Unchained - SEC Sues Binance, Coinbase: ‘This Is Not the End of Crypto in the United States’- Ep. 504

Episode Date: June 9, 2023

On Monday, it was Binance. On Tuesday, Coinbase. Electric Capital General Counsel Emily Meyers joins the show to read between the lines of an action-packed week for Gary Gensler’s SEC. Meyers lends her lawyerly eye to the key differences between the two lawsuits, the SEC’s potential strategy, and whether federal legislation will beat the courts in providing clarity.  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: why Emily thinks the SEC’s actions don’t represent the end of crypto in the U.S. what the similarities and differences are in the lawsuits against Coinbase and Binance why it’s fundamental to the SEC’s allegations that the court determines that at least one of the named tokens is in fact a security whether Coinbase and Binance will file motions to dismiss whether allegations against Binance are comparable to those against FTX whether Gary Gensler’s interactions with Binance in 2019 raise ethical questions about his involvement in the case  why Emily thinks that Gensler’s approach to crypto is not aligned with the SEC’s mission to protect investors why the SEC allowed Coinbase to go public and is now suing them how the SEC sued Coinbase only after the exchange sued the agency first whether the Third Circuit will press the SEC to issue the rules that Coinbase has petitioned for why Emily believes that there’s not an effective path for crypto companies to properly register in the U.S. why the SEC has listed large-market-cap tokens such as SOL, ADA, and MATIC but has not gone after ETH Thank you to our sponsors! Crypto.com Copilot Money Proton Guest Emily Meyers, general counsel at Electric Capital Links Previous coverage of Unchained on the topic: The Chopping Block: Jake Chervinsky on How the SEC Has Lost Credibility These 2 Crypto Trading Platforms Agree With SEC Chair Gary Gensler Coinbase's Legal Action Against the SEC: How It Will Likely Unfold  ‘Is ETH a Security?’ Why Gary Gensler Couldn’t Give Congress a Straight Answer Gary Gensler vs. Crypto: What Will the SEC Attack Next? Rep. Emmer on Why He Believes Gary Gensler Is a ‘Bad-Faith Regulator’ LINKS Unchained: SEC Sues Coinbase for Breaking Securities Laws SEC Files Motion to Freeze Binance’s Assets, Asks for ‘Sworn Accounting’ SEC Files 13 Charges Against Binance Including the Mishandling of Funds, Sale of Unregistered Securities SEC Calls Solana, Polygon, Algorand and Other Tokens Securities but Misses Ether in Binance Lawsuit US House Republicans Propose Bill That May Give Crypto Assets a Path to Becoming Commodities Coinbase Seeks to Compel SEC Response to Rulemaking Petition CoinDesk:  SEC Seeks Temporary Restraining Order to Freeze Binance.US Assets Crypto Exchange Binance Says Gensler Once Offered to Be an 'Informal Advisor' Binance Redirected $12B to Firms Controlled by CEO Changpeng Zhao, SEC Says Fortune: Former Coinbase employee and his brother settle with the SEC, which again dodges proving whether cryptocurrencies are securities 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 eight years ago, and as a senior editor of Forbes, was the first Neatstream Media Reporter to cover cryptocurrency full-time. This is the June 9th, 2023 episode of Unchained. Secure your crypto accounts with a secure email service. Proton mail is end-to-end encrypted, meaning that no one, not even Proton, can access your emails. Go to Proton. me slash Laura. Copilot is a best-in-class personal finance app for Mac and iOS, designed to give you a complete view of your financial life.

Use code unchained for a free two-month trial and get started today to see your money in a whole new way. 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 Emily Myers, General Counsel at electric capital. Welcome, Emily. Hi, thanks for having me. This week, the SEC sued both finance and Coinbase. What are your main takeaways about both of these actions?

Well, I think that there are a couple of things. One is, this is not the end of crypto in the United States. These cases are going to take a very long time to play out in the courts. And so there's a lot of water under those bridges to cover before we get to the result. The second thing is this highlights the importance to engage on the legislative side. There are proposals in Congress and a lot of congressional activity that we are not talking about because we're talking about these two cases. And it's important to remember that courts are part of the question of clarifying regulation of crypto in the United States, but they are not the only piece. So now let's dive into the details of these two lawsuits.

