so you actually have a nice representative sampling of Paul Hastings lawyers here with the three of us because we come at this in different ways. So in law firm speak, I'm a litigator, former SEC enforcement trial attorney. And so I have been since before the Dow report being asked the question, well, what's SEC enforcement think of topic X, Y, Z? That is very different than the way that Eric and legal aspects of this from a transactional

and before you get in trouble with the SEC perspective. And Lisa's a good addition here for the three of us because she kind of bridges both of those sort of practice areas. So Eric and Lisa, I probably totally mind your practices and not done you justice, but that's the way I kind of see the three of us and our practices. Great, great, great setup. I mean, so, you know, we've been involved since the early days of relatively early days of crypto, not the very, very beginning.

Right. But, you know, working in particular with a lot of the trading platforms and kind of intermediaries within the space as they're trying to figure out, okay, we have this new thing, crypto, digital assets, what is it? What buckets does it fall in from a regulatory perspective? How do we do transactions? How do we need to be regulated? How do we build businesses going forward? And so that's what we've kind of focused on from the early days. Yeah. And so I'll jump in. So as Nick and Eric were saying, we generally help advise companies just kind of navigating all the regulation around crypto and blockchain. I feel like there's a new

headline every other day. So we got to keep up to date and not only just the facts of like what's going on, but also what it means. Like if the SEC issues a complaint, does that mean it's now a rule or law that everyone has to follow? So it's really good to understand all the facts that are going on, but also like what it means for certain companies and whether what's going on applies to them. And so we generally help large companies like exchanges and also web3 startups and founders and investors just kind of navigate the regulation in the space. Lisa, you just made one of the most important points I think that is missed is that a Wells notice or an opinion from a regulator does not make it law. It doesn't mean the judicial system

agrees. I mean, Nick, you were a litigator for the SEC, so you probably know better than anyone else. It's not like the SEC always wins just because they have an opinion, correct? Absolutely. And that goes for this digital asset space, but every space. And I've seen that in issue after issue where the SEC takes a position and it will be their position until they lose in court. And even after they lose in court, they may continue to assert that that's the position except for that one court or that one judge. So yeah, there's a big difference between the SEC stating its position and a final adjudication by a judge or a jury on that same

issue. And I think there's a perception in the crypto space, certainly from this side, that the regulation is unclear, difficult to navigate, even as Gary Gensler says things like, come in and register. It's easy. Come talk to us. And then there's no way really to come in and register. There's no framework to do so. How do you advise a client on how to get regulated if there's really no clear regulatory framework for this specific asset class? So I think, I mean, what we try to do, right, is sort of, there is no clear framework. And despite you hear all this, the rules are clear, the law is clear, right? I mean, it's like the perfect phone call, right? I mean, it's, you know, and maybe you could argue it's clear,

but it's not clear how it applies to the facts, which is why there are lots of lawyers involved in this industry, right? We have a new asset class that, you know, is built to do something. It's not only a vehicle for speculation, all of those obviously speculation. And so, but what we try to do when we talk to clients is, okay, something. It's not only a vehicle for speculation, all of those obviously speculation. And so, but what we try to do when we talk to clients

is okay, well, let's think about what regulators actually care about, right? They care about protecting people, protecting retail consumers, you know, avoiding money laundering, you know, kind of things that sort of, you kind of step back, regardless of where this might fall, let's just sort of channel like,

okay, let's try to be a good citizen, what should we be doing to make sure people are making informed decisions, right. And so the kind of more you can kind of kind of put things in that position, I think you're kind of in a, you know, kind of kind of better, but it's complicated, right? Because people are building things against a backdrop that was put into shape long before any of these assets existed, right? So we have this legacy framework, we have something new, and the legacy framework hasn't

caught up with the current world. Having the three of us here is great because you're going to get different answers to that question, Scott. So Eric's answer is the better answer probably, but I'm a litigator, so I look at the world differently. And I think and obviously the advice Eric gives to people to stay out of trouble is the right advice. But inevitably people do get into trouble. And I think the best or the best from a from a certainty perspective, the best information discovery mechanism in this space is litigation. And that's how we're going to find out what the answers are. That's not to say people should, you know, look forward to litigation or, I mean, what Ripple just said, they spent $200 million on their case or they're going to spend that amount. I mean, who has the time or energy

to do that sort of thing on a routine basis? But in terms of getting a clear answer as a litigator, a person who sees the world through those eyes, I think that's the best way to get clarity here. Yeah. You said who has the time or energy, but the real question is who has the war chest, right? And then the answer there was was ripple uh the answer certainly wasn't library credits and now the answer is coinbase right and so i think um there's a number of ways to view it i i think the industry probably is fearful of being attacked by regulators but if they're going to poke one bear i think the industry would say please let coinbase fight on behalf of all of us to some degree right but the problem to your point a litigator, is that most people literally just can't afford

to sue the SEC. Even if they wanted to, even if they're not afraid of it, even if they're willing to take that on, who has hundreds of millions of dollars to do that? So Lisa, isn't that a huge problem for a smaller project that you might be consulting if they do come, you know, end up on the wrong side of this? Yeah, absolutely. And that's why a lot of projects ask, like, why are all these people or companies that the SEC goes after, why are they settling? And it's really that simple. Everyone would love to fight to the end, but it's so expensive. And the length of the litigation, you file the complaint, you allege what you think the other party did is wrong, and it could take years of discovery and fighting back and forth

