Unchained - The Real Reason Why the SEC Might Be Going After Ethereum - Ep. 627

Starting point is 00:00:00 So I think it would be utterly ridiculous at this point for the SEC to bring a case alleging ETH as a security. I don't think they're going to sue the ETH Foundation. I don't think this is going to be an ETH case. I think this is an evidence gathering mission to prepare for litigation over the ETH spot ETF. Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura author of The Cryptopians. I started covering crypto eight years ago and as the senior editor at Forbes was the first matriameter porter to cover cryptocurrency full-time. This is the April 2nd, 2024 episode of Unchained. Pocodot is the original and leading layer zero blockchain with over 2,000 plus developers.

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Starting point is 00:02:01 That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. Today's topic is the SEC's investigation into Ethereum and all things SEC and crypto. Here to discuss our Sam Enzer, partner at Kihel, Gordon and Rindell and Greg Strong, partner at DLX Law.

Starting point is 00:02:31 Welcome, Sam and Greg. Hey, Laura. Thanks for having us on. Yeah, hi, Laura. Thanks. Great to be on. A couple weeks ago, Fortune reported that the SEC is investigating the Ethereum Foundation and is looking for legal ways to label ETH as a security. If this were to happen, it would be significant because ETH is the second largest crypto and by many measures is actually the most decentralized. Naming it a security would also be a reversal of the SEC's past stance.

Starting point is 00:02:57 Since in 2018, the SEC Director of Corporation Finance, Bill Hinman, said ETH was, quote, sufficiently decentralized to be classified as quantity. Additionally, the SEC approved the trading of ETH futures ETFs in October 2023, which required them to agree that ETH itself was a commodity. So naming it as a security now would be backtracking. And so before I ask my question, I just want to check, is this investigation confirmed? Because I saw some lawyers saying otherwise. And if so, why do you think they are currently conducting this investigation, especially considering that it would contradict their own previous stance? I think that according to news reports, the investigation is, in fact, confirmed. Sources, according to media reports, have received subpoenas from the SEC, seeking documents and information relating to their interactions with the Ethereum Foundation.

Starting point is 00:03:54 And if for those who are familiar with how the SEC works, the SEC in order to issue a subpoena, there has to be a formal order of investigation approved by the commission of the SEC. So there has to be an official investigation in order for members of the enforcement staff to issue subpoenas. And there are news reports multiple of subpoenas being issued recently relating to the inquiry. So, you know, based on that, it would seem that there is, in fact, investigation. And I'll let Greg talk about what we think the investigation may be about. Yeah, I think sort of implicit in your question, Laura, was, you know, is there an investigation and has that been confirmed? And, you know, if so, what do we think the investigation entails?

Starting point is 00:04:43 And so I think there are a number of different things to think about there. But we don't really know exactly, you know, where the SEC is going with this. I think there is lots of speculation that the focus of the investigation is on the role of the Ethereum Foundation as it relates to to ETH and the analysis of whether ETH should be treated as a security or not. You know, obviously, as we discussed at the outset, you know, that would definitely walk back positions, you know, previously taken by at least staff at the SEC. Laura, just to add to that, we're reading tea leaves. Okay, we don't know.

Starting point is 00:05:27 It's not like we work at the SEC, but from the tea leaves, I think to put a fine point on it, it seems like the investigation is into whether or not the Ethereum Foundation has been offering or selling ETH. as a security without registering it since the move to proof of stake. Before 2022 Ethereum, the network used a proof of work validation mechanism similar to Bitcoin. It shifted to proof of stake. And since the proof of stake shift, there have been media reports, even in 2022, that the chair, Gary Gensler thinks that staking makes something a security because someone who wants to stake has to

Starting point is 00:06:23 deposit funds. Those funds could be lost if there's a slashing event, but if things go well, they will be selected to validate transactions and then receive a staking reward. And so in Gary Gensler's mind, that's an investment contract scheme. And I think the theory would be or the allegation would be that the Ethereum Foundation is running it. Now, I think for a lot of reasons, that theory is utterly wrong and totally inconsistent with positions the SEC has officially taken. You recounted some of them a moment ago, but just to set the table here, 2018, the director of the division of corporate finance, Bill Hinman, publicly said in a speech, which remains on the SEC's website, that regardless of whether Ethereum had initially been offered as a security, it was no longer a security because

Starting point is 00:07:16 the network was decentralized. There is no common enterprise, and thus transactions need, are not securities transactions. The then chair, Jay Clayton, made similar statements when he was the chair. Gensler comes in, and by the way, Gary Gensler, according to the media, before becoming the chair of the SEC, repeatedly said, and I think there's a video, of him saying it, that ETH is not a security. You've got the shift to staking. But even if staking, and I don't think staking is an investment contract transaction, but let's put that to the side, even if it is, I don't see how we could say at this point with the number

Starting point is 00:07:59 of people who are involved in the development and growth of the Ethereum blockchain, that the foundation, the ETH foundation, is running. a common enterprise here. The token hasn't changed the same token. And as you noted, Laura, futures products have been approved based on ETH and on the assumption that ETH is a commodity. The CFTC has specifically stated repeatedly in numerous places, including in formally filed enforcement complaints, that ETH is a commodity. The SEC, when they've sued multiple exchanges, Coinbase, Binance, Cracken, all of those exchanges have long traded ETH, or I should say, facilitated trading in ETH. And the SEC didn't allege ETH as one of the predicate securities for their charges.

Starting point is 00:08:56 So I think it would be utterly ridiculous at this point for the SEC to bring a case alleging ETH as a security. Okay. A couple of questions, though, just when you said the sheer number of people, working on Ethereum, that that would make it too large to say that it's a security or there's any one entity in control. But, you know, like I saw a stat saying there's something like 7,000 developers that work on Ethereum. I'm sure there are companies that are much larger than 7,000 people. So I don't know if the number of people really says anything. So it's just curious if you, like, why you felt that. I think what I'm trying to get across is that it's not, like Microsoft has a software code that they own the IP to,

Starting point is 00:09:44 and then their own employees develop it and then make changes to it. The folks who contribute to this open source peer-to-peer network are dispersed across the world. They have no economic relationship to each other, no corporate relationship to each other. It's decentralized. There is no central group. there are lots of different people and they do their thing and that some of them are validating transactions, some of them are writing code, some of them are going on GitHub and making proposals to change it. It truly is run by the world community or the community of people across the globe who contribute to its advancement.

