WEBVTT - SEC Cracks Down on Crypto 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:11.200 --> 0:00:13.800 As I've often said, it's a wild West and a 0:00:13.840 --> 0:00:15.440 bunch of casino operators. 0:00:15.880 --> 0:00:19.159 SEC chair Gary Gensler has made no secret of his 0:00:19.280 --> 0:00:23.720 views on the crypto industry, repeatedly arguing that most tokens 0:00:23.760 --> 0:00:27.479 are subject to his agency's oversight and that swaths of 0:00:27.520 --> 0:00:29.400 the industry have been breaking the law. 0:00:30.040 --> 0:00:34.159 In the crypto space, it's largely built on a business 0:00:34.200 --> 0:00:37.680 model that's non compliant with the securities laws. People are 0:00:37.800 --> 0:00:41.640 coe mingling all of the customer funds there. It would 0:00:41.680 --> 0:00:44.600 be as if the New York Stock Exchange is also 0:00:44.760 --> 0:00:48.880 operating a hedge fund and trading against their customers. 0:00:49.760 --> 0:00:52.479 And now, in a one to two punch, the SEC 0:00:52.640 --> 0:00:56.760 is cracking down on the shadowy industry that burned investors 0:00:56.800 --> 0:00:59.960 with blow ups like the collapse of FTX last year, 0:01:00.520 --> 0:01:06.160 suing its two biggest players, Binance, the world's largest cryptocurrency exchange, 0:01:06.319 --> 0:01:11.520 and Coinbase Global, the largest US crypto exchange. CEO Brian 0:01:11.720 --> 0:01:16.120 Armstrong says Coinbase has taken a compliance first approach and 0:01:16.240 --> 0:01:19.720 in its complaint, the SEC has made no allegations of 0:01:19.800 --> 0:01:23.080 misappropriation of customer funds or wash trading. 0:01:23.720 --> 0:01:27.560 It's really debating this more technical legal question of are 0:01:27.600 --> 0:01:29.920 some of these assets commodities or are these securities? And 0:01:30.920 --> 0:01:32.760 I think that's something the court will have to decide 0:01:32.760 --> 0:01:35.200 to sort of get some legal press, some case law 0:01:35.240 --> 0:01:38.039 out there which will ultimately benefit us, because that's what 0:01:38.080 --> 0:01:40.160 we've been asking the SEC for for a long time, 0:01:40.240 --> 0:01:42.760 is how do we get more clarity? So if we 0:01:42.800 --> 0:01:44.880 need to go to the course to do it, it's 0:01:44.920 --> 0:01:47.080 not our first choice. We'd rather the regular had just 0:01:47.080 --> 0:01:48.280 published a clearer rule book. 0:01:48.480 --> 0:01:51.800 Joining me is securities law expert James Park, a professor 0:01:51.800 --> 0:01:56.720 at UCLA Law School. Two lawsuits against major crypto exchange 0:01:56.760 --> 0:02:01.280 is in two days. What's the message the SEA is sending? 0:02:01.880 --> 0:02:05.000 So I think that they've been very deliberate and thoughtful 0:02:05.080 --> 0:02:08.280 about bringing cases and building up the argument that they 0:02:08.320 --> 0:02:11.880 should regulate the industry. And I think part of what 0:02:11.880 --> 0:02:15.440 we're seeing here through enforcement is that the SEC is 0:02:15.520 --> 0:02:20.160 essentially making the case that regulation is necessary, and they 0:02:20.200 --> 0:02:23.440 are doing so in a way that is not too abrupt. 0:02:23.760 --> 0:02:27.840 I mean, I think they're also capitalizing on the SPX crisis, 0:02:27.880 --> 0:02:31.799 where we all see what can happen with an unregulated exchange, 0:02:32.000 --> 0:02:34.400 and so I think the argument that exchanges should be 0:02:34.480 --> 0:02:37.960 regulated and is going to fall in more sympathetic years. 0:02:38.000 --> 0:02:40.359 And I think that's why we see this one two punch. 0:02:40.760 --> 0:02:43.160 In these cases that the SEC has brought this week, 0:02:43.240 --> 0:02:46.400 they're sending a very clear message that they are here 0:02:46.480 --> 0:02:49.160 in the space and there is asserting their authority to 0:02:49.280 --> 0:02:52.360 regulate cryptos. And I think that they're trying to strike 0:02:52.440 --> 0:02:54.360 while the iron is hot. 0:02:54.560 --> 0:02:57.600 Are these cases, the one against Finance and the one 0:02:57.639 --> 0:03:00.799 against Coinbase? Are they similar in in some ways are 0:03:00.880 --> 0:03:01.880 completely different? 