and motions before it ever gets to a judge or jury to make the final determination. So a lot of options for companies is limited. Usually you can really only settle unless you have the war trust to take it to the end. And a lot of them can't afford the settlement either. I mean, speaking of library credits, I think they just had theirs reduced from 20 million to like 111,000. Those aren't the exact numbers, but something in that ballpark, which I was surprised that the SEC actually reduced it, but they literally went on and admitted these guys have no money left, right? After fighting us, we're going to get our $100,000 penalty. I mean, that's not going to encourage a lot of people to defend themselves. Yeah, and sticking with library for just a minute.

So I know this topic is going to come up eventually. But one of my reactions to this dynamic that no one has the resources to fight the SEC, or very few people do, was to create this nonprofit that we'll probably talk about later, the Investor Choice Advocates Network, 501c3. And it's designed to jump in where in situations where there aren't sufficient resources to make the arguments that we'd all like to see made, or because the defendant in a particular case is compromised in a way, whether they have resources or not. So anyway, in the library case, we submitted an amicus brief, a post-judgment brief, arguing to the judge that he should consider factors that we raised in addition to the factors that library raised. And so one of the aspects that I latched onto in the SEC's, what they just filed in court that you're alluding to, Scott, where they reduced the amount of money they were seeking,

they also tweaked the injunctive relief they were seeking. So normally, an injunction in one of these cases says it's an obey the law injunction. You shall not violate the law in the future, which in the case of libraries seems a shall not violate the law in the future, which in the case of Library seems a little ridiculous given the status of the company. And the SEC always asked for that remedy. It doesn't matter the status of the company. But in that filing they just made earlier this week or last week, they tweaked it a little bit. They said we want because they know the judge is reluctant to enter an empty obey the law injunction that is meaningless. And so the SEC said, well, we'd like that injunction, but only until the company is dissolved or destroys its tokens,

which seems like a minor point. But in the scheme of SEC remedies that they seek in these kinds of cases, that's kind of a big concession on their part. So we'll see what the judge does. I was literally speaking with Jeremy Kaufman randomly today, obviously, who was the CEO of Library. And he made the point, which he's made every time we speak, seemingly, which is I was the guy who actually tried to go in and register. I'm the best example of someone who brought a PowerPoint presentation into the SEC, showed them exactly what I was doing so that they could sue me. Right. So, I mean, seeing that, why would anyone ever even want to try?

I think is the question. I'm sure there is a pathway. And I see, Eric, you want to answer that? Yeah, no, I mean, that's definitely been the frustration, right? Because there are so many people that say, hey, regularly, I want to be regular. I want to know what the pathway frustration, right? Because there are so many people that say, hey, regularly, I want to be regular. I want to know what the pathway is, right? Just tell me what the roadmap is that I need to follow to implement something, right? And then people will follow it, right? But the frustration has been is that, to your earlier point, everything is clear, right? And

we're not doing anything, right? Whereas if you look at any other areas like the SEC, for example, right, where they'll approach different industries different new products they'll kind of put out you know concept releases changing things there's been no movement at all other than to say everything is perfectly clear come in and talk to us and having been involved in some of those conversations nothing really happens yeah i just laugh because everything is clear and the CFTC and SEC can't even agree on what these assets are. Right. Or even if you look in New York State with ETH, where you have one regulator basically green listing ETH, and you have another regulator saying it's a security in the same state. Let's talk about the not-for-profit really

quickly because that's extremely interesting. Where does the actual funding for that come from when somebody needs to come to you to defend themselves or actually to go on the offensive? So it's still relatively new. We're just over a year old and we are still operating as an all volunteer organization. So when you're looking at three of the people who've put in some time in filing Amicus Breed. So I think we filed Amicus Breed in Ripple, Library, the Wahi Insider Trading Case. We just filed one in support of Coinbase's RIT. I'm probably missing something.

We're about to file a couple more in the next few weeks. So right now it's a shoestring budget we have had a few donations from a couple of people none from well actually that's not true we've got some crypto industry uh uh support but really shoestring budget we're trying to expand the efforts and do a lot more but right right now, it's all volunteer. Lisa, why the passion for doing that? I mean, obviously, your time is valuable. And it means you must have some deep seated belief here, either that the industry is important or that there's something negative happening on the other side that's worth fighting. Yeah. So like, as we were saying before, not everyone can fight against the SEC. And I think it's a really important issue for us to argue on points that affect not even just one particular company, but could affect the entire digital asset industry and the entire market industry beyond the digital asset industry.

And so like one interesting thing that the SEC has done in some instances is, for example, in the Waukee complaint and recently in the Bittrex complaint, they're going after another target. But in the complaint, they allege that nine digital assets or six digital assets are securities, and they're not even bringing the complaint against the actual issuers with a chance to respond. And then if those parties settle, which is a high probability, then those issues never get litigated. It's just kind of out there that they think that these tokens are securities and a court hasn't necessarily agreed with them. I mean, that's like mafia tactics.