Starting point is 00:10:27 It is no longer, if it ever was, it is certainly no longer the product of some central company. So you kind of started to answer this next question, but I'm just going to set it up and ask it a different way, which is that in that Fortune article, they reported that the pretext for this new attempt to define Ethereum as a security was Ethereum switched to proof of stake, as you mentioned. I just want to call out that happen in September 2020. And at the time, SEC, Gary Jensler said, and here he's referring to how when you stake, you get some yield. He said, quote, from the coin's perspective, that's another industry. that under the Howie test, the investing public is anticipating profits based on the efforts of others. So if you were to like put yourself in the SEC shoes, and again, I realize we're sort of speculating, we don't really know what they're thinking or, you know, why it is all of a sudden that they're going after Ethereum, if they are, but if you were to put yourself in their shoes and you were to apply like the Howie test or Reeves or, you know, whatever other tests you think might apply in this situation to determining whether or not an asset is a security, how would you justify it

Starting point is 00:11:38 or how do you think the SEC might try to justify it? Well, I'm going to jump in on this one. That's a great question, Laura. And one of the things that I wanted to do was sort of tie in that earlier discussion back to the Howie test. And I'm sure your listeners are well familiar with this test at this point, but I'm going to say it again for the thousandth time. So it requires a three or four elements, depending on what court you're in, but an investment of money in a common enterprise with an expectation of profits to be derived from the essential managerial efforts of a third party. And so I think what Sam was alluding to in connection with this investigation is that the SEC may be attempting to determine whether or not the Ethereum Foundation is performing

Starting point is 00:12:28 the essential managerial efforts upon which a holder of the east would rely for capital appreciation or upon which a holder of the east would rely in order to engage in the process of participating in validation of transactions to earn staking rewards. And so those are two different sort of potential theories. And I want to address each in turn. But really what the inquiry may be driving at is, you know, is the Ethereum Foundation providing a centralized role or some sort of a coordinating role that would rise to the level of essential managerial efforts? And so I think we contrast that potential, you know, focus with statements that were made in the past about the decentralized nature of the

Starting point is 00:13:27 the Ethereum network. And, you know, the concept of decentralization or sufficient decentralization, which was sort of first introduced into our space in 2018 by the Hennman speech, that is not a legal concept. That is a concept that for which there is not, you know, legal precedent to look at. The essential managerial efforts is a legal concept. And so we can look at how we cases and we can understand what it means to be providing the essential managerial efforts of others. And so when we talk about sufficient decentralization in connection with these analyses, in some ways it is just a proxy for is there a party that is identifiable that is actually providing the essential managerial efforts, or is the network operating without some,

Starting point is 00:14:27 a party in such a way in that like if any one participant contributing to the operation or development of the network goes away, does it continue to run? Can people still use it? Can they interact with the blockchain to do things and engage with smart contracts, etc.? And I think the answer with respect to Ethereum is that yes, that will continue to happen for so long as there are enough validators running the client software. Yeah, I would just say if I kidnapped Vitalik, the blockchain would still run.

Starting point is 00:15:02 People would still be able to stake. There would still be rewards. Yeah. Well, to plain devil's advocate and sort of kind of understand more deeply what the SEC's position might be or why they might be doing this, you know, it is true that a lot of the research that goes into, you know, kind of figuring out what direction the network should take on a technological level. is funded by the Ethereum Foundation.

Starting point is 00:15:28 You know, I recognize that there's a whole other, there's so many other things that are not, you know, done by the Ethereum Foundation. Like if we just look at the proliferation of all the different clients, like there are different groups that, you know, have worked on those clients. Although, although I think some of them receive funding from the Ethereum Foundation. So, you know, when you kind of look on the technical level, like how they're stewarding at least some portion of the research behind these different technical,

Starting point is 00:15:55 upgrades, is that something that you feel like the SEC could hang its hat on in terms of an argument that they are this third party? You're absolutely right, Laura, that I think the SEC will explore that and we'll look at that type of activity to see if there's an argument for centralization. And as Greg points out, you know, centralization, as we put it in the parlance of the inman speech is really an effort to map on to the common enterprise and efforts of others prongs of the Howie test. But I think you have to think about it too like an investor. Suppose you're a venture capital firm that is a minority investor in IBM and you fund things to help IBM grow

Starting point is 00:16:44 and you have ideas and you do all kinds of stuff in the ecosystem as the SEC puts it, to help IBM flourish. Does that mean that you control IBM? Does that mean it is your managerial efforts that run? So I think the fact that, or maybe a better analogy is to think about it, when you look at how the Ethereum Foundation interacts with the protocol now, it is the same as any third party. Any third party can do these things. Anyone And in fact, many others do. They are not differently situated than others who have a sort of arm's length, non-control relationship to the protocol.

Starting point is 00:17:32 The protocol is its own self-perpetuating thing now. It's got a life of its own. Well, but wait, but for the upgrades, then it doesn't because that is coordinated. Or, you know, so the research for at least, so I don't, obviously, I don't, obviously, I don't know all the details of how all of it happens, but, you know, some significant portion of the research of what to do is conducted by the Ethereum Foundation. And I do believe that they are sort of the coordinators of like when they're going to decide this is, you know, when the block height at which they're going to do the upgrade and whatever. I mean, I don't,

Starting point is 00:18:10 I wish I knew the exact particularities of who's deciding that. But I imagine that they're at least involved in all of those conversations, even if they're not the one making the final decision. So, you know, it's not, I don't know if I would say it's like just self-perpetuating. They are involved in the direction it's taking, right? I think they are involved in the direction that it's taking. I think the key question from a regulatory perspective is, like, are they controlling the direction? And I think there's a big difference from participating in a coordinating fashion and

Starting point is 00:18:46 you know, helping to facilitate various people, you know, making contributions to the code and to the community versus exercising control over exactly what is going to happen and when. So I think that's an important distinction. The other thing that I would just say is that to bring this back to another point that you sort of started out with, which is that the reports sort of indicate that the investigation is being prompted by the merge and the shift from proof of work to proof of stake. And so, you know, the essential managerial efforts is one element of the Howie analysis, and that has to be looked at in connection with the other three elements as well. And so if what the SEC is looking at is proof of stake, they would have to make a case that

Starting point is 00:19:44 not only is the Ethereum Foundation providing essential managerial efforts, but that they're providing essential managerial efforts related to an expectation of profit that participants in the staking process have as a result of this new consensus mechanism. So I think that is sort of zeroing in on a more narrow question. I think also it's important to note the timing of this. Okay. So let's assume that the news reports of subpoenas are happening because there's recent subpoena activity. Well, let's look at what's going on. The, you know, the shift to proof of stake happened like almost two years ago. So why now? And we know that in January, the SEC, begrudgingly approved the listing of spot Bitcoin ETFs after litigation. I mean, literally the D.C. Court of Appeals in the Grayscale case told the SEC that they had acted in an arbitrary and capricious manner in refusing to approve the listing of Spot Bitcoin ETFs. So they begrudgingly approved it