0:03:02.440 --> 0:03:05.639 There are some similarities. I would say the Binance case 0:03:05.760 --> 0:03:11.400 involves some more serious allegations of market manipulation and permitting 0:03:11.440 --> 0:03:15.639 market manipulation to happen. There's also an allegation in Binance 0:03:15.840 --> 0:03:20.960 about commingling of funds and the concern that customer funds 0:03:20.960 --> 0:03:24.720 that are deposited by US investors could be diverted by 0:03:25.000 --> 0:03:28.320 the parent company and the founder. And I think this 0:03:28.520 --> 0:03:33.280 clearly is meant to be analogous to what happened with FTX, 0:03:33.560 --> 0:03:37.320 where customer funds were diverted and used to make vet 0:03:37.400 --> 0:03:40.800 by an affiliated hedge fund. So I think the charges 0:03:40.800 --> 0:03:44.800 against Finance are more serious although a smaller percentage of 0:03:44.840 --> 0:03:48.760 Binance's operations are in the United States, and so the 0:03:48.800 --> 0:03:52.240 significance of the coin Base case is that Coinbase is 0:03:52.320 --> 0:03:56.280 primarily operating in the United States, but we don't have 0:03:56.760 --> 0:04:02.240 the same allegations of market manipulation and problematic commingling. This 0:04:02.360 --> 0:04:05.840 is really more of a basic argument that this is 0:04:05.880 --> 0:04:09.280 a securities exchange that is subjects to regulation under the 0:04:09.320 --> 0:04:12.480 Securities Exchange Act of nineteen thirty four, and that basic 0:04:12.560 --> 0:04:16.560 argument is made with respect to both Finance and Coinbase. 0:04:16.839 --> 0:04:21.120 The question of whether certain tokens are securities has hung 0:04:21.160 --> 0:04:25.320 over the crypto industry for years, and SEC chair Gary 0:04:25.360 --> 0:04:30.520 Gensler says most crypto products are no different from stocks, bonds, 0:04:30.560 --> 0:04:34.880 and other securities, and the crypto businesses have to follow 0:04:34.920 --> 0:04:39.280 the same rules as traditional stock and bond exchanges. Explain 0:04:39.320 --> 0:04:40.360 what he's looking. 0:04:40.120 --> 0:04:42.720 To do, you know, I think you can see a 0:04:42.720 --> 0:04:46.360 little more elaboration about his position in the two complaints 0:04:46.400 --> 0:04:49.680 that we saw filed by the SEC and Coinbase and Binance. 0:04:49.720 --> 0:04:52.560 And one of the things that the complaints highlights is 0:04:52.600 --> 0:04:56.200 that you know, if you go on to these websites 0:04:56.320 --> 0:05:00.760 and purchase crypto, you know the interfaces in the distinguishable 0:05:00.880 --> 0:05:04.800 from the website of Fidelity or Vanguard, where I'm buying 0:05:05.040 --> 0:05:07.560 stocks or bonds, and so I think that is a 0:05:07.680 --> 0:05:12.760 message they're trying to convey, is that fundamentally these assets 0:05:12.920 --> 0:05:18.320 are just like security. They are valued based upon assessments 0:05:18.360 --> 0:05:22.840 of the success of some underlying projects, some underlying business, 0:05:22.920 --> 0:05:27.400 and very important for investors to get fair prices when 0:05:27.440 --> 0:05:30.520 they're buying and selling these particular assets, and I think 0:05:30.520 --> 0:05:33.440 that's a similar concern that we see in stock markets. 0:05:33.480 --> 0:05:37.000 There's also the potential for manipulation. That's an allegation we 0:05:37.040 --> 0:05:41.679 saw in Binance, where market participants can insuade the price 0:05:41.720 --> 0:05:46.520 of the security through certain manipulative trading, meaning that investors 0:05:46.560 --> 0:05:49.120 are not getting fair prices. So there is a similar 0:05:49.160 --> 0:05:54.400 concern between stock markets and crypto assets markets. Now, I 0:05:54.400 --> 0:05:57.120 think the limitation though. One of the questions I had 0:05:57.160 --> 0:05:59.599 about both of these cases, and it's also a question 0:05:59.640 --> 0:06:05.720 about Genstler's position, is that the SEC only identifies about 0:06:05.760 --> 0:06:10.400 ten to fifteen crypto assets that it claims we're trading 0:06:10.440 --> 0:06:13.320 on these exchanges, that it clearly makes the case that 0:06:13.400 --> 0:06:16.800 they were