Deep Dive 275 –Examining the SEC's Approach Towards Crypto

WEBVTT
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Regulation after regulation. There all dated
regulations that need to be changed one hundred
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and eighty five thousand pages now public
accountability and transparency. There will be no
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public supports. It's really the best
we can do. There's a regulation that
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doesn't make any sense. Why do
you keep Do you know who wrote the
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regulatory laws you must comply with?
Welcome to the Regulatory Transparency Projects fourth Branch
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podcast series. All expressions of opinion
are those of the speaker. On August
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sixteenth, twenty twenty three, the
Federalist Society's Regulatory Transparency Project hosted a virtual
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event titled examining the SEC's Approach towards
Crypto. The following is the audio from
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the event. Good afternoon, and
welcome to this Regulatory Transparency Project webinar.
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My name is Colton Grab I'm the
deputy director of our TP. As always,
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please note that all expressions of opinion
are those of the guest speakers on
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today's webinar. If you'd like to
learn more about its fort speakers and the
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work, you can visit project dot
org, where we have the full bios.
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After discussion between our panelists, we
would go to audience Q and A,
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so please enter any questions you have
into the Q and a function at
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the bottom of the r zoom window. This afternoon, we'll please to host
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a discussion on the SEC's ongoing lawsuit
against coin Bates. The case they will
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no doubt influence the legal answer group
of crypto asset training and securities laws well
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into the future. We're very thankful
to JW who is the Sociate Professor of
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Law at George Mason University and council
at Lawrence Law LLC from moderating today's conversation.
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JW, I'll pass it off.
He'd introduced Paul and Stephen and kick
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things off. Thank you so much. I really appreciate the opportunity to be
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here with you, and the opportunity
to be here with Paul Grewall and Steve
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Paley for a discussion today about the
future of the SEC's regulation of crypto digital
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assets in the way of particular cases, high profile cases including SEC versus Ripple,
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in which the SEC is partly lost
and the defendant partly one the ongoing
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litigation of SEC versus coin Base.
We have a perfect group today to discuss
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those issues. I want to introduce
Paul grew Wall is the General Council of
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coin Base. Paul is a former
federal magistrate, so it's I think it's
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a powerful thing when you have in
your corner, is in the GC suite,
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a form of federal judge, and
you can bring some perspective unique here
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if you're if you're involved in crypto, you understand that coin Base is place
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and this litigation has implications for everyone
developing in the crypto space and owning crypto
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assets. Welcome Steve Pally today from
Brown Ruddick. Steve is a great person
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to have on this panel. The
Federal Society webinars have tradition and a policy
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of balance. Balance is essential to
our discussions. I really like having Steve
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here today. I'm looking forward to
this discussion because Palli is who I go
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to for balance. After the Ripple
case, I got very excited. I
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was ready to go to the moon
by Peppe and Dodge Coin and everything,
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and Palli was the sober voice saying, well, let's hold on. This
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is interesting, but let's think through
the doctrine. Let's think through the appellate
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risk, the risk of sec over
turning on appeal and all that. So,
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but at the same time, Steve's
crypto native, and I watched him
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defend fight for an amicus brief in
the ukidal case, and I watched him
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fight like a lion for DAOs.
So Steve, welcome and welcome for that.
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Thank you for that balance that you
bring to our discussion. Yeah,
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it's good to be here, good
to be here with both of you.
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Decide a discussion a little bit with
an intro, and then we'll jump straight
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into a question and then as we
go through our questions, I'm really hoping
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all of you can ask some questions, some continued questions to put in the
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chat, and we'll jump to those
as soon as we can. Already one
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that's jumped in about board eight yacht, so awesome. Here we go to
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set up a little bit of the
history, and this is very limited history,
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and I'll move it to Paul to
elaborate on that. Coin Base was
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the first crypto exchange to go public. So it filed an S one with
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the SEC. It's listed on a
national stock exchange. It's a publicly traded
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company, subject to audit, subject
to Sarbanes Oxley. When they filed the
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registration statement, they described their business, they describe their business model, They
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said we're going to be a crypto
exchange. Of course said a lot more
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than that. It's a big registration
statement, but they said this is our
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business model. A few years later, the SEC makes some speeches. SEC
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leadership makes some speeches and says we
need legislation to have jurisdiction over crypto exchanges.
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And then particularly after FTX happened and
that particular exchange offshore exchange went down,
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the speeches from the SEC changed and
they said we have all the authority
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we need and they need to come
in and register. And then we saw
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along with the case and SEC versus
RiPP war, the SEC partly lost and
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partly one. We saw the SEC
earlier this year file a case against coin
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base. Uh. The SEC has
an outgoing in an outstanding case as well
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a number of different cases against exchanges. They's just settled one with bit tricks.
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But you know, a lot of
that is kind of tangential at the
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core. I think of these issues
is the coin based case fascinating. I
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recommend to everyone brief recently filed so
representing coin Base, Waxall, Lipton and
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Sullivan Cromwell, two leaders in in
in litigation of all types, has a
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fascinating motion for I'm gonna forget now. Was it summer judgment or most motion
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to dismiss one of those two questioning
for judgment on the pleadings to a call.
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There you go most, some sort
of in between dish fascinating motion that
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I recommend everyone. So that's the
setup for kind of where we are.
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Let me start with a question just
kind of alternate between my panelists here.
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Let's start back from the history,
starting with Paul. Was there anything from
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the S one filing process? Kind
of familiar with how that goes. You
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get a bunch of comments from the
SEC you try to respond to which you
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can respond to. It's always useful
to try to respond to everything adequately and
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fully. Was there anything from that
process? That's one process that led you
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to believe that they were later going
to sue you for the business model that
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was described in the so JW.
First of all, me just say thank
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you for having me and Steven.
It's always great to speak with you as
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well. I've admired each of your
writings on all of these topics for a
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while, and it's like a pleasure
to have a chance to kick around and
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debate some of these issues real time
with others interested in these topics. JW.
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Just to answer your question directly,
No, there was literally nothing from
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the S one process that suggested that
a short while later a coin base would
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be suited for operating essentially the same
business as was subject to extensive and exhaustive
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review as part of the S one
process. In fact, quite the opposite.
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Over the course of the registration process, as one might expect, we
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received a number of questions and comments
from the SEC. I think it was
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something like over eighty separate questions and
comments. That wasn't a terrible surprise to
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us, after all, we were
the first major crypto company to go public
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or attempt to go public in the
United States, and really the only feedback
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we received at all from the SEC
was a request for our legal analysis of
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our staking product and services, and
of course we provided that, and shortly
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thereafter they closed out the issue.
We we of course included a language about
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the uncertainty of our products and the
legal status of our products and services,
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which is of course rather normal,
rather typical than as one process. But
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as a result of all that,
end of it all, we were allowed
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to list as a public company,
and of course when our registration statement was
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declared effective and in fact accelerated,
the SEC necessarily made a determination, as
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they are required to by statute,
that the registration and its effectiveness was in
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the public interest and consistent with the
protection of investors. He mentioned JW that
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a few years later the SEC changed
its tune. I have to correct you.
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It wasn't a few years. It
was really remarkable that just a few
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weeks after the SEC allowed us to
list publicly, the Chair of the SEC
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testified before Congress and in that testimony
stated unequivocally that there are no regulatory authorities
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applicable to cryptocurrency exchanges like coin base, and specifically noted and urged that Congress
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act to fill that regulatory gap.
So the change in tune would be remarkable
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under any circumstances, but particularly in
light of the fact that we were allowed
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to list, particularly to the fact
that after that listing decision, and while
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mister Gensler observed as Chair of the
SEC, he told Congress that he didn't
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have the power that he's now claiming. A short while later, Steve,
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the SEC's response is something to the
tune of look when we bless your us
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One we're not blessing your business model. We just said the disclosures are accurate
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as far as we can see,
or we don't see any inaccuracies, or
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something like that. But they're not
blessing a business model. They say.
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You know, for example, marijuana
business is listed and there's a whole morass
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of federal issues with marijuana businesses.
