Projects
![]()
No projects found
Investors
New
DAO Treasuries
DATs
Lend / Borrow APRs
Chains
Categories
Spaces
π¨BREAKING: SEC SUES BINANCE #CryptoTownHall
Recorded: June 5, 2023 Duration: 2:16:21Space Recording
Full Transcription
We went from seven-minute rugpole to three-minute rug-pull, guys.
And now 30 minutes to be able to even restart.
It's looking good.
Oh, shit.
I need for my headset.
I'm using a different phone just because I'm not sure why it crashing.
So I thought I'll change phones.
Let me change my headset.
Give me a second.
I have a feeling it's not your phone.
Unbelievable.
It did give us time to have a meeting in advance.
Hopefully, guys, we're just going to, obviously, we're winging it here a bit,
getting the speakers together.
Some will or will not have a...
joined and a lot of people were having problems. We couldn't find the people to invite. Can't bring
them up when they come up. We get rugged. So I would say that spaces is in the struggle at the moment.
So guys, just bear with us. I think they're definitely upgrading this system because looking at the
guests for the RFK spaces in a few hours, it's going to be a big one.
Yeah, I'm also, I'm going to be honest, like we just got, I don't know what's happening here, and it could be an issue personally, but like we just got already 3,000 people here, and we've been on for like two minutes. It feels like we're getting bodied.
Yeah, I does feel like we're getting boddage.
I'm not kidding. I know that sounds like Tin Hat, but even like on the huge spaces, usually, you know, you start with 100, 200, 700,000, so Mario, buddy, I think you might be getting targeted here, man.
Yeah.
See, Mario's a bot himself, he's not even here.
No, hold on guys, I'm just putting my headset.
My, I'm not if you can hear me, can hear me.
Does this headset have...
Yeah, we can hear you.
Can you hear me?
Yeah, I'm just putting my hat-suit.
Oxygen coming out of it or is it just a normal headset?
Hold on, hold on.
I'm just connecting three, two...
Alright, I should be coming now.
Yeah, yeah, all right, good.
I think it should be working now.
Yeah, cool, cool.
Yeah, I've been...
Hey, Mario, who did you piss off?
No, man, I've been getting last, last, the last, bro, the last week, I've been attacked like crazy.
Nothing to do with crypto, just in the politics space.
I've been attacked like crazy.
So, yes, very likely that we're being bot attacked.
But it is what it is.
I don't really care.
Right, do we think that that's, but do we think that that's why it rugged, or do we think
that it's just now we're getting some inflated numbers so that people can say that, I don't know, it's
Yeah, I don't, I don't know if that's what we, let me, let me co-host Rand.
Oh, Ryan, I've sent you a co-host, I just got to accept it.
Yeah, I don't know, I don't know, man.
Like, I'll just, I'll just ping Twitter support after this.
Orrame, if you can ping Twitter support just so they're aware to spring the guys.
But, yeah, otherwise, it's just, I don't think it should crash if that happens.
The crashes were happening yesterday with the maintenance.
And I told you, there's like 6,000 spaces, dropped to 3,000.
I've also changed phones, but now I'm seeing, now that I'm seeing the body, I know that it's probably not the phone.
Um...
Cool, but yeah, let's kick it off.
So heads up, you'll see the space is glitching, the numbers glitching today.
And I don't know how long these attacks will continue for, but I'll figure it out with Twitter afterwards.
What's on the agenda today, Scott?
We've got quite a few topics, but I think we're going to focus pretty heavily on what's happening with Apple and what that likely means for Metaverse and AI, of course.
I mean, for anyone who doesn't know, today is WWDC, which is their big yearly event when they tend to roll out sort of their biggest plans and platforms for the future.
Of course, I'm trying to honestly get to the bottom of this CZ story.
And I think that we'll go through that as well.
A lot of people claiming that he potentially is no longer going to be the CEO of Binance and that...
What's his name?
Richard Tang is going to be taking over.
I believe that his name.
My brain is not working as we try to get going here.
And all of the obviously conjecture surrounding that.
And then of course we'll dive into the market what's happening in macro because he can't have a conversation anymore in crypto without talking about macro or becoming an armchair economist.
It's funny. I'm watching the, I'm looking at the number of followers that some of these people have got.
It's definitely but some of them have got zero followers and aren't following anybody.
There's hundreds of these guys.
So it's definitely what we did.
Yeah, I can see that the team is sending a bunch of them in the, in the, uh, in the, uh,
in the, uh, in the, uh, what's up group. But that's, yeah, yeah, that's the issue with, with, uh,
and you could do this on other platforms as well, just do bot attacks and people.
And some people on Twitter make their account private if their account starts to get
bot attacked. Um, but I'm sure Twitter support will, we'll, um, we'll, we'll, um, will sort it out.
I've never seen it on spaces, though.
We all have the like thousand shill bots in every single comment on Twitter,
but getting it on your spaces seems far more.
Yeah, but they're wasting money.
