Unchained - New Order in SEC vs. Ripple Over XRP Is a Win for Crypto: What Happens Now? - Ep. 518

Episode Date: July 14, 2023

The SEC and Ripple have been locked in a legal tug of war for years, stirring up waves of controversy and debate in the crypto community. Finally, Judge Analisa Torres has given an order establishing that XRP buyers trading on exchanges were not, in fact, engaging in a securities transaction, a decision that could have far-reaching implications for the industry. Lewis Cohen, co-founder of DLx Law, unpacks the details of this pivotal case and what it might mean for the future of cryptocurrency regulation. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: why the SEC lawsuit against Ripple has such historical significance in the crypto industry how Judge Torres split the case into two categories  why the 'programmatic buyers' did not meet the four prongs of the Howey test why the institutional sales constituted an investment contract  what makes the Ripple case different from the Kik and Telegram cases whether the new ruling by Judge Torres will have an impact on how other crypto projects deal with their offerings why, in the event of an appeal, Lewis expects a Second Circuit decision to take at least one year whether Judge Torres' decision will impact the ongoing cases against crypto exchanges like Coinbase why Lewis thinks the XRP order will not change the likelihood that spot bitcoin ETFs get approved how there's no way to deal with information asymmetries in digital assets now Thank you to our sponsors! Crypto.com Railgun DAO Ondo Finance Arbitrum Foundation Guest Lewis Cohen, Cofounder DLx Law Previous appearances on Unchained: The Lummis/Gillibrand Crypto Bill: Is the ‘Ancillary Token’ Approach the Best Links Previous coverage of Unchained on the Ripple case:  The SEC's Lawsuit Against Ripple and 2 Execs: What You Need to Know  Ripple's XRP: Why Its Chances of Success Are Low CoinDesk: Ripple, Crypto Industry Score Partial Win in SEC Court Fight Over XRP The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are not Securities Paradigm Files Amicus Brief in SEC’s Lawsuit Against Ripple The Block: Lummis, Gillibrand to introduce revised comprehensive crypto bill  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained. You're a no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago, and as the senior editor at Forbes, was the first mainstream reader porter to cover cryptocurrency full-time. This is the July 14th, 2023 episode of Unchained. Arbitrum's leading layer-2 scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit Arbitrum's, I.io today. Ever wanted to use Defi without being tracked? Railgun is a leading defy privacy solution on Ethereum, BSC, Arbitrum, 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.xyz. 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. Ondo Finance is bringing compliant, institutional grade finance on chain. Ondo is a leader in the tokenization of traditional securities, including with its roughly 5% yielding tokenized U.S. Treasury's product, OUSG. Today's guest is Lewis Cohen, co-founder of DLX law.

Welcome, Lewis. Hey, it's great to be here, Laura. Thank you. In December 2020, the SEC sued Ripple Labs and two executives, Chris Larson and Brad Garlinghouse, and said that they had been raising over $1.3 billion in an ongoing unregistered securities offering. On Thursday, we received our first major order in that case. But before we get into the details on this latest news, why don't you start us off with the background on what this case is all about? Sure.

So I think a lot of your listeners are aware that the SEC's concern about the way, you know, various digital assets have been distributed goes back long before the ripple issues. After prosecuting both some, some more innocuous cases and also some fraud cases, I think there was a general perception that people understood where some broad parameters were. There were no really big cases at that point that had been prosecuted. and the SEC decided at the very end of Jake Clayton's tenure as SEC chair, I believe it was on the last day, the day before his tenure ended, to sue Ripple Labs. And that was really probably the single largest token that they'd gone after. There had been prosecutions of kick, as you know, which was relatively kind of small-time ICO and Telegram, which was a large project, but was nipped in the bud before the tokens were ever released.

So this was the first time that the SEC had gone after a project where the tokens were out in the market. And, you know, I think everyone believed that the SEC sought to use this case to make the point that, you know, the whole industry is violating federal law and, you know, needs to be brought under control. And so the order by Judge Annalisa Torres on Thursday was quite significant for various reasons. What did the order say? So the order really focused on two. main aspects of what transpired. The first were the institutional distributions, which is where Ripple Labs sold XRP tokens directly to hedge funds and other large investors. The judge distinguishes that from what she calls the programmatic sales. The programmatic buyers, exactly, the programmatic

buyers, which is where Ripple Labs raised money by making tokens available on digital asset marketplaces and allowing participants or users of the marketplaces to buy tokens right there and blind bid-ask transactions. And so Judge Torres said, well, hang on a second. These are two very different kinds of transactions and sales. And one of the transactions, in her mind, met the status of an investment contract transaction that were the institutional sales. The other, the programmatic sales, did not.

