SEF D.C. -- Digital Assets and Cryptocurrency: Key Developments in Regulation, Enforcement and Litigation
Here is a transcript from the digital assets panel at the excellent post-election Securities Enforcement Forum in Washington, D.C. The panelists were:
Robert Cohen, Partner, Davis Polk
Robert Letson, Principal, Cornerstone Research
Matthew Solomon, Partner, Cleary Gottlieb Steen & Hamilton
Jorge Tenreiro, Acting Chief, Crypto Asset and Cyber Unit in the Enforcement Division
James Walker, Partner, Perkins Coie
You can find the video here and the full agenda here.
00:00 - 00:39
Kurt Wolfe: Thank you everyone for coming back this afternoon for our fifth panel, Digital Assets and Cryptocurrency, Key Developments in Regulation, Enforcement and Litigation. We have another fantastic panel for you to kick off the afternoon session. Our moderator for this panel is Robert Cohen, who is a partner at Davis Polk right here in Washington, D.C. Rob previously served for 15 years in the SEC's Division of Enforcement, including as co-chief of the division's Market Abuse Unit and, more recently, as the first-ever chief of the SEC's cyber unit. Next to Rob is Robert Letson, who is a principal at Cornerstone
00:39 - 01:23
Kurt Wolfe: Research in Washington, D.C. Robbie has more than a decade of experience consulting on litigation and regulatory investigations. In particular, Robbie has extensive experience with issues arising in the fintech and digital assets spaces, including those related to cryptocurrency exchanges, blockchain transactions, valuation, and commercial uses for blockchain technology. Next to Robbie is Matt Solomon, who is a partner at Cleary Gottlieb here in Washington. Matt previously served for 15 years as the U.S. Department of Justice and at the U.S. Department of Justice and at the SEC. Most recently, Matt served as the SEC's Chief Litigation Counsel. Previously, he served
01:23 - 02:04
Kurt Wolfe: as the Chief of the Fraud Unit in the DOJ. Next to Matt is Jorge Tenreiro. Jorge is the acting chief of the U.S. Securities and Exchange Commission's Crypto Asset and Cyber Unit. In that role, he has supervised investigations that resulted in SEC lawsuits against SEC registrants with respect to certain cybersecurity interests and against significant participants in the crypto asset markets. And at the end is James Walker. Last but not least, James is a partner at Perkins Coie in New York. He has more than 25 years of experience in securities, regulatory, and criminal investigations with a particular focus
02:04 - 02:16
Kurt Wolfe: on representing blockchain-based businesses. James is also a frequent lecturer on securities enforcement and professional ethics. Thank you all for joining us this morning, or this afternoon.
02:16 - 02:57
Rob Cohen: Great, thanks. Thanks everybody. So, I guess there was an election. Jorge obviously can't speak, but I thought I would start by just a couple of thoughts about the election in crypto and open it up to the panel for any remarks. So I think many of us who've worked at the Commission typically say that much of what enforcement does is not political and doesn't change administration to administration. As much as anything, crypto may be the exception to that, where there is a genuine expectation that at least in some way, the Commission's approach to crypto is gonna change,
02:57 - 03:35
Rob Cohen: both regulatory and possibly enforcement. So, we'll see. It's gonna take time. I think one initial thought, and as we've obviously been flooded with questions from clients, it takes time to unfold, right? Like the same people are running the Commission today, as you've heard from these panels, as was running it yesterday. So it takes time to unfold when you think about the process of between now and inauguration day, presumably an appointment of an acting chair, potentially a nomination of a new chair, the nomination process, confirmation process, the retention, hiring of new leadership. It's a process that really
03:35 - 04:12
Rob Cohen: can take like 6 to 8 months to unfold. Some things may change under an acting chair, we saw that I think in the last administration, but in terms of what's really gonna change on the Commission's approach to crypto, we may be talking about that a year from now on this panel and only then have like a real insight about, you know, in big ways what's changed. I'd say, you know, my experience has been that whose chair matters more than who's president. Obviously, the president will have priorities and unusually for an enforcement issue. It's been discussed during
04:12 - 04:47
Rob Cohen: the campaign. But just as a reminder, you know, we started the unit when Jay was chair in the Republican administration, and certainly at the time, I think people thought that there was a strong enforcement interest in crypto at the time. So we'll see, we'll see. I think clients expect crystallized answers. This is gonna change and this is gonna change and this is when it's gonna happen. But it's gonna take time. That said, as much as anything, crypto's an area where it probably is gonna change somewhat. So, I don't know, those are some opening thoughts. I'll just
04:47 - 04:50
Rob Cohen: open up to the panel if anybody else has reactions or thoughts.