I think for them, and I see, by the way, I see one of the people that I think could be part of it,
part of the other, in the audience.
But yeah, I don't really care, guys.
I'll just keep doing what we do and let those people...
do what they want to do.
Name names.
No, I never name people, man.
I never have, never will.
But let's let's go through the headset.
John just quickly doing market updates, Scott?
Yeah, I'm seeing that largely everything in the legacy markets,
which we like to call them.
Hold on, all done.
All done.
All done.
Breaking news, SEC, Sue's Binance and Chopin Zal.
For breaking U.S. securities rules, that's according to an article about Bloomberg.
It literally broke three minutes ago, four minutes ago.
Holy shit.
Okay, wait, let's get that up.
I mean, no surprise, and I'm sure we're going to get the number four tweeted, but if you look at Bloomberg five minutes ago, SEC has now sued them.
I don't know what, like what they sued them once.
Literally the first time I'm seeing this.
By the way, to be clear, if it's the SEC suing, that's not a criminal suit again, right?
So this is a bit more of the same.
This seems like piling on my first instinct from what we've seen already from CFTC and other regulators.
And my sneaking suspicion here, first take, just hearing this, is that this is going to be similar to the Wells notice to Coinbase.
It's going to be about unregistered securities offerings to American citizens.
Right.
Yeah, I agree.
It is civil and we know that the SEC, I mean, can the SEC afford to take them on given the fact that they got like, you know, they're doing ripple?
They've got some big lawsuits and I guess they're just using taxpayers' money to just keep doing this in the guise of keeping investors safe.
So, I don't know.
Just ran, just took off of it.
Did you say the SEC, because I'm just talking something to the background.
The SEC's, it just came in now, did it?
Yeah, I did.
Yeah, here's the headline.
SEC sues Binance and CEO Zhao of Breaking U.S.
securities rules, Bloomberg.
Yeah.
Bloomberg reported that the SEC sues Binance of breaking security rule.
Earlier, the US CFTC sued Binance for violating U.S. derivative rules.
Today, media sources speculate that Binance may change its CEO.
This is, this is...
Okay, so the CEO, the CEO rumors are accurate then.
Well, we don't have to, I mean...
Not necessarily accurate.
I don't see.
No, no, I think they're rumors.
I think they're rumors, but it's...
You know what it feels like?
It feels like another attack on Binance.
It feels like another coordinator of attack on Binance.
I'm not...
I've got to be honest.
It's just, all these things just don't make sense that they're happening at the same time, you know what I mean?
And this has started from multiple angles.
I mean, we obviously, we've been talking about this for months,
but the fact that the regulator went after BUSD
and when after Pax so specifically to do that without...
even mentioning any of Paxos's other stable coins
was showing that there was sort of an initial salvo
against finance in the first place.
And we've only seen an uptick in rhetoric
and different regulators and departments
piling on in this situation.
I mean, this just feels like, like you said,
it's just yet another escalation.
But I don't think, I mean, we're gonna see the news here, obviously,
but this doesn't really fundamentally change much
in that environment for me.
Yeah.
And can you just give us a bit of an overview?
Is there more in the article, more details?
There isn't, I haven't got the article.
I've just got a couple of tweets.
I am looking for the...
I just see headlines.
Yeah, I'm mainly seeing headlines, to be honest.
I'm mainly seeing headlines.
So I'm just, yeah, but that doesn't catch it.
That doesn't catch any of us.
You know, when the CFTC investigation came out, it didn't catch any of us by surprise.
But, you know, considering now we're talking about Bynast, we're going to focus a bit on that for now.
When you looked at these CFTC investigation, Ryan, and Scott, what were your thoughts?
Like some of the things there, yeah, I know a lot of it was old stuff and like old Bynast is different to new Bynas.
But what, how concerning did you find that stuff?
Look, I think that I've known CZ and I've known Binance since the absolute beginning.
And I think that every startup goes through the same kind of growing pains.
And the business that they started isn't the business that they are today.
Do I think that they acted in bad faith?
And when I say bad faith, knowingly trying to break the law?
No, did they maybe potentially break the law by not having the right systems and processes in place
because their business was growing really, really fast?
And because their systems just didn't support their business in the early days of their lives.
Yeah, possibly, possibly.
So I think, look, if this gets criminal,
If we get criminal investigations against ZZ,
and I think, no, not criminal investigations,
but a criminal indictment or something along those lines,
I think that's when the game changes.
But I think until then, this is part for the course.
And I just want to remind you of another thing.
I want to remind you that the SEC and the CFTC consistently
get the banks to pay them huge fines for wrongdoing.
It's like it's, you know, if you're in banking, the fines for wrongdoing are like,
it's like part for the course.
It's like, you know, it happens in banking all the time and banks pay these penalties all
the time.
So I don't think that this is such a, such a big thing.
And I think also the market has become a little bit more immune to it.
Like, you see Bitcoin moved down $50 since this announcement.