So we're not up pinning on that with
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the sec. We can't. We're
not giving you legal advice. It's another
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way they often like to describe what
we're doing. But this is also unique
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on the other hand, because this
is about the very thing that they regulate,
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the specifically to the regulate. So
it's not that analogy is not quite
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appropriate either. This seems like people
to implicate kind of equitable defense, is
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fair notice or something along those lines. But usually when you throw those into
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a defense in AXTEC enforcement defense,
that's like a long shot, right,
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we know that in historically, So
what do you think about about all this,
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about how the how, what's the
significance of the S one filing and
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the about facing policy and all that
for the enforcement case. The concept of
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regulatory estopp all comes to mind too. So here's what's interesting to me.
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I have to admit when I first
read that, I thought, well,
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you know, the SEC is going
to say it doesn't approve of a business,
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and maybe there's there's sort of a
difference between what's maybe technically in a
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narrow sense, correct, and what's
fair. And one of the things that
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I noted from the hearing one of
the hearings is that the judge looked at
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the SEC and said, come on, like you saw the filing, you're
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really going to tell me because it's
not in the interest of people who own
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the stock and have purchased it for
suddenly for the company to be taken out.
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So there's like kind of an equity
and fairness issue that I think makes
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the SEC's argument. It's like one
of those things like if you send up
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in court and argue, I mean, I'm sure Paul that you've done this
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before, like you might have like
a sort of technically correct statement, but
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it just doesn't make any sense,
and that will in some instances that will
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give a judge a reason to find
a way to rule against you, because
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it doesn't it's in It is actually
an absurd result for the SEC to say
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that the very business that it who's
s one it approved is actually unlawful when
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it had all of that information originally, including staking which is challenged in the
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lawsuit, including uh, you know, the listing of the assets. So
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I don't you know. You could
also say, look, you know,
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the part of the SEC that governs
approval of best ones is not the same
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as the part that handles enforcement.
It's apples and oranges. But you're just
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gonna deal with the federal judge looking
at you and saying, really, like,
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how is that fair? I also
think about the composition of the Supreme
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Court and how this particular Supreme Court
might look at that argument. It doesn't
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even if the question of fairness to
coin base we're relevant. There's a question
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of fairness to people who are investors. So I think that's a that's a
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hard one. I'm not sure i'd
want to be the SEC lawyer arguing that.
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So again, this is like this
difference between like technically correct and fair
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and equitable. That's how I come
down on it. Yeah, if I
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can just quickly respond Steve, and
I obviously agree with what you've said,
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it's would be it would be one
thing, For example, if the nature
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of our business were to involve ourselves
in gambling or gaming activities, or you
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know, offer marijuana dispensaries all over
the country where the legal status is unknown.
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Literally, the issue you know,
in our business at the SEC now
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takes exception to is securities, which
is literally in their name and their primary
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responsibility. So I do think that
this is a certainly an equitable issue,
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but also an issue that goes to
the heart of just what makes good sense.
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And I think that what we saw
in our first appearance before the judge
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in our case, Judge Faila,
is that judges are responding and reacting with
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in the same way. Yeah,
it's a tough one. I mean,
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the question is, and you know, of course I hope things go coin
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bases a way. The question is, is that going to overcome the arguments
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to which you know, great responses
have been have been set forth with great
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argument with But is that in and
of itself kind of overcome arguments about the
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Exchange Act and compliance with the Exchange
Act? And I'm not I think the
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jury is maybe still a little bit
out on that, but it definitely makes
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it harder for sure. All right, let's talk about how coin based approaches
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listings on the exchange, you face
an impossible problem. In a normal world,
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the SEC would say, here's the
clear rules for what is and it's
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not a security. We have a
situation we know where the CFTC and the
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SEC chairman are saying different things.
Ginsler seems to say that ethereum is a
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security, though when the past he
said it is not. Before he was
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chairman. CFTC chairman has said it
is a commodity, not of security in
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the sense of those those commodities that
are not also securities. I also should
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have mentioned earlier speaking of the CFTC
that today there's news about coin based getting
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approved for a futurest products for bit
bitcoin and an ethereum. Is that correct,
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Paul? That is correct. We're
very excited about that announcement. Congrats
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on that. So can you tell
me a little bit about how you approached
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the listening process in that framework of
uncertainty and how that will change. It
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seems like the Ripple case has some
tidbits that you'd want to include in that
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framework going forward that are favorable to
your position. And then there's a weird
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scenario of like if you make a
listing determination while the Ripple case is still
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good law, but then it gets
overturned later. But you relied on the
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lowercase in the listening decision. This
could get very meta, very quickly and
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resulting liability even though you're trying to
do the right thing. So how do
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you approach that and what are the
risks and how is it going to change
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going forward, especially post ripple.
Well, we are trying to do the
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right thing. And before I explain
how we think about reviewing assets before we
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listen on our exchange, I have
to point out, JW that the absurdity
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of the SEC chairs position one is
even even even worse than what you describe.
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The Chair of the House Financial Services
Committee in an in a hearing asked
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the SEC chair point blank, is
etha security or not? And he refused
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to answer the question over and over
again, and particularly against the backdrop of
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the chair of the CFTC taking the
opposite position and the history of the SEC
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chairs own statements before he became the
SECAs here this becomes I think, sort
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of a comedy at some point for
regular people just trying to understand how do
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I comply with the law now as
to our own listing process. The fact
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of the matter is that we do
review each and every asset that we consider
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for listing rigorously, and we examine
not only the assets legal status, but
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also whether or not we're able to
apply our compliance frameworks effectively to the asset,
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And of course we consider the cybersecurity
and information security risk of each asset
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before we allow our customers to trade
in it. That entire process of reviewing
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assets involves dozens and dozens and dozens
of professionals in compliance in cybersecurity, and
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of course many many lawyers, and
as a result of that process, we
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fundamentally and ultimately reject something like ninety
percent or more of the assets that are
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listed. So when the SEC chair
and others suggest that, just as a
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matter of straight math, there must
be some securities among the couple of hundred
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assets that coin based and perhaps other
exchanges list, he utterly ignores the denominator
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of that equation and focuses exclusively on
the numerator. Now you highlight the fact
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that given this uncertainty, our substant
legal analysis is challenged and challenging. To
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put it gently, it is certainly
the case that when it comes to how
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we we now have I think important
case law coming from the Ripple case that
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we must consider when it comes to
evaluating whether or not listing these assets on
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a secondary exchange like coin base somehow
implicates the thirty three Act of the four
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Act or anything else under the federal
securities laws. Up until this point,
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we have done the best that we
can with the guidance, the paltry guidance
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of the SEC has put out,
and the very limited cases that have an
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issue, largely in the context of
primary issuances. But I think it's fair
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to say that I'm judge Torre's decision, and to be fair, other more
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recent decisions calling the question whether many
or any of these assets can be considered
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part of securities transactions when listed on
secondary exchanges like ours. I actually have
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a question. I don't know if
this is something you can speak to and
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if you can, just I guess
you can say so. I don't mean
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to take over the commentator rule JW, but I'm curious. It seems like
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one of the things that the SEC
does and it's complained. It says,
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well, you have this crypto ratings
council that gave out numbers, and you
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know it uses that against you.
And I guess there's a question of I
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don't doubt, and I know for
a fact that coin base does a very
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comprehensive and throw analysis of assets before
listing. But I guess the question is
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is this something that at some point
in the future would be more appropriately done
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through some sort of self regulatory organization
And by an SRO, I mean something
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that has basically delegated statutory authority.
The problem if you try and do on
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your own, I mean, I
guess the analogy is underwriter's Laboratory, which,
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for those who don't follow it's it's
basically something created by insurance companies to
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rate things like light bulbs or electrical
appliances, and they have it. There's
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a benefit to everyone following the UL
standards and testing. It means you have
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fewer fires. If you have fewer
fires, you have, you know,
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fewer losses. So there is some
like in the construction business, there's some
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precedent for private organizations. But how
do you come out on that. Does
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it make more sense for these things
to be done in a coordinated way privately?
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There may be some antitrust issues,
I suppose, or would you be
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do you think something like an s
like FINRA or the NFA make more sense.
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I think an s Stephen could work
and maybe should work on a going
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forward basis. As you point out, SROs do require delegated authority by statute,
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so it would be contingent upon Congress
acting, and as we all know,
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that can be challenging at times,
particular when it comes to digital assets
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and cryptocurrency. But the concept makes
a lot of sense because, of course
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there are digital assets that are securities. I think sometimes the industry's view is
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caricatured as rejecting the premise entirely that
at least certain assets could qualify as investment
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contracts or securities under certain circumstances.