securities under the so called Howie test, which 0:06:16.880 --> 0:06:20.120 governs whether or not something is or is not a security, 0:06:20.160 --> 0:06:22.640 and that's out of maybe two or three hundred different 0:06:22.680 --> 0:06:26.000 crypto assets that are trading on these exchanges. And so 0:06:26.040 --> 0:06:28.520 that to me since sort of an odd message where 0:06:28.600 --> 0:06:32.280 Genstler is saying, you know, most or virtually all crypto 0:06:32.400 --> 0:06:35.719 assets are securities, but then the case that they're filing, 0:06:35.760 --> 0:06:40.200 they only identify a small percentage of the crypto assets 0:06:40.320 --> 0:06:43.680 on these exchanges and make the case that they are securities. Now, 0:06:43.680 --> 0:06:46.080 the SEC does say that at a minimum of you 0:06:46.279 --> 0:06:49.200 ten to thirteen crypto assets that are trading on these 0:06:49.240 --> 0:06:52.320 exchanges that are security, so there may be more, but 0:06:52.400 --> 0:06:54.560 it seems a little bit odd to bring a case 0:06:54.600 --> 0:06:58.600 where you're only identifying a small percentage of the crypto 0:06:58.720 --> 0:07:02.440 assets on the exchanges when the chair is saying that 0:07:02.520 --> 0:07:05.280 virtually all of these crypto ascids are securities. 0:07:05.680 --> 0:07:08.680 On Bloomberg TV today there was an interview with coinbase 0:07:08.760 --> 0:07:12.120 CEO Brian Armstrong, and he said that they had had 0:07:12.320 --> 0:07:16.040 something like thirty meetings with the SEC over the last year. 0:07:16.920 --> 0:07:20.160 They got no feedback and then they got the wills notice, 0:07:20.240 --> 0:07:22.840 which tells you the SEC is going to bring an 0:07:22.920 --> 0:07:28.400 enforcement action. I mean, should the SEC be providing these 0:07:28.440 --> 0:07:31.920 companies with better guidance A great question. 0:07:32.360 --> 0:07:35.760 I think the SEC's argument is that, you know, you 0:07:35.880 --> 0:07:40.600 started up this exchange that has violated securities laws, and 0:07:40.640 --> 0:07:43.400 it's operating, and now you come in and say you 0:07:43.440 --> 0:07:47.520 want a register, right, Why should we accommodate you when 0:07:47.520 --> 0:07:50.320 you didn't come to us before you started this business 0:07:50.480 --> 0:07:53.600 which has billions and billions of dollars of transactions that 0:07:53.640 --> 0:07:57.400 are happening, and many, according to the SEC, are clearly 0:07:57.440 --> 0:08:01.440 in violation of securities laws, violate the law, and then 0:08:01.480 --> 0:08:03.880 you come in and try to fix things. You know, 0:08:04.160 --> 0:08:06.120 we should have some discretion as to what we do 0:08:06.200 --> 0:08:08.240 in a situation like that. You know, we have no 0:08:08.320 --> 0:08:12.560 obligation to accommodate you. We think we should bring enforcement 0:08:12.800 --> 0:08:17.320 because you went ahead without asking us and created a 0:08:17.480 --> 0:08:21.360 very very large business in this space that is violating 0:08:21.400 --> 0:08:24.720 federal securities law. That is the position of the SEC. 0:08:25.040 --> 0:08:29.119 I think Cooinbaso would say that that's not fair because 0:08:29.120 --> 0:08:33.280 the law's unclear. We didn't know that there were these 0:08:33.400 --> 0:08:37.600 ten or fifteen crypto assets that you consider to be securities, 0:08:37.679 --> 0:08:39.640 or at least we believed in good faith they were 0:08:39.679 --> 0:08:43.160 not securities. We've been trying to comply with the law, 0:08:43.760 --> 0:08:45.839 and so we want to talk to you and get 0:08:45.880 --> 0:08:48.400 some more parity about your position of what the law is. 0:08:48.720 --> 0:08:52.080 The reason we moved forward without your permission is that 0:08:52.120 --> 0:08:56.280 we sincerely believe that these assets were not securities, and 0:08:56.320 --> 0:08:58.520 to the extent that you believe that they are securities, 0:08:58.559 --> 0:09:01.319 you should give us a little bit of leeway in 0:09:01.400 --> 0:09:04.640 finding a mutually agreeable solution. So I think there are 0:09:04.720 --> 0:09:08.439 arguments on both sides as to the significance of these meetings. 