What is the SEC saying that these two exchanges have done wrong? One thing before we dive into the details that I think is interesting is that the SEC has brought these cases one right after the other, I think, so that we could speak about them together and try to treat them together. But while there are some similarities to these cases, there are also some key differences. And so to talk through those a bit, neither of these are a surprise, right? the SEC has been investigating both Binance and Coinbase for many months, if not longer. The CFTC and the New York Attorney General already brought cases against Binance, and so the fact that the SEC would join in is not a surprise.

Likewise with Coinbase, we know that the SEC had served Coinbase a well's notice. So again, the fact that they're suing them is not a surprise. So what do these cases say? We can start with what's similar between them. Both cases allege that finance and Coinbase were operating unregistered securities exchanges. And they list a number of tokens that they were allegedly trading illegally. They also both allege that both Binance, and Coinbase were offering unregistered securities in their various staking offerings. What is different is that in the Coinbase case, that's pretty much where the allegations end. There are some additional allegations against Binance that relate to fraud, to commingling of

customer assets and self-dealing and manipulative trade practices that are not at all present in the coin-based action. Okay. So one other thing that I wanted to ask about this is, it looks like these lawsuits rest on this assumption that the tokens named are securities. Do you think that that assumption will just be taken for granted or could that in itself become a contested issue before even the merits of the lawsuits themselves are adjudicated? That's a great question. I think that it is a fundamental question to both of these suits, because in order to be operating an unlawful, unregistered securities exchange, you have to be trading in unregistered securities. And so how the court will analyze any of these,

I think, is really fundamental to the merit. of these alleged violations. And what's also interesting is of the 17 tokens that are alleged to be securities between these two cases added on to 70 plus others that the SEC over its enforcement history has alleged are unregistered securities. There's only been one issuer that the SEC has gone after directly. All of the others, almost 100 tokens at this point that the SEC has claimed as securities, have all been in the context of enforcement actions against other people. And if the SEC was very confident in its assertion that these are in fact unregistered securities, then the SEC could have gone after the issuers directly, and it chose not to.

So it sounds like you're implying that basically it's not confident that it would win on the merits of going after each of these token issuers individually. Is that what you're saying? I think that that would be very challenging for the SEC to accomplish both from a resourcing perspective and potentially on the merits as well. Whereas while they group all of these together in other enforcement actions, like here, In order for the SEC to be able to prove that either Binance or Coinbase was operating an unregistered exchange, they only have to prove that one in the bucket of the tokens that they name was an unregistered security. Okay. And so you're saying that it seems like as these cases go through the courts, as long as the court agrees that at least one of the ones listed would fall under the definition of a security, then the case can go forward. Correct. Then it's not necessarily a threshold issue,

although certainly both Binance and Coinbase are going to file motions to dismiss. And I'm certain, or I would expect that they would argue that point. But it is fundamental. mentally tied to these broader questions of the merits of each case. So something else I want to ask about was just in the Binance complaint, one of the issues that the SEC mentioned was that U.S. customers were told to use offshore entities to continue trading on Binance.com after Binance U.S. launched. And I was just wondering, is that illegal? Because if you have kind of like a multinational organization that does have different entities and jurisdictions. I just thought that that was a thing that companies do. So I wasn't clear to me if that

is actually something illegal. So what is not illegal is U.S. users choosing to use platforms that are offered under the regulatory frameworks of other jurisdictions of their own choice. That's perfectly fine. Where Binance is alleged to have violated the law is their misrepresentation. They're misrepresentation. about how they were geofencing U.S. customers from Binance and that they were, to your point, alleged to have tried to help customers avoid those geo fences to finance or instead of using the U.S. regulated entity to use the global entity that was not under U.S. regulation. So it's not necessarily the use. It's more what they were saying about it. And the finance complaint includes some evidence with internal communications at finance that speak to their desire to avoid U.S.

regulation. Okay. And one other piece of this was the lawsuit contends that Binance co-mingled funds, which gives off FTX vibes. I was just wondering if you saw something in the complaint that made you think that what has happened at Binance is something on the level of FTCX. I think that it's tough to compare FTCS and Binance in terms of the scope of what transpired. I think that Binance has a large and legitimate trading. business. And there's certainly evidence in the complaint that there was improper commingling of funds and potentially improper use of client or customer funds. But it's tough at this point to know

what's just alleged in the complaint as opposed to what the actual facts may be about how those assets were used and where there was outright fraud. And because of the phase of the proceedings against FTX and the bankruptcy process, we have a lot more insight into exactly where the assets were and were not compared to where we are now with the Binance case. And later there was an additional document that I believe was added to the court docket, and it was by an SEC accountant, and it alleged that CZ, the CEO of Finance and Guangying Helena Chen, received $12 billion of customer funds through their holding company. And it said, quote, the SEC has been unable to determine why a Zhao controlled entity that was purportedly trading on the Binance