04:50 - 05:23
Matt Solomon: Yeah, I mean, just quickly, you heard from Sanjay, and I think Sanjay is telling the truth when he says his intention is for nothing to change business as usual unless and until there's a new direction from leadership. I do think when it comes to crypto that there probably is gonna be change pretty immediately in terms of case selection. I think some cases that may have been poised to go forward, I hope some cases that may have been poised to go forward and launch into litigation. The division waits on that, the SEC waits on that. I think
05:23 - 05:55
Matt Solomon: that there's going to be a number of senior staff who leave, and I think that could have an impact also on pushing cases forward. I think things in the pipeline will probably go ahead and go up to the Commission. So we're gonna see cases filed, but I imagine some of the, what else, edgier cases, again, folks may hold off until January. My view is, whether it was Kamala Harris or Donald Trump, there was going to be a change, I think, at the SEC. I don't think it's sustainable to litigate this much in this many different courts.
05:56 - 06:29
Matt Solomon: And I also think, just to state the obvious, there's been an enormous amount of political pressure that crypto has brought to bear, and given the changes in the Senate and House of Representatives looks like it's going to be razor thin. There's already been a piece of legislation that's passed the House. You have a President to be who is committed publicly to backing the crypto industry and trying to set new rules and regulations. And candidate Harris did the same thing. I think she telegraphed that there also needed to be a change in strategy. So I think you're
06:29 - 06:43
Matt Solomon: gonna see it either way, but I think now you're probably gonna see a little bit of tapping of the brakes, and I think that's appropriate, because obviously there's gonna be new initiatives come January in this space in particular. You probably can't comment, Jorge.
06:44 - 06:45
Jorge Tenreiro: Anything? No comment. No.
06:45 - 07:24
James Walker: So I'll talk about legislation where I do think there might be change more quickly. First of all, there was the FIT21, the Financial Innovation in Technology Act, that passed the House, as was just mentioned, and was sort of sitting there for a while. There have been murmurs that legislation may even move forward in a lame duck session, I don't know about that, but certainly I think there's a decent chance that FIT 21 as it's called in some form will happen. If this panel was yesterday, I would have talked about, you know, think it will happen, not
07:24 - 07:54
James Walker: sure when, and the details of what it will look like are what will be the difference. Today I would say, I think it will happen, still not sure when, but it's interesting to talk about, and I'll talk about it in a second. The other thing is that stable coin legislation that essentially got tabled probably will be resurrected, and I think that was expected to happen anyway. These are both bipartisan efforts. Let me just suspend a second on FIT21 because I think it's sort of interesting to think about a construct, or at least the one that had
07:54 - 08:34
James Walker: been proposed. Essentially digital assets would fall into three categories, digital commodities, restricted digital assets, and permitted payment stable coins. The CFTC would regulate digital assets if there's a certification that the digital asset or the ledger in which it runs is decentralized. That is an effort that would be undertaken by the SEC in the 60-day period according to the legislation in which it would determine whether or not essentially you have a decentralized ledger, which means that essentially there's not one person or an entity that's controlling it and that there isn't an issuer, affiliated person that controls
08:34 - 09:14
James Walker: 20% or more of the asset or the voting power of the asset. The CFTC would then follow with its own certification. If you don't get that decentralization certification, then that asset becomes a restricted digital asset, and then permitted payments table points would be treated differently. Other things that are contemplated in the legislation are certainly certain exceptions, depending on how the asset is used and various other factors. The Bank Secrecy Act would be pumped up a bit in terms of its inroads into crypto and other considerations that, in terms of disclosure and things that frankly are a
09:14 - 09:41
James Walker: good thing, would be set in place. And so, I think the positive there is, you know, there is some sort of legislation or guidance that might happen, and it might happen, frankly, more quickly than I probably would have said last year. Definitely more quickly than I would have said last year. It may not be perfect, it's probably not going to be perfect, but it's something. And we'll see what that looks like and what effect that has.
09:42 - 10:16
Rob Cohen: Great, great. Thanks James. And so as we move on, just one other thought. If you think about how things might change in enforcement, I would suggest you think about the life cycle of an investigation and the types of decisions at different stages. And even if somebody wants to carry out some change, the decisions may be different at different stages. And so starting from the end, you have cases that are already in litigation, making a decision about changing course in litigation is a unique type of decision. You have investigations that are not yet filed but are at
10:16 - 10:46
Rob Cohen: the end, and there's this charging decisions being made. And so that's a specific decision. There's investigations that are in the middle of the investigation, right? They're not close to charging, but they've been going on for a while. So a decision about whether to change course or just let it play out, right? That's a specific type of decision. And then at the very beginning, opening new cases, right? That's another type of decision, right? What's already in, as Matt said, what's already in the pipeline is one thing, but what do we wanna open new? Because the average time
10:46 - 11:18
Rob Cohen: of an investigation is somewhere around two years. So the case opening decisions that are being made over the next few months will have a lot to do with what cases are being brought a year or two from now. So those case opening decisions are important. So again, just to highlight, I think it's not uniform. Even if somebody wants to enact change, you may see it in some areas and not others, because the nature of the decisions, whether it's litigation or opening something new and everything in between, can be different. But talking about litigation, I think in
11:18 - 11:57
Rob Cohen: terms of the past year and talking about what's been noteworthy, another thing that I think is relatively unusual about crypto is that there is an unusual amount of litigation and an unusual amount of, an unusual number of court decisions that really impact the Commission's enforcement authority, right? There's a lot of litigation, and the Commission has won decisions in a lot of those cases, not all, but has won a lot. So there's a lot going on, and the law is really being shaped in litigation, I think more than in other areas of SEC enforcement. So Jorge, I'll
11:57 - 12:08
Rob Cohen: turn it over to you. As you look back over the past year, what are the cases, either court decisions or new complaints that were filed that you consider particularly important?