And she really, in this decision, makes a clear distinction between a transaction that meets all four problems with the well-known Howie test and transactions that do not necessarily do that. We'll get into more detail. So she kind of split the baby to some extent. She also concluded there's a third category of what she referred to as other distributions, which were made to employees and others and other market participants. And she was remarkably generous to that category as well. but that's somewhat of a secondary point to the main, her main decision.

As far as I understand, I think her reasoning here outlines reasoning that you and I believe another lawyer entered into and tell me how to pronounce this. Is it amicus, amicus brief? Okay, I've always wondered into an amicus brief. And essentially she described the institutional sales as meeting the four prongs of the Howie test for, you know, certain reasons. So can you kind of walk us through what? that reasoning is, and then also walk us through how it is the programmatic buying on the exchanges

did not meet those four prongs. Sure, Laura. So I think maybe just first for some of your listeners who are not as technical, any litigation, particularly civil litigation, the two sides, write briefs and present arguments to the judge who ultimately has to make decisions. In most courts, judge will allow friends of the court or Amici is friends or amicus, a friend of the court. And those friends of the court where they're permitted, they submit filings as well to say, hey, I think there's some information that would be valuable to you. So that's a pretty common practice. And in the Ripple Labs case, there were quite a number of amicus briefs that were filed.

We were fortunate to work with our good friend Kavana Sedeji. I don't know if you had Kavan on your show before of Jenner & Block. And we submitted a brief of her own on behalf of Paradigm, the venture investor. And in our brief, we really focused on the issue. that, it turns out for the judge, were quite important, and asked her to think carefully about the difference between sales in which the four prongs of how we are met in the particular transaction and a sweeping ruling generally about XRP being held a security. It's important to bear in mind, Laura, that the first line of the SEC's brief that was originally filed

says this brief concerns XRP, comma, a digital asset security. So the SEC has taken the position from day one that somehow the Howie test and the concept of investment contract has fused with the digital token and that they're one and the same for all intents and purposes. In this decision, probably the most momentous aspect is the judge soundly rejects that position by the SEC. And so how is it that she was analyzing the institutional sales, that she determined that those were unregistered securities offerings? and what was it about the programmatic ones that did not meet that standard for her?

Sure. So the institutional sales were, I think, what you might call down the middle investment contract cases. The status of the token was not what was relevant to the judge. What was relevant to the judge is that, number one, there was an investment of money. That is to say, the institutional buyers provided $750-odd million over a variety of different transactions to Ripple Labs. So there was an investment of money. Money was provided directly to Ripple Labs.

Number two, there's a common enterprise. There was a general expectation that everybody would do better if the price of the XRP tokens went up. There was a reasonable expectation of profit, and this becomes quite important when we talk about the programmatic sales in a moment. But there's an expectation of profit on the part of the institutional buyers

that why are we giving Ripple Labs quite a lot of money. Well, that's because not necessarily we want to send a lot of funds from Mexico to Peru or something, but because we think that the token price will go up through Ripple's efforts and they clearly depended, not only did they have an expectation of profit, but was on Ripple Labs. In this way, the case lines up with many other cases that have come before it. What is of concern is not the subject of the investment contract, but the understandings, and the reasonable understandings, not the subjective understandings of the participants. Hey, am I giving you money, Laura?

You know, I'm expecting you to do something with that money. I'm giving you. And later, we're both going to be doing really well out of this whole thing. You know, if you do that and you do that sort of broadly without having an exemption, you violated the federal securities laws. So the institutional sales and her conclusion there probably didn't surprise too many people. I think the more interesting part are her remarks around program at sales. And so for the programmatic sales, what was the difference that she felt, you know, merited them not being deemed unregistered securities offerings?

Absolutely. So I would start with a kind of unfortunate subtlety here. The question of primary sales versus secondary sales. Although in footnote 16 in her order, the judge says that she's not commenting specifically on secondary sales, that is someone who bought XRP tokens and later resold those same tokens that they bought, that would be a secondary sale. She's not commenting on that. But what she does say, quite critically is that the individuals who bought XRP on in through the programmatic sales, what she writes is the vast majority of those persons who bought that did not invest their money in Ripple at all. She points out that only something like 1% I think of all of the programmatic

sales actually went to Ripple. So they were not necessarily, people were buying and selling XRP tokens on exchanges, mostly trading with each other, not necessarily providing money to Ripple. And so she continues that whereas the institutional buyers knowingly purchased XRP tokens directly from Ripple pursuant to a contract, the economic reality is that the programmatic buyers stood in the same shoes as a secondary market purchaser who did not know to whom or to what it was paying its money. So what she could. concludes is functionally a secondary market transaction in a token like XRP is not inherently a securities transaction, even if those same tokens had been sold in investment contract

