Unchained - Coinbase's Legal Action Against the SEC: How It Will Likely Unfold - Ep. 486

Episode Date: April 28, 2023

Major crypto exchange Coinbase has decided to take action to get an answer from the Securities and Exchange Commission: this week, they filed a court action seeking to compel Gary Gensler’s agency to give specific rulemaking on crypto assets. J.W. Verret, associate professor of law at George Mason Law School, talks about how both parties are playing this game, how it could change the Howey test, and much more. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights: whether there's a long-term chess strategy being played by Coinbase whether the case could actually change the Howey test why the 'West Virginia vs. EPA' is important for crypto what the SEC's strategy is and why the Kraken settlement was an “overreach,” according to J.W. whether the SEC could develop a new framework for crypto assets  how the Ripple case will unfold and how long it will take if it is appealed Thank you to our sponsors! Crypto.com Railgun DAO  Guest J.W. Verret, Associate Professor of Law at George Mason Law School J.W.’s thread My story of telling the SEC ‘I told you so’ on FTX Public Request for Rulemaking: Securities Regulation Genesis Block Proposal Previous coverage of Unchained on the SEC’s actions:  Rep. Emmer on Why He Believes Gary Gensler Is a ‘Bad-Faith Regulator’ Is the Government Trying to Kill Off Crypto in the US? Coinbase’s Top Lawyer Calls SEC Wells Notice a ‘Massive Overreach’ Links Unchained: Coinbase Seeks to Compel SEC Response to Rulemaking Petition - Unchained Crypto Coinbase takes another formal step to seek regulatory clarity from SEC for the crypto industry IN THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT COINBASE, INC.’S PETITION FOR WRIT OF MANDAMUS TO THE Coinbase petition for SEC rulemaking Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the April 28, 2023 episode of Unchained. Ever wanted to use Defi without being tracked? Railgun is a leading Defy Privacy solution on Ethereum, BSC, Arbiturface, trim and Polygon. Shield your funds and use them privately in your favorite Defi apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view.

Yes, that includes dextrating. Visitrail.org or use the Railway app at Railway.xy-Z. With the crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code, Laura. Link in the description. Today's guest is J.W. Varet, Associate Professor of Law at George Mason Law School and of counsel at Lawrence Law. Welcome, J.W. Good to be here, Laura. Longtime fan.

On Monday, Coinbase filed a court action seeking to compel the Securities and Exchange Commission to give specific rolemaking on crypto assets. Can you explain what this court action hopes to do and what brought Coinbase to this point? Well, this is a culmination of a number of years. in which Coinbase and other exchanges, other crypto exchanges, have been looking for a pathway to fit into the current regulatory regime. So they've tried a number of things. They've tried to get a special broker-dealer license.

They've tried to get a regulation ETS license, which is kind of a mini-exchange license crack and stripe to do the same thing. And they've all been denied in their efforts to do this. So another thing Coinbase tried to do was, a request for public rulemaking. Any member of the public can file one of these with the SEC and request a formal rule be proposed. Usually the SEC ignores them. Sometimes, you know, some of those, you can imagine when you allow anybody from the public to do a proposal, some of those are kind of crazy town, right? They're kind of like the worst blog comment you've ever seen. Some of them are very

thorough. I actually did one in January last year calling for something very similar to what Coinbase asked for. The Coinbase had a lot more detail about what they're asking for. So anyway, they filed that, and then now we're just after a situation where the SEC is sent a Wells notice to Coinbase. It's kind of a threat to sue. It's a shot across the bow and some notice about what's coming. It used to be an opportunity to negotiate with the SEC, and 10, 20 percent of the time you could talk them out of suing you. They've cracked down quite a bit under Gensler, so that's really not the case anymore and after the Wells noticed that that incentive to negotiate with the SEC has kind of disappeared. So what Coinbase has done is they said, okay, we're going to take the initiative.

We're going to sue first. We're going to sue you. You're going to sue us? We're going to sue you. Counter suit is often a sometimes a useful strategy. It's pretty rare to counter sue your regulator. It's pretty bold. But I think it has some interesting strategic thinking behind it. I can see some deep chess behind this move. So have you having to kind of go. into that, but hopefully that lays the basics of what the suit's about. And I'm sorry, you said deep chess, like the game chess? Yeah, I think there's some chess moves going on here, some short-term, intermediate term, and even long-term chess strategy being laid out here.