Coin Based certainly rejects that view. It's
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one of the reasons why we reject
ninety plus percent of the assets that we
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consider. But I have to also
point out that you know, you mentioned
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the Crypto Ratings Council and our other
efforts to evaluate the legal status of the
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different assets that we review. It
is serious, I'll put it gently that
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coin base or anyone else, in
my mind, would be criticized for carefully
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vetting and evaluating assets for their legal
status and then have that process or commitment
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thrown back in its face in a
federal complaint or in some other setting.
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I thought, as good lawyers,
our job was to study the law and
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give our clients advice on whether or
not a particular action might violate the law.
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To somehow now use that as evidence
that an issue or a project or
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God forbid in exchange with somehow looking
to evade the law, I find creates
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all sorts of horrible incentives to avoid
the law and avoid scrutinizing assets before trading
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in them. I mean it says
it makes it. It makes the concept
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of a yes or no much easier, because the thing I wondered about at
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the time was like, okay,
it's a three. If I were an
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SEC enforcement lawyer taking a deposition,
if somebody I'd say, so, you
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didn't know you thought it might be
so like having an SRORO given up or
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down it, or like giving an
up or down. I suppose institutionally,
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like the challenge that you run into, you have a Hobson's choice right if
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you do it throw analysis and there's
any little bit of doubt. Unless you've
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got sort of blanket privilege protection or
work product protection, you run the risk
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of in your analysis tilting things to
either be unambiguous when the world is full
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of ambiguity, or creating an evidentiary
record that you're going to get subpoena in
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an investigation. I think it's I
think that's right. And and again,
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speaking as candidly as I can,
I think what it naturally does is it
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pushes exchanges and others to adopt the
most conservative view possible, such that if
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there is any question or any doubt, as you point out, you know
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the default will be not to list. And I think you know the fact
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that ninety percent or more of assets
that we consider are rejected certainly consistent with
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that. I don't think that's ultimately, I'm consistent with the legal status of
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many of these assets under the law. But of course we're going to act
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prudently and cautiously until we get some
clarity. It's one of the reasons why
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for several years now we've been begging
the SEC for simple rules that would tell
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us what the standards are and allow
us to make much more thoughtful, considered
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judgments than we've been able to make
up until this point. That's a great
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seguey the next thing I want to
talk about, so point based filed for
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a request for rulemaking last summer with
a lot of really substantive, thoughtful questions.
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I'll choke my own horn for a
second. So six months earlier I
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did the same thing. So I'm
I'm I'm a comment request junkie, roommaking
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a question junkie. But to your
credit, mine was not nearly as thorough
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or thoughtful. Mind was just throwing
a few things at the wall. But
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you guys really ran with it and
had an extensive set of questions that a
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normal SEC would have been willing to
engage in. I mean, over the
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eighty plus years of its history.
Normally, no matter who the chairman is,
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which party, normally, the way
the process works is twofold. First
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issues come up, you go to
fin you ask for a no action letter,
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and you say, look, I'm
not trying to defraud everyone. I'm
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not trying to evade REGs. Here's
how I interpret the REGs, here's what
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I'm building, And as long as
it all seems good faith, generally speaking,
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Court Finn would say, here's your
no action letter. As long as
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you do exactly what you said,
we're not gonna take action against you.
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That's what a good faith regulator does
and then as issues would bubble up and
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become more comprehensive than the SEC would
do an interpretive release. Take the old
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rules to adapt them for something new. They've done it with reggae b They've
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done it for master limited partnerships,
They've done it for in the in the
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IC space, they've done it for
reads. I mean, there's all kinds
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of examples of this adaptation, but
that's not what we got. What we
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got is if you go to court
fin they say no, and then they
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immediately refer your project to enforcement,
which is the opposite of a no.
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Actually it said it's an action.
It's the opposite. Just dynamic of the
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SEC's history. So you asked for
some some rulemaking. I've been on different
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lawyer groups, crypto lawyer groups,
SEC alumni, big law and alumni where
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we think what should the right listing
magime look like? And we think it
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through and we come up with model
agreements and model disclosures, and none of
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this is going anywhere despite the brain
power ready to do it. And as
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I understand, some groups inside the
building that have done projects like that that
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have just not bubbled up to the
tenth floor can we get past this?
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How do we get past this and
get either an exempt path for exempt offerings
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or an adapted path four third THREECK
listings, but adapted like reggae B.
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The Chairman has mentioned reggae B,
but he hasn't done anything building on that
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idea. He does has mentioned it, he knows it exists, but he
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hasn't built anything on it. What's
it going to take to get us over
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the finish line? I guess is
it? Is it possible? And maybe
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even without asking you for politics of
the current situation, what would it look
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like like? But building on your
prior requests for public rulemaking, what sort
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of components would an optimal exemp regime
or a listening regime kind of look like?
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Throwing a lot at you guys and
seeing what you think about all that.
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Well, I'll jump in, and
I suspect Stephen has some thoughts about
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this as well. First, JW, just to recount a bit more of
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the history. You referenced our own
petition for rolemaking. I will note that
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we were not the first. You
were ahead of us in that regard,
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and full credit to you for seeing
that this is an issue that required a
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roulemaking. Well, before many others. We filed our petition in July of
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twenty twenty one and asked, as
you point out, something like fifty or
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more specific questions that we thought needed
to be answered in order for there to
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be a comprehensive or at least effective
registration framework adopted here in the United States
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that would allow cryptocurrency exchanges and others
to come inside of the regulatory perimeter and
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registered, which is what the SEC
has said it wants for some time,
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it was, i will put it
gently again, disappointing that after many months,
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we received no response, no reaction
whatsoever to our petition. And of
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course, in parallel with that public
petition, as I've talked about in many
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other settings, coin Base engaged in
private conversations with the SEC to lay out
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our views on what a constructive registration
framework might look like. We had something
359
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like thirty separate conversations and other engagements
with the SEC over many, many months.
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And yet when it came time in
those private discussions for the SEC to
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react to what we had shared and
to offer its own views on what issue
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or disclosures might look like, how
we might look to models like regg ab
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and others and apply them in the
digital asset context. We were politely thanked
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for our time and escorted out of
the building. It was shocking to me
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that that that the Commission would operate
in this fashion. And you know,
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it was one of the reasons why
JW that you know, after well over
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a year almost now two years have
passed over two years. If I'm doing
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my math right, you know,
we felt we had no choice but to
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file a petition with a Third Circuit
Court of Appeals requiring the SEC to give
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us a simple yes or no answer
to our yes or no question of whether
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rules will issue for digital assets.
And it was extraordinarily gratifying to coin base
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that, rather than simply dismissing the
petition as one would expect, the bars
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high the agencies are generally given great
discression on how to manage their docket.
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The Third Circuit started asking questions and
in fact put it to the SEC to
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explain when is an answer going to
come? And in response to that,
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the SEC made some loose commitments to
provide recommendations by October. And so the
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Third Circuit said, great, we're
gonna hold you to that. You're going
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to tell us where things stand.
In October. So all of this suggests
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that everything we have observed and experienced
is hardly normal and hardly consistent with the
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mandate of the Commission to promote efficient
markets and protect investors and all of the
381
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things that the Chair loves to spout
in every one of those speeches. It's
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just not possible to square those high
minded references to the SEC's goals with the
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reality of what companies like ours are
facing when we try to come in and
384
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have a conversation. I gotta say, as I'm kind of a civil procedure
385
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drunkie, and I've litigated mandamus and
prohibition cases in the past. I did
386
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win one in Missouri state court years
ago involving his owning issue. Like it
387
00:29:41.480 --> 00:29:47.799
was a it was a it was
a cool tactical move. So for those
388
00:29:47.839 --> 00:29:51.960
who are on the call who aren't
familiar with the practice, basically what coin
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Base did was I'm sure and obviously
you can't say this. You probably had
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a pretty good idea that a lawsuit
was going to get filed. So before
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that happened, coin Base said,
we ask you to make for rules.