0:09:08.720 --> 0:09:13.319 The reaction by both coinbase and Binance has been similar 0:09:13.600 --> 0:09:18.040 in that respect. Armstrong said the SEC under this chair 0:09:18.080 --> 0:09:22.280 has created regulation by enforcement instead of creating a clear 0:09:22.400 --> 0:09:26.280 rule book, and Binance said the lawsuit reflected the SEC's 0:09:26.559 --> 0:09:31.000 misguided and conscious refusal to provide clarity to the crypto industry. 0:09:31.240 --> 0:09:34.160 That's an argument that has been made for many decades. 0:09:34.480 --> 0:09:38.839 It first appeared back in the nineteen seventies with investigations 0:09:38.880 --> 0:09:42.480 relating to foreign bribes paid by public companies. The companies 0:09:42.559 --> 0:09:46.600 argued that it was not clear that these bribes violated 0:09:46.640 --> 0:09:49.800 securities law. The SEC brought a lot of enforcement cases, 0:09:49.840 --> 0:09:52.240 and there were some criticisms that they were regulating through 0:09:52.320 --> 0:09:56.280 prosecution or regulating from by enforcement. Now, I think the 0:09:56.320 --> 0:10:01.320 SEC's defense in this situation is that, you know, these 0:10:01.600 --> 0:10:03.640 are laws that are on the books, and they are 0:10:03.679 --> 0:10:07.920 deliberately vague. They are deliberately vague because we don't want 0:10:07.960 --> 0:10:10.800 to provide a roadmap to people who are committing fraud 0:10:11.040 --> 0:10:14.560 as to how they can evade regulation. Congress made the 0:10:14.600 --> 0:10:18.080 definition of a security deliberately vague because they understood there 0:10:18.120 --> 0:10:20.040 are going to be a lot of things that people 0:10:20.080 --> 0:10:24.120 would try to structure in order to avoid regulation through 0:10:24.160 --> 0:10:26.920 the federal securities laws. And that's how the federal securities 0:10:26.960 --> 0:10:30.080 laws are built, and so to some extent, some form 0:10:30.120 --> 0:10:33.640 of regulation by enforcement is inevitable. I would also say 0:10:33.679 --> 0:10:38.080 in the SEC's defense that the problem of crypto has 0:10:38.120 --> 0:10:41.520 been extremely challenging because if you, you know, think about 0:10:41.559 --> 0:10:45.520 the technology, you can create fifty billion crypto assets with 0:10:45.600 --> 0:10:50.240 a single program and distribute it widely, almost instantaneously to 0:10:50.880 --> 0:10:54.360 millions and millions of investors. This is a far different 0:10:54.360 --> 0:10:57.559 world from the old stock schemes, where at least you'd 0:10:57.600 --> 0:11:00.600 have to print out stock certificates and all people on 0:11:00.640 --> 0:11:04.480 the phone. The speed and magnitude of the development of 0:11:04.520 --> 0:11:08.160 crypto has been extraordinary, and I think the SEC has 0:11:08.480 --> 0:11:11.120 been scrambling over the last five to six years as 0:11:11.120 --> 0:11:15.000 to how they should respond with respect to the boom 0:11:15.200 --> 0:11:18.800 in crypto assets. So I think that the industry has 0:11:18.840 --> 0:11:21.800 a point to some extent that perhaps at times the 0:11:21.880 --> 0:11:24.360 SEC has been a little bit clumsy in terms of 0:11:24.400 --> 0:11:27.680 the message that it's sending. Maybe it's been a little 0:11:27.720 --> 0:11:31.960 bit deliberately unclear in a certain way because it wants 0:11:32.040 --> 0:11:36.000 to avoid being put into a box. The SEC's response is, well, 0:11:36.000 --> 0:11:38.800 that's just how the security laws are structured. I mean, 0:11:38.800 --> 0:11:41.920 we're just trying to understand the issue and problem, and 0:11:41.920 --> 0:11:44.400 it takes time for us to do this, and that's 0:11:44.400 --> 0:11:46.480 why we're not giving you clear answers. We're trying to 0:11:46.480 --> 0:11:48.960 figure it out first, and we don't want to preclude 0:11:49.320 --> 0:11:53.440 any regulation by taking premature positions that are not well 0:11:53.480 --> 0:11:54.360 thought out. 0:11:54.720 --> 0:11:58.520 Gensler has compared the crypto industry to the wild wild 0:11:58.559 --> 0:12:04.199 West at pure exaggeration or is that true in many respects. 0:12:04.840 --> 0:12:08.559 I think it is, and it's something to be concerned about. 