12:09 - 12:31
Jorge Tenreiro: Thank you, Rob, and thanks everyone. Obviously, my views are my own as acting chief of the unit, not reflective of the staff's view or the Commission's view. So, decisions that are noteworthy in the last year, I mean, well, just one year, because obviously Ripple is a significant decision even though it's a little bit older than a year.
12:31 - 12:33
Rob Cohen: It seems like every year there's a Ripple decision.
12:33 - 13:04
Jorge Tenreiro: Yeah, that's right. Exactly which one are you talking about? I think, you know, if I think about the calendar year, I think we started the calendar year, or actually, I believe at the end of last year we had a decision in Terraform in the summary judgment decision. That was good for the Commission. That sort of reaffirmed Judge Rakoff's view of these issues pretty much in a way that aligned with the Commission's view and followed his ruling on the motion to dismiss. And then turning the calendar to 2024, we have the first ruling on a lending case
13:04 - 13:38
Jorge Tenreiro: in the Genesis case. I think that was a significant, not talked a lot as much as some of the intermediary cases, but that was a significant decision as well. Again, pretty much upholding the Commission's perspective on that issue. Then there was the Coinbase decision. And then, you know, Binance and Kraken are the other two that are pretty significant. And there was a smattering of other cases that get a little bit less press, but that were also pretty favorable to the Commission, such as those in the Rivet, Scribniak, Greenbox cases. Most of those were either motions to
13:38 - 13:56
Jorge Tenreiro: dismiss or motions for summary judgment. So as you said, there was a lot. And I think those are the main ones. I hope I didn't... It's like, I love all my children. I hope I didn't forget to mention one of them. I have to go back. I like that one too. Did you ask also about which cases that we filed was significant or just decisions? Yeah.
13:56 - 13:58
Rob Cohen: Open floor to you.
13:58 - 14:36
Jorge Tenreiro: Yeah I mean you know we filed those cases last year. I think you know this year we, I forgot one. We had a consensus decision in Texas, right, we filed a case and we also successfully dismissed the sort of preemptive strike lawsuit in Texas, which I think is pretty significant, because it has potentially implications not just for crypto, but for SEC enforcement generally, to the extent that folks might start thinking about using Wells notices as a reason to sue the Commission in advance. So I think that one is a filed case and there was a decision
14:36 - 14:41
Jorge Tenreiro: and also a filed case. Yeah, I think those are the main ones.
14:41 - 15:10
Rob Cohen: Great, and on what I'm starting to feel as a theme, another thing that's a bit unusual that I think should emphasize, you mentioned the Terraform Labs, Do Kwan case. I mean, that's a case that went to trial and got a jury verdict. And not only that, there's a parallel criminal case. Normally that would go first. Do Kwan's not in the country, so that has not gone first. The Commission unusually was able to go forward with its case first while there was a pending criminal case. And the Commission won not only on whether the token is a
15:10 - 15:38
Rob Cohen: security, but won a jury trial, proving or convincing a jury that the defendants committed fraud. Again, obviously the Commission litigates lots of cases and there's lots of trials. I don't feel like there's a lot of Commission trials that are really at the top of the radar and crypto certainly is at the top of the radar and this was a very public implosion of a token and the Commission won that trial.
15:39 - 15:56
Jorge Tenreiro: Yeah, so there you go. I forgot that part of it as well. But yeah, it's our first crypto trial and I think it was a very fast jury verdict. So that was definitely a significant development. And I think one of our biggest settlements in crypto afterwards on the remedies.
15:57 - 16:15
Rob Cohen: So Matt, you used to lead litigation at the Commission and you're involved in some of the cases we just discussed. Not necessarily rebuttal, but like, what's your perspective on the last year of litigation? There's been a lot of court decisions, a lot of high profile complaints being filed, some decisions going against the Commission, a number of decisions going in its favor.
16:15 - 16:34
Matt Solomon: Yeah, I mean, I think for us on the defense side, it's been a lot of highs and lows. We obviously had, I think Ripple was largely a good decision. But then on the heels of that decision, you had Judge Rakoff come in and expressly disagree with Judge Torres' reasoning on that. That was a bit of a downer.