392
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It's been two years. We're gonna
the reason that coin Base ask for a
393
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writ was because you can't appeal the
denial of the request for rulemaking. I
394
00:30:15.039 --> 00:30:18.839
have this happening in other case involving
loan forgiveness. You can't, like if
395
00:30:19.160 --> 00:30:22.200
the government doesn't act, how am
I supposed to appeal? So there's this
396
00:30:22.319 --> 00:30:26.880
interesting parallel thing happening. And I
think like the answer like the you know
397
00:30:27.680 --> 00:30:30.839
the SEC is saying no, then
coin Base could then take an appeal and
398
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could raise apa issues and could take
it up to the Supreme Court and then
399
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maybe be able to squarely address things
like the major questions doctrine and sort of
400
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more more fully to litigate the issues. But I don't know. I thought
401
00:30:45.839 --> 00:30:49.400
it was as a as a as
a rules guy. The writ process is
402
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really interesting because you can use these
things. If the government doesn't act,
403
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you can ask a court to order
an agency to act, or if the
404
00:30:59.680 --> 00:31:02.359
government is acting in a way that
it's not supposed to be doesn't have an
405
00:31:02.400 --> 00:31:03.519
authority to do that, you can
get a court to prohibit that. So
406
00:31:03.599 --> 00:31:08.000
it's kind of a it's I don't
think I've seen this particular fact pattern before,
407
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like procedurally, it's it will be
interesting to see how it plays out,
408
00:31:11.759 --> 00:31:17.240
and I'll also say, I was
surprised that the Third Circuit said We're
409
00:31:17.279 --> 00:31:18.759
going to need to come back to
us and like tell us what the deal
410
00:31:18.880 --> 00:31:23.000
is? There is this and I
guess maybe it goes beyond this. But
411
00:31:23.039 --> 00:31:27.200
one of the questions, and this
will be talking about, is the major
412
00:31:27.359 --> 00:31:33.839
questions doctrine and how that played out
in a recent case involving the EPA and
413
00:31:33.680 --> 00:31:38.200
power plant emissions. It would certainly
be interesting to see that litigated here with
414
00:31:38.319 --> 00:31:44.200
the current of current composition of the
Supreme Court that we have. Yeah,
415
00:31:44.319 --> 00:31:48.160
Steve Paul, I'll let you,
let you say whatever you feel comfortable saying,
416
00:31:48.200 --> 00:31:49.799
but I want to be sensitive that
I don't want to ask you questions
417
00:31:49.799 --> 00:31:56.119
about your private trial strategy because that
would be appropriate just to keep with Steve
418
00:31:56.119 --> 00:31:59.839
says Steve. Are you saying I've
been trying to theorize my own arm chair
419
00:31:59.880 --> 00:32:04.440
with rising though I'm not as accomplished
uncil procedures you are about the strategy behind
420
00:32:04.480 --> 00:32:07.839
the early mandamus? Are you saying
you think that could that could be a
421
00:32:07.920 --> 00:32:14.680
vehicle for faster challenge up to Scotus
than the unforced connection is that the I
422
00:32:14.720 --> 00:32:21.559
don't I can't really speak to speed, but certainly, it makes it.
423
00:32:21.559 --> 00:32:25.559
It maybe puts the issue more squarely
before the court. I'm not sure,
424
00:32:25.640 --> 00:32:30.359
but it's kind of like you have
two ways of getting that issue in front
425
00:32:30.400 --> 00:32:35.960
of the Supreme Court. You have
this individual case where a where a trial
426
00:32:35.960 --> 00:32:38.680
court judge and an appellate judge and
a Supreme Court. The Supreme Court will
427
00:32:38.680 --> 00:32:44.519
have an opportunity to evaluate whether that
doctrine applies here, and then you have
428
00:32:44.680 --> 00:32:50.559
the same issue potentially raised and a
challenge to the procedure being used under the
429
00:32:50.559 --> 00:32:53.160
Administrative Procedure Act to issue rules.
So it's kind of like, sort ofly
430
00:32:53.680 --> 00:32:59.359
you get two bites at the apple. It also it gives coin based the
431
00:32:59.359 --> 00:33:07.279
ability to to essentially be a plaintiff
and to create and craft the narrative in
432
00:33:07.319 --> 00:33:13.880
the mandamous action and in a in
a potential Administrative Procedure Act appeal. It's
433
00:33:13.880 --> 00:33:16.759
an interesting I don't know, tactically, it's a it's an interesting way to
434
00:33:16.799 --> 00:33:22.680
approach it. There's so much I'd
love to be able to share that I
435
00:33:22.799 --> 00:33:27.480
can't for obvious reasons, but I
will. I will say that, you
436
00:33:27.519 --> 00:33:32.799
know, I do think that I
do think that it's important that the SEC's
437
00:33:32.880 --> 00:33:38.559
actions be as much on trial in
this dispute as anything coin Base has done
438
00:33:38.640 --> 00:33:43.920
or failed to do. And I
do think that again, to put it
439
00:33:44.000 --> 00:33:49.920
charitably or generously, very odd procedural
responses or lack of responses from the SEC
440
00:33:49.960 --> 00:33:58.160
are relevant and do matter to understanding
what's what's happening here. Ill, after
441
00:33:58.240 --> 00:34:00.839
this is all over, we'll do
another went Paul, and we'll post game.
442
00:34:02.240 --> 00:34:06.359
Sign me up, Sign me up. Yeah, I certainly did notice.
443
00:34:06.400 --> 00:34:09.800
I mean, I've followed Jean Scale's
work for a long time, and
444
00:34:09.920 --> 00:34:13.159
you know, when when there was
first filed, there's a lot of chatter
445
00:34:13.199 --> 00:34:15.920
among our crypto law friends that said, oh man, Davis never works,
446
00:34:15.960 --> 00:34:21.840
and it said, guys, Gene
is defeated the SEC at the DC circuit
447
00:34:21.920 --> 00:34:25.199
like three times or something. I
wouldn't count him out. He's got a
448
00:34:25.239 --> 00:34:29.920
plan. He always has a plan. So it'd be fascinating to watch that
449
00:34:29.960 --> 00:34:37.159
component of this as it plays out. So, you know, another thing
450
00:34:37.159 --> 00:34:39.920
that occurs to me, and I
wonder if anybody wants to speak to this,
451
00:34:40.000 --> 00:34:44.719
is that one of the talking points
I've heard the SEC say and the
452
00:34:44.800 --> 00:34:51.119
chairman say about SEC versus coin Base
is that and this was true before they
453
00:34:51.159 --> 00:34:54.440
brought the case, we only need
to win on one claim token that is
454
00:34:54.440 --> 00:34:59.599
a security to then show violations of
the Exchange Act and to win our case
455
00:34:59.679 --> 00:35:02.199
or whatever. And he would threaten
this earlier he said, you know,
456
00:35:02.320 --> 00:35:07.360
surely one token on the exchange of
security, now that he's named specific securities,
457
00:35:07.360 --> 00:35:12.440
and now that, unlike most of
the time, it's pretty clear you're
458
00:35:12.480 --> 00:35:20.239
not going to settle. All it
takes is one alleged token that's shown to
459
00:35:20.320 --> 00:35:22.599
not be a security to create some
real problems for the SEC's use of how
460
00:35:22.639 --> 00:35:28.760
we're going forward well into the future. That's something that hasn't been talked about
461
00:35:28.800 --> 00:35:31.840
a lot, but that that that's
a risk for the Commission and the Commission's
462
00:35:31.880 --> 00:35:37.800
institutional interest in having a flexible how
we test going forward, not just for
463
00:35:37.840 --> 00:35:44.199
crypto but for everything that they use
that flexible cudgel for. They might want
464
00:35:44.199 --> 00:35:47.559
to speak to that risk for the
on the Commission side, I'll say a
465
00:35:47.559 --> 00:35:53.639
couple of things JW. And obviously
I can't speak for the Commission or claim
466
00:35:53.679 --> 00:35:59.920
to understand what anyone at the Commission
is thinking as they adopt and execute the
467
00:36:00.079 --> 00:36:05.760
strategy, But does anyone seriously believe
that long term institutional concerns are anywhere your
468
00:36:05.800 --> 00:36:12.400
top of mind or the SEC chairs
as they pursue this regulation by enforcement strategy.
469
00:36:12.880 --> 00:36:15.440
I certainly see no evidence of that, and I do think that there
470
00:36:15.440 --> 00:36:24.320
are significant risks to the flexibility and
the general ability of the Commission in the
471
00:36:24.320 --> 00:36:30.599
future to adapt to new technologies,
new markets, new facts and circumstances that
472
00:36:30.599 --> 00:36:36.039
are being put at serious risk by
this case and by the series of cases.