And what do you mean? So what are those different strategies? So in the short term, Coinbase and the SEC are posturing with each other, and the SEC sent a Wells notice to Coinbase. Between that and the things they've already revealed about their discussions with the SEC, it seems the SEC has threatened as sort of a kitchen sink strategy for what they're gonna sue Coinbase about,

about staking and about token listings, unregistered the claim of unregistered token links and something to do with a wallet, I'm not quite sure what, but kind of a kitchen sink approach. They've threatened something much, much broader than the case that settled with Cracket. So now the SEC's threatened that,

but maybe the complaint narrows down a bit. Maybe I think in the short term, Coinbase is posturing and saying, you know what, rather than going in to negotiate with you and meet with you, we're going to publicly sue you and do something that's going to help a long-term strategy. Maybe that discourages the SEC

from a kitchen sink approach in the complaint. We'll see. But I think it's worth a try. In the intermediate term and the longer term, here's what I think is going on here. Just with respect to the writ of mandamus, The, we asked you to do a rulemaking on tailored exchange rules for crypto exchanges. The SEC can say, you know what, the SEC has a legal obligation to respond.

They don't have a legal obligation to do it just to respond. Under the law, the SEC can simply say, you know what, here's our response. We reviewed it and we're not going to do it. So they can, it's that simple for the SEC. And they can win that particular case. But I think it sets up strategic advantages for coin. in their defense against the ultimate enforcement action that we all know is coming in some parameter or other, whether it's tailored toward maybe just staking or wider toward kitchen sink,

everything. I think if the SEC does that, and it's the easiest way for them to win the mandamus, a curt kind of response, yeah, we looked at it, we're not going to do it. I think that builds a record in the enforcement action for Coinbase to say, you see, Judge, we tried. We tried to get a pathway to register, and it helps to build a record in a court case, which I think is better than the kind of public record. In crypto, we know, we talk about all the time the kind of obsequiousness of Ginsler speeches and come in and register, but we know registration's impossible under the current dynamic and the current regime. It puts all of that at a court record, and I think that helps build, in the intermediate term, maybe a fair notice defense for Coinbase, kind of like the fair notice

defense that Ripples arguing in their case. And in the longer term, and maybe this is for to get into it a little bit later, if this goes up to the Supreme Court, I think this builds a record that maybe allows the Supreme Court to change the how we test itself, which is, which is could be how this case ends up playing out if Coinbase went. Wow. Interesting. Wait. Okay. So the two, the two main takeaways I'm hearing are first, When Gensler says in public, crypto companies are not being compliant, they should be coming in and registering and they're not doing it.

Part of this court action is to have a record showing that there isn't actually a way for crypto companies to comply. That's step one. But then you are saying the ultimate goal is to actually change the how it to that I had not heard before. So expound a little bit on that. Sure. Let me just mention a little bit about the last question, just a few things to kind of add on to that.

So I think the kind of snare trap that Coinbase is laying here is they're laying up a case where the SEC can easily win with a current response. We looked at it. No, we're not doing anything. And if they step into that, that helps Coinbase's defense. If instead the SEC says, okay, we looked into it and gives a really substantive answer, then that gets into some pretty complicated questions involved here, which again helps, I think, their defense. So I think it's an interesting strategic move. Okay, so long term, when we talk about the Howie Test, there are a lot of securities lawyers, some who have come on on your show,

who take the view that if they take the one district court opinion with the most liberal interpretation of the Howie Test, then that's the law and everybody has to comply. If that's the way you look at it, there's not much future for crypto right now. I mean, if you take the library case, for example, which is a pretty liberal approach, if the library case is going to always be the law, then man, there are a lot of tokens that are not going to survive that. But oftentimes the Supreme Court will change doctrine, will change the law, or will tailor the law or shift the law. It happens a lot in securities law. The SEC, in fact, loses a lot in front of the Supreme Court, where the doctrine changes.

I think in the last five or six cases, they've lost three or four of them. And some of them have been nine-oh votes. So a fairly divided, politically divided court, but nine-oh, it's a heck of a defeat when nine of them say, you lose SEC. That's got to hurt. It's got to hurt. So here's what's interesting. So last year in December, there was a case called West Virginia versus EPA. This is a really important case for crypto.

