A landmark crypto case ripples through Congress


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Crypto has had a brutal year in Washington. The industry’s fortunes could reverse after federal Judge Analisa Torres ruled that a major crypto firm did not violate securities laws with certain sales and distributions of its native token.

The SEC’s case against Ripple Labs has long been viewed as a bellwether for how much authority the agency will ultimately be able to exert when it comes to digital assets. While the SEC walked away with a partial victory — Ripple’s sales to institutional investors were deemed to have violated securities laws — Torres found other sales and distributions, including transactions made on crypto exchanges used by everyday investors, aren’t subject to the same rules.

Translation: Wall Street and Silicon Valley are afforded all the investor protections that come with a registered investment product. Day traders are not.

“It seems almost counterintuitive,” said Howard Fischer, a partner at the law firm Moses & Singer and a former senior trial counsel at the SEC.

That tension has created one hell of an opening for crypto-friendly Republicans like House Financial Services Chair Patrick McHenry of North Carolina and Agriculture Chair G.T. Thompson of Pennsylvania, who’ve been trying to build bipartisan support for a crypto bill that would grant new powers to the Commodity Futures Trading Commission — the industry’s preferred regulator — and defang the SEC.

The decision “recognizes what Republicans have said all along,” the two chairs said in a joint statement on Friday evening. “There is a limit to the SEC’s reach.”

Democratic leaders like Rep. Maxine Waters of California, the ranking Democrat on Financial Services, as well as Sen. Elizabeth Warren of Massachusetts frequently echo SEC Chair Gary Gensler’s assertion that most crypto activity already falls under the agency’s purview. Few Democrats have strayed from that view — particularly since the stunning collapse of Sam Bankman-Fried’s FTX late last year.

The Ripple ruling scrambles that argument. With McHenry having tentatively scheduled a markup on the crypto market structure bill for Wednesday (and Thompson saying he wants his committee to mark up the legislation before August recess), the Ripple ruling could create a lane for GOP leaders to peel off more Democrats to back the measure.

Before Thursday’s ruling, “it wasn’t resonating,” one senior Republican committee staffer involved in the drafting said late Friday. “Maybe when we start again next week — when they’re back — it will resonate.”

“Maybe the shoulders will come down and we’ll be able to have a more fulsome conversation,” they added.

Whatever case the Republicans can make to Democrats could hinge on whether the SEC appeals. Ty Gellasch, a former SEC official and Gensler ally who now leads the investor advocacy group Healthy Markets Association, has already warned that the decision could create leverage for “creative” securities lawyers with clients who are well outside the crypto sphere.

An appeal, however, may not be a slam dunk.

If the SEC does, the court could uphold Torres’s opinion — making it a precedent in a part of the country widely considered to be the agency’s home court and where it is currently battling Coinbase in litigation. But even if the SEC wins on appeal, Ripple could then ask the Supreme Court to take up the case — a potentially risky move, attorneys say, given justices’ recent proclivity for reining in administrative agencies.

“Everything’s done in a political context,” said one former Biden-era regulator. “The courts don’t exist in a vacuum. It almost makes me think that the judge said, ‘I’m going to apply the law as literally as I can, and if the consequences are vast and significant let Congress fix it.’”

Still, perhaps the most likely outcome is the SEC pushing ahead with its enforcement blueprint, while pitching judges on the idea that the Ripple ruling is simply wrong. Plenty of others already are.

“It’s incoherent on its face,” Tulane University law professor Ann Lipton said. “Any lawyer can look at this and say it doesn’t make sense. It doesn’t strike me as terribly long for this world.”

IT’S MONDAY — And it’s very much earnings season. What should I be looking for as the quarterly reports from regional banks roll in? Send tips, gossip and suggestions to Sam at [email protected] and Zach at [email protected]

Monday … The CFTC’s Global Markets Advisory Committee meets at 9 a.m. … The Atlantic Council hosts Reps. French Hill (R-Ark.) and Jim Himes (D-Conn.) for a discussion on stablecoins at 9:15 a.m. … HUD Secretary Marcia L. Fudge delivers keynote remarks at a National Fair Housing Alliance event at 12:30 p.m. …

