The US digital assets industry delivered more legal developments this week in the separate disputes involving Coinbase, Ripple Labs and Gemini exchange. Here are the details:
US SEC is conceiving an appeal to the court’s decision in the Ripple Labs case
The SEC vs. Ripple case regained the spotlight this week as the US Securities and Exchange Commission confirmed, in documents submitted on Aug 9, its intent to seek an interlocutory appeal to the Second Circuit Court of Appeals.
The appeal, if allowed, will further delay a final resolution in the dispute culminating from the SEC’s complaint against the company, its CEO Brad Garlinghouse and co-founder Chris Larsen in December 2020. Wednesday’s somewhat expected move comes less than a month after Judge Torres ruled on the XRP (XRP) token classification. Torres determined on July 13 that the contentious sales of the Ripple-issued XRP token on public exchanges were essentially ‘blind’ purchases and thus didn’t violate federal securities laws.
In June, the Gensler-chaired agency asserted in two lawsuits against Binance and Coinbase that most cryptocurrencies, except Bitcoin and Ethereum, were unregistered securities. Ripple Labs’ chief legal officer Stuart Alderoty shared brief thoughts on the latest SEC request, which seeks to address some “differences of opinion,” adding that the firm would file its response in the coming days.
Motivated by the partial victory of Ripple from Torres’ July ruling, institutional investors have recently renewed their interest in XRP. Digital assets research firm Fineqia observed in its Aug 8 report on global Exchange Traded Products (ETPs) that XRP-linked ETPs have recorded a significant swell in terms of assets under management (AUM). While the eventual outcome of the case remains elusive, upcoming events nonetheless present a potential catalyst for XRP price action.
To learn more about Ripple, check out our Investing in Ripple guide.
Gemini’s Winklevoss responds to DCG’s motion to dismiss
In related news, lawyers for Digital Currency Group (DCG) on Thursday filed a motion to dismiss an earlier July 7 suit from Gemini which alleged fraud on the part of the company and its CEO Barry Silbert. The Winklevoss-owned exchange previously faulted the pair for making “misleading and incomplete representations” regarding the now-failed Earn lending service operated by DCG subsidiary Genesis as part of a business partnership announced in February 2021.
“The Complaint is a hodgepodge of conclusory allegations against non-defendant Genesis, all belied by the fact that Gemini has not filed these spectacular claims in the Genesis bankruptcy,” DCG’s legal representation wrote.
CEO Barry Silbert also argued in the filing with the US District Court for the Southern District of New York that the liabilities from Gemini’s Earn were an obligation to Genesis, not the conglomerate. The exchange claims it lent customer funds (to Genesis), which have since been accessible after the firm halted withdrawals last November and eventually declared bankrupt on Jan 19.
Gemini co-founder Cameron Winklevoss remarked on the submitted motion in a post on X, describing the arguments therein as baseless.
“When a company you own says you wrote a $1.1 billion check that you know you didn’t write, yes, you have a duty to correct this,” Winklevoss posted, adding, “Good luck making these arguments to a jury of your peers. See you in court.”
Gemini and Genesis face a civil lawsuit from the SEC which alleged in January that the Earn program they jointly operated offered the public unregistered securities.
US Senator and other lobbying organizations throw weight behind Coinbase
Elsewhere this week, Coinbase exchange, the defendant in charges brought forward by the SEC in June, saw public support from several industry lobbying individuals and groups. US Senator Cynthia Lummis filed an amicus brief supporting the exchange’s recent motion to dismiss the SEC lawsuit on Friday. The Crypto Council for Innovation, Blockchain Association, and Chamber of Digital Commerce also showed support by filing a joint amicus brief on the same day.
“This is no run-of-the-mill enforcement case. Through this case the SEC seeks primary influence over economic, political, and legal questions under active consideration by Congress and multiple agencies,” a section of the brief filed on behalf of Lummis read.
The series of implosions in the crypto industry last year, starting with the collapse of Three Arrows Capital, has accelerated efforts to advance crypto regulations in the US. Several lawmakers, including Lummis – who recognized the same – have in recent months brought forward bills looking to address the lack of clarity in some ambiguous regulatory aspects of the crypto industry, such as the jurisdiction and authority of the SEC and CFTC.
“Each of these bills recognizes that the crypto industry does not fit entirely within existing securities laws and transcends the current statutory powers of the SEC. The multitude of interests at stake require a holistic approach beyond the scope of a single agency, including approaches taken around the world. Congress is attuned to these important considerations,” the brief added.
Coinbase filed its motion to dismiss the complaint from the SEC on Aug 4, claiming that the SEC “violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws” by pursuing it. The string of amicus brief filings notably came less than 24 hours after the US securities watchdog settled with Bittrex on similar charges.
Bittrex settles with SEC for offering US customers access to unregistered securities
The SEC on Thursday said it had settled with Bittrex (and former CEO William Shihara), which agreed to a cumulative settlement payment of $24 million.
“In addition, Bittrex and Bittrex Global agreed to pay, on a joint and several basis, disgorgement of $14.4 million, prejudgment interest of $4 million, and a civil penalty of $5.6 million, for a total monetary payment of $24 million,” the SEC said in the press release.
The exchange previously filed for bankruptcy in early May, weeks being sued by the securities regulator, which simultaneously claimed it operated as an unregistered broker, exchange and clearing agency and also sold unregistered securities. The April complaint followed a March communication from the Seattle-based exchange on pulling out of the US market.
“Bittrex worked [for years] with token issuers to ‘scrub’ their online statements of any indicia that they were investment contracts—all in an effort to evade the federal securities laws. They failed,” Gurbir S. Grewal, director of the SEC Division of Enforcement, said.
In July, the exchange’s US affiliate asked customers holding funds on the platform to complete withdrawal by Aug 31, having begun customer payouts in mid-June. Last October, the US Treasury’s Office of Foreign Assets Control and Financial Crimes Enforcement accused Bittrex of violating sanctions programs between March and December 2017, resulting in the company paying a $29 million settlement.
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