So this is a case that expanded on a doctrine in the Supreme Court that's been growing called the Major Questions Doctor. So to go back in the history in the 1970s and 1980s, Justice Scalia created this doctrine called Chevron. It was a case involving Chevron. It was fairly differential to administrative agencies, independent agencies like the SEC and other agencies that regulate across the spectrum of policy issues. It was fairly differential. This was during the Reagan administration. There was a lot of deregulation, and it was kind of helpful to the cause of deregulation to have some deference to agents. And that changed over time, and that deference led us some real increases in regulations.

So the Code of Federal Regulations has grown by millions of pages since then. The idea in conservative and libertarian judges has been to take a different route to administrative law and more skeptical of administrative law. And a doctrine that's doing that is called the major questions doctor. So this is something that Justice Kavanaugh has written about, and Justice Kavanaugh and Justice Gorsick are big proponents of the major question of doctrine. So here's what it is. The idea is when the Supreme Court sees an agency trying to enforce a statute, and they see a situation where an agency is trying to regulate a major national question of significant national, political, or economic importance. But they're using some provision in an old statute that doesn't seem to quite fit where they're trying to. to regulate. Sound familiar? Right? Sound familiar already? Then the judge is going to be very

skeptical of that effort. So a few cases where it's happened before, the DOJ tried to regulate physician assisted suicide through the criminal scheduling of narcotics. So you use those scheduled narcotics to do physician-assistant suicide. And the court said, no, no, no, that's not the purpose of that law. The purpose of that law is to stop illicit sales of drugs. It's not to regulate physicians. And so though it seems like you could kind of fit the statute into what you're trying to do, the Supreme Court says, well, then that's a question of national political importance. Major question doctrine stops it. Same with cigarettes for the FDA. There was a case for the FDA said, we should be able to regulate cigarettes because we can regulate drugs. And let's face it,

nicotine is a drug. Supreme Court said, no, no, no, no, that's not what is meant by drugs. That's not what the Congress really meant, right? So there's a number of cases like that, a similar case that came down last year involving the CDC's effort to do an eviction moratorium, right? What does the CDC have to do with eviction and rental regulation? Well, that's what the Supreme Court thought as well. They're trying to take a statutory language and twist it to regulate something. They don't really, that Congress never explicitly intended for them to regulate. I think that's an incredible parallel to the How we test and regulation of securities with

application to crypto, this new kind of asset that purely exists digitally doesn't exist physically in any way, and is unlike anything, the drafters of the 33 Act would have ever anticipated. It's kind of funny that a few commenters who were very much proponents of the SEC and of Ginsters approach immediately were tweeting after the case came down, well, obviously this has nothing to do with crypto. It was like, whoa, you're protesting a little bit too much there. I really, I was like, so you're telling me you're worried that this is going to apply to crypto. So I think long term that might be a defense that Coinbase, maybe Ripple, maybe others can use it. They can get to SCOTUS for SCOTUS to change the wide applicability of how we test

the digital asset securities. That's a long-term fight, but I think it's something that could be victorious. And this initial move, this initial gambit by Coinbase can help to build a record for such litigation. The ironic part is, who's representing Coinbase in this Eugene Scalia, Justice Scalia's son. So the person who takes down, helps to take down this deferential. law and administrative law, developed by Justice Scalia, might end up being Gene Scalia. But I think it's a heck of a thing also that Gene is on the brief. He's on the complaint against the SEC because he sued the SEC a number of times on behalf of the Chamber of Commerce and one. I'm sure in the SEC General Counsel's Office, when they read it and they looked at the end,

Gene Scalia, they were like, oh no, not him again, right? That itself, let's be honest. So that's a strategy, I think, that I'm trying to figure out here. I see some chest moves, some deep think chest moves. You know, Paul Gruel is a former judge. So he's thinking pretty deeply about what to do here. They've known this was coming for a couple of years. So it's going to be an interesting case to watch. The unfortunate thing for those of us in crypto who want to see this industry generally thrive and want to see it regulated as far away, it's going to take a long time. This litigation is going to take years. In a moment, we're going to talk about, you know, just how all of this will unfold, but first a quick word from the sponsors who make this show possible.

