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PLUS: Ripple’s partial victory last week in its ongoing legal feud with the Securities and Exchange Commission left important questions unsettled for token issuers, a crypto lawyer told CoinDesk TV.

Securities and Exchange Commission Chair Gary Gensler declined to say if his agency will appeal last week’s split decision in its enforcement case against Ripple Labs, or what the commission’s timeline is for making a decision to appeal. 

But Gensler echoed the parts of the federal judge’s summary judgment that he agreed with while speaking to reporters following an appearance before the Senate Appropriations Committee. 

“Parts of that ruling with regards to institutional investors, the Howey analysis applies to those institutional sales,” he said, referring to the frequently cited legal precedent that helps define a security investment that requires certain disclosures in the U.S. “That we appreciate. Less so as it related to the Howey analysis on retail sales, but still taking a look at it.” 

Asked by The Block about the crypto industry’s interpretation of the ruling as a repudiation of the SEC’s approach to policing digital assets, Gensler responded, “I don’t have any comments on that.”

Gensler also declined to comment as to whether the Ripple ruling would cause the commission to pause litigation with other crypto firms until an appeal was sorted out. 

Waiting game

An appeal from the SEC could take time. Aside from the amount of time a legal analysis could take, staff has to present commissioners its recommendations, and the bipartisan commission votes on whether to proceed with litigation. The current commission has three Democrats and two Republicans, meaning if Gensler and staff want to appeal the portion of the ruling that went against the commission, they likely can convince a majority of the commission to do so. 

Ripple may also appeal since its executives could be found liable for playing a part in the illegal sale of securities. Judge Analisa Torres, of the U.S. District Court of the Southern District of New York, ruled that over $700 million worth of XRP sales to institutional investors broke securities laws, but that other XRP sales did not. 

An appeal of Torres’s ruling from either side would go to the Second Circuit Court of Appeals. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Cosmic Wire, a web3 company focused on developing technology that enables “seamless data transfer and interoperability across different blockchains,” raised $30 million in a seed round of financing led by Solana Foundation and Polygon.

The company, selected to participate in Google Cloud’s web3 startup program, hopes to use the investment to improve its ecosystem while helping users to exert better control over their data and online interactions, according to a statement. The program will provide Cosmic Wire with “customized resources” and “entry into Google’s web3 ecosystem,” the company also said.

Cosmic Wire considers its proprietary technology to be “the backbone operating system for the web3 ecosystem.”

Based in Miami, Cosmic Wire is led by founder and CEO Jerad Finck. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Senators of both parties who oversee the Securities and Exchange Commission pressed SEC Chair Gary Gensler to crack down even harder on crypto companies. 

Sen. Dick Durbin, D-Ill., the second-highest ranking Democrat in the Senate, used much of his question time with the regulator during Wednesday testimony to criticize the crypto industry and push Gensler to be more aggressive in policing it. 

“They spent billions on sports arena or stadium naming rights deals to gain misguided credibility with everyday Americans and manipulate prices with phony tokens of no underlying value,” Durbin said, while also noting accusations levied at FTX, Binance, and others of failing to adequately protect or safeguard customer assets. “This is happening over and over again. This doesn’t sound like America.” 

Durbin also flagged efforts by the industry to lobby Congress, saying he never asked for money from the industry but was surprised to see that his campaign received $20,000 from the sector. Failed crypto mogul Sam Bankman-Fried was one of the biggest political donors in the U.S. during the last two campaign cycles, primarily to Democrats, though he claimed in an interview that he also secretly gave millions to Republicans. Some of the charges brought by federal prosecutors against Bankman-Fried allege criminal campaign finance violations. 

“I hadn’t asked for it and didn’t realize I’d received it,” the Illinois Democrat said. “But they are playing everywhere they can to buy influence in the process.”

Durbin then pressed the SEC chair about how to “protect American consumers from cryptocurrency in the future”.  

Though Gensler agreed that there was “a tremendous amount of bad actors in the field,” he defended the underlying technology while asking for more funding for his agency to police the industry.  

The SEC chair criticized the combining of different market functions at trading platforms, reiterating a point he’s made before that “we would never allow the New York Stock Exchange to also trade against their customers.” 

Criticism over FTX, rulemaking

Sen. John Kennedy, a Republican from Louisiana, questioned Gensler as to why he didn’t seek an emergency injunction to force failed crypto giant FTX to pause operations before the company collapsed in November. The agency recently sought, but did not obtain, a full injunction to pause operations by Binance.US. 

“Why didn’t you do that? That’s what we pay you folks to do,” Kennedy asked, while also referring to failed crypto mogul Sam Bankman-Fried as “the fourth runner up in a John Belushi lookalike contest.” 

Gensler essentially responded that investigations take time.

“We investigate by the book. You, I’m sure, and the American public, want us to follow the facts, follow the law, properly get people subpoenas,” adding that investigation targets “effectively burn clock.” 

Sen. Bill Hagerty, R-Tenn., questioned Gensler about companies and developers leaving the due to friction with the U.S. legal system. Hagerty couched his remarks partly in the industry being easier to monitor, and regulators being better able to prevent projects from scamming customers, if it is largely in the U.S. 

“What I’ve seen happen just this year alone, is that U.S. share of stablecoin volume has gone down, U.S. blockchain developer jobs have decreased here in America, and I think what’s happening is that industry players are migrating overseas to other jurisdictions where the rules of the road are clearer,” said Hagerty. “If we had a robust rule set here, would we have the ability to track the illicit actors that operate here in America and is there a way for clarity?” 

Gensler responded that industry is largely leaving because the industry is “built in-part on a business model of ‘catch us if you can,'” adding that projects and firms seek “regulatory arbitrage” by setting up in countries like the Bahamas seen as having less active financial regulation and law enforcement. 

The SEC chair compared most tokens to venture capital investments. 

“Most venture capital investments fail, just statistically, so many of these tokens, if you think of them a bit like startups, are likely to fail, and yet they’re not making full, fair and truthful disclosures to the investing public,” said Gensler.  

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin’s stall despite the recent wave of positive news is a cause for concern, one observer said.

Ripple scored a partial win against the SEC this week that has been cheered on industry-wide. Why does the project itself remain so controversial?

The value of its bitcoin holdings remained at $184 million.

Securities and Exchange Commission Chair Gary Gensler called crypto markets “the Wild West” while asking senators for an additional $109 million for his agency’s enforcement budget. 

The additional funding, if granted by Congress, would bring the SEC’s enforcement budget up to $1.4 billion.

The SEC brought more than 750 enforcement actions across the markets it regulates in the 2022 federal fiscal year, which runs from October to the end of September. That was a nine percent uptick from the same period of time the year before, and the actions resulted in $6.4 billion in fines and disgorgements. 

“Meanwhile, rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space. Addressing this requires new tools, expertise, and resources,” Gensler told senators in his opening testimony before a subcommittee of the Senate Appropriations Committee. 

Technological costs

Gensler’s also asking for $393 million from Congress for technological costs. That includes data analysis and cybersecurity, in addition to other needs. 

“To put these figures in context, this spending is dwarfed by what some of the biggest market participants spend in a month on technology,” he told the senators.

In total, the SEC chair wants to bring the agency’s funding across all divisions up to $5.1 billion from $4.7 billion this federal fiscal year. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Tk

The possibility the SEC will approve the conversion of GBTC into an ETF is playing a role in the discount narrowing, according to analysts.