This week we are purely going to be looking at several regulatory events and their impacts on the crypto markets.
Back in December 2021, we discussed regulation as the main trend that would emerge in the future, which is what is behind my thesis of interoperability chains being the darling of the next bull market.
At risk of sounding too much like the anarchist that I am, I believe the next trend in crypto is going to be a mix of several things, but primarily, escaping the no fun police wishing to enact government regulation.
We’ll be looking at 2 existing court cases, and 2 potential court cases to see how the no-fun police are expanding into our space today and the implications of that expansion.
We have a special song today for this week.
If you ever played FarCry 5, you might remember that the evil cult had all of the best bangers on their radio station. This one’s for us.
Table of Contents
Donziger v United States
SEC and Binance
Prime Trust
SEC and Coinbase
SEC v Ripple
Price Action
Conclusion
Internal References
1. Donziger v United States
I suspect many of you have never heard of this case and are wondering what a case about an oil company could possibly have to do with crypto. Well, the main consideration here lies in the dissenting opinion and so we’re going to dig in for a bit and muse on what it might mean if one of the SEC cases gets appealed up to the Supreme Court.
You don’t need to know too much about the background of this case, but if it’s of interest you can certainly dig into the original case of Chevron v. Donziger. The bare bones basics are; Texaco polluted the Amazon during activities in the 1990s and prior, an environmental lawyer named Steven Donziger represented several Ecuadorian tribes attempting to get some sort of compensation for health effects they dealt with as a result of Texaco creating toxic tar pits around their villages. The case was originally going to be held in the US, but Texaco pushed for it to be moved to Ecuador where they had considerable sway over the legal system. Despite this sway, they lost and the courts placed an $18b judgment against Texaco (later reduced to $9.5b).
When Chevron purchased Texaco, Texaco had not made any restitution payments, and Chevron stated that it would not be making any payments after purchasing Texaco. Chevron moved its assets out of the country and has retained a law firm for the past 15+ years in order to continue fighting the case.
Chevron even sued Donziger in US court for $60m of damages (which Donziger lost), and the case required Donziger to turn over his cell phone and computer, which he refused and ultimately resulted in him losing his legal license. I’ll take a second to say that the justice system in the US is absolutely ruthless and is purely a game of who has more money. At the international level, so long as you have no assets in a country and no intention of doing business again, you can absolutely walk out on a contract or legal obligation. In that sense, corporations have far more freedom than individuals who cannot as easily leave a country or escape justice as extradition is a thing for people but not quite for corporations.
While Chevron has the freedom to completely ignore its legal obligations, Donziger does not have that same freedom, and since Chevron was willing to spend 8 figures a year on legal fees, they could certainly punish him and everyone involved through the justice system. If you’re ever in a position where you’ve been wronged by a corporation, you would do well to treat the situation with some hesitance. Legal battles are always much longer than you might think, longer than your lawyer will tell you, and if the corporation feels like it, they can make it personal. This is a quote from Chevron themselves.
“We’re going to fight this until hell freezes over, and then we’ll fight it on the ice”
Is it worth it? Before you let your emotions take you down a journey that you might not be prepared to walk, you should envision it first. Is it worth it?
For Donziger, maybe this answer was yes. For Donziger, this has been a 30-year fight. It’s one of the first cases he took coming out of Harvard Law, and it basically is his entire career. He lost his law license over it. I don’t even know if he ever made a cent from it. It’s quite possible that this is something he cares deeply about and he was willing to give up having a normal life and career to do it. But maybe that’s not you. If you ever end up in a position like this, it’s important that you think about who you are, and not who you would like to be.
If it’s worth it, pick up your sword and shield, walk past the other piles of charred bones and melted metal, and head into the dragon’s lair. But if that’s not you, turn around and go home. The last thing you want to be doing is to be perceiving the dragon’s breath for the very first time as you watch it rush toward you. Think about it before you walk into the dragon’s den.
Now that I’ve segued, let’s get back into why this is relevant to crypto.
Donziger recently appealed his case to the Supreme Court, and they denied his appeal in March (he can’t catch a break). But what’s important, is that when he was denied, two justices dissented and wrote a dissenting opinion, Gorsuch and Kavanaugh.
You can read the opinion here in full if you’d like (it’s short). We’re going to focus on a few paragraphs.
Essentially here, Gorsuch asks how can the courts or executive branches assume a power reserved for a different branch of government. In this sense, without Congress vesting an enforcement right through legislation, neither the courts nor executive branches can lawfully enforce it (since no legislation exists).
Essentially the courts can’t decide whether to prosecute or not, that’s an executive decision. Just as the Executive branch cannot choose to prosecute something that the Legislature has not codified into law.
Maybe you see how this ties into crypto, maybe you don’t yet, but I’ll paint a picture. None of the cases we’ll discuss below are in the Supreme Court at this point. They have either yet to be assigned, have only just been assigned, or are in the NY Southern District.
If they get appealed to the Supreme Court. There is always the possibility that Gorsuch, Kavanaugh, and potentially some of the other conservative justices may ask the SEC (executive branch) how they are exercising the constitutional authority of the legislative branch. There is, of course, no good answer as the SEC is currently operating in violation of the Constitution. We have the Separation of Powers into 3 branches of government for a reason. We already saw Gensler being utterly dismissive of basic constitutional law during his hearing before Congress. Is it possible that a conservative court might ask the same question of the SEC that they asked in Donziger’s case?
We’ll see.
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