We just name you, you come in, you write us a check and you go about your life. It really is curious how they seemingly name seven random coins every single time. Yeah. Like eventually they'll have enough of these enforcement actions that they'll name everything in the market and they'll all be deemed securities. But that is really interesting. Why do you think that they approach it that way? Well, I'm sure that they want to set precedent. On one hand, it's interesting to see what the SEC is considering and kind of confirms our analysis that we do internally of what, like, for example, marketing statements they find as high risk or using terms that traditionally describe securities.

But, for example, in the recent Bittrex complaint, they were pretty aggressive and mentioned marketing statements that were pretty mild that necessarily wouldn't rise to the level, in my opinion, anyway, that would cause something to be red flagged. So, I mean, who knows why the SEC is doing anything, but it does seem like it's a possibility that if they're not bringing it against the issuers, they're not necessarily going to have to fight or litigate against these tokens. They could just get to make these statements in a court document and no one fights it. I think I totally agree, Lisa. I think another aspect of this is strategy. In other words, in the Wahi complaint, they say, here are nine tokens we think are securities, but there are probably as many as 25 and maybe more, but we're not going to tell you what they are. So Hester

Peirce, I don't think she coined this term, but used the term in one of her dissents when she talked about strategic ambiguity. And so I think there is an element of strategic ambiguity. You're a federal government agency that, believe it or not, does have limited resources. They still have to deal with mutual funds and traditional brokers and all that sort of thing. So how do you go about discouraging activity without spending the time to alleviate every case? Well, just keep telling people, go read Howie and you can figure it out yourself. Meanwhile, we're going to allude to these possible tokens that are not in compliance. So I think strategic ambiguity is part of why they, you know, alleged things without actually going out and pursuing things.

Yeah, I think that's pretty clear when you watch Gensler on the floor of Congress answering the question, is Ethereum a security or not? And he continues to remain strategically ambiguous, even when, you know, directly asked that question. But to your point, being vague allows them to continue to just name a few coins each time. And eventually, I think it'll be clear that they view everything as a security. What I find interesting, though, is that they've somewhat, with all this enforcement action, I think they've galvanized the crypto community. Maybe they underestimate just how much wealth there is in the crypto community, but they've galvanized them even behind companies like Ripple, which were, let's be honest, largely hated within the crypto community.

I mean, Ripple was the most probably polarizing company in crypto, but now everybody wants to see them win just on behalf of everyone. So it could have some unintended consequences of actually bringing the community together to fight against them. Yeah. And it's interesting. So to that point, early on, if the SEC made an allegation that a particular token was a security, you would see exchanges kind of dropping it, acting very quickly in response to the SEC's action. Now, every time no one comes out, well, people say, well, this is just an allegation. And I don't know if you'd call it regulatory fatigue, or there's kind of just a different posture i think in the industry in general and i mean but to be fair i mean i

don't want to be this all anti-sec or you know you know the sec this they do very important work right very important things in terms of protecting people and a lot of people are kind of motivated by the right things it just feels like things have kind of gone off the rails a bit here right yeah so that's why it's important for um you know the crypto industry the legal industry to kind of push back and to kind of steer things in the direction of kind of you know the rule of law let's be reasonable about things and you know like you know organizations like i can where they're kind of okay here's a point that's sometimes important not only to the crypto industry it's important to the kind of broader Financial markets right that we do this the right way I think we're past

the Wild West mentality of nothing should be regulated and we don't want regulation and crypto should exist outside the framework I think that the industry is very pragmatic now people think we need regulation we need clarity to be able to operate so that has been maybe an unintended positive consequence as well because we do need regulation it just has to make sense yeah i think to your point i don't think people dislike the sec inherently i think that this industry dislikes this sec right actually i remember people being very excited about clayton when he was at the SEC and the crypto industry and the language they were using. And even the OCC had Brian Brooks and he was talking about replacing Swift transactions with stable coins and custody and banks. So a lot of it's clearly political. Right. I mean, which which side is in power and which agency, you know, who's running the agency at any given time?

Is that accurate? I mean, could even just regime change change the entire outlook of this process? Lisa, you were about to say something. I'll leave this to you and Eric. She wanted to answer something that was softball and then I came in hot. Well, you know, there's a lot of what the SEC does, like Eric points out, is everyone supports anti-fraud actions. For example,

Ponzi schemes. Those happen in traditional finance. Those happen in the digital asset space. The SEC should absolutely be going after people who are conducting Ponzi schemes and stealing people's money through fraudulent representations. I don't think there's a lot of disagreement about that. So, you know, I think the Clayton era SEC, you know, they put out the Dow report.

They did put out, you know, Corp Fin at that time did put out some very limited no action letters, which is a tool that I think they could be using a lot more. So I think there was some movement in the direction of establishing. So what we're missing is establishing the SEC's acknowledgement of the limits of its own jurisdiction. That's what we don't see. I think we started to see that. But now it's just like that's, we're never going to hear the SEC acknowledge that if you design a token in this way that has these characteristics, you are outside the SEC's jurisdiction. We're not going to hear that from the SEC. Even within the SEC, though, there's dissension. You brought up Hester Peirce earlier. She clearly disagrees with the tap taken by Gensler and other commissioners.

