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Edition No. 9 - LexNews+ Weekly
SBF trial continues; Trial set to begin for former Celsius CEO; Binance / CZ hit with class action suit; the SEC continues to struggle in the courts; LexDAO Updates!
Hi anon :)
Welcome back to LexNews+ Weekly! This letter is meant to provide LexDAO members and subscribers easy-to-digest summaries of the biggest stories in cryptolaw each week, as well as internal updates of LexDAO operations and projects. Let’s get started!
1. Headlines (The top stories in cryptolaw this week)
3. LexDAO weekly loadout (agenda, events, publications, and more!)
4. Closing Statements
Some things you might have missed this week:
Trouble in Paradise
The Sam Bankman-Fried (SBF) trial commenced last week with no shortage of drama and SBF facing numerous criminal charges stemming from the collapse of FTX at the end of 2022.
Three key-witnesses and former senior FTX employees—Caroline Ellison, Gary Wang, and Adam Yedidia—testified for the prosecution offering firsthand accounts of the allegedly fraudulent behavior at the now-defunct crypto exchange.
Wang, a former friend of SBF and co-founder of FTX who lived in the infamous Bahamas penthouse, admitted to committing financial crimes and spoke about the “special privileges” enjoyed by Alameda Research—FTX’s sister company and crypto hedge fund—allowing it access to $8 billion of FTX customer funds it then used to purchase massive quantities of volatile digital assets.
Such privileges, according to Wang, were granted at the direction of SBF, who instructed FTX employees to develop code allowing Alameda unlimited withdrawals on FTX and to carry a negative balance on the exchange—special privileges no other FTX customer enjoyed.
“Sam told me to make sure Alameda’s accounts would never get liquidated on FTX.” – Gary Wang
Yedidia worked out of FTX’s Hong Kong office from January to October of 2021 and then in the Bahamas until the collapse. Yedidia testified to SBF’s concerns regarding the exchange’s financial stability, saying SBF referred to FTX’s financial situation by admitting, “we are not bulletproof this year.”
Yedidia said SBF also confided in him about his and Alameda CEO Caroline Ellison’s relationship. Yedidia told SBF it was ill-advised to carry on in this manner.
SBF’s inner circle, several of whom have already pled guilty, are not yet finished testifying against him. Ellison herself is scheduled to testify against the disgraced founder this week.
Alex Mashinsky’s, the former CEO of bankrupt cryptocurrency lending platform, Celsius Network, is scheduled for criminal trial on Sept. 17, 2024, where he faces accusations of fraud. Federal prosecutors allege Mashinsky and others at his company pumped the price of Celsius’ native token fraudulently inflating its value and lying about it to investors.
In addition to these criminal charges, the Securities and Exchange Commission (SEC) sued Celsius and Mashinsky for raising billions selling crypto assets the SEC asserts were unregistered securities, and the Commodity Futures Trading Commission (CFTC) has also brought suit against Mashinsky and his former company alleging fraud and material misrepresentations.
Paralleling the criminal charges levied against Mashinky and Celsius, these civil suits also allege fraudulent activity and claim defendants repeatedly lied to investors about the company’s financial stability all while manipulating the price of Celsius’ native taken.
While Mashinsky has pled not guilty to the criminal charges levied against him, former Celsius chief revenue officer, Roni Cohen-Pavon, has reportedly pled guilty to various charges, fueling speculation he may be seeking a deal with prosecutors.
Celsius still owes billions of dollars to investors since filing for bankruptcy in 2022. Prior to the trial date being set, numerous assets held by Mashinsky have been frozen by authorities, include real estate and assets held at financial institutions such as Goldman Sachs and Merrill Lynch.
Both Binance and its CEO, Changpeng Zhao, are named in a class-action suit filed in Northern California alleging unfair competition and violations of securities laws. Plaintiffs assert Binance and Zhao acted with intent to monopolize the cryptocurrency industry by harming Binance rival FTX. The suit was filed by Nir Lahav, who is identified only as a California resident.
The suit focuses on posts made by Zhao on X (then Twitter) in early November 2022 about Zhao seeking to purchase FTX before publicly backing out of the deal and announcing the liquidation of any remaining FTT (FTX’s native token) Binance held at the time. Plaintiffs allege Binance controlled as much as 5% of the entire FTT supply, and selling their stake triggered a major price drop in the token, catalyzing a fast-spreading crisis of confidence in FTX. This was exacerbated by the halting of withdrawals from the troubled exchange, making the hole in FTX’s books clearer to those outside the company and eventually resulting in FTX’s bankruptcy.
As evidenced via the ongoing Sam Bankman-Fried trail, liquidity issues at FTX were an issue of concern long before Zhao’s tweets. A Binance spokesperson was quoted saying “the case is without merit, and we will vigorously defend ourselves.”
This class-action adds to the legal woes already facing Binance and Zhao as they have been named in civil lawsuits from both the SEC and CFTC, to say nothing of possible criminal charges which may soon be leveled against them.
The crypto industry watches on with interest, as major legal issues for one of the remaining crypto exchange giants could have broader implications for the space as a whole.
Can you be bored during freefall?
The SEC was dealt yet another blow in its case against Ripple Labs, marking another bit of positive legal news for crypto enthusiasts. As many crypto supporters have long argued, the SEC’s stance on digital asset regulation is being rejected by key courts as contradictory or misapplications of law.
Judge Analisa Torres, the District Judge presiding over the Ripple case, has denied the SEC’s motion for certification of interlocutory appeal, along with its additional request for a stay. Her latest order affirms the SEC failed to meet the burden required for a successful motion and notes the motion requested by the commission is an attempt to gain “precedential value” it can leverage in other cases—a broad overreach on the part of the agency. While the order holds the SEC did not meet the burden required in the Ripple case, it does not preclude the agency from meeting the required burden in other, future cases.
Torres’ order further sets the matter for trial on April 23, 2024, and highlights several deadlines for the parties involved. This date further sets out the time required for the trial to reach conclusion and for any appeals to be made.
As noted by Bill Hughes in an excellent summary thread on X, the period for appeal is likely to fall outside the current SEC chair’s term, fueling hope the next SEC chair may take a more friendly approach to crypto regulation, perhaps even choosing to forgo an appeal depending on the outcome at trial.
It’s definitely worth checking out Bill Hughes’ short summary of the order on X, highlighting the major points crypto supporters will find vindicating.
Too tired to read, anon? We feel that. Try these instead:
LexDAO weekly loadout:
New Advocacy and Research on the Block
There were some recent major developments on the crypto advocacy and research fronts, with several new organizations announced and additional updates to Lawtoshi’s cod3x.
If you are interested in pushing this space forward and ensuring the industry’s future success with well-researched, public answers to the seminal questions facing crypto, definitely make sure you dig into the following resources:
Paradigm Policy Lab - https://policy.paradigm.xyz/policylab
Updates to the Code3x - https://www.thecod3x.com/x/
Decentralization Research Center -
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