Powers On … is a new monthly column by Mark Powers, who has spent 40 years of his legal career working on the complex issues of US securities after a period with the Securities and Exchange Commission. He is currently an Assistant Professor at Florida International University School of Law, where he teaches Blockchain, Cryptography and Regulatory Affairs.
After 35 years in private law, after five years in the executive department of the Securities and Exchange Commission, I learned some facts. Especially when a company and its executives are subject to investigation and enforcement by the SEC or other government agencies.
Over time, it was my awareness of these facts that saved many clients from countless personal stresses, and in many cases from financial ruin and collective action against them.
The SEC’s controversies in Ripple’s enforcement process highlight the need to communicate some simple facts about the SEC’s habit of yielding when it follows certain procedures.
When I worked at the agency, the law enforcement staff consisted primarily of lawyers and investigators who had received economic training or had previously worked in brokerage firms and mutual funds. These were the SEC “senior” who clearly planned a number of reasons for pursuing a career in the civil service and generally had a sensible approach to law enforcement. They saw the results and consistency of enforcement priorities in investigations and cases, as well as the types of confirmed cases depending on which administration was in power at the time. They hardly felt the need to be careful in any given situation.
But then, as now, there were also attorneys who saw the SEC as a stepping stone to improving their career prospects in the future.
This brings me to my first proven fact. It doesn’t change like blockchain technology itself.
Heavy Force Facts: Number One
The Securities and Exchange Commission is not your friend. To the extent that the SEC gives you the opportunity to step back from you, it will.
Immediate and consistent setbacks are needed to keep government in check and reduce the likelihood of a bad outcome. Let’s take a look at the recent SEC discovery requests in relation to the Ripple enforcement case filed last December by SDNY Judge Annalize Torres as an example of this strategy.
As most of you probably know, the Securities and Exchange Commission (SEC) claims that from 2013 to 2020, Ripple and its staff promoted a permanent token offer that was to be submitted to the agency. He argues that the symbolic offers were the sale of “investment contracts.” Ripple and two commanders, Bradley Garlinghouse and Christian Larsen, have been named co-defendants in the suit.
According to the Securities and Exchange Commission, they directly violated and assisted Ripple in alleged violations of Section 5 of the 1933 Stock Exchange Act.
According to a Ripple court document, the Securities and Exchange Commission (SEC) has tried for the past eight years to obtain personal financial information from Garlinghouse and Larsen from each of the same defendants and five banks, as well as the Federal Reserve in New York. This is despite the lack of allegations that any of them takes investors’ money from offers or fraud.
This is clearly an exaggerated reaction, and the response of some of the defendants to her objection was correct and appropriate. This is independent of the interesting things mentioned in the SEC complaint that the defendants twice sought legal advice on whether XRP was “safe” and were informed of a positive response, plus that the SEC had previously sued Larsen for registry violations. Including 2008.)
Judge Torres, who is overseeing the case, referred the opening disputes to a federal judge; The Individual Defendants, through attorney, declare that the requested personal financial information is a breach of confidentiality on the part of the SEC and that the complaint did not formulate any lawful and reasonable basis for allegations of misconduct. They also pointed out that in accordance with federal law enacted in the late 1970s to provide US citizens with notice and certain rights that personal banking information requires from the government in its investigations with our citizens, the Right to Financial Privacy Act The courts will never tolerate such an extremely broad and intrusive request. It covers eight years of information.
The SEC’s response, according to the defendant’s letter against the judge, is that the results are admissible in civil cases. The Securities and Exchange Commission says it wants these records to determine the “motivation” for these individual respondents to apply for these Ripple Token offers.
Nonsense! The defendants have the right to refuse this.