Starting point is 00:21:05 in January. Now there are a bunch of applications to list Spot ETH ETFs. And we've seen the SEC delay decisions on some of them. Again, reading tea leaves, making predictions, I would expect the SEC is going to be resistant to approving them in the first instance. There's probably going to be litigation again. And it is not inconceivable that the reason we're seeing activity right now isn't really because the SEC is going to make a case against the Eith Foundation. But rather, they are using that as a pretext to collect evidence that could be helpful to them in a litigation regarding whether or not there should be an approval for SPOT-ETH ETFs. Wow. Okay. Because I was going to ask you if you thought the investigation was targeted

Starting point is 00:21:59 at the Ethereum Foundation itself or if the point of it was more about Ether. And you're saying on the surface, they're maybe targeting the Ethereum Foundation, but they're doing that because they are anticipating they'll have to defend themselves in court against a case about ether ETFs. Is that what you're saying? Oh, wow. Wow. Okay. Well, you know, maybe this then goes to this other question. I was going to ask you, which, you know, we've called out how the merge happened in September 2022. And then again, they, you know, know, approved the ETH futures ETFs in October 2023, which would have given, which would have been the prime up, like, well, first of all, in September 2020, if they really believe that proof of stake made ether security, then that would have been the moment to call that out, but they didn't. And then they had another opportunity, you know, a year and a month later with the ETH futures ETFs. But, you know, through that process, they're basically saying like, okay, ETH is a commodity. And so do you see any logical basis on which they can kind of reverse themselves? Like, is there some

Starting point is 00:23:13 change that's happened in the last seven months? Or, you know, what do you think they could do to justify saying ETH is a security now, but not having said it at those previous two moments? Well, I think one thing that might come into play here is this distinction that I alluded to earlier, which is like, what exactly is the security that they think might exist here? One possibility is that they're looking at ETH, like the digital asset, as sort of like the embodiment of an investment contract transaction. Another possibility is that they're looking at the staking arrangement whereby you can, you know, contribute ETH to a validator node in order to earn rewards as a separate

Starting point is 00:24:10 security. And so I think if we're just thinking about ETH itself and the approval of EF futures, that would take sort of the ETH as a security out of the running if we think that the approval of the futures product would significantly weaken and cut against that argument. If what they're instead looking at is not eath the token itself as a security, but the use of the token in the staking arrangement as an arrangement that satisfies the four elements of the Howie test, that that could potentially be what they're looking at. And as Sam said earlier, I think there are great reasons as to why the elements of how it would not be satisfied under those circumstances,

Starting point is 00:24:59 that is a possible angle. Okay, so I don't know if I fully follow that. You're saying that there's ether and then there's ether in the staking arrangement and that the SEC is going to make some distinction between them and then that's how they're going to pursue this? Yeah, that is what I'm saying. So I think I just want to... But has that changed in the last seven months that would...

Starting point is 00:25:23 kind of like explain why they're pursuing it now as opposed to when the ETH futures were approved, ETH futures, ETFs. It has not changed that we perceive. There's no material, let's put it this way, there's no material change in the last seven months, but when has that stopped the SEC? Let's not forget that they sued Ripple Labs after that was the third largest by trading volume. XRP was the third largest digital asset by trading volume years after a market had developed. But that said, again, my opinion, I don't think they're going to sue the ETH Foundation.

Starting point is 00:26:02 I don't think this is going to be an ETH case. I think this is an evidence-gathering mission to prepare for litigation over the ETH spot ETH. Well, okay. Well, let's know, we've been talking about Gary Gensler a little bit, but let's kind of zoom in a bit there because, you know, as we mentioned, so before he became SEC Commissioner, the SEC seemed to be on, or chair, I mean, the SEC, you know, seemed to take this stance that Ethereum was not a security. And interestingly, as you mentioned, in 2018, there's a video of him talking at this Bloomberg Fidelity event for institutional investors interested in crypto. 70% of the crypto market is Bitcoin, Ether,

Starting point is 00:26:50 light coin, Bitcoin, cash. Why did I name those for? They're not securities. So why do you think he personally seems to have changed his tune? Well, I think as you said earlier, Laura, there is some intense focus on staking activities, not just with respect to ETH, but more broadly. And I think that the basic sort of view within or of the is that if you are using an asset that has value and committing it to an arrangement in which that asset is going to be able to generate additional value for you, whether that's in the form of staking rewards or some other sort of yield, that fundamentally that should be subject to the securities laws.

Starting point is 00:27:47 But Greg, he would say, like even before Ether went to proof of stake, he would say things like, you know, all cryptos aside from Bitcoin are likely security or most of them or I forget the phrasing that he would use. But even before Ether was proof of stake, when it was proof of work, he would say things that would call into question its status or that he would imply it was a security. So given the fact that in 2018, he was very happy to, you know, tell a bunch of institutional investors that it was not. Like, why do you think he changed his tune on that? You're putting Greg in the tough position of defending SEC chair, Gensler's change flip-flop on positions. But, you know, I think we don't know what's in the guy's head, right? But you could have optimistic interpretations or pessimistic interpretations. of his change. Okay. Optimistic or, you know, what I mean by optimistic is you could assume he's

Starting point is 00:28:49 acting in good faith. If we assume he's acting in good faith, why would he have a change in position? Perhaps he sees something from his position as the chair of an agency as opposed to as a private citizen that makes him think he needs to take this view. Perhaps the change from proof of stake to proof of work changes his position on it because there has been a change in how Heath operates. Those would be the good faith interpretations, the bad faith. One other good faith interpretation would be there's been things that happen in the market in 2022 that might make him more bullish or aggressive on regulating crypto, including the collapse of FTX, right?