transactions to others. So one could read this as a fundamental rejection of the morphing concept, the idea that a token starts off its life as a security, and then later upon some extrinsic events, people refer to it to centralization, it stops being a security. That's this idea of morph it. And she rejects that. She says, no, look, it's very clear to her, and she has another quote earlier on, forgive me for trying to read it from the order itself, but I think it's the best thing. I love it. Yeah, yeah. She says, the plain words of the Howie case make it clear that an investment contract for purpose of the Securities Act means a contract transaction or scheme, but the subject of a contract transaction or scheme is not necessarily a security

on its face. In fact, she refers to a number of earlier cases and notes that in all of those cases, the subject of the investment contract was a standalone commodity, which is not itself inherently an investment contract. And then finally, she says the XRP token as a digital token is not in and of itself, contract transaction or scheme. So what she wants to say is very clearly, what she is saying, is that, hey, if a digital token, and it could frankly be Bitcoin, it's irrelevant, I think, consistent with, and there have been cases where Bitcoin was used as the object of a scheme, it's not important whether it's Bitcoin, XRP, or anything else. What's importantly is, was there a scheme among the participants? And when the programmatic sales place, what she concluded

was the people buying and selling the XRP tokens on the exchanges, were not engaging in investment contract transactions with Ripple. It doesn't matter. And she particularly talks to, and I think this is quite relevant, Laura, she talks to the marketing. And this has been a big part of what the SEC has argued is, come on, everybody knows maybe you're buying in a secondary transaction, but everybody knows what you're doing.

It's a big scheme and you're all participating in. and the judge disagrees, and she says, again, I'm reading, nor is there evidence that the programmatic buyers understood that statements made by Larson Garlinghouse and others were representations, undertakings, formal or informal info, right, representations of ripple and its efforts. So she said, yes, they said things, but how is the particular person to know? Is that a promise that they're making? She contrasts that with the institutional buyers who negotiated carefully and understood the sophisticated financial decision that they were making. So that's really critical, especially where we see in some of the SEC complaints, you know, the idea that if you have a rocket ship, you know, in your tweet, that you're telling people, you know, this is a secure, you know, number, you know, and I think she rejects that because we don't know what the parameters are.

it isn't that if you sell directly to people and you kind of give them a nudge, nudge, wink, wink, that they're going to make money. That's a problem. But in sales between two third parties, it's not so much. The judge strongly endorses that conclusion. Yeah, one thing that interested me, that quote that you pulled out, this came up in a recent debate that I had in my show between Aaron Kaplan of Prometheum and Rodrigo Serra and Rodrigo kept saying, the subject of an investment contract is not itself necessarily a

security. But anyway, so I do want to ask you more about the implications of this order, but first a quick word from the sponsors who make this show possible. Ever wanted to use defy 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 on multiple chains. Defy and privacy, together at last. Visit railgun.org or use the railway app at railway.xy Z to find out more.

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And with the recent launch of orbit, Arbitrum welcomes you to build your very own tailor-made layer 3, or an orbit chain. Propel your project and community forward by visiting Arbitrum.io today. Back to my conversation with Lewis. So as you mentioned, the kick and telegram judgments came up a few times in this order on XRP. And before the order from this judge, I had thought sort of like the general way things were headed was that the SEC was going after for-profit companies that had tokens and saying that those were unregistered securities. Whereas, and obviously this doesn't map one to one because there are plenty of counter examples, but that generally more of the structures involving nonprofits stewarding decentralized protocols with tokens. were kind of less subject to action from them. But I feel like the ripple case sort of bucks that trend.

So I wonder if you could just explain a little bit what it was that separated ripple from the KIC and Telegram cases. Well, KIC is probably the prototypical example of a prosecuted ICO case. We're, you know, really the sort of 2015 to give or take 18 period where people had to a website and come buy my tokens and kind of let's go for it. And the judge in the kit case said, look, you're going out to the general public. You're telling them, you're going to make a lot of money if you get a token early. There's a countdown clock. There's all these factors. They're really aligned with that. And so that is really, I would call an unsurprising decision.