It's just, it was one of these like,
You know, it's like, it's just another, another event.
And to be honest, no matter what the SEC says,
you kind of think to yourself that CZ and finance can possibly,
probably afford any penalty or any settlement,
or even they are one of the red companies that can afford to actually take the SEC to court
and to actually fight it like Ripple.
Now, the SEC, when they go to court, don't have a very good track record.
They've lost, I think, 50.
four out of the last five major cases, if I'm not mistaken.
So saying like, I think this is, you know, headlines.
I think the market's responding accordingly by not responding.
I think this is just more headlines and more.
B&B is dropping.
I mean, B&B dropped on the news in a matter of minutes from 305 to 285.
I mean, not huge, but...
I would say the market's responding there.
But I totally agree with you, and I've made this point.
We're going to go to the guests here for their thoughts.
I know we had other topics in mind, but we have to discuss this.
And CZ has said it himself, I've given this,
I've given this example many times.
He said, look, when we were building Binance, it was like,
The automobile. When there were first automobiles and model T's, the car went slow. There was none on the road.
They didn't need regulation, but they kept building cars. And regulation eventually caught up when the cars got faster and more dangerous and they needed, you know, security and protections for consumers.
What was finance to do in that in that environment except for continue to innovate and hope that they'd eventually catch up?
I mean, Rand, you know, we both know CZ obviously.
What's his job now?
Is it to be CEO of this exchange?
Or is it to talk to regulators and take selfies?
Because that's what I've seen from him every time I've been in person with him.
He doesn't even have time to run an exchange anymore.
He's talking to regulators all around the world, trying to catch up and be compliant.
So my feeling is that this is once again a lot of things that happened in the past.
We still don't even have clear regulation for them to know if they're violating it or not.
And that largely with the spotlight on them now, you have to imagine that they're trying to get as compliant as possible.
Yes, and I think, look, I think he's a unique CEO because ever since I've known him,
he's actually been the guy that's been in the spotlight and taking selfies,
and I've actually often asked him, how is it that you manage to run a multi-billion dollar
decentralized organization with your staff all around the world?
And he said, his answer is always the same.
He says, I've had amazing people to work with me.
But having done this before myself and been a CEO myself, you've got to have a,
you've got to have a coordinator for these people.
And I think that his role...
is, you know, has always been to play coordinator for these people.
But I think, I want to just really quick rant.
Go ahead.
Sorry, I just wanted to say one thing.
I can literally read the entire Bloomberg article for you guys right now in one deep breath.
Finance Holdings Limited and its chief executive officer, Changpengs out,
were accused of breaking U.S. rules according to a federal court filing by the Securities and Exchange Commission.
That is the entirety of the Bloomberg article.
Okay.
So it's hard to do more than conjecture still.
But I do think we should jump to some of the guests here if they want to jump in,
Rand, before I didn't mean to interrupt your last thought.
But Bruce, you always have a passionate opinion about this.
And you obviously were the one who was hosting CZ last time I was in person with him.
So what do you think of this?
Yeah, I mean, I'm a good friend of CZ, and I see him often.
I don't know.
I've known him for a long time.
So I wouldn't comment, you know, specifically on his case.
But, yeah.
You know, it's a tragic thing that the United States has been so anti-business.
You know, what used to be known as the land of the free
and a place that you're supposed to be able to go and pursue the American dream
has just made it, you know, totally impossible for, you know,
nearly impossible for crypto businesses to operate here.
And one of the most things that's most frustrating to me about it is,
that the regulators are lying about it, you know, specifically Gensler, who has this meme that he keeps repeating like, oh, just come on in and register.
And then the other meme that he repeats often is this sort of, you know, these statements that kind of indicate like our whole industry is a bunch of cowboys who are trying to avoid regulation.
And that's just completely insulting to, you know, tens of thousands of people who've spent millions and millions of dollars on lawyers trying to comply with these laws.
absurd dictates that
Nanny State Karen's
decree on us from their
positions on high in their
marble towers in D.C.
They don't have any clue about reality
and they've got
this, you know, they're pushing this
narrative that
You know, people in the space don't care about regulations. It's like, you know, really think that with all of these billion dollar companies and all? I mean, who do you think that these firms hire as their lawyers? You know, the local DUI lawyer? No, they're they're going to the top law firms in the country. They're getting former regulators. They're getting former federal prosecutors. They're getting the very, very top tier attorneys in the world. And in many cases, companies like finance and finance.
you know, Ripple already disclosed it was $200 million and, you know,
Coinbase and others, you can see publicly that these companies spend tens and tens of millions of dollars.
And even smaller businesses spend millions.
So, you know, the idea that in the United States of America, you can say,
hey, I want to do this entrepreneurial thing, you go into a law firm and you say,
how do I do it?
And you pay the law firm $2, 3, 5, $10 million.
And they still can't figure out how to do it because our regulations are so
you know, cryptic and corrupt and backwards, you know, backwater third world style corruption.