Starting point is 00:29:32 Now, he did say, he started saying, ETH is a security or implying it before the collapse of FTX, but it was in 2022 in the midst of the crypto winner and things were happening in the market. There were other failures, Celsius Network, Terra Luna. There were a bunch of things happening at that time. The pessimistic or bad faith interpretation would be that he has political. ambitions to be the Treasury Secretary. Senator Warren is very skeptical of crypto and could be important in a Democratic administration to helping him become Treasury Secretary, and perhaps this is a pathway to that. I've heard people postulate that theory. I'm not subscribing to it, but I've heard that theory. And other theories are just he's got a view. He doesn't like crypto. He wants

Starting point is 00:30:30 it out of here. And so he's going to take whatever position he has to take to get to that end result. Yeah, but I would still say it's a flip-flop from that clip that we played because at that point, it's just seemed he was kind of neutral, didn't have any particular. In fact, just sort of seem, yeah, to be open to this idea that it was a commodity. So I know, you know, that we just said that potentially they're only doing this to just gather facts ahead of an anticipated lawsuit. By the way, Greg, what do you think of that there? Do you think it's accurate or do you think that they really do you want to name ETH

Starting point is 00:31:08 a security or whatever else the other options? I think it's plausible. And I want to just like pause for a minute because there's one important thing that is sort of running throughout this conversation that I just want to clarify, which is we keep saying ETH is a security. ETH and other digital assets are never by themselves securities. In my opinion, as an attorney, they are computer code that allows you to interact with a computer system.

Starting point is 00:31:39 And when you apply the Howie test to evaluate a transaction in any one of these assets, a given transaction can meet the elements of the Howie test, and that asset that allows you to interact with the computer system can be sold or transacted in a securities transaction. But that does not make the asset itself a security. And I think the view on this point has evolved from both the SEC position and from the court's position, where there's general acknowledgment, it's, it's, in many of the enforcement actions that are currently pending, that these assets in and of themselves should not be treated as securities, but they can form a component of an investment contract transaction.

Starting point is 00:32:35 It's a really important point. And sorry to take us a little bit off topic, but I just wanted to sort of set that baseline. It's worth noting it is an important point. And I would say this is a consensus at this point. in the courts. A consensus or the majority view among courts that have addressed litigation and SEC enforcement actions concerning digital assets, including the recent ruling in SEC versus Coinbase, a view is coalescing. The token itself is not a security. Yeah. I mean, this I think goes back to even the Howie test where Orange Groves are not in and of

Starting point is 00:33:18 themselves securities, but the contracts to offer people the proceeds of, you know, whatever was sold from those orange groves would be investment or would be securities transactions. So all right. So in a moment, we're going to discuss, you know, more about what could happen down the pike. But first a quick word from the sponsors who make this show possible. Pocod is the original and largest layer zero blockchain with over 2,000 plus developers. and the anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem, upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times,

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Starting point is 00:36:42 so fundamental. I think if the SEC brings a suit that says Ethereum is a security, then everyone who works at the Ethereum Foundation should call my phone number, 212-701-3125, and we should go to court and win in the litigation and get a ruling that the SEC is wrong. But in terms of, that's sort of a joke, not really a joke. I would love to defend that case because the SEC, will lose that case. They will lose it if they bring it. But I think when you have a conflict between two regulators, we have seen this conflict before.

Starting point is 00:37:25 This is not the first time. There have been a number of conflicts between the SEC and the CFTC on the treatment of various digital assets or of transactions involving digital assets. Now, the truth is, as a. matter of law, something can be a commodity and also be part of a securities transaction, right? I mean, to Greg's point, the sort of flip side of Greg's point is, yeah, an orange or an orange grove, an orange is a commodity, but it can be the subject or an object of an investment contract. And so you have to think about, is it the asset or is it a transaction?

Starting point is 00:38:12 scheme or contract that we're talking about when we see a difference, number one. And number two, what are the remedies to cure it? Unfortunately, there are very few, right? To challenge agency action, you can bring a lawsuit under the Administrative Procedure Act. And several lawsuits have been filed in Texas recently against the SEC under either the declaratory judgment act or the Administrative. Administrative Procedure Act to try to get a court to rule that some of the SEC's positions on the regulation of digital assets are wrong.

Starting point is 00:38:51 That's one avenue. Another is legislation. Ultimately, what is crying, what the crypto market is crying out for is Congress to actually decide how are we going to regulate this market? What is the structure? Should we have our own regulator for the crypto industry, a regulator that is savvy to the technology, understands the norms and the ways things ordinarily work and can make rules that actually fit the industry as opposed to the SEC taking rules that were passed in the

Starting point is 00:39:26 1930s and trying to shoehorn this new technology into them. Okay, yeah, that makes sense. And so also if we, if this were to go to court, how do you see going to court? Because at the moment, we've got these different lawsuits with exchanges. Obviously, there is this investigation into the Ethereum Foundation. Then there's all these different other token teams that have, you know, their tokens have been named securities. And then we have the ether ETFs that people want. And the deadline for that approval or rejection is May 23rd.

Starting point is 00:40:05 So what do you think is like the most likely way this is going to play out? Well, I don't think that anything is going to play out anytime soon, most likely. It seems like this is at this stage a fact-gathering exercise. And I think, you know, there's a lot of in-between the initial sort of fact-gathering stage and any sort of action being filed. And so, you know, if you look at some of the... the big enforcement actions that the SEC has filed in this space, you'll note that, you know, the time from sort of, I don't know, the act that gave rise to the alleged violations in the

Starting point is 00:40:55 enforcement action, and the time that the enforcement action was actually filed is usually significant, you know, years, up to five years. And so Sam was talking about the ripple complaint earlier and it addressed conduct that happened, you know, in 2013, 2014, I believe, as part of that complaint. And it wasn't filed until well after that, you know, seven years later. So I think the answer is we don't know where they are in their process. I suspect that it's very early on, that they're gathering facts. And I would not expect to see anything anytime soon as far as that's concerned. Okay.

Starting point is 00:41:40 And so I recognize this may not happen anytime soon, but if they were to do that, what would be the impact on, I mean, well, just generally of the notion that ether is a security. Would it be, you know, what's the impact on investors, on the Ethereum Foundation, on the Ethereum ecosystem, on all the developers that have worked on Ethereum, on the crypto exchanges,

Starting point is 00:42:02 on even things like the ETH futures ETS, like generally what would what would have to happen would the Ethereum Foundation register ethos security or just you know how do you see that or or it just goes to Sam leading the charge with a lawsuit and nothing that all of these entities are sort of in limbo until that's resolved what happens the SEC if they brought an enforcement action alleging that ETH is being offered or has been offered and sold as an illegal security. If they won that lawsuit, which they will not, but if they won that lawsuit, it would have a devastating impact on an entire economy that has grown up across the world. I mean, you're basically saying that the developers, the engineers,

Starting point is 00:42:52 the investors, that all of them have to just pack it up after relying on years of guidance suggesting that what they were doing was lawful. For that reason, even if the SEC was right about how the rules are, I think it would be a violation of the due process clause of the Constitution to bring such a case. It would violate fair notice principles. It would be like the quintessential example of a fair notice violation. But, I mean, frankly, I think the SEC has lost so much credibility because of shifts in its position on crypto.