US platform using Zhao's personal funds would have acted as a pass-through account for billions of dollars at Binance platform customers funds. So I was wondering, what did that look like to you? Does it, again, look like something on the level of FDX? Again, it's tough to say until we know for sure and until Binance and CZ have an opportunity to defend themselves in court and present their side of the story. Certainly on their face, they're not particularly helpful facts for Binance, but knowing exactly who controlled those accounts, why the transfers were made, and how those funds ultimately were used, I think is important. And one other really interesting facts that came to light late Wednesday was that in 2019,

Gensler apparently offered to become an informal advisor to Binance. And so the exchange is now asking for Gensler to accuse himself, or at least asking also if the SEC has already had him recuse himself. And I wondered what you thought of that development and whether or not you thought a Gensler should recuse himself. I think it's really significant. Gensler has stated in congressional testimony and numerous public forum that he doesn't think that the crypto markets are necessary and that he thinks that almost every crypto asset is a security. So by virtue of the fact that he has in his public statements and even testifying before Congress claimed that predetermination, that could in itself be grounds for him to recuse himself

from any sort of enforcement action in the crypto markets. Now, particularly with respect to his interaction with Binance in 2019, that certainly raises some ethical questions about the extent to which he should be involved or to which he should recuse himself from this enforcement proceeding. And that's something that Binance's lawyers appropriately are pressing the SEC on to get some clarity with respect to that. And I think that it speaks to Genslow. broader strategic agenda here, that his whole stance against crypto doesn't really align well with the SEC's mission of protecting investors and maintaining fair, orderly, and efficient markets and facilitating capital formation. This is not advancing those goals in that way.

And so I think that we need to tell our representatives to hold the SEC account for that and making sure that the American investors are at the core of everything that Gensler is doing. And a lot of his recent actions seem to undermine that. I mean, even just the Coinbase suit, I think is a great example of that. the SEC approved CoinBases S1, allowed them to go public, their stock trades on NASDAQ, and when Gensler sued them after refusing to provide some affirmative regulatory guidance or work with Coinbase as Coinbase was repeatedly going to the SEC to try to understand what they needed to do and be able to implement it. And then there's a material drop in Coinbase's stock price. And it's hard to look at those actions taken together and see how that is effectively protecting American investors and advancing any of the three aspects of the SEC's mission. Yeah. So in a moment, we're going to

talk more about the SEC's lawsuit against Coinbase. But first, a quick word from the sponsors you make this show possible. Your emails reveal a lot of sensitive information. Hence why you need a trustworthy email provider. Proton mail is end-to-end encrypted, meaning no one, not even Proton, can access your data. Proton Mail also removes all trackers and malware from the emails you receive. For extra privacy, Proton Mail is accessible with Tor. Plus, Proton is based in Switzerland, where your data is protected by strong privacy laws. Join 100 million others who protect their privacy with Proton.

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Copilot's iOS and Mac apps even have custom integrations for all of your favorite apps like Venmo, Coinbase, and Amazon. You can enter code unchained in onboarding for a free two-month trial and get started today to see your money in a whole new way. Back to my conversation with Emily. So I did want to ask, I mean, you know, you kind of went into this about how they were allowed to go public. But one thing that I did wonder was I've heard multiple explanations of why it was that the SEC allowed them to go public and then is now suing them.