You know, it's just a shame. It's a shame. And, you know, we've really got to do something about it as a country because it's absolutely tragic.
The opportunity that's been squashed by this.
you know, kind of nanny state interference.
And with no benefit either.
It's not like they've stopped frauds or prevented anything.
You know, the biggest fraud in our industry was somebody that they, you know, purposely, you know, paraded around and rolled out the red carpet for in, um,
Right, who is also offshore, who is also offshore like Binance to be clear here.
I do have a little more context here, so I want to read you guys a bit more.
This is referencing the New York Times about what it is, and it is actually not the unsecured securities angle I was talking about.
The SEC has accused Binance of mishandling customer funds as well as lying to regulators and investors about its operations in 13 charges filed Monday.
The regulator said Binance had been mixing billions of dollars in customer funds and secretly sending them to a separate company controlled by CZ.
Was that Forbes that reported that last week or it seemed like a pretty shaky ground?
Yeah, hold on.
That came out of Reuters, but this is, Scott.
Yeah, initially, yeah, the last report that we all ignored as a nothing burger.
But if this is true, so there's two parts, but this one, the mishandling customer funds,
mixing billions of dollars of customer funds, that's something that we said there was no evidence
when Royd has put it out.
But if this is true, we'll see how the market responds.
I could be wrong, but it's, how serious is it?
Yeah, and then says the charges included misleading investors about the adequacy of its systems to detect and control manipulative trading.
Regulators also said Binance did not take sufficient steps to restrict U.S. investors from accessing Binances unregulated exchange.
Yeah, Mario, doesn't this go back once again to whether this is happening now or it's a bunch of stuff that happened as they were getting compliant?
Yeah.
but this is billions of dollars
moved to another company
yeah
again
I'm pretty objective
as everyone knows
people are going to say
okay Bitcoin
Binaz coin just dropped
about
7 oh
what is it what now?
702.
It's about 70.
It's about 70.
So that's 20.
Yeah, yeah.
305.
So yeah, yeah.
Yeah, exactly.
It's relatively stable now.
So again, I look at, look, I don't, I look at the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the price of a coin, instead of just giving my own opinion.
And based on seeing right now, it's, it's, it's relatively stable at 291.
So, so recovered from the low of 290.
So, yeah, if this is.
Yeah, I don't know.
Like when I first read it, we'll see that New York Times article.
When did it come out, Scott?
Just now?
I'm just literally reading it in breaking.
That was on DB's account, but a screenshot from New York Times.
Okay, so that means just now.
We're finding this all out in real time, but that was just now.
Yeah.
So CZ tweeted, our team is all standing by ensuring systems are stable, including withdrawals and deposits.
That was four minutes ago.
We will issue a response once we see the complaint.
The compliant, I think it means complaint.
Haven't seen it yet.
Media gets the info before we do.
The first, he starts with four, which we all.
Okay.
Can you mind? I don't remember what whole means.
I mean, it's basically saying he'd given a list of things.
And number four was to basically ignore FUD and fake news and nonsense and just keep building.
And so he has a tendency to say four.
If the news, yeah, but yeah, exactly.
So if the news came out, like it could be fake news, we'll see.
But if the news came out by initially, Reuters reported it, Bloomberg and then New York Times,
these guys worry about, they'll get news wrong.
And you remember, I'm one of the main guys fighting against mainstream media.
But at the same time, for all of them to report it, if this is wrong, they either have legitimate sources so they don't get sued, otherwise they're fucked legally.
Right.
But we'll see. It says billions of dollars. It doesn't say when it was.
What are the different, can someone give us the different angles, the best case scenario angle and the worst case scenario angle from what we're seeing?
That's to a guest. Any of you can jump in. By the way, I'm going to go silent for about 30 seconds while I actually dig into the complaint, which was just actually shared, which I can put into the nest here via a tweet from Tier 10K showing the actual complaint. But go ahead.
I mean, the fact that these are steep allegations coming for the SEC, not that it's good news, but it's good news because if they're alleging fraud and all these mithandling of things, you would think the DOJ or somebody else would be getting involved, like some kind of like criminal things.
So to me, this might just be typical SEC overreach and just, you know.
calling a pig a chicken or whatever.
So I don't know.
But Brian, a question on that, Brian.
And by the way, if there's any attorneys in the orges,
my team, can you please find us attorneys, Romi?
And others, I know those people that are critical of Bynast.
Let me see Catskill, for example, Romi is great.
He was there with the FTX saga.
And there's, Scott, what was that gentleman's name?
I don't know.
I don't remember.
The gentleman that is a hedge fund guy,
and he was one of the most critical about...
Yeah, Mike.
I can get Mike.
Sure, I'll contact him, but you guys, go ahead and talk about talking.
By the way, guys, I've been in the nest above for anyone in the audience who wants to read the actual complaint so we don't need to conjecture, which I think a lot of us will be doing sort of in real time here.
