CryptoLink is a compilation of news stories published by outside organizations. Akin aggregates these stories, but the information contained in them does not necessarily represent the beliefs or opinions of the firm. Akin's June CryptoLink update includes developments from May and June of 2023.

Both stablecoin and market structure legislation remain the focus for two distinct paths forward in the digital assets space. The House Financial Services Committee is continuing to focus on digital assets. Chairman of the Committee Patrick McHenry (R-NC) mentioned earlier in the year that he wanted to pass stablecoin and market structure legislation this summer. In order to hit this target, the Chairman and his partner at the House Agriculture Committee have put forward two pieces of draft legislation. Chairman McHenry intends to "markup" the bills in his committee when Congress returns from its July 4th recess. It remains unclear what the fate of these bills will be. Although there is some bipartisan support in the House for both stablecoin and market structure legislation, the House Financial Services Committee's lead Democrat, Ranking Member Maxine Waters, appears to be much more open to a regulatory framework for stablecoins. She recently sent letters to the Department of the Treasury and the SEC, asking for comments on the proposed market structure bill. We know that the answer from SEC Chairman Gary Gensler will be hostile. By contrast, the Administration and Federal Reserve Chair Jay Powell seem much more open to a stablecoin framework, and it is telling that Ranking Member Waters did not ask for input on the stablecoin draft.

Ultimately, the fate of these bills will be determined in the Senate at the end of this year, and the more bipartisan the outcome in the House, the more likely there will be a White House signing ceremony for new legislation addressing digital assets in 2023.

The Administration's broad skepticism toward cryptocurrency was accelerated by the demise of FTX last fall. Events over the course of the last week, however, suggest that government efforts to sideline this growing industry will prove difficult. The moves by traditional finance players such as BlackRock, Citadel, Invesco, Schwab, and Fidelity to expand into the crypto space suggest that traditional finance is in agreement with Fed Chair Jay Powell's recent assertion that cryptocurrency has "staying power as an asset class." That was on top of Powell's statement before Congress that the Federal Reserve views stablecoins as "a form of money." All eyes in the industry will be on the SEC later this summer, for its decision regarding the recent tradfi applications for spot Bitcoin ETFs.

In this issue

  • Spotlight on Coinbase
  • Spotlight on Binance
  • Key Developments
  • Key Recent Enforcement Actions
  • Akin Alerts and Podcast Episodes

Spotlight on Coinbase

Former Coinbase Manager and His Brother Agree to Settle Insider Trading Charges Relating to Crypto Asset Securities

On May 30, 2023, the U.S. Securities and Exchange Commission (SEC) announced that former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi, settled insider trading charges involving a scheme to trade ahead of announcements regarding at least nine crypto asset securities that were being made available for trading on Coinbase's platform. The SEC's complaint alleged that from at least June 2021 to April 2022, in breach of his duties, Ishan Wahi repeatedly tipped the timing and content of upcoming listing announcements to his brother, Nikhil Wahi, and his friend, Sameer Ramani, following which Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets and sold them shortly after the announcements for a profit. The Wahi brothers agreed, as part of the settlement, not to deny the SEC's allegations. Ishan and Nikhil Wahi consented to the entry of final judgments that permanently enjoin them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In the related criminal action, Ishan and Nikhil Wahi pled guilty to conspiracy to commit wire fraud. Ishan Wahi was sentenced to 24 months in prison and ordered to forfeit 10.97 ether and 9,440 Tether, and Nikhil was sentenced to 10 months in prison and ordered to forfeit $892,500.

The SEC's press release can be found here.

SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker and Clearing Agency

On June 6, 2023, the SEC charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program. According to the SEC's complaint (filed in the U.S. District Court for the Southern District of New York), since at least 2019, (i) Coinbase made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities, including through intertwining the traditional services of an exchange, broker and clearing agency without having registered any of those functions with the SEC, and (ii) Coinbase engaged in an unregistered securities offering through its staking-as-a-service program, which allowed customers to earn profits from the "proof of stake" mechanisms of certain blockchains and Coinbase's efforts.

The SEC's press release can be found here and the SEC's complaint can be found here.

SEC and Coinbase Litigation Continues

On June 6, 2023, the same day the SEC announced an enforcement action against Coinbase, Circuit Judge Cheryl Anna Krause of the U.S. Court of Appeals for the Third Circuit issued an order in the matter of Re Coinbase Inc. in view of Coinbase's writ of mandamus requesting to order the SEC to submit periodic reports to the court regarding the SEC's progress on, among other things, Coinbase's petition for rulemaking. In the order, Judge Krause required the SEC to submit a letter within seven days to address whether the SEC has decided to deny Coinbase's petition for rulemaking, and, if not, how much additional time the SEC required to decide whether to grant or deny that petition, and why the court should not retain jurisdiction and order periodic reports (as Coinbase had proposed) and/or establish a deadline by which the court will rule on Coinbase's petition for writ of mandamus.

On June 13, 2023, the SEC submitted a letter to the U.S. Court of Appeals for the Third Circuit in response to the court's order of June 6, 2023. In the letter, the SEC reiterated that there was no merit to Coinbase's request. The SEC further stated that its staff anticipate being able to make a recommendation regarding Coinbase's rulemaking petition within 120 days, and counsel for the SEC could provide the court with a status report by October 11, 2023. The SEC further noted that it has not decided what action to take on Coinbase's rulemaking petition, there is no basis for subjecting the SEC's discretionary rulemaking agenda to a specific timeline, and Coinbase's request for periodic reports is "unwarranted" as it "relies on inapposite authority that reflects circumstances in no way comparable to those presented by its mandamus petition."

On June 17, 2023, counsel for Coinbase submitted a response to the SEC's letter of June 13. In the letter, Coinbase pointed to the "smoking-gun evidence" that the SEC had filed enforcement action against Coinbase. Furthermore, Coinbase argued that the court should grant mandamus because the fact the SEC has decided not to grant Coinbase's rulemaking petition is "actively harming the industry," the SEC's refusal to state how much additional time it needs to act on Coinbase's petition "confirms that further delay is futile" and, at a minimum, the court should order the SEC to report on its action in more than 60 days and decide the mandamus petition promptly if the SEC has not acted at that time.

On June 20, 2023, Judge Krause issued an order in which it confirmed that the court would retain jurisdiction but would not rule "at this time" on Coinbase's petition for writ of mandamus and noted that the SEC "shall" update the court on its status on October 11, 2023.

The June 6 order can be found here, the SEC's June 13 letter can be found here, Coinbase's June 16 letter can be found here and the June 20 order can be found here.

Supreme Courts Rules in Favor of Coinbase in Class Action Matter

On June 23, 2023, the U.S. Supreme Court handed down its ruling in the matter of Coinbase, Inc. v Bielski following the filing of a putative class action by Abraham Bielski on behalf of Coinbase users alleging that Coinbase failed to replace funds fraudulently taken from the users' accounts. As Coinbase's User Agreement provided for dispute resolution through binding arbitration, Coinbase had filed a motion to compel arbitration, which the District Court denied, and subsequently filed an interlocutory appeal to the Ninth Circuit. In its ruling, the U.S. Supreme Court held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. Justice Kavanaugh, delivering the opinion of the Court, noted that "[i]f the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost".

The Supreme Court ruling can be found here.

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