One of them was that when companies go public, the SEC just checks that the disclosures are all okay. And at least somebody on a recent episode of Unchain gave an example of how marijuana companies, which are not legal on a federal level, have gone public. However, I later realized this scenario is just different because the SEC is the action. regulator of Coinbase, whereas like a marijuana company would be regulated by a totally different agency. So I wondered, like, is that normal for the SEC to allow companies go public and then later sue them? Or is this like one of the first times it's happened or the first time, like, does it show inconsistency? I think there are a couple of things at play here. One is Coinbase went public on April 14th, 2021. That is the exact same day that Gary Gensler was confirmed by the U.S. Senate

to the SEC. So we're talking about two different regimes in terms of who at the SEC was evaluating their S-1 and approving it, and then Gensler now bringing the enforcement action. And so there is some aspect of that discretion in the leadership of the SEC changing. I think the second piece is the S-1, while not a total evaluation of every aspect of registrant's business, fundamentally, it is a sign to the American investor that this company is accurately stating what it does, what its business is, and on that basis is appropriate for investment. And it's fundamentally challenging to reconcile the SEC's imprimatur on Coinbase's S1 with now going after them as operating an illegal unregistered securities exchange when that has been its fundamental

business when it applied for its IPO and today. And so I think, again, this goes to the lack of clarity as to how folks should be operating in this space. And that's true both for founders and for users. Another, I don't know if wrinkle is quite the word, but another factor to consider here is that the SEC sued Coinbase only after Coinbase had sued the SEC back in April. And you wrote up an interesting tweet thread about how legal events might play out between these two lawsuits. So please describe that. So just to set the stage a bit, last July, so July of 22, Coinbase, after having engaged with the SEC for a long time to try and get some regulatory clarity, ultimately filed in the Third Circuit Court of Appeals in federal

court to get the SEC to say whether or not it will actually make those rules because it hadn't said anything, right? So in July of 2022, the SEC formally asked the commission to please make rules. They waited nine months, heard nothing. And so in April of 2023, Coinbase sued the SEC in the Third Circuit, U.S. Federal Court of Appeals, to try and get them to say simply, are you or are you not going to provide a rulemaking on this? And we think you should. And trying to get the court to compel the SEC to do that. And that has not yet been determined. So the court didn't have an opportunity to rule on that before the SEC sued Coinbase. And then the Third Circuit of its own volition saw in the news that the SEC had sued in Coinbase.

And so asked the SEC what it should do next, whether this was denying Coinbase's petition to get them to write rules, whether they needed more time to make that decision. and why the Third Circuit shouldn't retain jurisdiction to get the SEC to answer those questions. And so I think because the Third Circuit is appropriately holding the SEC's feet to the fire here, the SEC has a week to answer those questions about what they're going to do. And so it'll be interesting to see how the Third Circuit continues to move forward. and whether or not they will ultimately press the SEC to issue those rules that Coinbase and others in the industry have been clamoring for for so long. I just find that so hilarious. So they

were like, so are you denying? Because it seems pretty obvious, I think that's what's happening. But I just love the notion of like a judge having to formally ask. So at the same time that all that's going on, Meanwhile, we have House Representative Patrick McHenry has introduced this crypto market structure bill that could be a path forward for legislation. And I wondered if you knew kind of which process might play out faster and how you saw all these different battlefronts regarding crypto regulation in the U.S. playing out. That's a great question. I think there are a lot of headwinds for both paths.

And so it's tough to know which will come first. I think it's possible that if the Third Circuit really wants to hold the SEC's feet to the fire and really compel them to issue this rulemaking that is within their power and they certainly could impose a specific time limit for the SEC to do that. That's certainly not typical outcome. but it is certainly possible and given everything else that's going on with the other litigation, where SEC is the plaintiff, that there could be an opportunity for the Third Circuit to make that order. I think in Congress, there certainly are headwinds to being able to pass any legislation right now because the Republicans have such a narrow majority in the House. The Democrats still hold the Senate.

And I think that ultimately a lot of the Democrats' priority is elsewhere. And the Republicans need to make a real concerted effort to engage their Democratic counterparts to advance this legislative proposal. But I think that the SEC's court cases this week just highlight how necessary some sort of regulatory clarity is for the space. And that is going to come faster through a legislative attempt, rather than through anything that could go through the courts. Because both finance and Coinbase, like lots of other crypto defendants ahead of them, have very well resourced and are very interested in fighting the SEC on all of these issues, which could be existential in terms of

how they proceed. So we're definitely in for long, drawn-out court battles that could go all the way up to the Supreme Court. And all of those take a very long time. Okay. Yeah. And just from some headlines I've seen, I think even the House Republicans are not all kind of of one mind within themselves. So yeah, that could be a long drawn-out battle. So one other interesting thing that has happened kind of in this arena is that there are two platforms that were recently approved to trade digital asset securities. One of them, Prometheum, would even likely classify ETH as a security, as the CEO, Aaron Kaplan, implied on a recent episode of Unchained. The other platform, BOSONIC seems to be limiting itself to, like, more clearly established securities. But I was running, do you think the fact that they were able to get FINRA approved means that the industry has been disingenuous when it claims that it's tried to come in and register but has not been able to?