It's 136 pages, so I don't count myself getting through it, but it is there.
Yeah, there's a bunch of people going through it, Scott.
So what you could do is the team will be looking at different sources to see what others are subarizing as the key points.
But Brian, you were just speaking before James jump in.
You're just saying how there's just an overreach by the SEC.
But basically what Scott said.
It could be.
I'm sorry, it could be.
Yeah, yeah, it could be, right.
But if they said, okay, so, okay, hold on.
B&B has just dropped down to 286 now, so it's dropping as we speak.
So it was at...
300 is down 6%.
They're calling BNB a security in the complaint officially.
Binet here is number four.
Binance and BAM trading have unlawfully engaged in unregistered offers and sales of crypto asset securities,
including Binance's own crypto assets called B&B and BUSD.
And then they're even calling a stable coin a security here.
I've got a slightly different take on all of this.
I've been puzzling this since March.
If you look at Binance's share of the spot volumes in Ethereum and Bitcoin,
they were 80% market share back in March.
Now they're 40%.
Finance is getting killed already on this.
And I've been trying to work out,
is it the fee holiday that's ended as has led to no one wanting to trade BUSD?
Or is there some sort of behind-the-scenes regulatory pressure
really pushing them down?
I mean, this is a massive drop.
in market share and i don't know i haven't got the answer for what the reason is but it can't
just be the fee holiday there must be some regulatory pressure on this so the part that concerns me
the most um
And please feel free to disagree.
And in the comments as well, let us know
if you guys are on the same page as us,
or at least as me or not,
but what concerns me the most now,
let me get Wahid on here,
CNBC article about it as well.
Let me get Wahid, it'd be good to have him.
Is the, oh, not real faith.
This reminds me of FTCX days,
not because of the stories the same,
we're saying like the news is breaking,
crypto news is breaking live.
I haven't done one, a crypto one for a while.
But the, so this is dominating CNBC.
It's at the top of CNBC.
So the news is being taken.
I'll read out what CNBC said.
It's a very short article, but it's pretty much what we know.
The SEC filed 13 charges against Binance and CZ,
alleging that it co-mingled billions of dollars worth of user funds
and sent them to a European company controlled by Jiao.
So before I continue, and again, we are working with lawyers,
but is there anyone else that could give me free...
So, Wahid, I'll read out again.
You still see NBC piece.
what's your stance on this for he?
Because last time when we're doing the whole FTCS thing
and Bynos was facing a lot of scrutiny,
you were pretty vocal in saying,
guys, let's not just start putting all the exchanges
in one basket.
Where do you stand on this?
Because there's a lot of bits and pieces to it
that we're going to be discussing.
The BNB and BUST talk
is being considered securities
is probably one of the major ones.
But my question to you is,
For me, what concerns me the most is the following.
Commingled billions of dollars worth of user funds and sent them to an EU company controlled by CZ.
It doesn't say when that was.
But my question is they, why do you think that could have done that?
What are the different theories?
Andrew's here as well.
Andrew will be great for this.
Go ahead.
So I'll just give you two cents.
I think they have a lot from Carolyn Ellison.
They have a lot from Sam Beck and Fried.
They have a lot in general.
And they're basically...
trying to triangulate that if this all happen at FDX and we see the similar patterns of Binance,
they're basically saying there is absolutely, and you know, they've got the proof points of the European transfer
and all these other things that they cite.
And they're saying there's really nothing here that's different to FDX.
Unfortunately, I don't know if it's true.
I don't think it is, but that's basically they're just drawing the, you know, the patrons.
This is very different to the lawsuits, obviously, against Coinbase.
And Cracken, both of those are to do with securities specifically, you know, listing securities, at least allegedly.
Obviously, we don't believe that's true.
But here it's a little bit different.
Here it's more FTX-like accusations.
It's FTCS like accusations, but it seems like it's about things largely in the past.
By the way, I'm making no value judgment as to whether that's right or wrong, but there's nothing here that would indicate that customers' funds...
are or were at risk, just because I want to be very careful about how we talk about this and spreading any fear, uncertainty and doubt, correct?
I just want to make sure.
Yeah. I mean, I was going even further. I would say the way I read what I see here, they're just throwing spaghetti on the wall.
I kid you not. You know, like basically, A, you made a transfer, really no proof.
you know, you're not cooperating blatant disregard for federal law, basically, we don't know what you're doing, et cetera.
So honestly, I read this as more spaghetti on the wall.
Yeah, so the question is, exactly.
So another way of looking at it is that what happened with that money sent, and Andrew, I'd love to get your thoughts on this, but what happened with that money sent to the other company?
Was it, you know, in 2017, when they're facing regulatory issues and they had to move funds from one company to another just to, you know, just to allow the exchange to operate?
Yeah.
Could that be the reason back in 2018 or 2019?
What was those co-mingled funds?
What were they used for?
Because with FTX, we know they were used for a lot of, you know,
they were used illegally.
So I think this is an important thing to note.