0:12:09.200 --> 0:12:13.800 And I think retail investors, you know, young people for examples, 0:12:13.880 --> 0:12:17.040 are very sort of into these digital markets, and they're 0:12:17.080 --> 0:12:21.199 on social media where these coins are being touted, and 0:12:21.440 --> 0:12:23.360 there's a concern that a lot of money is going 0:12:23.400 --> 0:12:26.040 to be lost to people who are essentially stealing it, 0:12:26.120 --> 0:12:29.400 and that's not a good thing. And I think that 0:12:30.080 --> 0:12:34.240 there has been a tendency by the industry to push 0:12:34.280 --> 0:12:38.440 the boundaries, to push the boundaries of regulation, and I 0:12:38.480 --> 0:12:41.520 think that the idea that it's sort of the wild West, 0:12:41.679 --> 0:12:43.040 you know, it's an apt description. 0:12:43.559 --> 0:12:46.520 Looking at these cases, do you think that they're hard 0:12:46.600 --> 0:12:48.839 cases for the SEC to make? 0:12:49.440 --> 0:12:52.640 There are challenges with both cases. In the finance case, 0:12:52.720 --> 0:12:56.320 you have more problematic conduct, so that's in favor of 0:12:56.360 --> 0:12:59.400 the SDC. On the other hand, only a portion of 0:12:59.440 --> 0:13:02.760 finances operations are clearly in the United States, and so 0:13:02.760 --> 0:13:05.040 there's kind of a question of the limits of the 0:13:05.200 --> 0:13:10.760 SEC's jurisdiction and to what extent can they regulate operations 0:13:10.800 --> 0:13:14.720 that are completely overseas. The SEC is making the argument 0:13:14.920 --> 0:13:19.320 that these overseas operations clearly have an impact in the 0:13:19.440 --> 0:13:24.679 US because they are basically soliciting US investors and encouraging 0:13:25.320 --> 0:13:29.640 them to sign up for trading on foreign platforms, even 0:13:29.679 --> 0:13:32.640 though the foreign platforms are not really supposed to have 0:13:32.800 --> 0:13:37.079 US investors. There's some allegations that they're encouraging potential US 0:13:37.200 --> 0:13:41.199 clients to log in with an Internet connection that doesn't 0:13:41.360 --> 0:13:44.720 identify where you are logging in from in order to 0:13:45.080 --> 0:13:48.320 allow that person to get through the various screens that 0:13:48.360 --> 0:13:51.400 are meant to keep out US investors. So certainly there 0:13:51.480 --> 0:13:54.280 is an argument that some of these other operations should 0:13:54.320 --> 0:13:57.200 be subject to US jurisdiction, but I think that could 0:13:57.240 --> 0:14:01.280 be a bit complicated to establish coin Base. I think 0:14:01.320 --> 0:14:04.920 the challenge for the SDC is that, you know, they've 0:14:04.920 --> 0:14:09.240 only identified about ten or so crypto assets that it 0:14:09.320 --> 0:14:13.440 maintains are clearly securities, and so certainly Coinbase may try 0:14:13.440 --> 0:14:17.360 to dispute in court that these crypto assets are actually 0:14:17.360 --> 0:14:20.200 securities under the Howie test. They may dispute that the 0:14:20.320 --> 0:14:23.120 sec may have to defend its position crypto asset by 0:14:23.120 --> 0:14:26.160 crypto assets. And that's sort of the broader question of 0:14:26.160 --> 0:14:28.960 what does the SDC want in the coin Base case. 0:14:29.040 --> 0:14:31.920 Are they trying to say that Coinbase should be shut down? 0:14:32.520 --> 0:14:38.120 Is there an alternative registration option that they think could proceed? 0:14:38.560 --> 0:14:42.000 You know, could Coinbase argue, hey, we'll just stop allowing 0:14:42.320 --> 0:14:44.520 training in these ten to fifteen things that you see 0:14:44.520 --> 0:14:47.360 our security and if we do that, maybe we're not 0:14:47.440 --> 0:14:50.920 an exchange and so we don't have to register going forward. 0:14:51.000 --> 0:14:53.400 So I think that, you know, these are very carefully 0:14:53.440 --> 0:14:57.880 thought through, thoroughly investigated cases, but there could be some 0:14:58.280 --> 0:15:01.560 complications if these exchange decide to litigate. 