16:34 - 17:08
Matt Solomon: But then you had the Kraken case, and you had the Binance case, that basically, what I call sort of a Ripple revival, I think Judge Torres' reasoning in the Ripple case about looking at secondary market transactions on a transaction by transaction basis and not through the same lens as primary sales of digital assets. I think that concept, again, was sort of born with the Ripple case and it's been picked up now more recently by a couple of other courts. So I think we're feeling better about how the law is developing. Obviously the Coinbase decision was a
17:08 - 17:39
Matt Solomon: negative decision for the industry. I think the other thing that's interesting that I think is probably unprecedented is there's a number of sort of cutting edge cases going on in districts nationwide. You got DC, the Binance case, the First Circuit, you guys brought a wash trading case there. The Cumberland case I think was brought in the Seventh Circuit, you got Kraken in the Ninth Circuit. So I don't think the SEC is afraid of having these cases percolate up and creating the circuit split. I think the SEC, I hope, wants what we all want, which is clarity
17:39 - 18:07
Matt Solomon: from an appellate court, rulemaking, or Congress. And just briefly on the Ripple case, I'm glad that case is going up on appeal because that's not a secondary market trading case in the sense that Ripple was selling onto a platform in that case. They were blind bid ask transactions, but it wasn't two private people engaged in a transaction, which is what you have in Kraken, what you have in Coinbase, what you have in Binance. But I think the Second Circuit's gonna give us a pretty good idea in that case, and briefing I think will be complete in
18:07 - 18:39
Matt Solomon: that case by the summer, how the court views Howie in the context of secondary market transactions because of the programmatic sales in that case. And we're also cross appealing the institutional sales where there were contracts in those cases. So we're all hoping for clarity, but like I said, I think things may move quite quickly, either in terms of potential rulemaking or more likely a lot of pressure on Congress, depending on the final composition to enact legislation. And the open question is, how does that affect these ongoing cases? I've never seen cases dismissed by the Commission and
18:39 - 19:08
Matt Solomon: never heard of that just because a new political party takes over, but you can think of situations like Fannie and Freddie, very aggressive cases brought, I don't know if Khuzami is still here. No, he's not. Very aggressive cases. I remember coming into the Commission. We ended up resolving those cases. We settled them, but they were not the most robust settlements, so the hope is for those of us who are in litigation with the SEC, that the SEC will be amenable to either pausing those cases, resolving them, because I think and hope that there's going to be change in the next year or so.
19:11 - 19:42
Rob Cohen: Yeah, and it's interesting, you know, a follow-up to that is, you know, one thing we don't have is a lot of appellate court decisions, and that may be coming this year. It's funny, if you think back, I think the industry has been on pins and needles about each individual decision with sort of the expectation that each individual decision when it came out was gonna clarify things. And it hasn't really, right? Like there was a lot of anticipation for the Ripple decision, it came out, big decision, a lot of attention to it. But then people are waiting
19:42 - 20:15
Rob Cohen: for the Coinbase decision and then the Coinbase decision comes out and then the Binance decision and then the Kraken decision. So like I think the industry, you know, which involves a lot of founders and executives who are not, do not fortunately have a background in litigation and SEC enforcement, they look to each of these court decisions that are coming as potential game changers, and some of them have felt like that in the initial days, and then, as you said, two months later, you get a different decision, where Judge Rakoff, for example, specifically disagrees with another judge.
20:15 - 20:21
Rob Cohen: So we'll see if this year brings some appellate decisions and whether those even give more guidance.
20:21 - 20:31
Matt Solomon: Yeah, and I should add, there's two interlocutory appeal motions pending, one still pending, I think in the Coinbase case and one in the Kraken case. And I do think the through line for these cases is that
20:31 - 20:31
Rob Cohen: they are.
20:31 - 20:34
Jorge Tenreiro: There's a third one. Third one. In the Green
20:34 - 21:03
Matt Solomon: United case. Okay, so we got three. The through line to me of these cases is they are hard cases to litigate. They're hard cases legally. I think judges, very sophisticated, brilliant judges, are having trouble wrapping their minds around all of the issues and the nuances. And we've seen that, I'm not going to name the cases, but we see judges issuing opinions and then perhaps saying something different after the opinion is issued or saying that they need to do a different opinion. These are very smart jurists, but they're generalists. And so this is really hard stuff to
21:03 - 21:11
Matt Solomon: litigate. And I certainly applaud Jorge and his teams for taking these matters on in court because they are very, very challenging cases to make law as you go, essentially.