Telegram was a more subtle one. Telegram were advised by very sophisticated counsel. Judge Castell and his decision there honed in on a really kind of precise point, which is the initial buyers of the gram tokens in Telegram, although those were perhaps valid private transactions, let's assume that they are, they were necessarily part of the scheme to distribute the grand tokens. There were a pretty small number of functioning institutional buyers in Telegram, and the judge recognized if they didn't distribute the tokens, they were. have no value. And so really what the judge in telegram said, hey, this is about sort of just an

extension of your distribution. You didn't do it yourself telegram. You kind of found these other people and got them to do what happened and kicked directly. So you did kind of indirectly where you were going to do if we didn't stop you in that. So both of those still related to those kind of sales. What you don't have in either of those cases are the kinds of equivalent of secondary market transactions that we have here with the programmatic sales by Ripple. That is what for Judge Torres made a big difference. And I think what she's saying is when people are buying in a market and they don't know who they're buying from or any particular assurance that the money that they're spending is

going to concoct a scheme that they're going to profit from, then you can't say they're part of an investment contract transaction. So that's really, in my mind, how you kind of take it from a step, you know, a kick you have a clear ICO type case where the company kick was going out to the general public with their kin token. Then you have the Telegram case where they did not go to the general public. They took a lot of care only to go to institutional buyers. But the judge said those resales by the institutional buyers were just part of one big scheme by Telegram. Here now we see the judge saying, okay, when you go to institutional buyers, you probably have investment contract transactions. But if you just are putting your

tokens into a marketplace, those are not the type of transactions, I think, meets the how it does. And so I know that this still has to go to trial, but let's say that this kind of had staying power, you know, the way she reasoned all this, then would you see any kind of revival in any of the different ways that projects were trying to distribute tokens to users, such as, for instance, I don't know, like air drops or doing something like an IDO or I don't know. I was just, you're IEO, rather. What are your thoughts on? Versions of the same thing there. Yeah, Dex offering or exchange offering. Yeah. So, I mean, you know, crypto is a wild and wonderful place and few people know it better than you, Laura.

People are going to do what people do. I will say clients that work with us are not going to be doing any of those things anytime soon. You know, rest is short. You know, I think this is still a time. It's a time to be happy that we saw a federal court validate a lot of what we've been saying in, terms of tokens themselves are not securities. However, there are still many fraud areas here, and I think it's still appropriate for crypto market participants to be cautious in the way they distribute their tokens. In addition to the trial on some of the more specific facts, there is a near certainty, I would say, that the SEC is going to appeal. The thing is that's going to take quite some time for that to go. When you're in the Southern District of New York, you appeal to the Second Circuit of the Circuit Court. The Second Circuit is a very well-respected

court, that process will be very time-consuming. It's possible the SEC don't, but that strikes me as quite unlikely. So until we have at least a circuit court decision, which is really the strong binding precedent, we don't really know. And it is possible that Judge Torres's decision could be overturned or what we call remanded, where the circuit court says, hey, go back and do more fact finding or figure things out or proceed differently. So I think it would behoove everyone, all of your listeners to be very careful going forward, Laura, even though this is a moment to celebrate and a moment to recognize that the very broad claims that the SEC has been making have by at least one very important federal judge in New York and one of the most important districts in the country

has rejected many of the very broad statements that the SEC has been putting forward. And when you say that second district court decision might take? Second Circuit. Second Circuit. Yeah. Court decision might take a while. Is it again on the order of years or how long would you expect? Sure.

I will say, firstly, I'm not a litigator, but it's certainly not less than a year. And I'm sure it probably could be more depending on how the pace of things go. So it's going to be an extended period of time. But you have many wonderful litigators on your show and ask them the question. All right. So crypto exchanges, including even Coinbase, which has long been seen as the most compliant exchange have been under fire by the SEC, and I wondered what you thought this order meant for crypto exchanges in the U.S. Well, it's certainly encouraging. There's no doubt. I think had Judge

Torres gone in a rather different direction and agreed with the SEC that because XRP tokens were sold initially in investment contract transactions, that all subsequent sales for the foreseeable future are themselves functionally securities transactions, whether it's because the XRP token is literally a security, which the SEC does seem to say from time to time, or whether it's not literally a security, but any transaction in it is functionally a securities transaction. Had the judge gone in this other direction,

that would have been very problematic. That would have certainly been exhibit number one as the SEC litigates the cases against the three exchanges and potentially others, potentially other market participants. Because all of those cases, as I think you understand, turn exclusively on the question we wrote about in the Inelectable Modality paper, which is when a token is sold between two persons

not involved in the ski, when is that transaction, a securities transaction? And Judge Torres basically validates our conclusion, for the time being, at least, that is only a securities transaction if there's specific factors that make it a security. So just trading on. exchange would not make the two people, you and I, if we buy and sell XRP between each other,

we're not making promises to each other, we're not doing anything, we're just here, I got some of this, you got some of that. So the judge has validated that, and that's very good for Coinbase. It's very good for the other exchanges. It's very, very encouraging. But again, you know, we need to have notes of caution. This could be appealed. It will likely be appealed. We don't know where that's going to go. And we're going to see, you know, the law develop further. Many exchanges delisted XRP when the SEC first sued Ripple. What do you think will happen to XRP now? Do you expect that it would be relisted? Yeah, it's a great question. It's possible. I would again, I'm a cautious guy. That's why I'm a lawyer. I wouldn't go doing that right away.

