Powers On… is a new monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an Adjunct Professor at Florida International University School of Law, where he teaches a course on ‘Blockchain, Crypto and Regulatory Considerations.’
While I was in private law practice for 35 years, after serving for five years in the Security and Exchange Commission’s Division of Enforcement, I came to learn certain truths. Especially when a company and its officers were subject to SEC or other governmental investigations and enforcement proceedings.
Over time, it was my awareness of these truths that saved many clients untold personal stress and, in many cases, financial ruin and government public actions against them.
The litigation actions by the SEC in the Ripple enforcement proceeding highlight the need for conveying some simple truths regarding the SEC’s habit of overreaching as it pursues certain actions.
When I was with the agency, the Staff in the Division of Enforcement mainly comprised lawyers and investigators trained in finance or formerly employed by brokerage firms and mutual funds. These were SEC “lifers” who, for any number of reasons, clearly planned to make a career in public service and generally had a reasonable approach to enforcement. They had seen the ebb and flow of enforcement priorities in investigations and cases, as well as the types of cases emphasized, depending on the Administration in power at the time. They were unlikely to feel the need to be zealots in their handling of any particular case.
But then, as now, there were also those lawyers that saw the SEC as a stepping stone toward enhancing their future career prospects.
Which brings me to the first immutable truth. As immutable as blockchain technology itself.
Powers’ Immutable Truths: Number One
The SEC is not your friend. To the extent you provide the SEC the opportunity to roll over you, it will.
Immediate and consistent pushback is necessary to keep the government in check, and reduce the chances of a poor outcome. Let’s look at the SEC’s recent discovery requests in the SEC v. Ripple enforcement case filed last December before Judge Analise Torres of the SDNY, as an example of this strategy.
As most of you probably know, the SEC alleges that from 2013 through 2020 Ripple and its officers have promoted a continuous token offering which should have been registered with the agency. It claims that the token offerings were the sale of “investment contracts”. Ripple and two executives, Bradley Garlinghouse and Christian Larsen, are named as co-defendants in the lawsuit.
According to the SEC they directly violated, and aided the alleged violations by Ripple of the Section 5 registration provisions of the Securities Act of 1933. There are no allegations in the complaint of fraud either under the Securities Act or the anti-fraud provisions of the Securities Exchange Act of 1934.
And according to the Ripple court docket and filings, the SEC has sought the personal financial records from Garlinghouse and Larsen, for the past eight years, from both the defendants themselves and five banks plus the Federal Reserve of New York. This is despite no allegations that either of them had misappropriated any investor funds from the offerings, or committed fraud.
This is clear overreach, and the individual defendants’ response of objecting to this is right and appropriate. (This is regardless of the interesting tidbits set forth in the SEC’s complaint that the defendants had twice sought legal advice on the question of whether XRP was a “security” and were advised in the affirmative, plus that the SEC had previously sued Larsen for registration violations involving another of his companies in 2008.)
Judge Torres, overseeing the case, has referred discovery disputes to a federal court Magistrate Judge; and the individual defendants, through counsel, claim that the personal financial information sought is an invasion of privacy by the SEC, and that no legitimate and reasonable rationale related to the allegations of wrongdoing in the complaint has been articulated. They also note that under the federal statute put in place in the late 1970s to provide certain notice and rights to U.S. citizens from whom personal banking financial information is requested by the Government in its investigations of our citizens, the Right to Financial Privacy Act, courts would never tolerate such an overly broad and intrusive request spanning eight years of information.
The response by the SEC, according to the defendants’ letter of objection to the Magistrate, is that discovery is allowed to be broad in civil litigation. The SEC claims it wants to obtain these records to establish the “motive” of these individual defendants for seeking these token offerings for Ripple.
Nonsense! The defendants are right to push back on this.
Now, while some of you readers may say, “What is the big deal of providing this information, if they have nothing to hide? Or have not done anything wrong?” Well, it IS a big deal. If you give the government an inch, no matter how innocent the inch may seem, you have no assurance the inch will not turn into a foot. Which gets me to what I unabashedly call…
Powers’ Immutable Truths: Number Two
Only do or provide what is reasonable to the Government, since you NEVER know the true motives of the staffer on the other side.
Let me explain. As noted earlier, many government attorneys are selfless public servants and seek to do justice and the right thing. However, there are those in the government who seek to burnish their resume, and to have your client as the next notch in their proverbial belt with a “win at all costs” in the investigation or litigation. Unfortunately, it is not always easy to discern where that SEC attorney stands. Will your professional courtesy or reasonable action on behalf of your client lead to reciprocity? Or will it lead to never-ending requests from an overly aggressive and questionably ethical staffer? Which may lead to some unrelated problem for your client that the SEC was not investigating.
Unfortunately, the maxim that ‘less is more’ has never been truer. The less you offer, the more safe your client can feel. And that is codified in…
Powers’ Immutable Truths: Number Three
Never speak with or testify to the government, unless you can absolutely speak the truth without creating legal exposure for yourself. If you cannot, say NOTHING.
Either decline to be interviewed by either having your attorney make a “proffer” of what you would say, or assert your Fifth Amendment privilege against self-incrimination if subpoenaed to testify. It is much better to force the government to make its own case against your company or start-up, rather than you handing to the Staff the proof on a silver platter. The worse outcome is testifying falsely and giving the government an easy criminal case of perjury regarding false statements to a federal officer, when they may not have been able to make or prove a civil securities case.
Now, there are many nuances to all these points. And each investigation or litigation has its own set of facts and applicable law which has to be considered in how best to interact and proceed in matters involving the government. I also appreciate the school of thought, as advocated by the government, that if you provide “full cooperation” to the SEC or state regulator, or U.S. Attorney, they will be more lenient on you in any charges or penalties.