She's actually repeatedly proposed something that seems extremely reasonable, which is safe harbor. I'm sure you guys are all familiar with it, but effectively let a company come in, register, give them a period of one, two, three years. I think three is what she was proposing to prove that they are not a security and are sufficiently decentralized and let them go about their lives. Doesn't something like that, I'm not saying that her framework is perfect, but doesn't it make sense when we're dealing with a 2024 technology to not use the 1930 framework and at least give a chance for people to make it work and to be compliant? I mean, absolutely. And I think what she proposed or some variation of that makes a lot of sense, right? I mean, again, the unique thing here is

unlike a traditional stock or bond where you just buy it, hold it, hope you make money, right? It's designed to do something, right? And so if something you need to raise money, you need to kind of have time for it, implement it. So that the product or service aspect of things is more salient. That makes a lot of sense, because this is something that is totally unique compared to what's come before, right, and recognizing that and then also from a policy perspective, you know, you can then have some influences in SEC and sort of what that looks like, what kind of disclosures are made, so people are making informed decisions. And if there's fraud or other things that there's recourse for that. Right. So that's I think the great frustration is finding a way not just through enforcement action,

but let's let's work together and do something that achieves the objectives that we all share. Right. And at the same time, allows people to develop and innovate yeah it shouldn't like as i was saying is it would be really great to allow companies to grow here i mean i would something that i'm seeing recently is that a lot of companies are worried to put all their money into companies and building in the u.s to have the possibility of being shut down by a regulator so there are a lot of questions of like, is it worth moving offshore? What does that look like?

You know, and we usually, you know, advise people that if you are trying to move fully offshore, then it's possible that you wouldn't necessarily be able to interact with the US market. And so people and companies are in a tough place because they want to be in the US and they want to follow the regulation and do the right thing.

But they just don't really feel that they have the ability to in this moment. I mean, Coinbase, they're not moving offshore. I think that's a misrepresentation of what's happening. But they're certainly hedging their bets or establishing a presence offshore. Or maybe it's just political theater and they're showing the regulator that they would be willing to leave. I don't know what it is, but even Galaxy Digital, Mike Novogratz, who arguably is one of the biggest Bitcoin bulls of American politics supporter, moving offshore. So to your point, that's happening. And even if it's just optics, a lot of people have no intention of dealing certainly with this regulator at this point in time. And my fear then is that this industry moves so fast that by the time we have any clarity

or anything sensible, the industry will be so far gone past the United States and it'll just be happening offshore exclusively. And that makes me really sad, actually. So growing up in Silicon Valley, we attract many of the best and the brightest from from throughout the world, right. And they come here, build great things, innovate, and it's great for America, right? It's great for, for the world, right. And now, I mean, I'm sure we all know people that have, you know, kind of smart, talented people that have left the US, right?

And these, this, this is not just incorporating an entity offshore, they're kind of smart talented people that have left the us right and these this this is not just incorporating an entity offshore they're kind of building designing hiring people uh opening new markets and all doing that outside of the united states right which all is all to the detriment to you know innovation that could be occurring here uh that's not and and those things are hard to reverse if they last you know, go on for too long. And none of this is going to stop Americans from buying crypto, by the way. Well, and none of this is going to stop the SEC

from a certain jurisdiction. Right. I mean, I don't want to pour cold water on the idea that moving offshore, I mean, I agree with what Lisa and Eric said. This is unfortunate. If in response to the SEC's policy, people decide they're going to take their innovative ideas offshore. But the SEC thinks that it has worldwide jurisdiction, particularly if there are U.S. investors participating.

We're working on a brief right now that talks about, you know, reg S exclusions to the registration requirements. The SEC thinks that it has jurisdiction. I mean, and, you know, if you're in South Korea, we've got jurisdiction, you know, extradite people to the US, not to the South Korea. You're in Hong Kong, we have jurisdiction. So the offshore movement, I think the SEC has what they believe are tools to address that. We'll see. I mean, we've seen them go after plenty of people offshore just for allowing an American with a VPN or something to or who's not accredited to participate in the sale of something. But interestingly, it should be noted, though, that American citizen, as of yet, those people have not in any way really been targeted.

Right. I mean, an American can generally participate in whatever they want. It's the platform that allows them to that's generally been pursued by the regulator. Is that accurate? Yeah, that is accurate. Yeah. From the investor perspective, it would be it would be an aggressive case for the SEC to go after an investor for like aiding and abetting uh a token creator right which is why just circling back to the point I made just before which is it's not going to stop Americans for participant from participating if these offshore entities allow those Americans to participate right so it doesn't

even really solve the problem of consumer protection. I mean, I hate to get on a high horse about it, but we all saw what happened last year. Consumers were not protected. And now the bad actors are being somewhat protected in Chapter 11. So I mean, maybe there will be punishments down the road. Obviously, SPF, I think, is a unique case. But I think it's frustrating to be an American citizen, maybe lost money on a platform. There were no disclosures. There was no transparency as to what those platforms were doing with the money. And now the regulator steps in to punish but not protect. So isn't it really the case that what the SEC should maybe be focusing on is those disclosures

and the transparency? Because as long as the investor knows what they're spending their money on or where they're putting their money and what the risks are, that really is what they should be all about. It's my opinion. Absolutely. No, that's what the securities law is about here in the US. It's sort of like provide the right disclosures, let people make their own decisions. And when you lose control of that by by essentially kind of shutting everything down. Right. And just going kind of the enforcement route, you lose that influence.