473
00:36:36.920 --> 00:36:40.679
The other thing, I'll just observe
on the one token alone being enough
474
00:36:40.679 --> 00:36:46.000
to vindicate or validate the SEC's views. I have to just remind everyone that
475
00:36:47.119 --> 00:36:52.320
when we asked as part of the
Wells process, tell us what tokens you're
476
00:36:52.360 --> 00:36:57.039
concerned about, identify, you know, the areas of concern that you have
477
00:36:57.159 --> 00:37:00.280
so we can speak to them over
and over again. The SEC refused to
478
00:37:00.280 --> 00:37:05.599
tell us what tokens they believe were
securities. Now what kind of wealth processes
479
00:37:05.679 --> 00:37:12.519
that. I understand that the SEC's
view is that there are many tokens listed
480
00:37:12.800 --> 00:37:17.320
on exchanges like ours that qualify as
securities. But to refuse in the face
481
00:37:17.400 --> 00:37:22.599
of a specific and you know,
as much as we could be humble requests
482
00:37:22.639 --> 00:37:25.199
is simply tell us what it was
that we were doing that violated the law.
483
00:37:25.599 --> 00:37:32.079
The Commission refused to even identify that
and only identified assets for the first
484
00:37:32.079 --> 00:37:36.639
time in a federal district or complaint. That's just a broken process. I
485
00:37:36.679 --> 00:37:39.119
don't I don't care what you think
about crypto or what your views are on
486
00:37:39.159 --> 00:37:43.599
the meaning of an investment contract under
the thirty three and thirty four Act and
487
00:37:43.639 --> 00:37:46.519
so forth. That's a broken administrator
process. And I think something else that
488
00:37:46.920 --> 00:37:52.239
we all have to ask you serious
questions about, regardless of our views of
489
00:37:52.280 --> 00:38:01.480
the merits of any one case.
Steve any thoughts. I mean there's a
490
00:38:02.840 --> 00:38:14.599
I think the sec and the administrative
state writ more broadly, are I think,
491
00:38:15.760 --> 00:38:19.599
under a little bit more of a
spotlight than they may have been in
492
00:38:19.639 --> 00:38:24.639
the last thirty years. There's another
case in which the use of administrative courts
493
00:38:25.599 --> 00:38:30.719
tribunals is being questioned. I think
there's an interesting balance, Like, in
494
00:38:30.840 --> 00:38:38.480
order for a large, complicated industrial
post industrial country to operate, it's unrealistic
495
00:38:38.599 --> 00:38:45.760
to assume that four hundred and thirty
five legislators, five hundred thirty five legislatures,
496
00:38:45.760 --> 00:38:52.159
that you can have a Congress create
laws that have all of the individual
497
00:38:52.280 --> 00:38:57.719
specifications that go into them unless you
broadly increase the size of the committees and
498
00:38:57.719 --> 00:39:01.679
you move agencies into committees at the
same time, there's there are some serious,
499
00:39:01.679 --> 00:39:09.320
I think constitutional issues about delegating authority
to people who have no accountability.
500
00:39:09.639 --> 00:39:16.039
I think one way that the SEC
and other agencies could protect their remit is
501
00:39:16.079 --> 00:39:22.000
that kind of is that kind of
transparency? I personally, I don't understand
502
00:39:22.559 --> 00:39:25.480
why they wouldn't say, yes,
these three are definitely securities and these are
503
00:39:25.480 --> 00:39:30.480
not. And here's why the notion
that, well, you don't just have
504
00:39:30.519 --> 00:39:34.480
to wait until we sue you.
How is that a good use of taxpayer
505
00:39:34.519 --> 00:39:37.039
money? Why not just say it
if you're going to put it in a
506
00:39:37.119 --> 00:39:40.599
lawsuit. It's like if I'm negotiating
and trying to resolve something, I generally
507
00:39:40.599 --> 00:39:45.039
tell people what the claims are so
they can see and I'll explain why it's
508
00:39:45.800 --> 00:39:52.320
not unreasonable to ask that here instead
of putting the onus on the other side.
509
00:39:52.559 --> 00:39:55.000
You know, one of the one
of the refrustrating things about SEC invest
510
00:39:55.119 --> 00:40:00.320
inquiries and investigations too is then going
forever and they're in normal mostly expensive and
511
00:40:00.360 --> 00:40:07.079
the notion of due process in that
context is pretty limited. And I think
512
00:40:07.079 --> 00:40:12.079
that's the issue that we face here
is the enormous power of the administrative state
513
00:40:12.599 --> 00:40:15.000
and maybe pushing at the boundaries of
what people are willing to put up with,
514
00:40:16.440 --> 00:40:22.519
which is why the weals Notice process
was developed to make sure to use
515
00:40:22.559 --> 00:40:30.239
that power responsibly. And the tone
of the wealth process has changed under the
516
00:40:30.320 --> 00:40:36.400
current Enforcement Director, and it just
has. And that's where we are well,
517
00:40:36.440 --> 00:40:38.920
And there's that we were talking about
this before offline. There's this interesting
518
00:40:39.039 --> 00:40:44.239
dynamic too, which you know,
litigators and I guess deal people see this
519
00:40:44.280 --> 00:40:46.679
too often. The way a matter
is resolved or the way a deal is
520
00:40:46.719 --> 00:40:52.079
handled depends on the personalities of the
people involved. And I'm not sure when
521
00:40:52.079 --> 00:41:00.760
it comes to state power that should
come into play. I think that individual
522
00:41:00.800 --> 00:41:06.400
personalities should not be a decisive determinative
factor. And it's difficult to say that
523
00:41:06.480 --> 00:41:09.119
isn't the case here. Well,
I'm actually quite certain, Stephen, it
524
00:41:09.159 --> 00:41:12.679
should not come into play. We
are, after all, supposed to be
525
00:41:12.960 --> 00:41:17.079
a nation of laws and not men. It seems like in this particular context,
526
00:41:17.519 --> 00:41:24.199
personality really is driving so much of
the agenda. JW mentioned earlier that
527
00:41:24.360 --> 00:41:30.639
just this morning, coin base was
approved to list certain futures contracts for US
528
00:41:30.760 --> 00:41:36.679
customers, and we're very excited about
that. That was a review process that
529
00:41:36.800 --> 00:41:39.360
was at the behest of the CFTC, the Commodity of Features Trading Commission,
530
00:41:39.719 --> 00:41:47.719
and the NFA, And I will
say that as rigorous and as exacting as
531
00:41:47.760 --> 00:41:52.239
that examination was, at the end
of the day, we had a regulator
532
00:41:52.440 --> 00:41:58.719
in the CFTC that was interested in
regulating, that was fundamentally focused on what
533
00:41:58.800 --> 00:42:01.679
makes sense for consumer, what makes
sense for investors. Let's hold this company
534
00:42:01.719 --> 00:42:07.239
and others accountable and two exacting standards. But at the same time, let's
535
00:42:07.320 --> 00:42:14.719
work to develop these markets in ways
that will keep the US competitive, that
536
00:42:14.760 --> 00:42:19.519
will allow Americans to have access to
products and services they want. It's just
537
00:42:19.559 --> 00:42:22.199
an entirely different dynamic than the one
we see at the SEC, where,
538
00:42:22.519 --> 00:42:28.000
even after thirty or more separate conversations, I'm still waiting to understand what was
539
00:42:28.039 --> 00:42:32.559
wrong with what we proposed and what
ideas the SEC had for bringing some some
540
00:42:32.639 --> 00:42:37.760
semblance of normalcy to these to to
digital asset securities markets. Yeah, I
541
00:42:37.800 --> 00:42:42.079
actually have a question. I don't
know, maybe Jady will leave you don't
542
00:42:42.079 --> 00:42:44.519
mind. I'd be interested in your
take on this as well, But I
543
00:42:44.519 --> 00:42:47.599
guess for both of you always always
run in a deposition, pally, I
544
00:42:47.679 --> 00:42:52.840
can't help it. I don't know
what the answer to this is. But
545
00:42:52.119 --> 00:42:58.440
so basically the complaint, the SEC's
complaint is in part, you're doing three
546
00:42:58.559 --> 00:43:04.320
things that in traditional purities markets are
required to be separated. You're acting as
547
00:43:04.360 --> 00:43:08.320
an exchange, which is a marketplace, a place where people can basically trade
548
00:43:08.320 --> 00:43:15.880
securities. You're also acting as a
broker dealer, someone who who traditionally connects
549
00:43:15.920 --> 00:43:20.239
buyers and sellers to the exchange and
a relacense to that. And you're acting
550
00:43:20.320 --> 00:43:23.800
is a clearing agency, which is
the entity that closes the deal and keeps
551
00:43:23.800 --> 00:43:27.639
the record. Now, I guess
the question is, like if we look
552
00:43:27.679 --> 00:43:30.559
at the way, if we look
at crypto and we look at crypto trading,
553
00:43:30.320 --> 00:43:35.679
these are concepts that we have from
one hundred years ago where technology was
554
00:43:35.760 --> 00:43:38.599
different, and like the law is
what it is now. But I guess
555
00:43:38.599 --> 00:43:45.880
the question is do we need like
should the law if we're spinning forward ten
556
00:43:45.960 --> 00:43:49.840
years from now, should we be
in a place where you don't need that
557
00:43:49.960 --> 00:43:54.000
you need one license because you have
likes. It creates a certain kind of
558
00:43:54.159 --> 00:43:59.880
inefficiency, It creates needless friction,
and it creates additional cost. Right,
559
00:44:00.079 --> 00:44:05.079
is everybody's taken a piece, Why
not just have one license that allows you
560
00:44:05.159 --> 00:44:07.800
to do all of that? Am
I missing something? I don't think you're
561
00:44:07.800 --> 00:44:13.159
missing anything at all, Stephen.