But I think there's going to have to be some interesting questions around that topic. And I think different exchanges may take different views on that. Certainly, you know, There is quite a large and vocal community of XRP owners who feel very hard done by because of the value loss when the token was simply delisted. And for an agency whose primary purpose is investor protection, I think there are quite a lot of folks out there who feel that, you know, the mission of investor protection was really skewed when XRP was delisted and it just became much, much harder to buy and sell that asset. Just a quick note, after Lewis and I wrapped, Coinbase, Cracken, and BitStamp, all announced that they were relisting XRP, and Gemini said it was considering a relisting. At the same time, the crypto industry is in a battle with the SEC over a spot Bitcoin ETF. And I wondered if you thought this XRP order would affect the likelihood of such an ETF getting approved? I would say if at all, only in a minor way, I think, you know, to the extent the SEC takes into account, you know, sort of matters extrinsic to the actual issues that they face, they could potentially calculate that, well, we took one a bit on the chin here. Maybe, you know, it's an opportunity to sort of even the tables a little, but we're speculating at the highest order at that point. I would expect it really wouldn't influence things. I think many,

of your guests, Laura, have talked about this and have sort of had a general expectation that time is running out on the SEC and we're going to get, you know, a spot, ETF, you know, soon enough. But, you know, we'll see. I think I'd probably call it a wash at best. All right. So earlier we talked about how this will likely be appealed by the SEC, but I also know that the judge ordered that there be a trial. So can you walk us through, yeah, kind of what those steps would look like? So the And again, as a non-letigator, so you should get a litigator on the show, whether the appeal is stayed while they have the trial or whether the appeals can go forward and they kind of hold up the trial or they do both simultaneously. That's a little about my pay great. The smart people work on that kind of stuff.

There are specific questions, though, that she does raise that are factual matters. So basically when there's a summary judgment in either direction, either for the SEC or for Ripple Labs, it means the judge has concluded that there are functionally no issues for what's called a finder of fact, which is usually a jury. But it could be the judge herself as a finder of fact. Everything can be decided as a matter of law. But here she said there were questions that were factual questions that had to be considered. So, again, on matters of law, as a general matter, the two parties agree as to what the facts are. For example, so many XRP were sold, you know, they were no registration statements, you know, et cetera, et cetera. She concludes, however, that there were questions about a particular Garlinghouse and Larson

and whether they recklessly disregarded facts about the Howie elements. So the parties could not agree amongst themselves. And therefore, that's why we have. It's like, you know, if you're watching a sports thing and they got to go to the replay booth back in New York and somebody's just got to decide, well, what exactly happened here. So that's what jury trials are. So there were specific questions, particularly around Carlinghouse and Larson as to their state of mind and in particular, also whether Larson consciously assisted Ripple in some active way. So those are questions. So they're relatively smaller scale. Certainly they don't affect the wider crypto industry. What I don't know, I regret to say, is whether which comes first in terms of the appeal or the trial on those issues. All right. So overall, as we've been discussing throughout this show, crypto has been in this kind of what feels like years long purgatory in the U.S. when it comes to legal and regulatory clarity, especially about the status of crypto assets in terms of whether they should be regulated as securities or commodities. And so I wondered what you thought Thursday's order meant for the crypto industry overall, particularly

regarding that issue in the U.S.? Yeah, I think this certainly helps point a direction, in particular on, I think, the most vexatious of the positions that the SEC has taken, that somehow sort of an investment contract fuses in, or what we refer to in our article, as the embodiment theory, that the token comes to embody a scheme. And that seems to be rejected at least in one important decision. And that's very good, because I don't think that's correct as a matter of law, and it's very problematic. However, Laura, you know, it's still important to remember that the SEC are reasonable people

and they have genuine concerns. The people who work and the staff are, you know, not paid an incredibly large amount, and they're there to provide, you know, protection for regular folks. And I think sometimes the crypto community gets a little caught up and misses that. There are real, yeah, and I think we know we need to stand up for. for those folks. I think what is really kind of a heart of the matter? There's two issues. I talked about in a Twitter thread yesterday about the Lummus Gillibrandville that was just reintroduced. The two issues, Laura, which are not addressed right now in which this decision doesn't functionally change. Number one,