21:12 - 21:43
James Walker: So I just want to comment on the litigation as it goes forward. The industry, I spent a fair amount of time counseling folks in the industry, and they see each one of these decisions and to your point, actually further to your point, they say, oh, programmatic trading not an issue, secondary markets not an issue, we can go forward. And they're like, no, no, no. one decision, one court, you know, affects maybe the parties in that case for now, and there's the possibility of appeal and all sorts of other things. There's a lot of civics lessons that
21:43 - 22:11
James Walker: go on to train the industry that you can't just look at one decision and say this is the way it's going and I'm sure there's going to be frankly more of that now because thought as well you know of course the SEC is going to change tomorrow and the industry is going to open up and you know no rules and all sorts of craziness. I mean, I'm sorry, I work with these folks, so I get that. And there'll be a fair amount of, no, no, no, this is where we are, this is what's really happening, this
22:11 - 22:24
James Walker: is what that decision means. It's interesting, it creates a certain debate, I suppose. You have judges in the same courthouse coming to different conclusions. That's interesting. And let's see where the conversation goes as this proceeds through the courts.
22:25 - 22:51
Rob Cohen: Great. So Robert, I wanna ask you about the use of economic analysis in some of this litigation. And let me say, I don't envy you speaking on a panel sitting between Matt and me, but we wanna make sure you get a chance to share your thoughts. So, there's been a lot of litigation, a lot of the cases are about secondary trading platforms and economic analysis has been a significant part of some of those cases. So do you wanna give your perspective on that?
22:51 - 23:29
Robert Letson: Yeah, happy to. So economic analyses are often key components of both SEC enforcements and as we saw with SEC v. Terra, they can also be at the forefront of litigation. So economic analysis is obviously a very large topic. So today I'm gonna focus just on analyses that are designed in some ways to identify unusual trading patterns or other forms of market distortion. Many of these we see on secondary markets like exchanges. So two of the most common and most prevalent, I think that we've seen in crypto enforcement, have been price and volume analyses. So one of
23:29 - 24:10
Robert Letson: the simplest and oldest forms of price manipulation is it occurs when a trader artificially tries to inflate or deflate asset prices in order to create a false sense of market value. Pump and dump schemes are one common form of this. But economic analyses can be used to assess price trends and compare them with historical patterns to identify sudden and unexplained price movements. Unusual volume patterns can likewise be another cause of concern for regulators at the forefront of these enforcement actions. For example, an increase in trading volume without any fundamental news could give some indication of potential
24:10 - 24:52
Robert Letson: wash trading, which in the crypto environment we know has been long a potential issue of reported volumes on exchanges. So economic analysis can, there are identified patterns again of frequent trades between either related counterparties or potential instances of what we would term wash trading. And these two types, price and volume analyses, were particularly important in SEC versus CM Quant, which was filed last month, and a big portion of the SEC versus Binance, where SEC alleged that Binance did not have adequate market surveillance and control to detect or prevent manipulative trading on its US platform. Price impact
24:52 - 25:32
Robert Letson: analysis can be another important component for understanding what's causing price moves. Here economists would seek to measure the effect that certain traders or certain bouts of trading have on prices. And price impact analyses are certainly not unique to manipulative events. There's well-established econometric techniques that can estimate, you know, portion of price moves attributable to certain trading. But in this, in particular, was a key component in SEC versus Terra. So there, SEC alleged that there was a third party that restored the UST's peg in May 2021. And in support of that, they relied on econometric analyses that
25:32 - 26:12
Robert Letson: were aimed to measure price impact on that trading. And then lastly, I'll just touch very briefly on blockchain and transaction monitoring. So on-chain analyses can be used to track walled addresses, monitor transaction patterns, and detect unusual flows of capital. Tools that analyze on-chain data can help identify linked accounts and put together a very robust fact pattern to understanding what exactly happens. And this can be useful, for example, in SEC versus Coinbase or Kraken or even consensus where there's elements to transactions that occur both on an exchange and on the blockchain in the form of staking as
26:12 - 26:33
Robert Letson: a service or liquid staking or other transactions in defi liquidity pools. So economic analyses are really useful in these investigations. They're multifaceted, they rely on a combination of statistical methods, but whether it's tracking unusual price movements or volume spikes, these are the types of things that can come up in these enforcement actions.
26:34 - 27:05
Jorge Tenreiro: Rob, that reminded me of one case that I forgot. It was four cases, the cases we filed in Boston with the FBI on the market manipulation as a service. I mean, I think those cases are important because they highlight what, you know, for the Commission, it is about investor protection and fraud, and there is a lot of that, obviously, in these markets, as those cases suggest. So I think those are important cases to keep in mind as well. I know that that might not be the sort of clients you represent, but there's certainly cases that take
27:05 - 27:07
Jorge Tenreiro: up some of our time and our resources as well.