Look, I think there are historical reasons
562
00:44:13.199 --> 00:44:16.000
why we are approaching regulation in this
market here in the United States the way
563
00:44:16.000 --> 00:44:21.800
that we are, and there are
also technological reasons why that approach, if
564
00:44:21.840 --> 00:44:24.000
it ever made sense, no longer
makes sense. Right, the US is
565
00:44:24.039 --> 00:44:31.400
somewhat unique, after all in dividing
jurisdiction between securities and commodities into separate agencies,
566
00:44:32.000 --> 00:44:35.559
even just at the federal level.
Right when you talk to folks in
567
00:44:35.559 --> 00:44:37.880
the UK and across Europe and all
over the world, they sort of scratch
568
00:44:38.000 --> 00:44:42.800
their head that you would divide up
jurisdiction in this way. But you know,
569
00:44:42.800 --> 00:44:46.440
that's largely a function of history.
And of course, when you layer
570
00:44:46.480 --> 00:44:52.639
on top of the agency's fighting over
Church, the congressional committees that sometimes get
571
00:44:52.679 --> 00:44:57.079
been out of shape. When one
agency's authorities is usurped or believed to be
572
00:44:57.159 --> 00:45:00.519
usurped by another, it just becomes, i think, a political fight in
573
00:45:00.159 --> 00:45:04.360
a much more tangible way than would
be the case in many other countries.
574
00:45:04.960 --> 00:45:09.559
As far as the technology goes,
look, distributed ledgers and blockchain do work
575
00:45:09.599 --> 00:45:14.679
in fundamentally different ways. That matter, The fact of the matter is that
576
00:45:15.920 --> 00:45:23.840
blockchain based protocols offer insights and information
to purchasers and investors in ways that are
577
00:45:23.960 --> 00:45:29.679
simply impossible with traditional securities, whether
they are equities, bonds, or anything
578
00:45:29.679 --> 00:45:35.239
else. And you know, another
technological element of this market that I think
579
00:45:35.840 --> 00:45:42.599
is utterly irreconcilable with the securities laws
as we're drafted, you know, eighty
580
00:45:42.679 --> 00:45:45.559
years ago or more, is that
the assets can exist and do exist,
581
00:45:45.719 --> 00:45:52.239
independent of any initial issue or developer
of those assets, and that creates,
582
00:45:52.239 --> 00:45:58.320
I think, some different dynamics here
that the current laws don't accommodate. Again,
583
00:45:58.599 --> 00:46:01.559
we've always taken the view that this
market needs to be regulated. These
584
00:46:01.599 --> 00:46:08.519
assets do need and require disclosures in
order for investors and purchasers to have adequate
585
00:46:08.519 --> 00:46:15.079
protections. But all that suggests that
we should adapt our general frameworks to the
586
00:46:15.079 --> 00:46:21.480
particulars of this market and technology,
and do so through rulemaking and through a
587
00:46:21.519 --> 00:46:29.159
consultative process, not through backwards looking
court cases that provide only limited guidance years
588
00:46:29.239 --> 00:46:35.480
after you know, the underlying facts
have taken place. I know on the
589
00:46:35.519 --> 00:46:39.239
technology front, I've had my own
frustrations trying to talk to PCA will BE
590
00:46:39.840 --> 00:46:46.880
staff and leadership about Miracle Root reserve
proofing. And when I mentioned that,
591
00:46:46.960 --> 00:46:51.119
their eyes are like it's like I
just said, there's a flying elephant.
592
00:46:51.159 --> 00:46:53.440
You can write them. I mean, just they have no clue what I
593
00:46:53.480 --> 00:46:57.960
mean, even though like I'm like, this is a subtle thing. The
594
00:46:57.960 --> 00:47:00.199
one hand, it doesn't resolve everything, and there's been some comments from CZ
595
00:47:00.519 --> 00:47:07.559
that that that that or not uh
not not not substantiated. But at the
596
00:47:07.599 --> 00:47:10.119
same time, the weight cracking has
done it for the asset side. It
597
00:47:10.119 --> 00:47:15.760
allow us for crowdsourcing, allow us
for on chain sleuths to do things like
598
00:47:15.159 --> 00:47:22.320
Zach Zach OxT and all these on
the great on chain sluts in a way
599
00:47:22.360 --> 00:47:25.480
that replaces so much of what was
intended to be great by starvings Oxley.
600
00:47:25.480 --> 00:47:30.800
But does it better and does it
Is it fair to say, I mean,
601
00:47:30.119 --> 00:47:34.679
the simple talking point you'll get in
DC as oh well FTX happened.
602
00:47:34.679 --> 00:47:43.079
Therefore we must, we must regulate
and sue anyone who doesn't comply. Is
603
00:47:43.119 --> 00:47:45.079
it fair to say that if two
years ago, three years ago, SEC
604
00:47:45.199 --> 00:47:50.079
had sat down and done what you
asked them to do in the request for
605
00:47:50.079 --> 00:47:52.880
for rulemaking. I'll say it.
I think maybe FTX wouldn't have happened,
606
00:47:53.039 --> 00:47:59.119
or it wouldn't have been as bad
if there was a clear SEC registered platform,
607
00:48:00.519 --> 00:48:04.320
not just SEC somewhat approved through the
s one process, but a fully
608
00:48:04.360 --> 00:48:07.960
registered platform under a new active regime. I think we could have stopped some
609
00:48:07.039 --> 00:48:12.679
of the fallout of the bad actions
into day. I gotta push back up
610
00:48:12.880 --> 00:48:17.920
just a tiny little bit on that, because bad actors have existed with as
611
00:48:19.360 --> 00:48:24.559
they have been regulated and Ron made
off like. Being regulated doesn't prevent people
612
00:48:24.639 --> 00:48:30.840
from being total dipshits and criminals.
So I'm not sure that I think it's
613
00:48:30.880 --> 00:48:35.400
fair to it's fair to argue that
maybe the government was asleep at the switch.
614
00:48:36.039 --> 00:48:46.000
I think we also know people who
there are certainly people who were aware
615
00:48:47.239 --> 00:48:52.039
through their own open source research that
some of the collapses that we've seen now
616
00:48:52.079 --> 00:48:57.840
were inevitable, and if you had
a regulator who's focused on that, maybe
617
00:48:58.159 --> 00:49:02.039
it might be different. But I
think the problem with saying if we had
618
00:49:02.039 --> 00:49:08.679
different laws, you know SBF would
have been caught takes the focus away from
619
00:49:08.679 --> 00:49:12.920
the fact that you know, as
long as there are safes or banks,
620
00:49:12.920 --> 00:49:17.559
you're going to have people who try
and break in. We just want if
621
00:49:17.599 --> 00:49:22.519
I may claim, if we had
a regulatory regime adaptive to the forensic tools
622
00:49:22.519 --> 00:49:27.639
available on chain, we could reduce
some of the damage. How about I
623
00:49:27.679 --> 00:49:30.159
think if I can jump in.