And Andrew, I'd love to get your thoughts on this.
And if you can split it into two parts, Andrew,
start with the best case scenario,
because we've heard some worst case scenarios already.
Start with the best case scenario of this.
And then the worst case scenario.
Andrew?
And good to have you back, man. It's been a while.
Andrew, you there?
Yeah, hold on. I had to turn my mic on.
So best case...
Best case scenario is this is an SEC fight, much like Coinbase.
And as you can imagine, finance would have the funds to pull that off and have the ability to fight this long term.
And potentially...
potentially, you know, the worm, the proverbial worm turns and, you know, the agencies become,
you know, there's new leadership in a couple of years and there's new changes, new laws,
and there's adjustments as to, you know, how this whole thing plays out. In other words, you run out the
clock. The problem here, though, is that that's best case scenario, right? That's best case scenario.
It's only an SEC thing.
and they fight it.
They've got the money to do so.
They've got the ability to do so.
The biggest exchange in the world.
So that's how that would go down.
Best case scenario.
I can't imagine that that plays out.
And here's why.
One, the minute that this hit, I got a bunch of messages from agency folks that told me the following.
The docket associated with this inside the SEC is very, very light.
That's not a good thing.
That usually means that there is more stuff coming that's going to be stuffed into that docket by other agencies.
That's what that means.
So usually when something like this hits, the SEC, if it's only the SEC, is going to stuff everything that they've got into that docket and move forward.
I've been told that the docket, the jacket, the file is very, very light, and that there's more to come.
We all know on here that the DOJ has had an open inquiry into Binance for several years.
And I know that it's been talk on this basis that this is all old stuff.
These agencies, and for all intents and purposes, Operation Choke Point 2.0, don't care whatsoever about how long ago this stuff happens.
They're acting now, and they'll take action in whatever way that they want to.
That's been proven time and time and time again.
I've posted a couple times in the last six months that BitZlotto was a beta test.
If you guys remember, we all laughed at Bits Lotto, but remember, half of the agency personnel was on that stage.
And we didn't really think about it.
But nearly every agency that matters when it comes to financial services had somebody standing on that stage.
And deep into the Bitslado jacket was a connection to Bynance.
It was a beta test.
Okay.
So here we are.
And best case scenario, this is SEC versus Binance.
They fight it out.
They spent a lot of money and somehow they win or the clock runs out and away we go.
But I'm being told that the docket is very light, that there's more to come.
That's not a, that shouldn't be a surprise to anybody.
And here's something else that's not based in sourced information, but it's something to think about.
There's probably a reason why exchanges like Coinbase and Gemini have a twofold reason that
to spend lots of money, lots of relationship capital, and lots of time very quickly building exchanges outside the United States.
Yes, currently...
the environment in the United States is not conducive to running a crypto exchange here, right?
But secondarily, what do you think their lawyers, their relationships, how much time has Coinbase and Gemini spent with regulators over the past four years?
Enormous amounts of time.
Do you think they might have had an idea that at some point,
Binance is going to get hit and hit hard,
and where is that volume going to go globally?
There you go.
Scott, before you jump in, by the way, Scott,
if people request them that we can't see the request,
it's very common when you hit big numbers in this space.
Always happens to us after the next few minutes.
So just keep their mind.
But yeah, so go ahead, Scott, if you want to ask a question,
I've got a question for Ryan as well.
No, you go ahead.
I was just clarified.
Initial thought, yeah, yeah, okay, Ryan, initial thoughts on this.
We heard Andrew just saying, I'll sum up what Andrew's saying.
The main point that Andrew, you mentioned, is that the docket is very light,
which means that there's more stuff coming from other agencies,
which is the highlight of what you said.
Ryan, obviously people, especially people outside of crypto, I just saying, you know,
are going to obviously reference ftx and i think it's bullish to do so um and and even though that
we should be concerned and we should be looking into it and wait for more information to come out
can you tell us what and ask the same question actually asked andrew what is the best case scenario
out of this and i'm sorry to frame it this way just kind of simplifying it for non-crypto people
but what is the best best case scenario out of all this and what's the worst case scenario
um that we could see
I don't want to disappoint you.
I'm not going to answer that precise question just because I want to try to avoid speculation
that is not based in any reality.
I think analogizing to FTX is probably extreme, almost certainly, but I try to make a habit,
having been around for a while of not, you know, kind of vouching for anyone's books that I haven't
seen.
I just, I find that incredibly unlikely because you can see the
the volumes, you just know where most crypto business is located right now and it's
internationally and it's on finance, right?
So to me, the odds that there's anything.
crazy like FTX is, you know, I don't want to say negligible and then have it bite me in the ass,
but it seems pretty low probability just because finance is such a large player and has a
legitimate business that's done very well and is the market leader.
So I do think that this is entirely kind of regulatory and compliance in scope, most likely.
And...
The comment that Andrew made on the docket, I think, is fair.
You know, remember, they also had the CFTC action, now the SEC.