0:15:01.640 --> 0:15:04.520 In course, maybe you can make this clear. If there 0:15:04.520 --> 0:15:07.960 are only those few in the coin Base case that 0:15:08.040 --> 0:15:11.920 the SEC is asserting our securities, is this then not 0:15:12.320 --> 0:15:16.440 an attempt by the SEC to assert its jurisdiction over 0:15:16.640 --> 0:15:17.880 the crypto industry. 0:15:18.320 --> 0:15:22.040 They are still saying, though, that your entire exchange has 0:15:22.120 --> 0:15:24.680 to register with US, and so that's a little bit 0:15:24.720 --> 0:15:27.240 puzzling to me. You know, I just read the complaints. 0:15:27.240 --> 0:15:29.200 I haven't really had a lot of time to think 0:15:29.280 --> 0:15:33.080 through the legal issues in doctrine, but that's something that 0:15:33.160 --> 0:15:35.960 seems a bit odd to me, because you know, clearly 0:15:36.200 --> 0:15:40.520 there are crypto assets trading on coinbase that are not securities. 0:15:40.680 --> 0:15:42.760 You know, my understanding is about half of the trading 0:15:42.840 --> 0:15:46.600 volume is bitcoin and ether, and the SEC has conceded 0:15:46.640 --> 0:15:49.400 that those are not securities, and so there's kind of 0:15:49.440 --> 0:15:52.200 this issue of, well, if only a portion of the 0:15:52.240 --> 0:15:56.000 trading on your exchange relates to securities, should you have 0:15:56.120 --> 0:15:59.560 to register with the SEC, and the SEC is saying, yes, 0:15:59.600 --> 0:16:03.440 you do, and so I think they are asserting authority 0:16:03.480 --> 0:16:06.480 over these exchanges. I think the question is whether or 0:16:06.560 --> 0:16:10.040 not there may be some questions about the legality of that, 0:16:10.360 --> 0:16:13.600 because you know, there might be intermediate solutions where you 0:16:13.600 --> 0:16:17.440 could kind of jettison those crypto assets that are securities 0:16:17.640 --> 0:16:21.120 and argue that you're outside of the SEC's jurisdiction. But 0:16:21.200 --> 0:16:24.240 I think it's clear the SEC in the lawsuits they 0:16:24.280 --> 0:16:28.560 do want to regulate coinbase and binance as stock exchanges 0:16:28.600 --> 0:16:29.720 securities exchanges. 0:16:30.120 --> 0:16:33.840 So if Congress doesn't act in this area, does that 0:16:33.920 --> 0:16:37.520 mean the courts will be deciding what is a security 0:16:37.520 --> 0:16:38.200 and what is not? 0:16:38.800 --> 0:16:41.160 Yeah, they'll be deciding a couple things, right, They'll be 0:16:41.200 --> 0:16:45.120 deciding case by case, are these crypto assets that the 0:16:45.200 --> 0:16:48.800 SEC claims are securities are they actually securities? And then secondly, 0:16:48.800 --> 0:16:51.960 they're going to decide the broader issue of when do 0:16:52.000 --> 0:16:56.440 you have to register with the SEC as a securities exchange. 0:16:56.520 --> 0:16:58.720 I think there are a couple of major legal issues 0:16:58.760 --> 0:17:02.320 here that the court will look at if Congress does 0:17:02.360 --> 0:17:06.760 not act and Coinbase and Binance decide to litigate these cases. 0:17:07.000 --> 0:17:11.200 Some people say these lawsuits could transform the crypto market. 0:17:11.520 --> 0:17:12.720 Do you think that's true. 0:17:12.960 --> 0:17:16.800 I think they could. If the SEC wins, then I 0:17:16.840 --> 0:17:20.960 think we're going to have a much more regulated crypto market. 0:17:21.320 --> 0:17:25.159 When you register as an exchange, the SEC has oversight, 0:17:25.440 --> 0:17:29.160 the power to shape the rules on the exchange and 0:17:29.280 --> 0:17:33.560 their obligations on the exchange to look for market manipulation 0:17:33.720 --> 0:17:35.679 in fraud. It's going to be much more of a 0:17:35.760 --> 0:17:39.399 regulated industry. If the SDC succeeds, that may not be 0:17:39.480 --> 0:17:45.800 such a bad thing for exchanges to comply with SDC oversights. 0:17:46.080 --> 0:17:49.560 And you know, this is not unprecedented in that, you know, 0:17:49.600 --> 0:17:52.040 you think about the New York Stock Exchange more than 0:17:52.040 --> 0:17:55.280 one hundred years ago. It starts out as a private 0:17:55.560 --> 0:18:00.640 association of individuals who are interested in making a more marketplace. 