The big news in crypto this week came via a court filing in Texas.
FTX, the crypto giant that is led by arguably the most powerful person in the industry, is under investigation by Texas regulators for selling unregistered securities.
"The Enforcement Division is now investigating FTX Trading, FTX US, and their principals, including Sam Bankman-Fried," said Joseph Jason Rotunda, director of enforcement for the Texas State Securities Board.
FTX is not alone here. Just this month we've seen Reuters report that Binance is under scrutiny by Federal prosecutors. Bloomberg had the scoop that the SEC is investigating Yuga Labs, the company behind the Bored Apes Yacht Club, and as well as Three Arrows Capital for a "range of possible legal violations."
Crypto critics have long criticized regulators for allowing the industry to grow unfettered. But with the spate of high-profile investigations we're now seeing, it appears that a genuine shift may be at hand.
John Reed Stark, a crypto critic who formerly headed the SEC Office of Internet Enforcement, told me that the FTX investigation is "an extraordinary harbinger of the crypto-regulatory enforcement onslaught that lies ahead."
"You don't mess with Texas," said Stark who thinks state regulators throughout the country have been ahead of the curve on cracking down on crypto. But Stark — who has been highly critical of regulators in the past — says the tide is now turning.
"If the crypto ecosystem is not preparing for a US regulatory onslaught then they have got their heads in the sand. FDIC, OCC, SEC, DOL, FBI, US Treasury and IRS have all stepped up their crypto enforcement efforts. And they are just getting started."
Leading crypto skeptic Nouriel Roubini once wrote in 2019 that regulators were "asleep at the wheel" when it came to crypto, so I wanted to see if he still believes that to be true. He sounded less optimistic than Stark.
"In spite of recent investigations, regulators are still way behind the curve," Roubini told me. "It is the law of the jungle in crypto."
Inside the industry, there are grumbles that the government has chosen to regulate crypto through enforcement and not rule making, a.k.a passing a bill.
"We want rules," one industry lawyer vented to me. His beef is that the SEC is enforcing the same type of cases over and over again, while not clarifying the bigger questions.
"All we get from the SEC is another five cases where they are saying that you shouldn't have issued this as a security in 2016, or they come out and bust Kim Kardashian and make it a big deal as if they didn't already bust Floyd Mayweather and Steven Segal for the same thing."`
Meanwhile in D.C., crypto money is flowing freely competing bills snake their way through the legislative process. Molly Ball broke down the latest on DC's crypto bonanza in an extensive Time Magazine feature.
Through the Ooki Glass
One case that hasn't received much coverage outside of the crypto press but is all the buzz in the industry is the CFTC's Ooki lawsuit.
Ooki, a decentralized autonomous organization, was fined by the CFTC in September for $250,000 in the first ever case against a DAO. The suit claims that anyone who owns an Ooki token can be held liable for the actions of the larger group's. This is a completely new legal theory, one that is controversial even within the CFTC.
But the high levels of interest in the case isn't really about Ooki, a minor player, but rather who is doing the enforcing.
In the absence of specific federal legislation requiring crypto oversight, has been split up between the SEC and CFTC in what has become DC's multi-year crypto turf war. The CFTC has long been viewed by the crypto industry as the more favorable of the US enforcement agencies, with Sam Bankman-Fried advocating oversight by the commission as a central plank of his crypto-friendly regulation push.
The crypto lawyer I spoke with told me that those who prefer the CFTC over the SEC fall into two camps. The first - let's call them The Cynics - believe that the CFTC is the more underfunded and understaffed agency…while the second camp - The Wonks - believe that cryptos more closely fit into existing commodities law.
So now that the CFTC is going hard on Ooki, The Cynics have had a rude awakening…perhaps the CFTC isn't the pushover they'd hoped for.
Yes, the CFTC is doing all that to the Ooki.
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