I agree with that JW. And I
624
00:49:30.159 --> 00:49:37.599
think Stephen is right that no set
of laws can guarantee that a criminal or
625
00:49:37.639 --> 00:49:42.960
a dipshit isn't able to do what
they might otherwise do. But in this
626
00:49:43.000 --> 00:49:46.320
particular case, how many criminals and
dipshits are meeting with the chair of the
627
00:49:46.400 --> 00:49:52.239
SEC at the same time as they're
perpetrating their scheme, Like that's where I
628
00:49:52.320 --> 00:49:57.239
sort of slack jawn that there hasn't
been more of a human outcry even beyond
629
00:49:57.280 --> 00:50:00.960
what has taken place. And at
the same time as the chairs meeting with
630
00:50:01.000 --> 00:50:07.000
this criminal, I'll call him for
what he is. Others in the industry
631
00:50:07.000 --> 00:50:08.880
are saying, can you please work
with us to give us rules. Here's
632
00:50:08.880 --> 00:50:12.400
a petition, here are questions that
we think we ought to be resolved.
633
00:50:12.480 --> 00:50:15.800
Here are our proposals that we think
could work, and we're met with silence.
634
00:50:15.760 --> 00:50:21.880
I just think that contrast is impossible
to ignore and hopefully impossible for the
635
00:50:21.920 --> 00:50:24.639
American investing public to accept if they
look at the situation for what it is.
636
00:50:25.519 --> 00:50:29.199
Well, I don't want to discourage
the chair from meeting with anybody in
637
00:50:29.239 --> 00:50:34.280
good faith or considering request for new
action or anything, even if it turns
638
00:50:34.280 --> 00:50:37.320
out they know what they said they
were. But I think you're right.
639
00:50:37.320 --> 00:50:39.880
I agree with you that he should
be meeting with everyone in good faith and
640
00:50:40.000 --> 00:50:46.440
considering no action requests and adaptive interpretive
released requests from a large group of people
641
00:50:46.480 --> 00:50:51.039
in this industry. And I think
the problem I want to raise this too.
642
00:50:51.199 --> 00:50:58.639
This has been on my mind.
I don't necessarily love the term regulation
643
00:50:58.800 --> 00:51:04.960
by enforcement, not because not because
I don't appreciate the frustration that it channels.
644
00:51:05.719 --> 00:51:13.599
I think the problem with sort of
judicial resolution of these things is you
645
00:51:13.679 --> 00:51:16.400
can't core. It's difficult to coordinate. So basically, if you're a defense
646
00:51:16.480 --> 00:51:21.079
lawyer, you have to defend based
on the case that you have in front
647
00:51:21.079 --> 00:51:27.639
of you. And so you've got
coin based litigation, You've got you've got
648
00:51:27.760 --> 00:51:32.159
ust litigation, you've got ripple litigation. You've got different judges who have different
649
00:51:32.199 --> 00:51:37.119
facts. You know, in an
ideal world, people in the industry could
650
00:51:37.119 --> 00:51:40.480
all coordinate on these things. But
you know, there is an overlap with
651
00:51:40.519 --> 00:51:45.880
a criminal case for Terra, with
the do Quan case, and there are
652
00:51:45.920 --> 00:51:53.119
some privilege issues too. So the
challenge with in regulation by enforcement is you
653
00:51:53.320 --> 00:52:00.800
it's not a fair fight because there's
you can't easily coordinate and into street response.
654
00:52:00.800 --> 00:52:04.119
I mean, I saw that happen
uh in part in the in the
655
00:52:04.119 --> 00:52:07.039
Ooky Doll litigation. I won't get
into it, but the people who were
656
00:52:07.719 --> 00:52:15.159
the individuals who are named had different
interests than the industry itself. So I
657
00:52:15.199 --> 00:52:21.480
think that's the reason why in part
sort of ad hoc decisions by courts,
658
00:52:21.719 --> 00:52:25.559
it's just it's never going to give
us a it's never going to be real
659
00:52:25.599 --> 00:52:32.760
regulation. I think it's just gonna
it's gonna create more and more effective regulation.
660
00:52:34.079 --> 00:52:39.119
Yeah, I think that much is
clear. Yeah, So when we
661
00:52:39.159 --> 00:52:43.960
have a few questions. We have
a number of questions about Boarded Yacht Club
662
00:52:44.119 --> 00:52:50.159
and Muton eight Yacht Club, but
I'll defer those for our bayc webinar in
663
00:52:50.239 --> 00:52:53.559
the future. One question, if
you want to jump in, if not,
664
00:52:53.679 --> 00:52:58.719
it's fine. One question. It's
just sort of a general question.
665
00:53:00.760 --> 00:53:07.760
Thoughts on the Special Purpose Broker Dealer
Prometheum. You know, obviously that approval
666
00:53:07.760 --> 00:53:12.199
has been contentious. We want,
we want to encourage the SEC to approve
667
00:53:12.400 --> 00:53:17.960
legitimate requests for special propose broker dealers, and they're related ATS requests, but
668
00:53:20.639 --> 00:53:23.280
see there was some contention around that
particular one and whether it could follow through
669
00:53:23.280 --> 00:53:27.800
on any actual listings. At the
end of the day, anybody want to
670
00:53:27.800 --> 00:53:34.000
comment on prom Methium, Well,
I'll offer at least the observation that certainly
671
00:53:35.400 --> 00:53:38.360
the House Financial Service Committee, at
least the Republican majority of that committee as
672
00:53:38.639 --> 00:53:44.360
serious questions about that approval. I
believe Chair McHenry and others sent a letter
673
00:53:45.039 --> 00:53:50.360
just yesterday to the SEC asking a
number of I think very probing questions about
674
00:53:50.400 --> 00:53:54.280
that process and how it could be
that this entity, which doesn't list anything,
675
00:53:54.320 --> 00:54:00.800
doesn't trade anything, doesn't have a
particular expertise in this area, could
676
00:54:00.000 --> 00:54:05.880
could jump ahead of many others in
securing that special purple broker dealer approval.
677
00:54:06.719 --> 00:54:12.920
The other thing I'll observe is that
if if we are to believe that somehow
678
00:54:13.920 --> 00:54:20.000
that particular firm has cracked to the
nut of how to offer digital asset securities
679
00:54:20.000 --> 00:54:23.239
in a fully compliant, of a
fully regulated way that no other company,
680
00:54:23.280 --> 00:54:28.800
no other firm, has been able
to figure out. Why is it that
681
00:54:29.079 --> 00:54:36.239
so many respected, serious scholars and
practitioners of securities law are are are scratching
682
00:54:36.280 --> 00:54:42.760
their heads that somehow the rest of
the field miss this and only the principles
683
00:54:42.760 --> 00:54:46.119
of that particular firm have been able
to solve the issues raised by the sec
684
00:54:46.199 --> 00:54:51.159
It doesn't make any sense. And
I think there's a I nx IS that
685
00:54:51.440 --> 00:54:55.719
has an ATS right. There are
some platforms that allow for trading of digital
686
00:54:55.719 --> 00:55:00.079
asset securities, and this is no
knock against any of them. I think
687
00:55:00.119 --> 00:55:02.599
the challenge that you see, and
this is more of a business issue,
688
00:55:02.719 --> 00:55:07.880
is not a lot of assets to
list and not a lot of liquidity.
689
00:55:07.679 --> 00:55:19.559
And you know, people buy crypto
for different reasons than people buy traditional equities.