0:18:00.720 --> 0:18:04.720 It becomes, you know, this great institution, a private institution, 0:18:05.119 --> 0:18:08.600 and you have the federal government in the Securities Exchange 0:18:08.600 --> 0:18:12.919 Act of nineteen thirty four, basically taking jurisdiction over this 0:18:13.119 --> 0:18:16.119 private organization. And so we could have a similar dynamic 0:18:16.200 --> 0:18:19.679 here in the crypto industry. And that you know, in 0:18:19.720 --> 0:18:21.800 the long run, could that be a good thing for 0:18:21.880 --> 0:18:25.199 crypto It might be it might be something that gives 0:18:25.200 --> 0:18:28.919 the crypto markets a bit more legitimacy to the extent 0:18:28.960 --> 0:18:32.399 that they are regulating. I don't envy the SPC and 0:18:32.720 --> 0:18:36.520 sort of the difficulty of regulating this industry. So one 0:18:36.520 --> 0:18:38.920 of the questions that may come up with these cases 0:18:39.000 --> 0:18:41.600 is that these exchanges have been operating for some time. 0:18:41.920 --> 0:18:44.919 You know, why didn't the SEC act sooner? And I 0:18:44.920 --> 0:18:47.800 think the answer is if they had acted sooner, then 0:18:47.840 --> 0:18:50.880 there would have been criticism of the SEC that there's 0:18:50.920 --> 0:18:54.680 squelching entrepreneurship, there's squelching something that could be really, really good. 0:18:55.040 --> 0:18:57.720 And so I think that they've been very deliberate and 0:18:57.840 --> 0:19:01.520 thoughtful about bringing cases and building up the argument that 0:19:01.520 --> 0:19:07.080 they should regulate the industry. The SEC is taking advantage 0:19:07.119 --> 0:19:11.880 of what it believes is public perception that these crypto 0:19:11.920 --> 0:19:14.879 exchanges are problematic, and I think this comes out of 0:19:14.920 --> 0:19:17.960 the FTX collapse, and I think they're sending a message 0:19:17.960 --> 0:19:22.320 that they are going to regulate the space fairly heavily. 0:19:22.560 --> 0:19:25.560 And I think that they think that public perception is 0:19:25.600 --> 0:19:29.760 skeptical about the value of crypto and is very wary 0:19:29.840 --> 0:19:33.440 of the potential for fraud and manipulation at these exchanges. 0:19:33.480 --> 0:19:35.840 So I think they're sending a very clear message that 0:19:35.880 --> 0:19:37.600 they are here in the space. 0:19:37.880 --> 0:19:40.680 It'll be interesting to see where these two cases go. 0:19:41.080 --> 0:19:44.680 Thanks so much, Jim Best, Professor James Park of UCLA 0:19:44.800 --> 0:19:51.520 Law School. Revelations about Justice Clarence Thomas's real estate transactions 0:19:51.520 --> 0:19:56.040 and undisclosed luxury trips paid for by his billionaire friend 0:19:56.119 --> 0:20:00.080 and GOP donor Harlan crow have fueld debate about the 0:20:00.160 --> 0:20:03.280 conduct and ethics of the justices and the lack of 0:20:03.400 --> 0:20:07.119 oversight over the highest court in the land. A Bloomberg 0:20:07.160 --> 0:20:10.840 review of ethics policies across the federal government shows that 0:20:10.920 --> 0:20:14.360 the other two million federal workers would face a harder 0:20:14.400 --> 0:20:18.720 time accepting gifts far smaller than those bestowed on Thomas. 0:20:19.080 --> 0:20:22.560 Joining me is Bloomberg Legal reporter David Voriakis, who's been 0:20:22.600 --> 0:20:28.399 looking into this, start by refreshing our recollections about Justice 0:20:28.440 --> 0:20:32.840 Thomas's failure to report travel and other perks what was revealed. 0:20:33.440 --> 0:20:40.720 Pro Publica reported that Justice Thomas accepted several luxury gifts 0:20:40.720 --> 0:20:45.880 and perks from his billionaire friend Harlan Crowe. They included 0:20:46.400 --> 0:20:52.480 private jet travel to go on a vacation on Crowe's yacht, 0:20:52.840 --> 0:20:58.480 and they also included buying the home where his mother 0:20:58.600 --> 0:21:03.800 lives and still lives. And these gusts were not reported 0:21:03.840 --> 0:21:09.119 by Clarence Thomas, and that's caused quite a controversy about 0:21:09.200 --> 0:21:12.159 whether they should have been reported. He said that he 0:21:12.240 --> 0:21:16.320 did not need to report them because they were excluded 0:21:16.600 --> 0:21:22.760 under federal ethics regulations by the friendship exception that if 0:21:22.880 --> 0:21:25.879 this is a friend of his, that he did not 0:21:26.160 --> 0:21:31.600 have to report it. And Harlan Crowe has described a 0:21:31.760 --> 0:21:36.560 close personal friendship with Clarence Thomas. What made the pro 0:21:36.600 --> 0:21:41.080 public A reporting so powerful was the extent to which 0:21:41.320 --> 0:21:45.840 they had a very close friendship and the lavishness of 0:21:45.880 --> 0:21:49.320 the gifts that Harlan Crowe gave to Justice Thomas. 