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19 plus Ontario only If you have questions or concerns About your gambling or the gambling of someone close to you, please go to conicsonterio.ca. Back to my conversation with JW. And one other thing that I wanted to note was you spent a term on the SEC's advisory committee. And so I was wondering, and it seems like you're highly sympathetic to Coinbase's allegation, but, you know, they kind of are saying that the SEC is trying to not respond to their request for

the rulemaking last summer in order to not have what they call judicial. review, meaning there's like no record that can be reviewed. Do you think that their description of what the SEC's strategy is here is accurate? Well, I think the SEC generally doesn't respond to requests for rulemaking at all, unless it's something they kind of already want to do. Even from a company that they're already regulating? Yeah. Oh. Generally speaking. Yeah. But in CoinVase's case, I mean, I think that they just, they are hoping to build up successful cases against tokens and they're hoping to use that as precedent. So that's a lot of what their strategic decisions in the Wahi case and the Bifanex case are about.

So I think strategically that's what they're doing. And I think Coinbases might kind of upset that apple cart. I like that they're following Sun Tzu here, right? Don't let your enemy pick the place of battle. You pick the place of battle. You retreat until you find the, or go on the offensive. That's what they're doing. So I kind of admire it.

Look, here's my. My real qualm with this. You could look at, say, for example, the Crack and Settle. There were some strategic choices in how they designed that custodial staking platform that increased the risk of power application. Sure, particularly the guarantees of returns. The penalty for that, though, first of all, shouldn't be a $30 million penalty when there's no fraud. Those are penalties you reserve for fraudulent activity.

This was a non-registration settlement. But usually in normal securities low world, pre-Ginsler, a settlement or a case involving non-registration, the result is maybe a small fine, and then you register, right? That wasn't the case for the Cracken settlement. They weren't allowed to register. The settlement said, pay a huge fine and shut this whole thing down and don't do it anymore. That's incredible overreach to me. I think if they had a toll Cracken spend $30 million developing a registration system for staking, they'd have done it. but that was not what the SEC wanted. And I think that's not what you expect from a good faith regulator.

Yeah, that term again, which is what Tom Emmer said that Gensler was not a good faith regulator. Yeah. So one other thing that I wanted to ask about was, you know, this issue about the status of crypto assets. Chair Gensler has been saying that all crypto assets besides Bitcoin are securities. The crypto industry says that's not workable to have almost all crypto assets be securities. Why not? What would that look like and why couldn't the crypto industry work if most crypto assets were securities? As it exists now, full compliance with the 33 Act would have a whole host of weird consequences that protocols are not designed to comply with. Just because the 33 Act is where the registrant is executive officers at a company who control all of the assets that they're disclosing about. And I would say that doesn't happen for crypto protocols. There's no CEO of

Ethereum or board of directors or anything. So you have to tailor a registration for seeing that can be done. That could be possible. That's happened before in the past. With asset-backed securities, the SEC created a regime for asset-backed securities. There's no CEO or board for those entities, but the SEC created an adjusted regime for asset-backed securities to register. One question, because I imagine Chair Gensler would say that Vatelic Bouteran is serving in a CEO-like function and that the Ethereum Foundation is serving in functions similar to that of a centralized company. So what would you say if that was his argument? He still can't comply with all the rules for CEOs in the disclosure system, executive compensation and all kinds of things like that.

They just don't fit. Vitale might be very influential, but you can't even describe him as the CEO of Ethereum, even though he's influential, because that would be a fraudulent disclosure. so that the regime just doesn't fit. The SEC has adjusted 33 registration in the path. So what they did for asset-backed securities with a kind of a quasi-registration where you registered a security, but it wasn't a stock in a publicly traded company.

It was a stock in a kind of weird asset had publicly traded stock. He could develop something based on that framework. He could develop something based on other things they've adjusted for the 40 Act for real estate, investment trust for master limited partnerships. They've allowed those kind of hybrid things to list. That could all be, that could all be fixed tomorrow if he snapped his fingers. And that's what we're still waiting on. I think that's what could make this all make the circle around.

We're playing enforcement games right now. And as much as it's interesting to think about the long-term chess strategy of the cat and mouse game here, there are a lot of developers and and there were a lot of asset owners who are being adversely affected. I mean, just full disclosure on one of them. I mean, you know, I've taken a hit from the against third regime. A lot of crypto owners have things I'm investing in to help fund my kids' college. Another big case is the case between the SEC and Ripple. What's the status of that case and why do you think it's important for the crypto industry?