Well, I have generally found that “full cooperation” only advances your client’s interests if they are essentially ‘caught dead to rights’, with unambiguous documents and third party witnesses available to the government to independently prove the Staff’s case. Too often, however, full cooperation and “playing nice”, doesn’t cut it. In my experience, after seeing many defense and so-called white collar defense lawyers rolling over for the Staff, their clients end up in a worse position.
Which all leads, in true circular fashion, right back to the first immutable truth…
The SEC is not your friend.
Which is why the defense counsel for the Ripple founders is doing what is necessary for their clients… even if the SEC doesn’t think it’s “nice.”
Opinions stated herein do not constitute legal advice.
South Korea’s largest bank joins Hedera Governing Council
Shinhan Bank, South Korea’s largest financial institution by total assets, has joined the governance council overseeing the Hedera network.
In an April 14 announcement, Shinhan announced it had become the latest member of the Hedera Governing Council to expand its efforts in the field of “digital transformation.” Hedera touts its hashgraph as an enterprise-grade blockchain platform capable of processing thousands of transactions per second.
Shinhan representatives emphasized growing client demand for enhanced efficiency and security in financial services, stating:
“Hedera’s public distributed ledger in particular is uniquely suited to meet the needs of a widely-used fintech service that must be fast, fair, secure, and enable the controls and visibility required by service providers.”
The bank will now begin integrating Hedera into its systems to “increase the efficiency of its internal processes.”
Shinhan, which ranked as the world’s 61st-largest bank with $478.5 billion in assets as of August 2020, is no stranger to distributed ledger technology, having built a variety of services on Hyperledger Fabric since 2017, including policy loan, interest rate swaps, and pension fund deals.
In March, Shinhan announced it had developed a blockchain-based pilot platform for testing a central bank digital currency, or CBDC, in partnership with LG Corporation’s IT services wing. The platform seeks to allow local banks to act as intermediaries for a CBDC.
Shinhan also invested in the local crypto custody consortium, Korea Digital Asset Trust, at the start of the year.
Hedera Hashgraph co-founder and CEO Mance Harmon, noted “increased interest from financial institutions and governments worldwide in DLT-based financial services” for payment systems and global settlement services.
“We are thrilled that Shinhan Bank has joined the Hedera Governing Council, and look forward to working with them to be on the leading edge of the future of finance,” Harmon added.
Hedera has expanded its global reach in recent months, with French utility giant Électricité de France joining its governing council in March, Standard Bank Group becoming its first African node operator in February, and Australia’s top debit infrastructure provider Eftpos joining the council after completing micropayments trials with Hedera last year.
Kraken Daily Market Report for April 13 2021
- Total spot trading volume at $2.63 billion, 88% above the 30-day average of $1.4 billion as Bitcoin hit all-time highs.
- Total futures notional at $783.1 million.
- The top five traded coins were, respectively, Bitcoin, Ripple, Ethereum, Tether, and Cardano.
- Strong returns from Dogecoin (+30%) and Ripple (+23%).
|April 13, 2021
$2.63B traded across all markets today
Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD
#####################. Trading Volume by Asset. ##########################################
Trading Volume by Asset
The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.
Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (April 13 2021)
Figure 2: Mid-size trading assets: (measured in USD) (April 13 2021)
Figure 3: Smallest trading assets: (measured in USD) (April 13 2021)
#####################. Spread %. ##########################################
Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.
Figure 4: Average spread % by pair (April 13 2021)
#########. Returns and Volume ############################################
Returns and Volume
Figure 5: Returns of the four highest volume pairs (April 13 2021)
Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (April 13 2021)
###########. Daily Returns. #################################################
Daily Returns %
Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (April 13 2021)
###########. Disclaimer #################################################
The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.
Coinbase’s COIN stock reference price set at just $250, as 1,700 staff get free shares
Major U.S. exchange Coinbase’s COIN stock has received a reference price at $250 from Nasdaq, ahead of the much-anticipated direct listing on the stock exchange just hours from now.
The price is far below the current FTX pre-trading price of $600, albeit on thin 24-hour volume of under $4 million.
The exchange is going public via a direct listing instead of an IPO, meaning the reference price is not a direct indicator of the company’s market cap. It simply implies a valuation of $65 billion, which is below other estimates ranging between $68 billion and $120 billion.
The Nasdaq announcement stated that the reference price, which reflects past transactions but was established by consultation with Coinbase’s financial advisors, was created due to the fact “COIN has not had recent sustained trading in a private placement market.”
The reference price does not reflect the opening price, the announcement made clear:
“Please note that the reference price is NOT an offering price and nobody has purchased or sold shares at that price. The opening public price will be determined based on buy and sell orders in the opening auction on Nasdaq.”
This is the first significant direct listing on the Nasdaq. According to CNBC, across “the five significant direct listings that have taken place on the New York Stock Exchange — Spotify, Slack, Palantir, Asana, and Roblox — the opening price was on average about 37% above the reference price.” Following this trend, it would put Coinbase’s opening price above $340, with a valuation of around $90 billion.
The trading price could surge even higher with the Coinbase pre-listing contract CBSE currently trading around $600 on the FTX exchange, representing a 140% premium above the reference price. Another indicator suggesting a strong first day was the Q1 2021 financial statement suggesting revenue spiked to $1.8 billion bringing in net income up to $800 million, which is up from the $32 million recorded during the same period last year.
In the lead-up to the Nasdaq listing, Coinbase surprised all 1,700 full-time employees by giving them 100 shares each, worth $25,000 at the current reference price. The March 25 “thank you” gift is a no-strings-attached grant, meaning they could sell them immediately after the listing goes public tomorrow.
These shares are in addition to the 105,510 share options handed out to employees of Coinbase’s Irish arm in recent years.
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