information asymmetries. Projects, the token may not be a security, but the project teams may have information that is not available to the general public. For example, Rithel Labs may not, know that they're about to enter into a giant partnership with some, you know, general motors and Ripple is going to be the XRP is going to be the only way that people pay for goods and services and their driverless cars or some crazy thing. And that could have real important price implications for the XRP token. Right now, we don't have any way to address those information asymmetries. And in theory, at least, insiders can trade on that, you know, knowing that information without anything. And I think, and many, many, many,

many, many projects, particularly those that haven't really fully decentralized are subject to that kind of issue. They know what's going on. It's not so much decentralization in the terms of how many nodes there are, who can control this or that. It's what's going on that's going to give price action to the tokens. And very often that's extrinsic to the blockchain, extrinsic to technical matters. I think we could use legislation and both the House Crypto Market Structure proposal coming from chairs McHenry and Thompson in House Financial Services and House Ag and the Loemus Jill brand bill go at addressing this from slightly different angles, but basically the same way to address these information asymmetries

and try and ensure that market participants have access their information. That's important, even with this decision. The second thing besides information asymmetries is market structure itself, and in particular, we don't have a federal regulator of crypto asset markets. And I think, again, the large companies in the space do a great job of complying with those laws that are applicable to them, but we don't have federal laws of this. And I think at this point, most of us recognize that a federal regulatory scheme for secondary markets would be beneficial. It would traffic hop. There is market manipulation. There's all kinds of things that go on. And we need legislation for that too. So I think while the decision here today is very helpful, it's really the

beginning of positive steps forward to allow people to use crypto assets as they're intended for peer-to-peer transactions without worrying about violating securities laws that they don't even know they're subject to, but we still need to do more work on the legislative front. And certainly, Laura, I encourage all of your listeners to engage with the political process, talk to your representatives and your senators, and let them know that sensible legislation, you know, is something that's important. Even if you don't agree with either of those initiatives, you can say, man, that's the worst, you know, bill I've ever seen in my life. That's fine. Tell them that, right? Engage. So I think that's just my kind of call to action there for the community.

All right. Great. Well, thank you for unpacking all of this on Unchained. It's my pleasure, Laura. Thank you for having me. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break.

Join over 80 million people using crypto.com. One of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly, plus 100% rebates for your Netflix and Spotify subscriptions, and zero annual fees. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Thanks for tuning in to this week's news recap. Ex-Celsius CEO is arrested.

On Thursday, Alex Mishinsky, the former CEO of the now bankrupt, crypto lender Celsius Network, was arrested and hit with a wave of lawsuits from various U.S. agencies. The Department of Justice, the Securities and Exchange Commission, the Commodity Futures Training Commission, and the Federal Trade Commission all filed charges against Mishinsky on the same day, and all but DOJ did so against Celsius. The DOJ has accused Mishinsky and other Celsius officials of orchestrating a scheme to inflate the price of Celsius's proprietary token, sell, and of misrepresenting the company as, quote, a modern-day bank. The SEC alleges that Celsius and Mishinsky misrepresented the company's business model

and the risks to investors, while the CFTC claims that the company engaged in a scheme to defraud customers by misrepresenting the safety and profitability of its digital asset-based finance platform. The FTC has reached a settlement with Celsius, banning the firm from handling consumers' assets and blocking it from offering any product or service that could be used to deposit, exchange, invest, or withdraw any assets. The FTC also charged former executives Shlomi Daniel Leon, Hanukh-Kulstein, and Mishinsky, with tricking consumers into transferring crypto onto the platform. Arkham's Intelligence Exchange stirs controversy. In a week that has seen its fair share of crypto-drama, Arkham Intelligence's newly launched on-chain intelligence

Exchange took a turn at the center of the storm. The platform, which will allow users to trade information about the owners of any crypto wallet, has been met with widespread backlash, with critics labeling it a docks-to-earn model. Arcombe CEO Miguel Morrell has been quick to defend the initiative, arguing that complete anonymity is not a fundamental feature of cryptocurrency, and that what Arkham Intel Exchange enables is nothing new. Morrill said in an unchained premium interview, quote, it is already the case that people are doing on-chain analysis to figure out who is behind what kinds of crime that can occur on-chain potentially. He emphasized that the exchange aims to disincentivized fraudulent behavior in crypto by encouraging transparency. Despite the

controversy, Moral remains committed to the project, promising to release more guidelines on moderation soon. To learn more about how it would work and Moral's response to criticism, make sure to subscribe to Unchained Premium. FTCS creditors begin path to recovery. This week, Bankrupt Crypto Exchange FTCS initiated a refund process for creditors via a newly launched Claims Portal. The move follows the recovery of over $7 billion by the current FTX management. However, the portal's launch was not without hiccups, with some users reporting access issues due to high traffic volume. In a separate development, former FTCX executive Ryan Salem, is under investigation by federal prosecutors for potential campaign finance violations.