27:08 - 27:41
Rob Cohen: And if you think about it, the Commission and the Commission staff have said, going back years before this administration, that what matters on things like the Howie analysis of whether an asset is a security is the economic realities, right? The economic realities of the asset or of the transactions. And so you certainly have traditional use of economic analysis in manipulation cases, you know, try and establish evidence of what happened and whether it had an impact on the market. But even on basic issues of whether an asset is a security, you've seen economic analysis play, I think,
27:41 - 28:21
Rob Cohen: an unusually significant role because of that point that the Commission's perspective that they don't look at labels, they look at the economic reality. So I've found economic analysis to be unusually important. Obviously there's some cases, valuation and whatnot, where economic analysis is important, but for crypto it's had a role in many different aspects of litigation, not just secondary trading cases. The other interesting thing, again, going back to the beginning, is there's this interesting dynamic with crypto flowing from its innovation. All the trading is public. And so it's very visible to anyone, can go on the, you
28:21 - 28:51
Rob Cohen: know, anyone with a blockchain explorer can go see what happened, it's all public. But account attribution not only is not public, it's often not even visible to the government, right? So it's securities, the SEC has a process, they can go to the broker dealers who cleared the trades and find out who did this trade. With a platform like Coinbase, the Commission may be able to do that, but with a lot of trading, they can't do that. So the economic analysis is interesting where you both have more visibility than usual and at the same time less visibility
28:51 - 29:28
Rob Cohen: as to who's doing it. Another thing we've seen in crypto is proactive challenges to the Commission's authority, which you don't see a lot. We've seen multiple entities proactively sue the Commission. You mentioned the mandamus petition either to try and compel rulemaking or for firms that have said that they're at risk of getting sued and they want sort of a proactive decision by a court, or firms that have not necessarily said they're about to get sued, but that their business model is implicated by these SEC actions and they don't want to sit around and wait to see
29:28 - 29:40
Rob Cohen: if the SEC sues them, they want a decision. So I'll sort of open it up to the panel. Any thoughts on the proactive efforts to sue the Commission, which maybe not surprisingly have largely focused on the Fifth Circuit?
29:43 - 30:17
James Walker: I was just going to say, I think the decision in the consensus matter is significant. I think that, and how that's going to look going forward is, it really is a mystery. Because how the Commission will look over time is a question too. I mean, there are a lot of things I can imagine will not change. I wouldn't expect them to change, but there are other things that may. And initiatives could change, the focus could change, so who knows? What I think is likely though is that there is going to be this feeling in the industry
30:17 - 30:54
James Walker: of, oh, we are unleashed in some ways. And that's something that, frankly, well, lawyers in this industry are going to play an important role in saying, well, no, no, no. A day has passed and that's not enough for you to think that. And let's just make sure that we think carefully about what we're doing. And whether or not this particular sort of turning back and sort of fighting the SEC proactively will continue really depends on sort of looking and waiting and seeing what happens over the next 6 to 8 months or so.
30:54 - 31:24
Matt Solomon: Yeah, I mean, I would just say also with the recent Supreme Court decisions, Jarkesy obviously, that basically, there's not gonna be any more litigated APs, certainly when penalty is an issue. And then Loper-Bright, which got rid of Chevron deference, and I think that's more of a symbolic case, but I think it's a reflection of where the current Supreme Court is, where certainly the Fifth Circuit is. And so I do think that there are going to be a lot more challenges to the SEC, its authority, its rulemaking if it continues to do that. There's another Supreme Court
31:24 - 31:50
Matt Solomon: case that allows you to challenge a rule if you're a new entrant in a business, even if that rule was promulgated many, many years before. So the courts have opened up all these avenues to challenge the SEC, and they've also taken some tools away from the SEC like APs. And in terms of suing the SEC, you asked me five years ago, a client would ask me that, and I'd say, that's insane, do not do that. You're gonna piss everybody off, the judge is going to throw it out of court. We have to think about that now
31:51 - 32:26
Matt Solomon: in all of our cases because it has been an effective tactic and it's a perfectly legitimate tactic. It's up to the district court judges and the circuits on how to handle that. But I think that is a sea change. It ties up resources. It makes the SEC, I think, have to think twice before launching publicly investigations. I think it gives incentive to parties who are under investigation sometimes to make their Wells submissions public. We've seen that with a whole bunch of, I think OpenSea made the fact of their Wells public. Obviously Coinbase did that too. Uniswap.
32:27 - 32:53
Matt Solomon: These are all new tactics and they're tactics that have been, I think, somewhat effective from the industry standpoint. And I don't think those are going away. Now, maybe if enforcement obviously is dialed back with respect to crypto, you'll see less of that, but I think that's gonna seep into other areas of SEC enforcement, and I think that's gonna be sort of a permanent change. It may not be as intense, but I think those changes, particularly with the challenges to the administrative state generally, are really gonna dictate a lot of litigation going forward, not just for the
32:53 - 32:54
Matt Solomon: SEC, but
32:54 - 33:30
Rob Cohen: for other agencies. Yeah, and I think one reason we've seen some of those things that you don't normally see is I think to an unusual degree, you have an industry and an asset class essentially that views certain legal issues as existential to their existence as an industry or as an asset. And so obviously there's lots of SEC cases and litigation where it's existential to that particular entity. But here you have an entire industry that feels like their ability to operate as a for-profit enterprise can rise or fall on this district court decision or that district court
33:30 - 34:05
Rob Cohen: decision. And as much as the industry is innovative from a technological perspective I think they are innovative from a legal perspective and I think you know we've all had conversations with clients that we haven't had with other types of clients like let's talk seriously about proactively suing the SEC in a matter that so far has been non-public. Traditionally, you would never think of doing that, but it's been a significant component of the strategy here. Jorge, one more point on litigation that I want to talk about, some settlements. The Commission is currently and has been litigating an
34:05 - 34:43
Rob Cohen: extraordinary number of cases, both in general but especially in crypto. And we've seen the resources assigned to the crypto unit really expand. I mean, when I was there and we started the unit, it was, I think, the smallest unit. And my understanding now is that it is the largest specialized unit. So, from your perspective, how have you managed the sort of resource issues? You need to continue to conduct new investigations. At the same time, you have all these cases you're litigating against major law firms with only so many resources as a government agency.