Tuesday … Federal Reserve Vice Chair Michael Barr delivers a keynote at a National Fair Housing Alliance event at 10 a.m. … House Financial Services Capital Markets Subcommittee holds a pair of hearings on the SEC’s Division of Corporation Finance and the role of federal regulators in climate risk at 10 a.m. … House Appropriations marks up the Transportation, Housing and Urban Development, and Related Agencies bill at 10:30 a.m. … Council of Economic Advisers Chair Jared Bernstein speaks at a Washington Post event at 11 a.m. … The CFTC’s Technology Advisory Committee meets at noon … House FS has a hearing on FinCEN’s beneficial ownership rule at 2 p.m. …

Wednesday … Housing starts will be released at 8:30 a.m. … The Joint Economic Committee holds a hearing on the economic impact of diabetes at 2 p.m. … Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson will speak at a Center for a New American Security event at 2 p.m. … Gensler will testify in front of the Senate Appropriations Committee at 2:45 p.m. …

Thursday … The Chamber of Commerce will host SEC Commissioner Hester Peirce at an event on swing pricing rules at 9 a.m. … Senate Banking has a hearing on deposit insurance reform at 10 a.m. … Leading economic indicators for June will be reported at 10 a.m. … June existing home sales will be released at 10 a.m.

Capital requirements — With higher capital requirements from U.S. banking regulators coming, nonbank lenders who’ve competed with Wall Street and regional institutions are “dancing in the streets,” CEO Jamie Dimon said during the bank’s earnings call on Friday, per Bloomberg. “This is great news for hedge funds, private equity, private credit, Apollo, Blackstone.”

— The banking trades are already on the offensive. The Bank Policy Institute, whose board is chaired by Dimon, published a blog post claiming that many of the policies outlined by Fed Vice Chair Michael Barr last week are “unsupported – and in some cases contradicted – by the facts.”

Regional banks — Several banks that were downgraded by Moody’s following the collapse of Silicon Valley Bank and Signature Bank will report earnings this week. Washington policymakers and Wall Street will be closely tracking their performance. JPMorgan Chase CFO Jeremy Barnum said Friday that the sector seems to have made it “through the worst.”

Who is Wall Street backing in 2024? — Not former President Donald Trump. CNBCs’ Brian Schwartz reports that “dozens of Wall Street executives donated the legal maximum of either $3,300 for the primary or $6,600 for the entire election cycle to many of the Republican candidates polling below Trump in the primary.”

China watch — Our Phelim Kine on the Biden administration’s China push: “While Beijing continues to refuse to renew high-level military communications between the two countries, the visits by high-level officials show that Biden’s predicted ‘thaw’ is happening at least in some areas.”

Bloomberg’s Christopher Condon: Treasury Secretary Jane “Yellen said the US should look for ways to further ‘de-escalate’ tensions with China, though it would be premature to eliminate the tariffs imposed on it by the Trump administration.”

Durbin amendment Our Eleanor Mueller: “The banking industry is losing no time in its fight to again keep a bipartisan bill targeting credit card fees out of the National Defense Authorization Act.”

More crypto — Eleanor Mueller and Zach: “Members of the Senate Banking Committee are crafting a bipartisan proposal that would target money laundering involving cryptocurrency.”

— Daniel Lippman reports that Coinbase has made a big hire: Julia Krieger is now the U.S. policy comms lead at the exchange. She most recently was senior spokesperson at Treasury working on domestic and international tax policy, climate finance and cyber and digital asset security and is a Biden White House and campaign alum.

Soft landing — The WSJ’s Akane Otani: “Wall Street is more convinced than ever that inflation is subsiding. That’s giving investors hope that the Federal Reserve might be able to pull off what once seemed impossible: containing pricing pressures without tipping the economy into recession.”

— Meanwhile, Bloomberg’s Alice Atkins and Carter Johnson report the dollar “is teetering at the lowest level in more than a year after signs of cooling inflation bolstered bets that the Federal Reserve will soon stop hiking interest rates.”

Economic outlook — JPMorgan shared the results of its midyear business leaders outlook survey with MM over the weekend. The results, which will be published this morning, found that 45 percent anticipate a recession before year-end or believe the economy is already in one. That’s a sharp decline from 65 percent who held that opinion six months ago.

Executives at middle market businesses — those with annual revenue between $20 million and $500 million — are also less pessimistic than they were at the start of the year. 46 percent reported having neutral outlooks.

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