Right. And the reality is also is that the traditional much of the kind of traditional disclosure regime or securities, traditional securities is totally different than what's relevant to someone who's purchasing a digital asset. Yeah, right. And so we need to recognize that difference. Right. And so that people get the right information. Right. And that we kind of have the ability to influence and protect people in the right way. And if we just kind of push everything outside the US by not providing a path within the US, then then then you end up with a worse result from protecting the people

that you're mandated to serve. Yeah, I think FTX proved that. It's interesting that security has somewhat just become a four-letter word, certainly for the crypto industry. I mean, it shouldn't be a bad thing to be deemed a security, correct? I mean, in theory, that should actually be a good thing. And it's just not viewed that way now. i mean it kind of depends like like yeah if it falls in a security bucket for sure right right and that's as long as there's kind of a a path around that right and there are things that i think fall outside of the security bucket right you know but um you know again it's sort of like if we're we're creating a world where whatever it is right it can work and people are informed and people are protected and innovation will flourish. That should be the goal rather than just saying everything is perfect as it is and everyone is not in compliance.

And it's so true. And plenty of other industries being a security is just an everyday matter. No one blinks an eye. And then in the digital asset industry, because of all this stuff that comes with it, everyone is trying not to be a security in any way they can. Because if they are security, they know they're going to be regulated by the SEC, and they have to register, but there really is no path to registration at this moment. So it is so funny that just like in this particular industry, because of everything going on, like security is definitely a four letter word. It's, it's, it's just crazy to me. The whole thing is mind boggling and make your head spin, Nick. I mean, there are worse things than being a security, obviously, which I guess the implication of your comments, Scott, but like, do you want to be regulated by the bank regulators?

I'm not sure that's a step up. I think there's a general view, certainly among the regulatory bodies, that your thing, whatever it is, must fall into one regulatory bucket or another. And so I think it's interesting to think about, and I don't know how practical it is to think about this, but is there a space that falls between the regulatory bodies? You're not a commodity. You're not a banking instrument. You're not a security. I think once upon a time, there were a lot of people who felt that crypto could fall between the regulatory bodies. I don't know whether that's a prevailing view anymore. Does that imply that we need a

regulator specifically for this industry? See, I think that, frankly, I think that's an echo chamber narrative because that's implying that we're way bigger than we are. An entire market that globally has barely a trillion dollar market cap is a blip, right? So I would love to say, yeah, give us our own regulator that makes sense, but like that is just not. I would rather see, so that's not what I was suggesting or hoping for. I would rather see a sort of sandbox. And there were people who talked about this early on, a sort of sandbox area where anyone who enters goes in on a fully disclosed basis. Look, what we're doing here is not regulated by any of the regulatory bodies. But, you know But as the name of ICANN suggests, investor choice, if you want to choose to participate in this area, high risk, we're not overseen by anybody.

I'd love to see a sandbox creation like that, sort of a free enterprise zone where you're not- We have Vegas. I mean, we have Vegas in the lottery, right? It's not like we don't allow people to make risky decisions with their money. Right, right. In a regulated capacity to some degree, right? Maybe it's a state regulator, but still, we allow the lottery and casinos. I don't see how... Now, listen, to be fair, we have tens of thousands of definitely unregistered securities in the crypto space. I mean, we have meme coins that are going left and right, frogs and dogs and turtles and penguins and whatever else. So the optics aren't always great coming from our industry. And I think that probably does weaken the case

for the strong, good actors to some degree. Yeah, well, I mean, I think they're, not to get into specifics, I don't necessarily agree with everything being unenriched securities, right? But you know, there's actually really for certain mean coins, I don't want to make a global statement. There's actually a pretty good argument that they're not a security because they actually do nothing and there's nothing behind them. Right now.

So literally, just lottery tickets. Are they potential risky and dangerous for consumers and retail? Absolutely. Right. But it doesn't make it a security. I guess poker chips aren't securities, right? So Lisa, you had a comment. Yeah, just kind of on the comment of something that Nick had mentioned that everyone is so

focused on the SEC, but it is interesting to remember that there are a lot of other regulators. And so something that has been talked about recently, especially with stable coins, is if there are banking regulators involved, would you rather be regulated by a bank regulator or the SEC, which is kind of a tough question, but it is interesting to remember

outside of the scope of all the different regulators that are out there, and is really the SEC the worst one? It does seem like there was actually a push from the crypto industry in the Sam Bankman Freed era towards the CFTC. It was viewed that that was going to be the more favorable regulator. We didn't want to touch the bank regulators and the SEC was a big scary monster. And we have seen the CFTC come out and say, listen, Bitcoin and Ethereum are commodities. And they even listed stable coins as commodities. That I found curious, to be quite honest.

I don't know if you guys have an opinion on that, but that seems strange. Well, I mean, stable coins are interesting because they could fall into so many different buckets. You know, like, so obviously bank regulators may even want to regulate that, right? The SEC may want to say, hey, this is more like a money Market Fund so we think we should regulate it through that that lens right um state money trans you can state state authorities you know because as like a prepaid card right and then the CFTC is sort of a commodity like a currency right and so it's like it's a perfect example of the complexity in the space in terms of you could draw these lines in various different places and make arguments in different ways, depending on the facts and circumstances.

