August 22, 2023
We are pleased to provide you with the latest edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.
Enforcement Actions
United States
- Ripple Secures Landmark Win Against SEC, SEC Seeks To Appeal
On July 13, U.S. District Judge Analisa Torres ruled that the SEC could not establish as a matter of law that a crypto token was a security in and of itself, delivering a landmark legal victory for the cryptocurrency industry. The ruling provided a win for a cryptocurrency company in a case brought by the SEC, while also giving the SEC a partial victory. The judge determined that Ripple’s XRP sales on public exchanges were not offers of securities, but sales to sophisticated investors amounted to unregistered sales of securities. The case has significant implications for the broader crypto industry and has triggered calls for Congress to provide clear rules and legislation for digital assets. Following the ruling, both Coinbase and Kraken, large U.S. crypto exchanges, announced they will allow trading of XRP on their platforms again. On August 9, the SEC stated in a letter to the court that it plans to seek an interlocutory appeal, which is a generally disfavored procedural step that would require Judge Torres’s approval. On August 17, Judge Torres permitted the SEC to file a motion to file an interlocutory appeal by the following day. Ripple will have until September 1 to file its response to the motion, and the SEC will have until September 8 to file a reply. Only if Judge Torres grants the motion will the SEC then be allowed to seek permission for an interlocutory appeal also from the Second Circuit. The Block; Blockworks; Client Alert; CoinDesk; Reuters; Order
- Landmark Ripple Determination Endorsed, But Split Arises In Rejection Of Do Kwon And Terraform Labs’ Motion To Dismiss
On July 31, U.S. District Court Judge Jed Rakoff denied Terraform Labs and founder Do Kwon’s motion to dismiss the SEC’s lawsuit against them alleging fraud involving various cryptocurrencies. Terraform and Do Kwon argued that the above Ripple decision invalidated the SEC’s case against them. Significantly, Judge Rakoff agreed with Judge Torres’ Ripple ruling that the SEC could not establish as a matter of law that a crypto token was a security in and of itself. However, Judge Rakoff rejected the Ripple opinion’s distinction between institutional versus retail purchasers for whether a token was offered as a security. The case is currently headed for trial. Bloomberg; The Block; Client Alert; Financial Times; Reuters; Order
- Bankman-Fried Jailed Pending Trial, Campaign Contribution Charge Still Possible
FTX founder Sam Bankman-Fried was ordered to jail when Judge Lewis A. Kaplan of the Manhattan Federal District Court revoked his bail, concluding that Bankman-Fried’s communications with the media and an attempt to contact a former FTX employee constituted attempts “to tamper with witnesses at least twice” in the lead-up to his trial, which is scheduled to start on October 2. The presiding judge had imposed a temporary gag order in the case while considering prosecutors’ request to jail Bankman-Fried. Bankman-Fried had been under house arrest at his parents’ home since December, released on a $250 million bond. The U.S. government sought modifications to Bankman-Fried’s bail agreement after he showed a reporter private writings of Caroline Ellison, the former head of the crypto hedge fund he founded and his former girlfriend, who is a key witness for the prosecution. Bankman-Fried also had phone calls with journalists and was in contact with an author who is writing a book about his rise and fall that is set for publication the week before the trial begins.Meanwhile, U.S. prosecutors announced they intend to file a superseding indictment that will incorporate Bankman-Fried’s alleged campaign finance charge into existing charges, reversing a reported late-July decision to drop the campaign contribution charge from their fraud case against Bankman-Fried, after he argued it was not part of his extradition agreement. Bankman-Fried also faces fraud and conspiracy charges that could lead to decades in prison if convicted. ABC News; Bloomberg; CoinDesk; CoinTelegraph; DOJ; NPR; NYTimes
- Judge Appears To Side With Coinbase Against SEC In Pre-Motion Conference; Coinbase Files Motion For Judgment On Pleadings; Scholars File Amicus Brief In Support of Coinbase
On July 13, 2023, Judge Katherine Polk Faila of the U.S. District…
Read More: Gibson Dunn Digital Assets Recent Updates – August 2023