Starting point is 00:43:31 example, suing Ripple after so many years, that I don't think that there would be an immediate short-term market impact. I think the market has sort of priced in that the SEC may act irrationally under Chair Gensler and may take positions that will ultimately be rejected by courts, and that it just may be necessary to litigate with him to get a third-party neutral arbiter appointed by the president, confirmed by Congress, and serving pursuant to Article 3 of the Constitution to decide this. Okay. And wait, so when you have this arbiter, it's just like someone who is there to sort of arbitrate

Starting point is 00:44:15 between the SEC and CFTC? Is that? Oh, I'm talking about a judge. I'm just talking about judges. Oh, got. Multiple free judges. Got it. Got it.

Starting point is 00:44:23 Judges and juries. Okay. Well, I do want to bring in two other subplots that we've actually mentioned one of them a little bit. I just want to see how these get affected or how they even affect this. The first one is Prometheum, which is this company that has been saying it all offer custody services for Ethereum as a security. I believe their platform, I think it's been delayed for a very long time. I happen to find a document all the way from March 2019 that said they would launch within the year. And obviously, that was five years ago.

Starting point is 00:45:03 They got this special purpose broker-dealer license back in 2022. They said, or sorry, it was in 2023. They said they would launch in the fall. Then they said they would launch in Q1 of this year. Here we are in the last few days of March, still nothing. Do you think basically Prometheum kind of needs to wait until they can launch, you know, for either for the SEC to say like, yeah, we think ether should be classified as a security or or do you think it's just like on a totally different track? Like can they launch

Starting point is 00:45:36 regardless of what the SEC says? Like if, you know, the CFTC now is saying it's a commodity, can they still launch and claim that ether's a security or how does that all work? This is a very interesting question. But I think what it comes down to is a registered broker-dealer is not allowed to transact in unregistered securities. And so let's just hypothetically posit that yeast or any of these other assets constitute unregistered securities. I'm not sure that Prometheum could facilitate transactions on behalf of others as a broker-dealer in these assets if they are acknowledged to be. unregistered. So I think a prerequisite to their, well, I don't know how we're defining

Starting point is 00:46:29 launch here, because maybe they could provide some other ancillary services. But if we're defining launch as facilitating transactions on behalf of others, which is the core sort of like broker function, then I think there would have to first be some mechanism for registration of these assets. And the fundamental problem is like the cat is out of the bag here. These assets are everywhere and there's no clear way that you could, first of all, the assets themselves are not securities. So to the extent that they're involved in a securities transaction that meets the elements of the Howey test, there's an investment contract transaction. So the assets themselves are not securities and everybody is sort of

Starting point is 00:47:23 keen to that point now. So it's just a very, very messy situation with no real clear pathway forward. Okay. Yeah. I had Aaron Kaplan, the co-CEO on my show last summer, and I was asking him if they're not registered now, are you going to have these on your platform? I don't remember if he gave a satisfactory answer. So the other sort of forcing function here is this May 23rd deadline for for the SEC to approve or deny the spot ether ETS, which is, you know, very similar to the same deadline that the agency faced that forced them to approve the spot Bitcoin ETFs. And so, you know, on the face of it, and this is why, you know, just like a month or so ago, people assumed the ether ETIFs would be approved because both of them are the only cryptos

Starting point is 00:48:13 that have futures ETFs based on them. And as we said earlier, that means that that means both the SEC and CFCC sort of recognize the underlying assets, not the derivatives, but, you know, the basic asset as a commodity. And given that the SEC, you know, was told that their decisions, their initial decision to reject the spot Bitcoin ETFs was arbitrary and capricious by the three judges, you know, in the grayscale lawsuit, you know, you would think that they would just approve the ether ETFs because that's a pretty, you know, they lost handily, I guess you could say. But as of the moment, most people think that they're not going to approve them.

Starting point is 00:48:58 And so, you know, given that if they were to do so, they'd have to justify why they're not when Ether is in the same category as Bitcoin. How do you think they'll either justify that? Or do you still think that they will? And, you know, just we don't know the reason why it doesn't look like they're going to. What are your thoughts on that? I think that they are, and this is just my opinion, not investment. advice, not legal advice. I think that the SEC is going to, at least in the first instance, deny or reject the applications. I think that they'll rely on similar arguments that there is

Starting point is 00:49:37 a risk of market manipulation, that they need more surveillance. And then I think one thing that's sort of unique about Ethereum and creates complications is with a spot Bitcoin ETF. If the The ETF has a reservoir of Bitcoin, right? That Bitcoin sits there, and a purchase of a share of the ETF is basically a positional bet on whether that asset, without rehypothication of the asset, will go up or down in value. Ethereum, given the way that validation works on the Ethereum blockchain, you know, it would be, very disadvantageous for an ETF to have a pool of Ethereum that isn't staked. Because if they don't stake, then essentially other folks who have Ethereum in quantities, in substantial quantities through native means, will stake.

Starting point is 00:50:44 They will get rewards. And effectively, you're going to have deflation of your reserve. But I think Chair Gensler clearly has concerns about staking. He has concern. I'm not saying those concerns are valid. I disagree with them. But he has concerns about the safety of it or maybe the lack of transparency. Whatever his concern is, he has a concern about it.

Starting point is 00:51:10 And I think that is a part of what motivates his resistance and why there's a difference, perhaps, in his mind, between spot ETFs for ETH, versus Bitcoin. Okay. And wait, just a question when you were saying that their argument will be that if you have ether in a pool that's not staked, then it will be subject to deflation. You just mean because they're not, it's not earning the same yield, all the, okay. Well, so I guess then the question is that, you know, if you're saying that they're going to use the same concerns about market manipulation and all that, which are the arguments that the judges said were arbitrary and capricious, you think that the SEC is still going to use the same arguments now? Or are you saying that they're going to try to kind of zoom in on the staking bit and say it's not the same as Bitcoin?

Starting point is 00:52:06 I am not sure what they're going to argue. And my theory, opinion, is that they are not sure what they're going to argue. And that's why they're digging around with subpoenas to see if they can begin up an angle here that something about how the Ethereum Foundation operates, something about staking, that there is something they can hang their hat on. In other words, they have made their conclusion. They know what they want to do, that they need to justify it. Wow.