But what we really need are just someone to decide where the bright lines are. Right. Let's create some clarity and then then we can kind of focus on what the next steps are. Right. Obviously, as Lisa mentioned, that's there's there's some efforts in Congress to do that. I'm very skeptical of that going forward. But, you know, that's what we really need. It seems like the SEC-CFTC line that you're describing, Eric, that would be an easy place to start. Maybe not easy, but a good place to start because outside of the crypto space, the SEC and CFTC already do that sort of line drawing. I mean, there are instruments that where it's not clear whose jurisdiction it falls within,

they have gotten together and they talk about, okay, this one's going to be CFTC, this one's going to be SEC. And they've had disagreement in this space, as we saw after the Wahi insider trading case was filed, it was a CFTC commissioner who said, hold on. So, I mean, that seemed the SEC-CFTC line ought to be a good place to start, to draw a line. Yeah, I agree with that. Like you said, there's precedent for that, right? And there are things where the SEC and CFTC get together and say, okay, this falls in

this bucket right um you know you know there obviously appears to be some competition in terms of who has authority over what right which makes it difficult which is why in an ideal world right we have Congress clarify that right but that's that's in my ideal world which is not likely to happen anytime soon it is tough especially because of people in Congress, they have so many things on their plate, like crypto and digital asset isn't the number one thing that they need to regulate. I mean, unless there's like a big news headline, which happens every once in a while, it seems recently. But other than that, it is going to

be tough to catch everyone up to speed. It's not really an easy industry to understand and definitely not easy to legislate. So I think that it probably will take a lot longer than people would like for there to be legislation. But on the other hand, it is kind of good because if a bad news headline comes out and then Congress can just pass a law, it probably wouldn't be very favorable to the industry. So in one sense, it is good to take some time and really understand it before there's laws created about it. Yeah, everybody wants Congress to be clear on crypto, but we don't want them to be clear right now after FTX and SPF, right? I mean, we want them to forget about that, let that sort of wash out

and then come back rationally. I really do think that's a huge problem is just how much egg there is on the face of certain regulators and legislators because they met with him or they supported the money, right? I mean, whatever it is, you just, the reputational risk now of saying anything positive about crypto, even if you would say it, you know, quietly is just too large. I want to circle back, though, to Coinbase. You guys said that you submitted a writ, I believe, in support of their action. Can you talk maybe more about what's going on with Coinbase, where that stands? They obviously had the Wells notice. There's a rumor that enforcement action is coming, but it hasn't come yet.

And Coinbase is pushing back. So I think it's pretty confusing for people as to what's happening there. I'm happy to take that one. So Coinbase last year, the SEC has a mechanism by which anyone can petition for the SEC to make rules. And if you go there, all the rulemaking petitions are publicly available on the SEC's website. So last year, Coinbase petitioned the SEC for rulemaking. And its petition said, there's lack of clarity, a lot of things we're talking about here. Please, please create rules in the digital asset space. So they submitted that petition last year. And then nothing. No response to the petition, no response to the petition. And then what they did recently, which your reviewers will already be aware of, is they went to the Third Circuit Court of Appeals, a federal appellate court, and asked the court for an order requiring the SEC to either grant their petition for rulemaking or deny their petition for rulemaking. They really said, we don't care what the response is.

Yes, no, up, down, just give us an answer. You didn't answer us. So we filed an amicus brief on behalf of ICANN in support of Coinbase's, the thing that they did in the appellate court is called a writ, a writ of mandamus. They're asking the court for an order. And we pointed out that Coinbase's petition for rulemaking was not the first one. In fact, it was the last in a long string of them going back to like 2017. People have been petitioning the SEC for rulemaking in the digital asset space since at least March of 2017. So there are like six or seven, we laid them out in our six or seven petitions. The SEC ignored all of them. So we said, this is a problem that goes

beyond Coinbase's petition. Court, you should issue an order here. And the court would be issuing an order, not directing the SEC to make rules, just directing the SEC to make rules just directing the SEC to respond to coinbase's petition for rulemaking so yes or no so the the latest bit is the SEC uh responded uh either late yesterday or earlier this morning and they I mean I don't want to malign their response too much but basically they said hey what are you talking about we've been really busy on this we've uh you know sought public comment blah blah blah what they didn't say was we did respond to coinbase's petition for rulemaking or we're going to respond to coin business petition for rulemaking they just said kind of we're busy we'll get you know we're working on it um that doesn't really meet their burden of what they have to do when someone petitions for rulemaking. All they need to do is say yes or no. Yes,

we'll make some rules or no, we won't. So we'll see what the court does. It's fascinating. And sorry to go off on this, but it's fresh in my mind. The SEC's failure to respond to rulemaking petitions is not limited to the digital assets cryptocurrency space. If you go on their site and see all these other rule petitions for other stuff, in fact, I can't submit a rule petition on a non-digital currencies topic last year. We haven't heard anything back. Somebody did a study in a Yale law journal that pointed out that since 2018, there have been something like 65 rule petitions, and the SEC has responded to something like three. I may not have those numbers exactly right, but the fact is the SEC just kind of ignores these rule petitions. They

kind of go into a black hole and you never hear anything about them. So that's what's an issue in the Coinbase. So then what's the point? That's so frustrating, right? Because they're supposed to be public servants to some degree, correct? I mean, they're supposed to be able to answer these things and they can intentionally just endlessly kick the can down the road and do nothing. I mean, and I have to assume that that's on taxpayer dollars, right? That is. It is. And, you know, a cynical person might say it's furtherance of their strategic ambiguity strategy, but... But that wouldn't be you. That wouldn't be me.