I think we might get a resolution possibly of the district. case relatively soon in a matter of months or weeks. It could end up being important for crypto. I'm not sure. It kind of depends on how it resolves. On the one hand, no matter how it resolves, there's a good chance it'll be appealed. If Ripple loses, they've said they're going to appeal and they've invested a ton of resources. I think that's read estimates of $100 million. So they've already invested a lot in the Discord case. So they've said they're going to appeal all the Supreme Court. The general counsel, I think, has been pretty vocal about that if they lose. If they win, it kind of depends on how they win. Maybe they win on the basis of the fair notice defense, in which case it wouldn't have a lot of implications

for the rest of crypto. That would be very much on their specific facts. And if they went on that basis, maybe the SEC lets it lie. If they went on the basis of how we test, the SEC is certain going to appeal it. So. All right. Well, then I guess we will have to see what happens. And again, And so if you were saying the Coinbase one will last years, then for these appeals for Ripple, what timeline are you looking at? Similar timeline. Wow. And what do you think will be the status for the industry during that time?

Just continued uncertainty? The same uncertainty we've operated under for the last decade. Wow. Okay. Well, that's a bleak note to end on, but... The major question doctrine offers us hope. Okay. All right.

So maybe that will... that will settle things. All right. Well, JW, it has been such a pleasure having you on Unchained. Thank you so much. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Ever wanted to use Defi without being tracked? Railgun is the leading defy privacy solution on Ethereum. It's available on BSC, Arbitrum, and Polygon 2. Shield your funds and use them privately in your favorite defy apps, while Railgun's cutting edge, zero knowledge system, encrypts your data from public view, all without leaving your preferred chain. Yes, that includes Dex Trading. Coming soon are integrations with leading yield, lending, and perp trading platforms

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Coinbase challenges SEC's allegations. One bit of news on Coinbase versus the SEC that broke after I wrapped my interview with JW is that apart from trying to push the U.S. Securities and Exchange Commission to provide more rules, Coinbase has warned the agency, led by Gary Gensler, that it will be a, quote, well-resourced adversary if an enforcement action is pursued against the company. In response to the SEC's March Wells notice, Coinbase's chief, legal officer Paul Graywall stated, quote, we didn't pick this fight. Chair Gensler has argued that most digital assets are securities and that existing rules are clear, while Coinbase has

countered that the SEC is making decisions about alleged legal violations, quote, on the fly. Coinbase's arguments revolve around the notion that cryptocurrencies listed on the exchange are not securities, contrary to Gensler's claims. Binance U.S. calls off $1 billion Voyager deal. Binance U.S. has terminated its $1 billion asset purchase agreement with bankrupt crypto lender Voyager Digital, citing a, quote, hostile and uncertain regulatory climate in the U.S. In response, Voyager stated on Twitter that its Chapter 11 plan allows for direct distribution of cash and crypto to customers via the Voyager platform and will provide information on next steps to reimburse creditors through direct deposits. Finance U.S. will be required to destroy all Voyager customer information it is. is received under the terms of the deal. The termination comes despite an April 20th agreement between Voyager's creditor committee

and the U.S. government, allowing the deal to proceed as planned. It also had the approval of the vast majority of Voyager creditors who voted in bankruptcy judge Michael Wiles. Separately, Crypto News site Forklog reported that Binance lifted restrictions imposed on Russian users over a year ago, allowing them to use locally issued Visa and MasterCard credit cards for deposits on the platform. According to the New York Times, finance CEO Chang Peng Zhao hired personal legal representation from Latham and Watkins as the exchange faces multiple investigations and regulatory scrutiny in the United States. CZ has also been in the news due to his allegedly huge fortune.

Bloomberg reported that the Asian founder's net worth is over $28 billion, but CZ has denied it. Quote, numbers all wrong, he tweeted, I don't have anywhere near as much. FBI searches home of ex-FTX executive Ryan Salem. The FBI conducted a raid on the home of former FTX executive Ryan Salem in Potomac, Maryland, as reported by the New York Times. Salem, who was previously co-CEO of FTCS digital markets, the exchange's Bahamas operation, has been under scrutiny for $24 million of campaign contributions

during last year's midterm elections. The search is part of an ongoing federal investigation into the collapse of FTCS and his former CEO, Sam Bankman-Fried, who has been indicted for fraud and illegal campaign finance schemes. Three former FTX top executives have already pleaded guilty and agreed to cooperate against Bankman-Fried. Ledger-X to be sold for $50 million. This week, FTX agreed to sell its derivatives platform, Ledger-X, to an affiliate of Miami International Holdings, or M.I.H. For $50 million, subject to U.S. Bankruptcy Court approval on May 4th. John J. Ray III, CEO and restructuring head of FTCX, expressed satisfaction with the agreement, which aims to deliver recoveries to stakeholders.