34:43 - 34:58
Jorge Tenreiro: You see these bags? So a couple points, Rob, I think, and to bring back some of the other questions. Strategy is a lot of it, I think, when you're managing a lot of cases
34:59 - 35:30
Jorge Tenreiro: and a lot of, There's a lot of similarities across some of these cases. So I think efficiencies and trying not to, the perennial reinvent the wheel idiom that people use. I mean, traditionally, I mean, I was a trial lawyer at the Commission before I had this job. And I remember, we did a case and it was that case essentially. And you didn't really talk to anyone else other than the people that have worked on that case. And so that's different, right? So you have a lot of people working on similar cases. And so the obvious answer,
35:30 - 36:05
Jorge Tenreiro: at least from my perspective, has been making sure that everyone knows where the briefs are and where the arguments are so they don't have to research it all over again. I mean, that's it, right? But to your point about strategy and the outcomes in these litigations, one thing that I guess we've not, that hasn't been discussed at least in this panel is that there was a uniformity in the rulings in the district court on the threshold jurisdiction, or they're all jurisdiction, but the threshold issues that would have knocked the Commission out of this space, whether it
36:05 - 36:37
Jorge Tenreiro: was these are currencies, those were the old ones, the fair notice so far, unconstitutional vagueness, major questions, all of those, even the need of a contract, no court has accepted that. I mean, you could say that maybe she's kind of accepting that in Ripple, but no court has at least explicitly accepted that notion. And so in that sense, the Commission is undefeated so far, right? And I think you can view the, I mean, you tell me you guys are the ones who've crafted this strategy, but you can view the strategy of suing the Commission as well.
36:38 - 37:08
Jorge Tenreiro: That's sort of the next step in the strategy because these sort of end all be all arguments have not worked so far. And so to the extent that that's true, right, I mean I think that that simplifies things a little bit for us in our enforcement cases, a lot, you know, from the enforcement perspective. A lot of the cases you guys are talking about also GC works on, right, and I'm curious, you know, which ones have been successful so far, but I, because I heard that, but I was, I have no one, none has been successful
37:08 - 37:38
Jorge Tenreiro: so far as far as I'm aware, but you know, so far obviously is the key. I don't think, there's only been one decision in those cases. So In terms of managing the unit, I mean, I think you guys touched on this. I really appreciated the running through of the economic analysis that you just did, because there are some really sophisticated people in our unit, as you know, since you created it. But we have a dedicated group of data scientists now, and there's some really sophisticated people in the unit that really help us with the tracing as
37:38 - 38:04
Jorge Tenreiro: well. And we've just, we have grown, and it's definitely challenging to manage the largest unit in the Division of Enforcement. Actually, the trial unit is larger, technically speaking, but of the investigative units. But it's, yeah, it's a lot of coordination and it's a lot of giving people the resources that are available and not repeating the work that we've done before.
38:05 - 38:42
Rob Cohen: Yeah, and I'll note, in terms of resources that are available, I remember sitting in briefings back in 2017, 2018. Before the Commission got focused on crypto, Department of Justice, especially money laundering and asset forfeiture was very on the issue. Going back to things like, you know, Silk Road and Mt. Gox, where, you know, tracing assets, you know, was important to their criminal cases. And so, you know, going back 10 years, you know, the Department of Justice, you know, working with vendors also had developed tremendous, you know, tools to trace assets in crypto. And you've seen that
38:42 - 39:14
Rob Cohen: in some of the mixer cases, right? Like things that are somewhat designed to make that difficult. You know, the Department of Justice and the Commission has had serious tools available, and as you say, personnel with expertise who are able to take tools and skill sets that originated in criminal asset forfeiture matters and apply them to SEC enforcement matters. I do wanna, as much as we focus on litigation, there have been some big settlements this year also. What settlements from the past year would you highlight?
39:15 - 39:29
Jorge Tenreiro: I would highlight the eToro settlement as a kind of one of the few if not perhaps only where an intermediary continues its business in some form in the United States. So I think that's a significant settlement.
39:30 - 39:32
Matt Solomon: Only with Bitcoin and Ether, right?
