Over the past week, we've heard from two different judges question lawyers with the SEC and crypto exchanges (Coinbase and Binance) about whether the federal agency has any sort of case against either crypto trading platform. Last week's newsletter focused on the hearings held that week (of course) but this week's rescheduled hearing in the SEC's case against Binance also had some interesting comments from District Judge Amy Berman Jackson.
"Where's the SEC been? Does that matter … why is it that if they're trying to achieve legislation, is that some suggestion there's something missing in the statute to cover this? Why are we doing this on a coin-by-coin, case-by-case, judge-by-judge litigation which depends on the … vagaries of the individual districts … as opposed to issuing a reg that tells everybody 'this is it?'" she asked. And to be clear, the judge said at the beginning of this line of questioning that it was a "big picture" line of inquiry, but it was still a point she repeated during the course of the hearing. "Much of [Binance's] brief has been focused on what I would call loose-leaf policy arguments: Congress is working on this, the SEC has taken contrary positions in the past. And you could certainly have a legitimate discussion about fairness, using litigation to regulate the cryptocurrency industry after years of inaction, or whether it makes sense as a policy matter to go token-by-token, court-by-court and risk, as we already gotten, some conflicting decisions on different important points, but how does any of that bear on a motion to dismiss?" she asked. The SEC attorney answering her questions said he disagreed with the premise of these statements "I would disagree with the premise that the SEC has contradicted itself," the agency attorney said. The SEC has had a fairly straightforward view on cryptos since 2017 and the DAO Report – namely, that most cryptocurrencies seem to be securities (in the words of both former Chair Jay Clayton and current Chair Gary Gensler). The industry, for obvious reasons, really wants this to not be the case and has presented arguments in multiple lawsuits as to why most cryptos aren't or shouldn't be deemed securities. And this brings us back to consensus. While Judge Jackson did not go so far as to say Congress needed to get involved, her questions and comments on Monday seemed to raise a similar basic point that Judge Katherine Polk Failla – who's coincidentally overseeing the SEC's case against Coinbase – raised last fall when ruling on a putative class action suit against Uniswap. Neither Congress nor the federal courts have made any "definitive determination[s]" on whether certain cryptos are securities or commodities (or some third thing), Judge Failla wrote in an order last September. There's some obvious differences of course – the actual conduct and legal violations alleged being the biggest one – but the refrain we're hearing from judges that is there's no consensus yet, and that may need to change. It could change later this year, if an appeals court decides to take up the SEC's bound-to-happen appeal of Judge Analisa Torres' ruling in the agency's case against Ripple (though I imagine that may still take a while). Congress may actually pass some legislation addressing crypto and redefining the SEC's jurisdiction in the industry as well, theoretically. Many of Judge Jackson's other questions seemed fairly straightforward, addressing different parts of the various briefs. At times, she sounded frustrated by what she heard from the attorneys arguing before her. We now wait to see how Judges Jackson and Failla will rule on the motions to dismiss the case – though generally these cases aren't dismissed at this stage. | 