In related news, U.S. District Judge Lewis Kaplan approved alternate software to monitor the cell phones of Bankman Freed's parents following SPF's revived bail conditions. A software will log keystrokes, track unauthorized applications, and monitor calls. A technical consultant will review the data thrice a week, report any unauthorized activities. This development puts an end to countless comings and goings on the topic. Lastly, the Bahamas is proposing stricter digital asset regulations following criticism related to FTC's collapse. The Securities Commission of the Bahamas opened a consultation on the digital assets and registered exchanges, or Dare bill, which includes expanded definitions of digital asset businesses, disclosure requirements for crypto staking, and tighter requirements for

stable coin issuers. The bill aims to ensure that crypto exchange operators have adequate and appropriate systems and controls in place. Legal battle surrounds Tara. A South Korean district court ruled that Luna Classic is not a security, prompting Korean prosecutors to seek a judgment from the country's Supreme Court. According to the judge, Luna, now LUNC, or Luna Classic, cannot be considered an investment product regulated under the Capital Markets Act. In a related development, attorneys representing Tara co-founder Doe Kwan requested a U.S. court to dismiss charges brought against him by the U.S. SEC. Kwan's legal team argued that the agency lacks jurisdiction and that the digital assets

involved, such as the U.S.T. stable coin, are currencies, not securities. The SEC has until May 12th to oppose the motion to dismiss. Finally, South Korea has indicted Terraform Labs co-founder Daniel Shin, no relation of mine, and nine others on multiple charges, including capital markets' law violations in connection with the Terra Project. Prosecutors have frozen around $185 million in assets from the accused individuals. Shin's lawyer, Kim Ki-dong, maintains his company's innocence, stating that Shin left the company two years before the collapse and has cooperated with the investigation.

Circle launches cross-chain transfer protocol. Circle has launched the cross-chain transfer protocol, RCCTP, for Ethereum and Avalanche, enabling seamless USDC transfers between these blockchings. This protocol simplifies asset transfers and improves liquidity by avoiding the need for traditional lock and mint bridging methods. Circle CEO Jeremy Allaire celebrated the launch on Twitter, calling CCTV its quote, most important new piece of blockchain infrastructure since the launch of USC. Despite the milestone, Circle faces a regulatory hurdle as its hopes for accessing the New York Federal Reserve's reverse repurchase program has taken a hit. A policy change now deems funds

organized for a single beneficial owner, like Circle's Black Rock managed U.S.C. Reserve Fund, generally ineligible. The reverse repurchase program allows selected counterparties, such as money market funds and banks, to lend overnight to the Fed at a fixed rate, offering a high yield with minimal counterparty risk. It remains to be seen whether this will affect Circle. Coinbase and Gemini enter a battle for Celsius' assets. Two new consortiums have joined the bidding race for bankrupt crypto lender Celsius Network's assets. One of the new groups, the Fahrenheit Consortium, is backed by venture firm Earrington Capital, former Algarand CEO Stephen Coquinoes, and investment banker Ravi Kaza. Arington Capital CEO, Michael Arrington,

said on Twitter that it would be structured as a new company with plans to grow assets for stakeholders. And to now delete a tweet, he said Coinbase was involved and Fortune reported that the exchange declined to comment on the tweet, but did not deny its involvement. The other contender for Celsius's assets is the Blockchain Recovery Investment Committee, supported by Genesis, Vanek, Plutus Lending, and other investors. These additional bids pose a challenge to Nova Wolf's existing reorganization plan, which proposed returning 70% of funds to Celsius customers. The auction began April 25th at Kirkland and Ellis's offices in New York.

Insiders believe one of the two new consortiums is most likely to win the auction because they are backed by established crypto operators. Genesis and DCG pursue mediation. Bankrupt crypto lender, Genesis Global Hold. Holdco and parent company digital currency group have sought a mediator in their ongoing bankruptcy case. According to DCG, a subset of creditors rejected the restructuring agreement reached in February, which will likely prolong the court process. Genesis has requested immediate mediation as DCG owes the firm $630 million in fixed term loans due in May.

