How Block.One Got Away With Just a $24 Million Penalty - Ep.93

Heads up, everybody! We are launching a weekly news recap, so stay tuned after the interview to find out about the top stories in crypto this week! (Links below.)

Zachary Fallon, principal at Blakemore Fallon and former SEC staffer, explains why the SEC penalty against Block.One, which raised $4 billion in a yearlong ICO, got a penalty of just $24 million and didn't have to register EOS tokens as securities. He also discusses how this differs from the Kik case, what we can learn from another SEC order this week against Nebulous and what other gray areas remain for potential token issuers who may want to sell to U.S. citizens. We also go over the Crypto Rating Council, and what significance those ratings could have on the way they are regulated, if any.

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Episode links: 

SEC press release about the Block.One settlement: https://www.sec.gov/news/press-release/2019-202

SEC Order re. Block.One: https://www.sec.gov/litigation/admin/2019/33-10714.pdf

Cooley letter on Block.one: https://www.sec.gov/divisions/corpfin/cf-noaction/2019/block.one-093019-506.pdf

Katherine Wu’s annotated settlement: https://static1.squarespace.com/static/5ac136ed12b13f7c187bdf21/t/5d92c33d937a3466c0c723a9/1569899329538/33-10714.pdf

SEC action on Nebulous: https://www.sec.gov/enforce/33-10715-s

Jake Chervinsky tweet storm on the settlement: https://twitter.com/jchervinsky/status/1179162527541993472?s=20

Marco Santori tweet storm on the settlement: https://twitter.com/msantoriESQ/status/1178811671621591040?s=20

Crypto Rating Council: https://www.wsj.com/articles/cryptocurrency-exchanges-including-coinbase-to-rate-digital-assets-11569835801

CRC ratings thus far: https://twitter.com/lawmaster/status/1178627290676301824?s=20

Articles from this week’s news recap:

Paypal to Back Out of Libra Association: https://www.ft.com/content/6af11092-e5fd-11e9-9743-db5a370481bc

Visa, Mastercard, Other Libra Association Members Jittery: https://www.wsj.com/articles/visa-mastercard-others-reconsider-involvement-in-facebook-s-libra-network-11569967023

Federal Advisory Doesn’t Like Libra: https://www.bloomberg.com/news/articles/2019-09-30/bankers-advising-fed-board-describe-libra-as-a-monetary-threat

SEC press release about the order: https://www.sec.gov/news/press-release/2019-202

The order itself: https://www.sec.gov/litigation/admin/2019/33-10714.pdf

Larry Cermak of The Block on the order: https://www.theblockcrypto.com/post/41612/dont-ask-for-permission-hire-good-lawyers-and-then-ask-for-forgiveness

Letter from House Reps re digital dollar: https://static.coindesk.com/wp-content/uploads/2019/10/Foster-Hill-US-Crypto.pdf

Crypto Rating Council: https://www.wsj.com/articles/cryptocurrency-exchanges-including-coinbase-to-rate-digital-assets-11569835801

Cermak tweet storm: https://twitter.com/lawmaster/status/1178622451451867136?s=20

Blockchain executive departures: http://thein.fo/9a4fd2f9cab44d7d

LedgerX-CFTC dispute: https://www.coindesk.com/ledgerx-claims-personal-animus-drove-ex-cftc-chair-to-stall-approvals

Tweets by Paul Chou directed at the CFTC: https://twitter.com/paul_l_chou/status/1177689857763807235?s=20

https://twitter.com/paul_l_chou/status/1177690348883197953?s=20

https://twitter.com/paul_l_chou/status/1177693761050157058?s=20

https://twitter.com/paul_l_chou/status/1177694467043680256?s=20

https://twitter.com/paul_l_chou/status/1177711475760218113?s=20

https://twitter.com/paul_l_chou/status/1177715093251018752?s=20

https://twitter.com/paul_l_chou/status/1177722516497928192?s=20

https://twitter.com/paul_l_chou/status/1177724302927581185?s=20

https://twitter.com/paul_l_chou/status/1177724477439971328?s=20

Paul Chou’s tweet storm: https://twitter.com/paul_l_chou/status/1178328955859951617?s=20 

Explanation of the Fairwin Ponzi: https://medium.com/@PhABC/the-collapse-of-fairwins-125m-ponzi-scheme-61a66b273420

Martin Koeppelman graph on Fairwin: https://twitter.com/koeppelmann/status/1178781425585328129/photo/1

Fun Bits: 

Bloomberg interview with Jered Kenna: https://www.bloomberg.com/news/articles/2019-10-03/an-early-bitcoin-millionaire-loses-his-love-for-the-industry

My Forbes story on how Kenna lost his Bitcoin: https://www.forbes.com/sites/laurashin/2016/12/20/hackers-have-stolen-millions-of-dollars-in-bitcoin-using-only-phone-numbers/