The allegations, unrelated to FDX's collapse, concern contributions to his girlfriend, Michelle Bond's congressional campaign last year. The investigation, which began in April, is being treated separately from the case against FECX founder Sam Bankman-Fried, who was due to face trial in October. Moreover, FTCX is seeking to reclaim $323 million from the executives of FTCS Europe, including Patrick Grun, Robin Matzky, Brandon Williams, and Loram Ipsum UG. Lawyers for FDX have accused these insiders, including former CEO Sam Binkman-Fried, of using misappropriated funds to acquire Swiss firm Digital Assets AG, or DAAG, later renamed FTX Europe.

The acquisition, allegedly conducted without due diligence, was reportedly motivated by the potential for regulatory access in the European economic area. The legal team is now requesting that further payments to the defendants be halted. Was multi-chain a hack or a rug pull? In a week of turmoil for the cross-chain protocol multi-chain, unauthorized outflows have raised suspicions of a possible internal rug pool, which is when developers who have raised funds for a project, abandon it, and fraudulently keep investor funds.

The protocol, which facilitates the exchange of tokens across multiple blockchains, saw abnormal withdrawals amounting to over $125 million. last week. This was followed by another $103 million in crypto being moved to various blockchain addresses, according to security firm Biosin. Blockchain data firm chain analysis suggests that the exploit could be an inside job as the project administrator's keys were compromised. The disappearance of multi-chain CEO, known as Zhao June, further fuels these suspicions. In response to the exploit, stable coin issuers tether and circle have immobilized over 65 million. dollars in assets linked to the hackers' addresses. The Phantom Foundation, the organization

behind the Phantom Network, identified three addresses associated with the exploit that Circle had blacklisted. These addresses held more than $65 million in assets, predominantly in USDC. Tether also immobilized $2.5 million in funds transferred from multi-chain. SEC counters Coinbase's claims in ongoing lawsuit. Last Friday, the SEC responded to Coinbase's motion to dismiss the regulator's lawsuit, asserting that the crypto exchange was aware that security's laws could be applicable to its business. Coinbase had argued that the SEC's actions violated its due process rights and fell outside the regulator's jurisdiction. However, the SEC has countered that Coinbase had repeatedly informed shareholders that assets on his platform could be deemed

securities. The SEC stated, quote, these actions clearly show that Coinbase understood that the securities laws could apply to its conduct, but nevertheless made the calculated decision to take on this risk in the name of growing its business. On Thursday, during the first hearing of the legal dispute between Coinbase and the SEC, Judge Catherine Polka-Faila questioned both parties on various topics, including the definition of staking and Coinbase's IPO filings. The judge expressed skepticism about the SEC's stance, noting attention between the regulators' claim that it was not seeking to regulate all crypto and its efforts to enforce

alleged securities law violations. The SEC's Council clarified that the agency regulates conduct, not all crypto. The status of Bitcoin and Ether was also discussed, with the SEC confirming that Bitcoin is not a security. SEC and crypto firms

lock horns over spot Bitcoin ETFs. On Monday, former SEC Chair Jay Clayton suggested that a spot Bitcoin ETF could be approved if institutions can prove its efficacy and efficiency. Additionally, Grayscale, a crypto asset manager, criticized the SEC for approving a riskier, leveraged Bitcoin-based ETF while rejecting its own spot Bitcoin ETF application.

Despite this criticism, on Wednesday, SEC Chair Gary Gensler refuted the crypto industry's calls for his recusal from certain crypto-related decisions. He claimed he adhered to ethical responsibilities and legal compliance. Meanwhile, Sibo confirmed a surveillance deal with Coinbase for some of the proposed ETFs, which caused the exchange of stock to surge by up to 11% on Monday. In a separate development, Grayscale and Fur Tree Capital Management have agreed to resolve a lawsuit filed by the latter last year. The hedge fund had sued Grayscale for information to investigate potential mismanagement