0:21:50.359 --> 0:21:54.160 So what's the rule for most federal employees as far 0:21:54.240 --> 0:21:56.520 as gifts are concerned or perks? 0:21:58.080 --> 0:22:03.479 Most federal employees are not allowed to accept gifts above 0:22:03.720 --> 0:22:11.080 a very modest level. In most cases, they are supposed 0:22:11.080 --> 0:22:15.920 to refuse those gifts, particularly if they're from someone outside 0:22:16.000 --> 0:22:20.000 the government, if they're from someone that they may have 0:22:20.040 --> 0:22:24.240 a matter pending before them. And there is a certain 0:22:24.280 --> 0:22:29.280 gift threshold level beyond which many thousands of employees are 0:22:29.280 --> 0:22:33.280 supposed to disclose those gifts. I would say that across 0:22:33.320 --> 0:22:37.960 the government, in the legislative branch, in Congress, in the 0:22:38.040 --> 0:22:42.639 executive branch, which is nearly two million employees, and in 0:22:42.680 --> 0:22:48.040 the judiciary, there is this so called friendship exception, which 0:22:48.160 --> 0:22:52.639 is that if you have a personal friend or a 0:22:52.720 --> 0:22:56.040 relative who gives you a gift, that is an exception. 0:22:56.240 --> 0:22:59.960 There are other exceptions as well. And what we report 0:23:00.119 --> 0:23:05.639 did was that in many instances, gifts or other types 0:23:05.680 --> 0:23:10.639 of ethical dilemmas that may arise for federal workers go 0:23:10.840 --> 0:23:17.320 before ethics officers who are following and interpreting the nineteen 0:23:17.400 --> 0:23:21.560 seventy eight Ethics and Government Act and later legislation and 0:23:21.680 --> 0:23:26.000 regulation that flowed from that. And that's the legislation that 0:23:26.160 --> 0:23:31.320 essentially determines what sort of gifts, what sort of travel, 0:23:31.840 --> 0:23:36.600 what sort of recusals or conflicts of interest, what sort 0:23:36.600 --> 0:23:41.919 of post employment opportunities people can accept. And for the 0:23:42.040 --> 0:23:46.640 vast majority of the federal workforce, they understand that those 0:23:46.720 --> 0:23:49.600 rules are in place and that they need to go 0:23:49.680 --> 0:23:55.000 through ethics officers in cases that you know, maybe or 0:23:55.119 --> 0:23:58.439 close calls or where the regulations need to be interpreted. 0:23:58.720 --> 0:24:03.840 What's different with Justice Thomas is while the Chief Justice 0:24:03.920 --> 0:24:09.000 John Roberts says that the nine Supreme Court justices follow 0:24:09.359 --> 0:24:12.560 the rules that are in place for the federal judiciary, 0:24:12.920 --> 0:24:17.400 there is no outside oversight of the Supreme Court and 0:24:17.560 --> 0:24:21.960 how those rules should be interpreted for the nine justices, 0:24:22.359 --> 0:24:25.120 and so that's caused a lot of controversy and obviously 0:24:25.119 --> 0:24:28.560 of pushing Congress to try to reform that, and there's 0:24:28.600 --> 0:24:33.240 been a subsequent pushback by Chief Justice Roberts, who essentially 0:24:33.320 --> 0:24:36.480 says that they adhere the highest standards of conduct. 0:24:37.240 --> 0:24:40.400 Thomas maintains he didn't have to disclose the luxuried trips 0:24:40.440 --> 0:24:44.760 because Crowe's a close friend, but for everyone, don't gifts 0:24:44.840 --> 0:24:47.360 totaling over four hundred and fifty dollars in one year 0:24:47.400 --> 0:24:51.320 from a single source, including friends, have to be disclosed. 0:24:51.640 --> 0:24:55.199 They do, And there are tens of thousands of federal 0:24:55.240 --> 0:24:59.399 employees who need to make annual financial disclosures, as do 0:24:59.480 --> 0:25:03.119 Thesereme Court justices and all the district judge and of 0:25:03.240 --> 0:25:08.320