Starting point is 00:52:44 They're in search of that justification, as opposed to, let's do an independent fact-gathering exercise and then the conclusion will follow from the facts. Wow. Okay. That, that is. And what makes you say that as opposed to thinking that they are doing an investigation and then we'll conclude something based on the facts? There's been a consistent and repeated pattern, I think, of this SEC under Gensler being so dogmatic in what I can only perceive. as a merits-based view that they don't think crypto is a meritorious investment for anyone,

Starting point is 00:53:27 and they're going to push it away. You're going to do whatever they have to do to push it away. Okay. So we're going to discuss kind of the political issues with the SEC and crypto. But first, I actually just want to also talk about this Coinbase case, which has come up a little bit in the conversation. the day that we're recording, actually, Judge Catherine Polk-Faila ruled mostly against Coinbase's motion to dismiss the case that the SEC brought against it. However, Coinbase did get a win. She did dismiss the claims that that Coinbase wallet, which is the self-custody decentralized wallet, was Coinbase acting as an unregistered brokerage. So that, I think, was a win for not only crypto, but specifically defy. However, she did allow the rest of the suit to go forward,

Starting point is 00:54:19 saying that the SEC brought enough of a case to argue that Coinbase was operating as an unregistered broker, exchange, and clearinghouse. So given everything that we've discussed, like, what do you see as kind of the interplay between this lawsuit and the investigation into ETH? Well, I think the decision just came out today. So we are evaluating it and digesting it. As you said, you know, there was a good result with respect to the wallet where the judge dismissed any claim related to the wallet that the wallet was contributing to unregistered broker activity. And, you know, that is very helpful for wallet software and for other, you know, basically technology tools that allow participants engaging with digital assets to, you know, self-direct their activities and to basically communicate with different protocols using that wallet software. So I think that is, that is positive. And I think that, you know,

Starting point is 00:55:33 the judge considered what is the primary factor in connection with an evaluation of whether someone is acting as an unregistered broker, which is the receipt of transaction-based compensation. and concluded that even though Coinbase was receiving fees on transactions for some period of time that were routing through the wallet, even with that fact that the activities associated with the wallet didn't give rise to status as an unregistered broker for Coinbase. So I think that's very good. I think with the rest of the opinion, we have to keep in mind sort of the procedural posture, which is this is an early stage motion. It's the standard is akin to the 12b6 motion to dismiss that we would typically see. This is a motion for judgment on the pleadings,

Starting point is 00:56:27 which is a little bit different. But in deciding this motion, the judge has to accept, you know, all well-pledged facts in the complaint as true and determine whether they give, you know, rise to a plausible claim for relief. And so, That is a standard that is very favorable to the SEC where, you know, everything that is well-planned in the SEC's complaint is accepted as true by the judge. And the decision is made on that basis. So I think that's important to consider. And then, but like in terms of, you know, all these questions around Ether, like, is this just like a totally separate lawsuit and it doesn't have any bearing on this investigation at Ether? Or do you see them sort of affecting each other in different ways? Well, I think the threshold question, which is critical to most of the allegations in this complaint

Starting point is 00:57:21 and which would be critical to any sort of evaluation of ETH or a staking arrangement involving ETH as a security is the same. It's like, are the elements of the Howie Test satisfied? Are there securities transactions at issue? The only way that a platform that is facilitating transactions in digital assets can be held to register as an exchange, register as a broker or register as a clearing agency is if the transactions on the platform involve securities. And so I think that that is a threshold question. the SEC, you know, enumerated 13 different assets that they believe were transacted in investment contract transactions on the Coinbase platform. And they did not include Eith in that list of 13, although they're very clear to say these are just examples. We think there are more.

Starting point is 00:58:21 But I guess for practical reasons, they didn't list every single one. but it's the same sort of threshold issue. Laura, to your question, I think there's parts of the Coinbase ruling that the Ethereum Foundation would point to for their defense, and there are parts of the ruling that the SEC would point to. So for the Ethereum Foundation, I think what they'll point to are three, a few things. One, the ruling makes clear the token is not a security. So at this point, ETH cannot be a security. There has to be some scheme, transaction, or contract that the SEC could point to to say there was an investment contract and thus a securities transaction.

Starting point is 00:59:10 It can't say that ETH itself is. And so there's going to be a, you know, you remember the old commercial, where's the beef? Where's the contract? There's that. Second, the Coinbase wallet ruling, so the ruling that, taking a 1% transaction-based fee for a defy wallet service, software essentially, an app, that could be weaponized by the Eath Foundation in their defense. They could point out, I think that Judge Fala's ruling on the Coinbase wallet was driven

Starting point is 00:59:44 in large part by the fact that Coinbase, as the provider of the software that users download, does not ever custody the customer's funds, right? When you download the Coinbase Wallet app software, you on your device, your phone, your laptop, you have the private keys to your wallet. You control your funds. Coinbase never does. Only you can direct where the funds go.

Starting point is 01:00:12 And I think that the ETH Foundation can make a similar argument that when a user stakes their assets, they have complete control over its destiny. Even when it's locked up in the validation process, it is still them that has the private key. They have the control and custody. They make the decision to stake. The foundation can't go and yank the funds, can't cause a slashing event, right, and cannot make themselves the recipient of the rewards. And so this custody piece, very important for making this argument that decentralization means,

Starting point is 01:00:53 no common enterprise, no efforts of others, and thus no howie. But is there a way in which, like, are there certain things that the SEC can win on in the Coinbase case that would then kind of like help them pin Ethereum transactions as security transactions? Yeah. So the SEC cannot, in the Coinbase case, prevent the ETH Foundation. from defending themselves, right? A ruling in a case in which you are not a party does not bind you under our system of justice.