That would be somebody else. No, not the guy who worked at the SEC. No, for sure not him. But then where does that leave Coinbase, do you think? They're clearly not going to get an answer on that, right? I think it's very clear strategic ambiguity is going to continue, but this is a battle that's brewing. Something bigger is coming.

Yeah, the writ will get resolved when the judge decides whether to order the SEC to respond to the rulemaking petition, or the judge might say, no, the SEC should be able to take its time and doesn't need to respond to the rulemaking petition, or the judge might say, no, the SEC should be able to take its time and doesn't need to respond. But that will resolve itself totally independent of everything else that Coinbase has going on. It's sort of a parallel track that won't impact the other things that Coinbase has been talking about vis-a-vis the SEC. What would you say, any of you, is the, I guess, best and worst case scenario for Coinbase if enforcement action comes? That might be one we want to stay away from. No problem. Theoretically, what action do you think would, based on what we've seen against other companies, what do you think the SEC would potentially do?

Is it coming after them for unregistered securities? I mean, is that probably the most likely path? Looking at other actions, yeah, I mean, the SEC has a fairly well-defined toolkit. So they would ask for one of those obey the law injunctions and say, like they have done with regard to other entities, you have violated X, Y, and Z provisions. So do not do that in the future. And that obviously would have a big impact

on the business model. And then maybe monetary relief as well. But I think it's too early to tell. So I guess more generally, not specific to any of your clients, you talked about at the beginning what kind of companies you're helping. Do you see an uptick in people still trying to operate in the United States? Or are you largely seeing them ask you how to get out of here and find a place where they could actually do what they're trying to do so i still see a lot of us-based projects that are

very active and they're kind of based here in the us and building but um a lot more of them and this has always been the case in crypto but are kind of looking sort of okay a lot of our calls start with where should i where should i be look? Like the regulatory arbitrage, basically. Regulatory arbitrage, right? Which you would hope that for like an entrepreneur, they're focused on building their product, right? And kind of designing new great things that solve real problems. But spending a lot of resources and time thinking about whether I have a Cayman Foundation or what sorts of structures to put in place is not necessarily a great use of resources when you can be focusing on other things.

Yeah, it's a big game, right? We all know that there's ways to be efficient in taxes or regulatory arbitrage. As you said, you just have to have the money to be able to do it. I think it continues to come back to that. I mean, is there anything that your average person, your average crypto enthusiast, obviously you guys have a non-for-profit. Is there anyone you can contact?

I mean, how can people become more activists about this in helping to change this process, making their voice heard? Because I think people feel very disheartened at this point. They have no impact on the political process in general, but certainly not for the crypto process. I mean, just calling the SEC work, just calling your senator work, what can we do? One thing is that when the SEC releases a new rule, they do have a comment period. And so you could submit a comment letter and Nick would know more since he was there. But I do believe they read through all of them. And I think that social media is a big thing, too. I think that regulators

are looking at people's tweets and trying to understand the general community. So I would say that like the SEC comment letters and speaking up on social media, things that are important to people is looked at. Now, just the comment letter process briefly is available. The staff does read the comment letters and maybe again, I'm a litigator. More importantly, the comment letters can provide a basis for later litigation to challenge rules. So that's interesting. It's very easy to submit a comment letter.

It takes very little time. You do it online. So that is. Let's have ChatGPT do it. We get our AI to just start sending comment letters to every SEC enforcement. It already happens. I'm not going to lie. I've already done that to like all of Congress.

And I would add, you know, even like the comment letter like that actually does. We've seen it result in changes. Right. Because the SEC puts out a proposal. They don't think of everything. Right. And, you know, sometimes you can shape things in a way that is sort of more responsible. I think talking to two elected representatives matters right i think the fact that there is a little bit more of a diversity of views in congress now is a product of people taking the time and effort um and and political donations to have their views heard i think that matters the other thing i think is an important narrative that gets lost i mean there's a lot of focus on the financial aspects of crypto right and um sometimes in all that noise and kind of

excitement the actual use cases what what what what are we doing that is better than what's been done before and kind of communicating like real world things that are happening and supporting that with with actual data i think is really important too right and i know there are a number of academics that are focused on that right and And others who are trying to get that message out as well. I think that's really important part of the narrative, that it's not just all about the financial aspects of this, that it's really about, how is this making the world a better place?

Focusing on the technology and utility to some degree. Exactly. Which does get lost, I think, because most people come into the space looking for a winning lottery ticket, frankly. You know, and I think we all understand that. And that's probably the perception of the regulator and one that we really need to change. Yeah. I mean, I think even the fact that the biggest cases are is an exchange, which is, you know, I guess Ripple is pretty, pretty big.