No, I don't think that that's the case at all. I think that if there were an effective path that made sense that Coinbase would have pursued it, it has been trying for years to do so. And I think there are a couple of problems with assuming that an SEC registration or a FINRA registration as an alternative trading system or ATS would solve all of this. because as we were talking about at the beginning of the interview, underpinning all of these requirements are you can only trade registered securities. And so all of the existing tokens would need to come under the regulatory umbrella in some way, even if those exchanges could actually

register. And I think it also raises some fundamental questions of, about when we go back to the first principles of the purposes of securities regulation of markets in terms of maintaining fair and transparent markets and resolving information asymmetries, those two objectives look very different for digital assets than they do for traditional assets. And it's important that investors have the appropriate information and protections that relate to those assets in addition to the way that they relate to traditional assets. So there are a number of fundamental problems that I think need to be addressed before we can have the kind of regulatory regime that actually makes sense for crypto and

crypto trading. And I think that that is possible within U.S. securities law. We just need some appropriate amendments to address the risks and the opportunities that crypto provides for investors. We just mentioned Ether, which to my mind is kind of the elephant in the room here. Chair Gensler has repeatedly said that all cryptos but Bitcoin are securities, which obviously would that ether then is a security. However, the SEC's former director of corporation finance, Bill Hinman, said in a speech in 2018 that leaving aside the manner in which ether was sold, in its current state, it is not a security. So since the chair has been clear so many times that he views ether as a security, even if he refuses to say so directly, why do the complaints

avoid naming ether? I mean, they go after several other large market cap coins such as Solana, Adamatic, et cetera. What are your thoughts on that? I think there are two things here. One is strategically, the SEC doesn't have to list all of the potential assets that it thinks are securities in either of these complaints. All they have to do is prove that one is a security in order to prove that either Binance or Coinbase was, operating an unregistered securities exchange. And so strategically for the SEC, they want to go after ones that they think are less controversial that they could win. So strategically, there's no advantage to them going after what is arguably the most controversial there.

I think the second potential question is, does the SEC have some other plan for how they're going to address Ethereum. And is that why Gensler has refused to testify in Congress, even when asked directly, do you think that ETH is a security? And in the meantime, there's more confusion in the marketplace because the CFTC Chair Benham is testifying that ETH is a commodity and asserting that ETH is a commodity in its action against finance earlier this spring. And the New York Attorney General is claiming that ETH is a security in her action against Ku-coin. And so all of this confusion just further underscores how important it is for everyone in the U.S. markets to be able to understand how these assets are treated.

also the complexity of these assets and their categorization. So again, I think the draft proposal on market structure that representatives McHenry and Thompson published recently really speaks to an attempt to resolve these types of questions that would allow the industry to move forward. I have so many thoughts there. but just when you were naming all the different things that people have said, I sort of imagine this clown car, all these people running around. But one thing that I did just want to ask you,

so when you said that the SEC might have another plan for addressing Ether, what would that be since Director Hinman had already stated that Ether was not a security? So just like there was a different administration when Bill, Hinman made those statements while he was the director of the office of Corp Finn. Again, it's like there's a new sheriff in town now, and that SEC clearly has some alternative belief. And so, I don't know if the SEC is planning anything or would want to plan anything. I think that it would be important for the market to clarify how all digital assets should be treated under U.S. securities and commodities law. And obviously, understanding how Ethereum should be treated is

fundamental to that. Okay. But one last bit on that is, is the SEC required to have consistency across time? Because it feels like it should, but maybe it doesn't? Or effective markets need predictable and consistent rules that can be applied by all of the market participants. And that's the reason why this scattershot approach and regulation by enforcement on the SEC's behalf is so challenging because it's all backward looking and it's not predictable or consistent. And so all of the market participants are left wondering, how do we treat this? and trying to examine the tea leaves and parse across all of those different tokens. Again, we're almost up to 100 tokens that the SEC has alleged enforcement actions,

our securities, and try to identify, well, this one was issued in this way, and in this one, the founders stated these things about the protocol, and in this one, they didn't state anything about the protocol, and these folks were zinged for non-disclosure, and these folks said too much. And it is very, very challenging to be able to actually operate amidst all of that confusion. All right. Well, thank you for unpacking all of these issues with me. It's been quite the discussion. Yeah, thanks again for coming on Unchained. Thanks so much for having me, Laura. It's been a pleasure. 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. U.S. House Republicans proposed new crypto bill. As discussed briefly on the show, despite negative regulatory news around Binance and Coinbase, there was a potentially significant development with U.S. House Republicans proposing a bill to pave the way for crypto assets to be classified as digital commodities.