Starting point is 01:01:31 The Ethereum Foundation is not a party and is not bound by what we call res judicata or collateral estoppel. They're not bound by the ruling. They can argue the ruling shouldn't apply in their case if one is brought. But there could be precedent. There could be a ruling in the case, in the Coinbase case, that is persuasive authority to a judge in a case. in a case brought against ETH, the ETH Foundation, that would influence that judge's decision. And one, in particular, what I would expect the SEC to hone in on is the ruling on staking. Judge Fela determined that as pled in the SEC's complaint, there were enough allegations to raise a

Starting point is 01:02:12 plausible claim that Coinbase's staking service was an offering or sale of an investment contract, that it was essentially an investment scheme. Now, very different from how staking works on the Ethereum blockchain, right? Judge Phelan does not say that self-staking through Ethereum constitutes an investment contract. And the Ethereum Foundation does not do any of the things that Coinbase was alleged to have done in its staking program, right? So they don't take custody of funds. pool funds. None of that happens. It's software they don't control is doing all of that. They're not the recipient of it. So I do think the Ethereum Foundation would have the better of an argument that this

Starting point is 01:03:02 Coinbase ruling is either irrelevant to them or helpful, but not harmful. That said, I'm sure the SEC will look for ways to deploy the rulings they like in it for their benefit. But I agree with Greg that overall, you know, there are a few important takeaways from the Coinbase rule. One, the token is code, not a contract. It's not a security itself. Two, the wallet, defy wallets, even if the assets that go back and forth that users transacting on a defy wallet, even if those asset transactions or securities transactions, the wallet can charge a commission as long as you, it does basically what the Coinbase wallet was doing, as long as it's restricted in the ways that the Coinbase wallet was, including not having custody of the customer funds, then they are not acting as a broker of securities. And that is a huge victory for the industry, opens up a pathway for many Defi software providers to monetize their inventions. But at least as of now, the judge is going to let the parties proceed into discovery. on the bigger questions of is a digital asset trading platform for secondary market transactions,

Starting point is 01:04:26 is that operating as an exchange broker or clearing agency for securities, is the staking program offered by Coinbase an investment contract scheme? Those questions have not been resolved. Coinbase lives to fight another day and indeed we'll get discovery from the SEC and may get discovery on what have people said at the SEC? Has anybody taken the view that's contrary to what Gantzler is saying today? That may come out in the case. It may come out certainly in private discovery.

Starting point is 01:04:59 And you may see motion practice on this at a later stage of the case, summary judgment. I mean, in the Ripple case, we saw this played out, right? At the early stage, the pleading stage, because of the very deferential standard given for evaluating pleadings. We have a liberal pleading standard. A plaintiff says, I allege this happened. And if those, we will assume the allegations are true for now, do they make out enough to say there's a plausible claim? If so, then we'll have discovery.

Starting point is 01:05:29 We'll evaluate the case again at summary judgment. And if needed, we'll have a trial, right? No merits rulings have been made yet. All the judge has said is, if I accept as true the allegations of the SEC, they could make out a claim. So let's go ahead and have the adversarial testing that's involved in litigation over those claims. And I do, unfortunately, I think there were aspects of Judge Fala's decision in terms of how secondary market transactions are treated that are wrong, that misconceive

Starting point is 01:05:59 how the secondary market works. And Greg and I were talking about this right before we got on. I think, you know, the central problem is the judge assumes that when somebody goes, on Coinbase and buys Solana, that they're buying it in a transaction that is directly or indirectly relating to fundraising by Salana or by the Salana Foundation or the project. But that's not what secondary market, the bulk of secondary market transactions are not that. For example, the judge in the decision says the buyer, the investor, may reasonably rely on on promises of the issuer when they buy a token on Coinbase. And that's part of why that's an investment contract transaction, even in the secondary

Starting point is 01:06:54 market. But think about Bitcoin. I think we can all agree. And the SEC has clearly agreed that Bitcoin is not a security. If I go to Coinbase's website, I did this today. If you go to their website, you will see they list the promotional materials or what Judge Felaev uses promotional materials, the white. paper and the website. Does that mean if I buy Bitcoin on Coinbase that I'm now relying on

Starting point is 01:07:24 promises of Satoshi Nakamoto? No, of course not, right? There's a problem with the reasoning and the opinion on that piece. And I hope that I am optimistic that in discovery, Coinbase will get to the bottom of that and we'll get to show its summary judgment that that aspect of this ruling is wrong. Okay. Yeah, I actually wanted to ask just to explain this because now these secondary transactions have come up in three different cases. And so there's the Terraform Labs case, which is sort of similar to what Judge Fala argued, where they said that in these securities transactions, Sorry, that in these transactions, that they are like securities transactions, even though they're secondary sales. And in the Ripple case, the judge ruled that since there's no investment contract, that they cannot be securities transactions.

Starting point is 01:08:34 So can you just kind of describe a little bit, you know, I don't know if there's much more to say beyond that, but like, obviously these contradict each other. So, you know, how do you think, like, the courts will eventually decide on this or, you know, I don't know who, if the agencies decide on it. But, yeah, what happened there with those three? Well, I think there's actually a lot to say about this, which is good. I would just like start off by noting that the ripple case and the terraform case are primarily the issues before the court relate to initial transactions. So sales or other transactions from Ripple Labs or Terraform, depending on what case you're talking about, to the initial sort of purchaser or recipient of the assets in question. That is a very different context than what we have in Coinbase. Coinbase transactions are between users of the Coinbase platform.

Starting point is 01:09:41 and one user doesn't know who another user is, like who's on the other side of the transaction. But those transactions, at least the majority of them, do not involve a fundraising by any project. It involves a purchase of an asset by one person from another person. the proceeds of that transaction are credited to the seller's account. Those proceeds are not being pooled with the proceeds from other sales and being used by a project to do any sort of development activity or any other sort of operational activity like that. And so I think the question that really is implicated here is in that context, are the elements of the Howie Test met?

Starting point is 01:10:48 Is that transaction between two people who are users of the Coinbase platform an investment contract transaction? Now, Judge Dela has said that the complaint, alleges sufficient facts for the case to move forward and that those transactions, you know, meet the elements of Howey based on, you know, the well-pleaded allegations in the complaint. But I think really the issue comes down to common enterprise and that element of the Howey test and how a common enterprise is established in a circumstance where the participants in a transaction that occurs on a platform for secondary transactions have no interaction with a development company or any other entity related to a project.

Starting point is 01:11:47 And they're buying and selling an asset that may have been initially sold or distributed four, five, six years before their transaction. and so very different circumstances than an initial transaction. And so just coming back to Ripple and Terraform, those are all about initial transactions. And when we're thinking about that context, you know, if someone is buying an asset directly from the initial entity that's selling the asset, and that entity is going to take those proceeds from that purchase, pool them with the proceeds of other purchasers and go do things, it's a much more straightforward common enterprise analysis. But that's not what we have with respect to secondary transactions.

Starting point is 01:12:45 To put it simply, right, if I buy a baseball card, I buy a baseball card, I am not investing in Major League Baseball. My money doesn't go to them. I'm not in an investment contract with Major League Baseball. baseball when I buy a baseball card. Now, Judge Rakoff in Terraform and Judge Fala in the Coinbase case have said, well, in the secondary market, when you go and make that purchase of a token, you may be relying on promises of the issuer of the token, that they're going to build out the ecosystem and that they're going to make the ecosystem improve and that that will raise the value of the token. Well, that's sort of like the MLB making statements that they're going to build out their company or the ecosystem or improve things for their stockholders. And that, of course, we'll have the benefit as enthusiasm in their ecosystem grows.