and conflicts of interest. As part of the agreement, Grayscale will provide Fur Tree documentation about its flagship product GPTC. DCG calls Gemini's lawsuit a publicity stunt. The Digital Currency Group has called a lawsuit filed by Gemini, quote, a publicity stunt, orchestrated by Gemini founder Cameron Winkleboss. Gemini, in its lawsuit, accused DCG and its CEO Barry Silbert of fraud against creditors and alleges that Silbert was, quote, the architect and mastermind of what it called the firm's fraud against creditors. DCG, in its response, stated that Gemini's leadership was either missing in action or issuing press statements while DCG was actively working on a resolution plan. DCG stated,

quote, to be clear, neither Cameron nor Tyler Winkovos have been involved in any of the recent in-person meetings. Gemini is seeking to recoup over $1.12 billion from DCG's crypto-lending subsidiary Genesis for users of the Gemini Earned program. The lawsuit follows a series of series of failed negotiations between DCG, Gemini, and creditor groups on a resolution plan for Genesis, which filed for Chapter 11 bankruptcy in January. Prometheum under fire. Lawmakers Demand Investigation. U.S. Senator Tommy Tuberville and five fellow Republican lawmakers have called for an investigation into Prometheum, a firm that recently secured approval from FINRA to offer trading and custody of digital asset securities. The lawmakers alleges that Prometheum may have provided

false testimony to Congress or violated U.S. securities laws. The controversy centers around Prometheum's relationship with Shanghai-Wan-Shang Blockchain, Inc, a Chinese firm with alleged ties to the Chinese Communist Party. The lawmakers have questioned why Prometheum continued to assert in SEC filings through 2020 and well into 2021, that it was continuing development efforts with Wang Shang, despite Prometheum CEO Aaron Kaplan, stating to Congress that the company began developing its technology platform independently in December 2019. Additionally, on Wednesday, the Blockchain Association requested an SEC internal investigation into the approval of Prometheum's special purpose broker-dealer license.

Meanwhile, Forbes reported that New York Congressman Richie Torres is also pushing for investigations into Prometheum. Torres has questioned whether the SBBD license, was a political move by the SEC, rather than a genuine effort to integrate digital assets into existing regulatory frameworks. U.S. government moves $300 million in Bitcoin. This week, the U.S. government moved approximately $300 million worth of Bitcoin, previously linked to the infamous Silk Road marketplace across three separate transactions.

The Bitcoin was held in wallets controlled by the U.S. Department of Justice. This move comes after DOJ sold 9,861 Bitcoins, for $216 million in March, following the seizure of 50,000 Bitcoin linked to Silk Road in November. The recent transactions sparked speculation about another potential sale, although the DOJ has not confirmed this. The Bitcoin price experienced a minor dip following the transactions, but has since recovered. The Silk Road-related Bitcoin transfers are closely watched due to their potential impact on the market. Finance U.S. quell spheres over Bitcoin cash withdrawals. US has been battling market fears over its Bitcoin cash reserves. The company recently paused

BCH withdrawals due to a technical issue in its deposit sweeping system, sparking concerns among users. Some market participants pointed out that the withdrawal issues coincided with a surge in the price of BCH. However, Binance U.S. has assured its customers that it maintains a one-to-one reserve for every BCH held on the platform. The company stated, quote, rest assured that your assets remain safe and secure, and no amount of fud will ever change that. The BCH withdrawals have since been fully restored. Time for fun bits. It's time for Ginny from Unchain to tell you the story of Taylor Swift and FDX through her lyrics. So we had been led to believe that FDX wanted to work with Taylor Swift, but that she pulled out of the deal. However, breaking news over the weekend suggests that

it actually may have been the other way around. We don't know a lot, but here's what we do know. First, that Taylor knew SBF was trouble when he walked in. FTX wanted to work with her saying, It's a love story, baby, just say yes. There was a blank space. Would she write her name? But she said no, because no one likes a gold rush. But that story, it turns out, was sweeter than fiction.

Taylor wanted FTX to be her end game. She's the anti-hero. You belong with me, she said to SBF. Cruel summer for Taylor, though, because SBF must have thought she'd gone out of style. We are never getting back together, he said to her after she did her due diligence. Carmet is a bitch, though, because FTX went down, and Taylor, she's the lucky one. There's nothing she does better than revenge. Long story short, she's the mastermind, and now they got bad blood.

Actually, I have no idea if any of that is true. We know very little about what happened. Thanks so much for joining us today. To learn more about Lewis and the SEC's lawsuit against Ripple, check out the show us for this episode. Unchained is produced by me, Laura Shin, with help from Kevin Fuchs, Matt Pilcherd, Zach Seward, Juan Oranovich, Sam Shrewell, Ginny Hogan, Leandro Camino, Pamma Jimdar, Shishak, and Margaret Coria. Thanks for listening.