Republican chairs Patrick McHenry and Glenn Thompson spearheaded the initiative, with the legislation seeking to settle a longstanding debate around the classification of digital assets as either commodities or securities. The proposal put forward a set of criteria for a digital asset to be considered a commodity, with one key element focused on the decentralization of the blockchain network. Under this framework, an asset could be classified as a commodity, as long as the network is sufficiently decentralized, and no individual or entity owns over 20% of the network's tokens.

The bill also requires that in the previous 12 months, a single person should not have had the power to, quote, control or materially alter the network. Coinbase chief legal officer Paul Graywall lauded the effort for laying, quote, a strong foundation for regulatory jurisdiction and definitions in the crypto space. Despite the bill's potential

to clarify regulatory boundaries for the digital asset industry, the legislation still needs broad bipartisan support for it to become law. This follows a growing rift between Democrats and Republicans on crypto regulation, with different bills from each party

currently in the House Financial Services Committee and a polarism that far extends this industry. Atomic wallet breach results in $35 million loss. Decentralized wallet provider Atomic wallet was rocked by a security breach that left some users in dire straits, leading to $35 million worth of crypto assets being siphoned off, with one user reportedly losing nearly $8 million in USDT tokens alone. Cryptoanalytic connected the exploit to the notorious North Korean hacker collective, Lazarus, due to the ill-gotten gains being funneled through a mixer often utilized by the group.

The exact method of the exploit remains undetermined. However, previous warnings from cybersecurity firms about vulnerabilities within Atomic Wallet's system raise questions about the team's effort to address them. Criticism has been leveled at Atomic Wallet for alleged negligence, with My Crypto CEO Taylor Monaghan accusing the company of ignoring a security report flagging critical vulnerabilities. She said, quote, Your security posture sucks. You refuse to listen to people. You aggressively silence people. And your products and services facilitate theft on a daily basis and have for years.

The breach only adds to the increasing number of crypto industry hacks this year. Underscoring the urgency for robust security measures within the sector. If you want to hear more about crypto wallets and security, don't miss this week's unchained podcast, which came out Tuesday with Oriole O'Hayan and Etai Turban. The MET plans to return FtX's donations. The Metropolitan Museum of Art intends to return $550,000 to the now bankrupt cryptocurrency exchange FTX. The funds were donated to the museum last year under the entity West Realm Shire's Service, a subsidiary operating FTX U.S.

The museum received two donations from FTCS, one in March and another in May, both of which it aims to return. FTCFRIZ founder and former CEO Sam Bingman-Fried, known for his philanthropic activities and effective altruism philosophy has reportedly spent $93 million on his political donations. The court is still to approve the Mets return of donations to FDX with a hearing scheduled for June 28th. FTCS, under new CEO John Ray III, is working to recover assets to repay creditors affected by the exchanges collapse. The return of donations is seen as a necessary step in this recovery process. Genesis gains reprieve and bankruptcy proceedings. In the unfolding saga of Genesis Global's Bankrupted,

case, U.S. Bankruptcy Court Judge Sean Lane recently granted an extension for Genesis to file its recovery plan. The company now has until August 2nd, as opposed to the initial request for an August 27th deadline. This deadline, however, hinges on Genesis maintaining collaboration with its official committee of unsecured creditors. Meanwhile, FTX, a notable creditor of the company, was denied participation in mediation talks with Judge Lane emphasizing the need for a degree of confidentiality in these discussions. FTX had alleged Genesis owed them nearly $4 billion, a stark contrast to Genesis's $0 estimate, a dispute to be resolved in future hearings. In addition to this, defunct crypto hedge fund, 3-0 as capital, is fervently advocating for a seat at the mediation table.