Starting point is 01:13:43 I'm sure baseball cards will become more desirable and go up in value. It doesn't mean I am in an investment contract with Major League Baseball or with any of the teams or with any of the players. And indeed, if I brought a lawsuit saying, hey, I was promised that they would do XYZ to improve the value of the ecosystem and they didn't give me damages. I bought this baseball card. A court would say, you have no standing. You don't have a contract. Get out of here. Right?

Starting point is 01:14:16 Contrast that with Major League Baseball as a corporation does an initial public offering and sells stock with rights. and a right to participate in the equity of the company and maybe even a dividend from the profits of the company. Yeah, the person who bought that in the initial public offering would be a stockholder. They are buying a security. And if you trade that security, that stock always has those rights. Those rights are immutable. So if I trade that stock in the secondary market, then the new buyer is a stockholder. it is a securities transaction because that stock has that bundle of rights.

Starting point is 01:14:59 But investment contracts are different. It's a judicially created animal. It is created for rough justice. It's created for the situation where I don't know what this thing is, but it feels like something bad happened here, somebody who got their shirt taken, and we want to be able to redress that under the securities laws. And that's all fine and good when we're talking about a one-on-one transaction, a transaction between the initial promoter and the initial buyer.

Starting point is 01:15:28 But when we get into this whole mess of the secondary market and the many other people who interact with something long after that transaction, it just doesn't work. The securities laws just don't work to say that that is a security. And I understand that this is inconvenient for the courts. And it's inconvenient for the SEC, but it is the truth. And if they want to change that,

Starting point is 01:15:53 If we as a country want to change that, that's what Congress is for. Okay. So, you know, we're over time and yet there's more we could have discussed. So I'm going to try to ask one last question that wraps up some of the other things that we didn't touch on. Obviously, there's just so many kind of points of contention between the crypto industry and the SEC. There's all the ones that we mentioned. There's also the recent debt box case where the judge in that ruling blasted the SEC for what he called a gross abuse of power and mentioned that not only did they present some falsehoods

Starting point is 01:16:35 initially, but when they were called out, then they made additional falsehoods. Then there's the Defi Education Fund, which recently sued the SEC. One of the things that they're looking into with this lawsuit is whether the SEC violated the Administrative Procedure Act by improperly adopting the policy that nearly all digital assets are securities without any formal rulemaking process. And as we've mentioned, we've got the ETH investigation, the Coinbase SEC lawsuit, and then this ether ETF deadline along with like Prometheum, all these things. So given that there is many fronts on which this battle is being fought and given that there's sort of like players on either side in terms of the political

Starting point is 01:17:26 thing with, you know, like the Democratic senators criticizing the SEC for approving the Bitcoin ETFs, but then the industry, you know, saying it will, or the courts really criticizing the SEC for how they're handling, you know, issues with the industry. What do you think are sort of the major points going forward that people should look out for? Like, what are some of the significant things that you're watching? Yeah, I think the thing that we're watching most closely is how courts are reacting to the arguments that are before them. Because in the absence of a legislative solution to address the uncertainty here, I think

Starting point is 01:18:11 we're going to be relying on what judges say after they've heard both sides of these arguments. And so I think, you know, the decision today obviously needs to be digested a little bit further. But it's, you know, by no means, it's a mile post in a case that will continue on for quite some time. And so we're going to be watching that. We're going to be watching the decisions in other enforcement actions that the SEC has brought. And I think, you know, we'll be paying attention to what happens. happens in May with the ETF. You know, I think all of these things are important to keep track of just to have a sense

Starting point is 01:18:56 of exactly where the wind is blowing. I'd say I agree with all of that. I think you've got to break it down into time periods. So we have this little presidential election happening in November. And if the Donald wins, then Gary, Gensler's days as SEC chair are numbered. And that could dramatically change the regulatory outlook for crypto in the United States as quickly as next year. Similarly, if the Congress becomes, let's say Trump wins and you have a Republican-controlled Congress, all of a sudden

Starting point is 01:19:40 there could be a pathway to right to legislative clarity. But that's the that's sort of next year. This year, focusing on this year, we're in this uncertain limbo that the industry has been in for quite some time. And as Greg notes, you're going to have a few decision points. We've got a ruling to come in the SEC versus finance case on their motion to dismiss. The Cracken case, SEC versus Cracken, and all of them are in different courts and could come out differently than Judge Phelan. And by the way, some of the issues in those cases are a little bit different too. For example, in the SEC versus finance case, I would, I am hopeful that the court will at least dismiss the SEC's claims as to BUSD, the stable coin, which could be very significant for the industry. You've got the ETH ETFs. There could be litigation over that. And then you've got these litigations getting filed by the Defy Education Fund down in Texas that could, if the, if the courts determine that there's proper standing become a pathway to create a conflict, a split among the circuits. I think the reason that those cases get venued in Texas is it's a more favorable

Starting point is 01:21:01 jurisdiction to be suing it. And the courts there are more likely to take a pro-business view. And if you get a ruling, let's say, from a district court there and then ultimately the Fifth Circuit Court of Appeals, that could create a circuit conflict. And when there is a conflict among the intermediate circuit courts on an important legal issue, that is the type of situation that will get the U.S. Supreme Court to say, okay, we're going to hear a case on this and resolve this once and for all. What's the law of the land? Okay. Well, that would be an interesting outcome for sure. All right. Well, we are well over time, but this is super fasting. Thank you both so much. Where can people learn more about each of you and your work? Thanks, Laura. I'm Greg Strong again, DLX Law. You can go to www.DLXLaw.com and learn more about us.

Starting point is 01:21:57 Sam Enzer, Cahill, Gordin and Rindell.com. W-W-W-Khill.com. And my email is S-E-N-Z-E-R at K-Hill.com. Perfect. Well, it's been a pleasure having you both. on Unchained. Thanks, Lord. Thanks so much for joining us today to learn more about Sam and Greg and these SEC cases with the crypto industry. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with all from Nelson Wong, Matt Pilcher,

Starting point is 01:22:25 Juan Aranovich, Megan Gavis, Shoshank, and Market Courier. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out Markets Daily, 5. days a week with host Noelle Atchison. Follow the CoinDesk Podcast Network for some of the best shows in crypto.

Unchained - The Real Reason Why the SEC Might Be Going After Ethereum - Ep. 627

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