But, oh, do we have any idea when we'll actually get an answer on the Ripple case? Do you guys have any idea? So we've got pending cross motions for summary judgment that have been pending for a long time. And it's really, there is no outside deadline for the judge. It's really up to the judge. And I have had cases where summary judgment motions have been pending for months and months and months. So I think we're close. I mean, I don't remember when they filed the cross motions, but it's been a long time. So I would say we're getting close, a couple of months, but it's totally up to the judge's discretion. The Ripple case is a good example, by the way. You were saying, what can individual participants in this space do? It's not easy to do this, but in the Ripple case,

I think it's been very effective that holders of the XRP token have tried to have their voice heard in that case. Because in every SEC case, you've got the SEC that purports to be looking out for investors' interests, and you've got the defendants who the SEC has accused of doing something wrong. What you don't have is actual representation by the investors. And in fact, the SEC discourages that and tries to keep people out of those cases. And there are ways to get your voice heard in those cases. It's not super easy, but it's also not impossible. So I would encourage people, if they are involved in the tokens that are at issue in a particular case case to look for a way to have

the judge hear their voice directly. Yeah, I think one of the most interesting parts about the library credit library case was the fact that they made it clear actually the secondary sales was not of a security. That seems like an interesting, I don't want to call it a loophole or precedent though, that could be used in the future to help support some of these cases for the crypto industry. Well, that's why it'll be really interesting to see what the judge does in the library case, because, you know, as you mentioned at the beginning of this piece, the SEC has now given its position on what the judge should do in terms of entering a final injunction. The judge seemed at some of the hearings very reluctant to just have a blanket injunction that could impact secondary market transactions that might be consumptive, not investing related. It could be just unrelated to the original distribution of the tokens in that case. So that is definitely a case to watch in terms of an impact on the

secondary markets. How meaningful is this ripple decision, do you think, for the industry? Any of you can answer. Well, I'll say, having seen how the SEC treats losses in other areas, the SEC will immediately say, well, that's limited to the facts in that case. So it's a one-off. It has no relevance whatsoever. The rest of the world will have a different view. And obviously, I think it depends. I mean, the judge will, because it's on summary judgment, which means that the facts have been fully laid out for the judge, the judge will likely, the order will be detailed both factually and legally. And so I think there will be things

in there that everyone will want to use. But the SEC's reaction will be, both factually and legally. And so I think there will be things in there that everyone will want to use. But the SEC's reaction will be, well, it's that token, that case, and shouldn't apply it elsewhere. Yeah. I mean, one of the other big cases, obviously, was Grayscale or GBTC going after, I guess, the SEC with their ETF. And the judge pushed back heavily and immediately everyone said, well, even if Grayscale wins, they could lose and maybe that'll hurt the futures ETF. It just seems like there's so many ways, even if the SEC loses a case, that they can skin it as something very, very specific and pigeonhole it without it applying to everything. I just don't know how we win then. I literally, it just feels like you just

wait till there's a different SEC and hope for the best. I mean, it's true for like the digital asset, the decisions on that, it is so specific sometimes to a digital asset. Like every token has a different design, has made different

marketing statements, maybe has certain features of passive income or governance. The token holders maybe are active with that governance feature or not. So it is sometimes tough to say that one ruling is applicable to other. I think it's easier. And as Nick said, it's kind of determined on like what people are going to think of the decision. But there are also really specific factors to each project that you'll need to say that your project is similar to to make that decision applicable to your project. Right. And the irony is the flip side of that is that the SEC just wants to say everything's a security, but you just describe the nuance of why they

would theoretically have to look at each and every one to determine that. Yeah. On the grayscale matter, which, by the way, Lisa was the primary drafter of our amicus brief in support of that petition. You know, I think sort of in response to your comment, Scott, that the grayscale could win there, but still ultimately, you know, win the battle, but lose the war. The SEC could go back and reconsider. That might be one outcome if the appellate court orders them to do that. But I do think it's important for the industry to the extent people are able to, every time the SEC acts arbitrarily, which is what they did in denying Grayscale's application while granting applications of roughly equivalent other products, I think they need to be called out. I think it's important to take each battle in turn and hold the SEC to its regulatory obligations.

I agree. Listen, I know we're up against theoretical time. So I don't know if you guys are done. Is there anything that I missed that may be worth getting a last discussion in or a last comment? Because I certainly can't cover it all. You guys are doing a lot. I think we did a pretty good coverage of the water. Wow. The silence there made me feel like I did a really great job. That's perfect. Well, thank you, Nick, Lisa, Eric. I should say, so if anybody is actually looking to take on one of these fights or to get

clarity, where can they contact you for your help? Because clearly there's not many people that know what they're doing in this space and you guys seem to be dominating. Well, it's easy to find us at our Paul Hastings. That's the name of our law firm, paulhastings.com. You can find us there. And the nonprofit, if anyone's interested, is icanlaw.org. Icanlaw.org. Everybody go check that out. Thank you guys so much for your time. It's really enlightening and it gives me some hope that somebody's fighting for us who knows what they're doing. Yes. Thank you so much for having us. Thank you, Travis. Thanks, Scott.