And so there's really only one agency that people have speculated on that is remaining in that conversation.
And that's the DOJ.
And that's obviously where the biggest risks lie in any financial services business.
So, you know, I think...
Most SEC, CFTC related inquiries or, you know, lawsuits or complaints, you know, that's going to be something that results in fines and some type of action that's financial and, you know, not...
I don't want to say the cost of doing business, but it kind of is the cost of doing business in a market that's not explicitly regulated and doesn't have clear policy guideline in the place just yet.
Let me just read some more news.
Ryan, I'm just going to try to just read some more news, giving the audience and yourself a bit more context.
So the team is sending those out as they come in because how many pages is the report's got?
Yep.
It was like 160, 130.
I just closed it because my eyes were bleeding.
Yeah, people are doing that for us.
So both Polly and Brooks testified to the SEC.
I'm guessing these are Binance employees.
So I'll read out one part of the, of this is the account that's summarizing that is split.
If you guys are talking SCC, you got to start respecting Nate Oaks.
Nate Oaks, back-to-back coach of the year in that conference, should have been.
I mean, those teams go to the tournament.
He's sending the guys to the league.
Like, are we talking about that with the SEC?
This guy can coach folks.
Guys, so just,
okay,
let me quickly read out
the bits and pieces
to give you a bit more context.
The SEC's claiming.
Show some respect.
And then if you want stocks to buy,
I'll give you Brian Hodgson
at Arkansas State,
Danny Sprinkle at Utah State,
Jared Gold.
I don't know how he got up on.
Star is still in the house.
Yeah, yeah, guys.
So let me just get back to the topic.
So the SEC is claiming that Sol, yeah, he's gone.
I'll just kick him off.
SEC is claiming that Solana, Ada, Maddick,
Filecoin, Adam, Sand, etc. are all security.
So I'll read out the section.
It's section 8.
The crypto asset traded on the Binance.com platform and Binance.us.
Plus platform include assets that were offered and sold as securities.
Number three, five, two, since the Binance platform launched, defendants have made available for trading on them crypto assets that are offered and sold as investment contracts and thus as securities.
This includes, but is not limited to BNB, BUSD, and the units of each of the crypto asset securities further described below with trading symbol SOL, A Dramatic, Falko, Adam, Sand.
Mara, Algo.
Yeah.
I access it, Cody.
Did you see this next tweet for it was number 111?
As Binance CCO bluntly admitted to another finance compliance officer, we are in December 2018.
We are operating as a fucking unlicensed securities exchange in the United States.
And there was bro, and there was bro at the end of that, which is, you know, funny in and of itself.
I guess one positive upside here is if you're trying to read the tea leaves a little bit,
if this is just a civil agency action, like Ryan talked about, the SEC and the CFTC,
then the earlier information about CZ stepping down and somebody else stepping up as CEO is,
that's there's there that's actually a positive that may be a precursor to fines and adjustments to
leadership yada yada yada yada and changes in k y C mL crackin like okay that that that has a feel to
it like that if you're going to try and look at this from a best case scenario standpoint that's
a tea leaf so to speak that sounds and feels
again, civil in nature.
But again, I think this will evolve.
There's probably more to come.
And I agree with Ryan.
You know, let's take away the whole FTX stuff.
But again, the concerning, the biggest concerning thing here with some of the languages,
the phrase commingling of funds.
If I'm Binance and if I'm anybody involved in leadership there, that's a problem.
That's not a civil thing.
That's a problem.
Go ahead, Ryan.
If I could finish the thought that I had, so I think what we can separate are the civil and anything kind of beyond that.
And the one area where there's still some speculation is, are there any actions coming from the Department of Justice?
And I think...
This is something that's been rumored.
Basically, since the CFTC complaint was issued a few weeks, a couple months, I don't know, I lose track of time.
But based on some of the language in that complaint, and it seems like this one as well, that's where the concerning language and the speculation is around the DOJ's involvement.
If this is just, you know, SEC...
and CFTC related about US-specific jurisdictional issues,
then you're talking about a fine,
you're talking about litigation,
and ultimately, you know,
Binance is going to argue that they've geofenced the US,
you know, whether or not that's successful,
is TBD, but that plays out in the courts.
So really the only impact that you could imagine seeing in the markets right now
is around some of those tokens that are named in the SEC complaint,
and this is more side-door legislation by enforcement
and kind of side-door enforcement on some of these tokens.
Right.
I think the bigger concern, and not to lose sight of this, is what happens if there is an action by the DOJ and if it is forthcoming as it's potentially rumored to be and then what's included in there.
That would seem much more likely to trigger some type of leadership change like was floated in Coin Desk in the Bloomberg article this morning and as kind of part of the rumor mill.
I think even then I would take a tempered approach towards, you know, absorbing that information.