In a tweet thread, Ram Alawalia of Lumida said, quote, there is now not enough time to get a new terms of service, definitive docs, and forbearance in place. This creates a scenario for DCG default risk. In related news, several major creditors of troubled Singaporean crypto lender, Hodelnot, including the Algaran Foundation, have expressed their preference for liquidation over restructuring. The Algaran Foundation, which has $35 million in exposure to Hodelnot, previously stated that liquidation would, quote, maximize the company's remaining assets available for distribution.

OPNX investor list controversy grows amidst funding denials. The newly launched crypto bankruptcy claims exchange, OPNX, has encountered controversy after revealing its list of major investors, which supposedly included venture arms of Susquehanna International Group, DRW, and others. However, several of these alleged investors have since denied their involvement in OPNX's fundraising round. A spokesperson for SIG stated, Quote, we have not provided any funding to OPNX and have no intentions to do so.

DRW also confirmed via Twitter that neither the firm nor its affiliates aren't investors in OPNX. AppWorks, another named investor, clarified that their equity in CoinFlex was forcibly converted to OPNX, and they have not committed capital to the new entity. OpinX was founded by Three Arrow's Capital co-founders, co-founders Kyle Davies and Suu, who partnered with CoinFlex founders Mark Lamb and Sudo Arumagam. The exchange claims to have raised $25 million from investors, but the recent denials have cast doubt on the accuracy of its funding claims. Former Coinbase employee seeks reduced sentence in insider trading case.

Ishan Wahee, a former Coinbase product manager, has requested a jail sentence of no more than 10 months for insider trading charges. Wahee pleaded guilty to sharing details of upcoming Coinbase crypto listings with his brother and another contact. His lawyers cited significant public attention, Wahee's previous law abiding life, and mental health conditions as reasons for leniency. Wahee's sentencing hearing is scheduled for May 9th in New York. Yuga Labs wins legal battle over B.AYC copycat NFTs. Board APA Club creator Yuga Labs has claimed a landmark legal victory

against Ryder Rips and Jeremy Kian over their copycat RR slash BAYC NFT collection. A federal judge ruled in favor of Ugal Labs, entitling it to an injunction and damages for trademark infringement. Rips and KN argued their project was a parody and protected by the First Amendment, but the court disagreed. stating their sale of RR.R. slash B.A.C. NFTs was not artistic expression. Merlin Dex Rugpole results in $1.8 million loss despite certic audit. ZK. Sync-based decentralized exchange, Merlin suffered a $1.8 million loss during the public sale of its

mage tokens and what appears to be a rugpole incident. The funds were drained from Merlin's liquidity pool despite a recent audit by blockchain security firm Sertic, which is now collaborating with Merlin to initiate a compensation plan for affected users. The rogue developer behind the exploit is believed to be based in Europe, and Sertic has urged them to return 80% of the stolen funds in exchange for a 20% white hat bounty. Time for fun bits. Ginny from Unchained gives us her own take on the SPF bail monitoring situation. FVF is having trouble photographing himself, which seems like it should be a good thing.

However, one of the conditions of his bail is that his parents' phone is supposed to be able to photograph its users every five minutes. lawyers say that his parents are having trouble installing the monitoring software on the phone. It's not like there's anyone in that house is good with technology. However, if they need somebody to convince millions of people

that the software is actually capable of doing something it can't do, I think that they should have even considered this order until they confirm that both SBF and his parents can shower in under five minutes. The legal workaround right now is that every keystroke on his parents' phone gets monitored. So basically it's like a regular smartphone. Last week, it was reported that FTX and Taylor Swift were in talks to sell tickets to her concerts as NFTs, but that Taylor Swift backed out because she thought that they might be unregistered securities.

Her rejection must have gotten to SBF, though. There is apparently parole footage of him in a dark corner of his parents' basement, sitting alone, eating padtight, and whispering to himself over and over again, it's me. Hi, I'm the problem, it's me. There would be if the technology worked. Thanks so much for joining us today. To learn more about JW and the Coinbase Legal Action Against the SEC, check out the show notes for this episode.

Unchained is produced by me, Laura Shin, pulled up from Anthony Youne, Mark Murdoch, Kevin Fuchs, Matt Pilchard, Zach Seward, Juanoranavanovich, Sam Shri Rum, Ginny Hogan, Jeff Benson, Leandro Camino, Pamajumdar, Shashon, and CLK transcription. Thanks for listening. Thank you.