The failed fund has asserted claims of over $1 billion against Genesis. These developments occur amidst increasing frustration from Genesis' creditors, such as Gemini, and customers affected by Genesis' financial downfall, who are calling for a swift resolution. The judge, however, insists that extending mediation won't necessarily prolong the case, but potentially prompt faster resolution. Doe Kwan is released on controversial bail. Tara co-founder Do Kwan was granted bail at $400,000 or $427,000 by Montenegro's high court, after it was initially denied. His approval came amidst allegations of him funding Montenegro's political party, Europe now, claims which outgoing Prime Minister Driton Abbezovic is pushing the special

state prosecution to investigate. Kwan and Tara's former CFO, Han Chang-June, are embroiled in a case of allegedly attempting to travel with fake documents. This incident comes after the Terra ecosystem crumbled in May 2022, causing a collapse worth $40 billion. The fallout led to South Korea and U.S. authorities requesting Kwan's extradition to face charges after the Montenegro trial. Adding to the mystery, there are reports of Kwan's connection with the leader of the Europe now

political movement, Milochco Spagic. While Spagic denies these claims, the emerging scandal could pose a significant challenge if Spatig leads the parliament after the upcoming elections. In the meantime, Kwan is under house arrest awaiting his court appearance on June 16th. In a statement to the press, Abysovic warned, quote, we cannot become a breeding ground for global fraudsters, even if they use blockchain or anything else. Arbitrum suffers unanticipated halt. Arbitrum, a layer 2 scaling solution on Ethereum, experienced a temporary halt on Wednesday, pausing transactions for roughly an hour. With over $2.24 billion in deposits, the stoppage was initially attributed to the sequencer,

a key transaction processing software component running out of ether used for transaction fees. However, contrary to this explanation, Arbitrum developers cited a sequencer batch poster bug as the cause of the interruption, noting that the sequencer's wallet is programmatically refilled. Regardless of the exact cause, the incident underlines the tension between decentralization and the practicalities of operational control. Blockchain Association stands against Tornado Cash sanctions. In a recent development, the Blockchain Association filed an amicus brief, supporting Coin Center's lawsuit against the U.S. Treasury over its sanctions on tornado cash.

The cryptocurrency mixer, which the U.S. government alleges, was used to launder more than $7 billion worth of digital assets. Kristen Smith, CEO of the Blockchain Association, argued that Tornado Cash is a tool, and sanctions should target those who misuse it rather than the tool itself. Quote, punishing the tool itself simply because it can be used by anyone, including bad actors,

runs contrary to the values this country was founded upon, Smith said. The suit also emphasized the need for financial privacy in the digital asset industry, underlining that users seek tools like Tornado Cash to maintain privacy without compromising blockchain technology benefits. Tapping on the privacy debate on blockchains, Luke Chang, CEO of Nocturn, told Unchained,

quote, it's just very hard to imagine a future where everything is public by default. Time for fun bits. So we just talked about Do Kwan's bail, but let's now hear it from stand-up comedian, Jenny Hogan. So disgrace Tara co-founder, Doe Kwan is out on bail. That's right, his $428,000 request was approved by a court in Montenegro. Quan and his CFO are now on house arrest in Montenegro, which is incidentally what a lot of people would call a vacation. Kwan couldn't get the bail until he verified that he owned property worth millions.

To be fair, no one doubted that this claim was true. They just weren't sure if he met millions in Luna or millions in actual currency with actual value. The amount Kwan and his CFO both have to pay is approximately $200,000 each, which is incidentally the same as four years of private college. I think this is apt since in the last four years, it doesn't seem like either of them have learned shit. The bail is supposed to incentivize Kwan to stay in the country, which really shouldn't be an issue. Why would he leave? He's wanted in literally every other country. The pair is set to be monitored closely by the police in Montenegro, which, to be fair, seems like an appropriate job for a cop. Sure, have fun watching Kwan laugh his ass off while he spends the next two weeks counting his money and trying to beat SBF at Diablo 4.

Thanks so much for joining us today. To learn more about Emily and the ongoing lawsuits against Binance and Coinbase check out the show notes for this episode. Unchained is produced by me, Laura Shin, with up from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Aranovich, Sam Shrevebrun, Ginny Hogan, Jeff Benson, Leandro Camino, Pima Jumdar, Shashon, and Margaret Curia. Thanks for listening.