39:32 - 40:09
Jorge Tenreiro: Right, and Bitcoin Cash Bar. Yes, a part of its business. So I think that's a significant settlement. I think we did, I'm cheating a little bit, I think we did an NFT case this year again. And I think we did a couple of so-called DAO cases, including one called Barnbridge and one called Mango. So sort of suggesting that, again, to your point, we don't always look at the labels. Sometimes there are people who are represented by these entities and these DAOs in these organizations, I think some of them are in this room. So I think those are significant settlements as well.
40:09 - 40:49
Rob Cohen: And something we've talked about, you know, I've talked about and it goes back to the beginning is that the effort to bake into an enforcement settlement a potential path towards future compliance, at least in the Commission's view. And so, you know, you mentioned eToro, and there a firm announced that it was gonna not operate certain parts of its business as part of the enforcement settlement. Can you give thoughts about that? Just the idea of trying to have undertakings, and I'll say back in 2018, we did that working with Bill Hinman on cases like Air Fox where
40:49 - 41:10
Rob Cohen: there was an undertaking for a process to register. Right, and the idea was to not just bring an enforcement case, but to say, you know, this is the Commission's view about how you can engage in this business, you know, in the Commission's perspective in a lawful way. So do you have thoughts on that as something that's been important to these cases or something you focus on?
41:10 - 41:46
Jorge Tenreiro: Yeah, I think it's been important and there's undertakings in the ones I mentioned as well, but it's interesting because I think from my perspective, making policy with an enforcement settlement is a strange thing in some ways, but I mean, I think you probably talked about the texting cases, right? It happens whether an enforcement case is a Commission action, so it's not, I mean, it's gonna make some policy in some direct or indirect way, but it's not, you know, it's not the traditional way, let's say. But I think it is important to think about the sort of
41:46 - 42:18
Jorge Tenreiro: consequences and the constructs in these settlements of what the Commission is comfortable with people doing and what incentives it might create. So you always think about that, right? And you think about that even when you're just structuring penalties, you think about incentives. So when you think about undertakings, you definitely think about incentives and that's important. And the staff, I think, is very thoughtful about that. They engage very directly, and we engage very directly with the participants, with the potential defendants, on what makes sense, what's viable. For some people, obviously, the eToro settlement is not what they want. They want to sue the Commission.
42:18 - 42:46
James Walker: I would just add that the industry follows the settlements pretty closely too. And eToro is a really good example because the thought there, some reacted to eToro as saying, oh, okay, well, they cut off a lot of what they're doing, but they're doing Bitcoin and ETH. And just the fact that ETH is part of that is something that a lot of people sort of took note of. And I remember telling clients, it's like, okay, we'll look very carefully at all the elements there. There's discussion of cooperation, there's discussion of other things that happened. You don't know
42:46 - 43:03
James Walker: the details of the process that went into this settlement. So don't necessarily look at this as saying something definitive about all businesses that do this. But it's interesting to look at, it's a possibility, but it is not a pronouncement.
43:04 - 43:47
Rob Cohen: If I could articulate, I think one perspective that's common in the industry about this is that it shouldn't proceed that way. Guidance about how they should operate their business shouldn't come through individual enforcement cases that people then feel compelled to treat as rulemaking even though it's not. I think on one hand the Commission is looking to try and be productive, but the process of doing it through an enforcement settlement where there's only one party on the other side negotiating, right, it's not subject to notice and comment, it's not subject to even court review if it's a
43:47 - 44:17
Rob Cohen: settlement, right? You can't challenge it the way you could challenge a rule. Right, there's a real belief in the industry that's not the way to proceed. And the other thing I'll say, I think, a perspective from the agency is when it comes to, a perspective from the industry, when it comes to crypto, that early in the administration, you heard a lot about being technology neutral and industry neutral, and we just wanna enforce compliance. I don't think you hear that much anymore. And I think the industry's perspective is that the Commission has been much more active in
44:17 - 44:45
Rob Cohen: trying to dictate the shape and form of the business as opposed to just focusing on the rules. So you can trade this, you can't trade this. You can do this onshore, you can't do this onshore. I think an industry perspective is, again, that's not really the role of the Commission. And to the extent the Commission wants to shape how businesses can operate, it should do that through rulemaking. We have just half a minute left, maybe just a quick word on tokenization that's been a focus. Robert, do you have something to add?
44:46 - 45:15
Robert Letson: Yeah, happy to. Actually, I get a lot of flack around the office for talking about tokenization, so I'm happy to take the 15 seconds. I think in some ways it's really taken off. It's a very innovative way, and in particular recently, a growing trend among money market issuers to issue tokens that are digitized, that they're tradable 24-7, issued on blockchain, all the uses of blockchain technology, but for qualified institutional investors. So I think it's something we'll see more of.
45:15 - 45:24
Rob Cohen: Thanks. We're at time, obviously there's a lot going on in this space. And with the election and changes next year, there's going to be a lot to talk about on this panel next year. So come on. Thanks.