690
00:55:20.599 --> 00:55:25.239
You might be buying crypto to be
a participant in some sort of decentralized
691
00:55:25.280 --> 00:55:31.639
community, to participate in gaming,
maybe just to make money and speculation,
692
00:55:31.840 --> 00:55:37.559
but it's not speculation that is ever
going to lead to a dividend paid directly
693
00:55:37.599 --> 00:55:40.800
by the issuer. So I think
part of the part of the challenge whether
694
00:55:40.880 --> 00:55:46.119
or not Prometheum or anyone else succeeds. Is that maybe the model Maybe we
695
00:55:46.159 --> 00:55:52.480
shouldn't, Maybe we shouldn't be thinking
of these things with securities law lens,
696
00:55:52.360 --> 00:55:55.679
which would be gratifying for me because
I didn't start out as a securities lawyer,
697
00:55:57.840 --> 00:56:00.480
and it's Crypto that has really turned
my focused to these issues. Frankly,
698
00:56:01.199 --> 00:56:07.119
but you know, securities laws,
securities law as a way of regulating
699
00:56:07.519 --> 00:56:12.519
trading of interests and things is not
the only way. It's not the only
700
00:56:12.599 --> 00:56:17.320
way to regulate these things and to
protect people. I think, sort of
701
00:56:17.360 --> 00:56:22.360
looping back, I'm just not sure. If I'm not sure functionally, what
702
00:56:23.000 --> 00:56:29.880
if these things actually make sense,
prometheum or otherwise. I could make a
703
00:56:29.960 --> 00:56:34.440
three hour securities law exam with one
question. The SEC chairman has said ethereum
704
00:56:34.519 --> 00:56:38.480
is a security and must ethereum must
register. Can you think of any complications
705
00:56:38.559 --> 00:56:44.079
with ethereum registering? And then they
would have three hours to write an answer,
706
00:56:44.599 --> 00:56:47.280
and I think they would run out
of time. I think they run
707
00:56:47.320 --> 00:56:51.079
out of time if they gave them
three days. Professor, there's so much
708
00:56:51.199 --> 00:56:55.639
tontech, right. We didn't talk
much about major questions doctrine. Does anybody
709
00:56:55.639 --> 00:57:00.920
want to jump in on that.
My you is. I think it's a
710
00:57:00.039 --> 00:57:05.719
very fascinating and it has good chances, but I think it probably will be
711
00:57:05.760 --> 00:57:08.679
something that a district court judge will
be reluctant to really dive into much.
712
00:57:09.559 --> 00:57:13.960
But I think the pretty good at
Scotus. But maybe you'll have a different
713
00:57:14.000 --> 00:57:15.039
view because you all are practicing a
lot more than I am. I mean
714
00:57:15.559 --> 00:57:22.199
it seems like we I think we've
all been expecting Chevron defference to be up
715
00:57:22.239 --> 00:57:27.360
for discussion and reconsidered soon. So
whether it's the Major Questions doctrine, which
716
00:57:27.400 --> 00:57:31.960
is I think others might disagree it's
a Robert's Court thing, whether that's the
717
00:57:32.000 --> 00:57:39.880
thing that limits regulatory agencies or sort
of a calling back of difference under a
718
00:57:39.960 --> 00:57:44.159
Chevern difference. I think we're going
to see that litigated, whether it's in
719
00:57:44.199 --> 00:57:47.639
the context of crypto or otherwise.
I think it's we're going to see more
720
00:57:47.639 --> 00:57:53.320
of that limiting agency power. We're
certainly going to be litigating that. We
721
00:57:53.400 --> 00:57:58.239
are litigating it as we speak,
as you both know. I will just
722
00:57:59.400 --> 00:58:04.440
suggest that if you look at the
Biden versus Nebraska case, which dealt with
723
00:58:04.519 --> 00:58:10.920
student loans and find and replace student
loans with digital assets or cryptocurrencies. The
724
00:58:12.000 --> 00:58:16.639
logic applies on all fours, one
period and stuff. I don't think there's
725
00:58:16.679 --> 00:58:23.079
any way to distinguish what is happening
in this regulation by enforcement campaign of the
726
00:58:23.119 --> 00:58:29.480
SEC and what the Supreme Court has
said violates some major questions doctor in a
727
00:58:29.480 --> 00:58:32.840
fundamental way. In that case,
well, we'll come in near our time.
728
00:58:34.000 --> 00:58:37.840
We've had our questions. One one
clever defied lawyers says, are any
729
00:58:37.880 --> 00:58:40.599
of you interested in being the next
chairman of the SEC? I want to
730
00:58:40.639 --> 00:58:44.400
ask that one seriously, but I
think you would both be great candidates.
731
00:58:45.280 --> 00:58:47.599
Let's close it out like the lawyer
man. Yeah, that's right, just
732
00:58:47.719 --> 00:58:52.519
the street lawyer. Let me give
you each a chance for the last word,
733
00:58:52.599 --> 00:58:57.920
and then we'll close it out.
Paul, I'll just you know the
734
00:58:58.239 --> 00:59:01.639
end where I began, which is
that I do think that the process by
735
00:59:01.679 --> 00:59:09.320
which the SEC has gone about attempting
to set standards in this industry and for
736
00:59:09.400 --> 00:59:16.280
these particular markets is absolutely as important
and critical to pay attention to as the
737
00:59:16.280 --> 00:59:21.480
facts and circumstances in anyone case.
Again, we can all have a good
738
00:59:21.480 --> 00:59:25.400
faith disagreement about the merits of cryptocurrencies
or digital assets, whether they actually do
739
00:59:25.480 --> 00:59:30.039
anything for real people in real ways
or not. But the fact of the
740
00:59:30.039 --> 00:59:36.000
matter is, if you're a student
of administrative law or just someone concerned about
741
00:59:36.159 --> 00:59:42.239
our government is acting in our name, I think the issues when it comes
742
00:59:42.239 --> 00:59:45.159
to digital ass and securities are absolutely
worth paying attention to. It's one of
743
00:59:45.199 --> 00:59:49.159
the reasons why we've taken someone unusual
approach in our case and trying to be
744
00:59:49.199 --> 00:59:52.159
as transparent as we can about what's
going on, what the SEC is saying,
745
00:59:52.599 --> 00:59:57.199
what we're saying back to the SEC
throughout this dispute. And I hope
746
00:59:57.239 --> 01:00:00.440
that that folks with an interest in
the these issues that go far beyond just
747
01:00:00.800 --> 01:00:06.039
the price of bitcoin or or or
or the board eight yacht club, we'll
748
01:00:06.079 --> 01:00:08.800
we'll, we'll take it, take
that interest forward because it's critical that we
749
01:00:08.840 --> 01:00:19.320
all pay attention all you get the
last word, I feel like I should
750
01:00:19.320 --> 01:00:22.760
mention dumpsters or Colesville Road. I
might have had a bet about that.
751
01:00:24.039 --> 01:00:29.679
But I think the issue is it's
this is not just about crypto. This
752
01:00:29.800 --> 01:00:35.679
is about government power and the administrative
state at large. Obviously, for Paul
753
01:00:35.760 --> 01:00:37.960
and for coin base, it is
about crypto, but I think the questions
754
01:00:38.039 --> 01:00:45.400
are broader and it's important to situate
this issue into sort of a broader cultural
755
01:00:45.440 --> 01:00:52.320
and economic and political context. And
in that way, it is similar to
756
01:00:53.079 --> 01:00:58.599
every webinar we've done with the Federal
Society. I think thank you all for
757
01:00:58.679 --> 01:01:05.920
joining so much. Paul Steve such
great insights, Colton and the Federal Society.
758
01:01:05.920 --> 01:01:09.280
Thank you all so much for putting
us together for a great discussion.
759
01:01:09.840 --> 01:01:15.360
Back to you Colton, Well,
I just want to echo WHATJW said.
760
01:01:16.480 --> 01:01:21.599
Paul and Stephen were very grateful to
you for your time today for the fascinating
761
01:01:21.599 --> 01:01:25.360
discussion on these critically important issues.
For those of you in the audience who
762
01:01:25.440 --> 01:01:30.000
join the conversation midway through, you
can watch the recording via YouTube or listen
763
01:01:30.039 --> 01:01:34.920
to it via our podcast feed,
which is available everywhere you listen to podcasts.
764
01:01:35.400 --> 01:01:39.039
We welcome listen to feedback by email
at ourtp at RAG project dot org.
765
01:01:39.679 --> 01:01:49.320
Thank you all for joining us.
This concludes today's discussion on behalf of
766
01:01:49.320 --> 01:01:52.519
the Federal Society's Regulatory Transparency Project.
Thanks for tuning in to the Fourth Branch
767
01:01:52.599 --> 01:01:58.039
podcast To catch every new episode when
it's released. You can subscribe on Apple
768
01:01:58.119 --> 01:02:02.119
Podcasts, Google Play, and Spreaker. Relays from our TP Please visit our
769
01:02:02.119 --> 01:02:15.800
website at regproject dot org. That's
r EG project dot org. This has
770
01:02:15.840 --> 01:02:17.480
been a fedsock audio production