You know, one of my friends, a longtime investor that knows some of the principles here within the industry, made a comment that, you know, you're not really a credible market in the eyes of U.S. policymakers or credible, you know, new markets.
asset class or financial services, you know, be a part of the infrastructure until you've added
some company with a billion dollar fine. And so, you know, I think the best case scenario is that
ultimately, Binance and some of the other major professional...
Are...
Did the space crash?
Oh, okay.
Sorry, you dropped out for a second line.
Yeah.
That some of the major market players are able to settle and have a clean bill of health,
a clean slate moving forward after some pretty massive find.
And so to me, that would be what we would be looking out for,
just so we can rip the band-aid off, get to the other side of this,
and kind of handle some of these, you know, big...
overarching issues during a bear market versus, you know, on the next run-up.
So I'm just going to ask a quick question.
First, I'll give you a quick update for the audience.
Binaz coin is down 6%, 6.3% and Bitcoin is down 2.5%.
But the question that I have is regarding the response by Patrick Hillman.
And he says the following, for every journalist, and it kind of brings a good question,
for every journalist calling and asking, bizarrely, we have not even been given a copy of the complaint ourselves.
smart PR move to rob us of our right to defend ourselves publicly.
Is that common?
Is it possible that the complaint was leaked?
Actually, maybe Scott, you were going through it.
Was the complaint leaked?
It's hard to tell because it seems that at least CZ is saying outright
that the media gets this information before they do
and that they didn't even know and he can't respond
until they've had a chance to read it.
So that would be the implication.
Yeah, so I'm trying to get, if anyone knows Patrick, you probably won't join.
But if you can give him a shout, it could jump in here.
It would be great.
But the question that I have, next question that I have is I'll go to Andrew again.
Andrew, as I continue going through this report, one thing that wasn't mentioned as part of the tokens that are securities is XRP.
Is that something worth noting?
Well, now that you mention it, it is interesting to note.
I would imagine that the SEC, given their ongoing battle with Ripple and in regards to XRP,
would not want to complicate the situation as they've been not winning in that long-term litigation.
And again, if this is just an SEC issue for Binance...
the, you know, Ripple and XRP team have laid the groundwork for how do you, you know,
how do you fight the SEC?
The way that you fight the SEC with barrels of cash and lots of lawyers.
And you, because they have an unending amount of those things.
So you simply have to fight and fight and fight.
And it's generally time that is on your side, right?
Coinbase doing the same thing.
Um, again, you know, my concern here, uh, remains that this is just the beginning of the story.
I would add that, um, Ryan is somebody that really should be, you know, everybody, I'm sure
everybody in this space to some degree follows him, but should listen to him.
He's got his ear to the ground, um, and is a very, very levelheaded voice, uh, in this space.
Um, um,
So smart commentary whenever he speaks and whenever he tweets.
But, you know, this is a fluid situation.
It's a Monday.
Yeah.
It's the SEC. It's civil as of right now. But we'll find out. We're going to find out what's going to happen here. I will say definitively that the existence of the charge by the SEC, even though it's civil, of commingling of customer funds,
That is very, very, very problematic, no matter how small in scope, it may or may not be.
Remember, all of these agencies, you know, they don't exist in all different points of locations in the United States.
They're all buddies.
They're all close to each other.
They're all next.
And as it relates to crypto, this has all been coordinated.
Right.
It's all been coordinated.
No question about it.
It's all been coordinated.
Would it be strange?
If over the next 48 hours, this Binance story evolves and somehow Elizabeth Warren makes a comment on the existence and people have been hurt by Binance and crypto and the concerns legally.
That wouldn't be a surprise at all, right?
So the coordination here just begs the...
You know, the eyeballs associated with is this it?
Is, you know, a couple hours of the SEC Sue's Binance is at the end of this proverbial story?
It just, I don't think so.
It doesn't feel like it.
But speculating as to what may come next, I'm not sure it's just that commingling of funds is just really...
that's a problem.
Yeah, that's what I want to press on it.
And Mike, we're going to go to you in a bit because I know you've got some strong opinions on this.
First, Joe, I saw you put a thumbs down when Andrew was speaking.
I want to go back to the co-mingling of funds.
How serious is this?
Because there's two ways of looking at it.
One way is, you know, regulation wasn't clear and, you know, the banking sector was definitely not crypto-friendly a few years ago.
So was that just easy trying to get out, get past all the hurdles that any crypto company was facing back then?
And or could it be something a lot more sinister? What's your stance on it, Joe? And then we'll go to Mike afterwards.
Yeah, no, I think this is setting up a potential rumored.
It was referenced earlier, the DOJ action.
But to me, and I apologize for joining late, the most interesting aspect before I yield the mic here about this is this, how broad and sweeping the requested relief is with respect to the entities, which is basically that they want to be seeking an injunction, preventing them from operating.
as an unregistered exchange, including any crypto assets or securities or other non-security assets,
which are fascinating. They make that allegation because it's arguably outside their jurisdiction.
I don't know how you can read this complaint and not now read the Wells notice that was issued to Coinbase with expecting the exact same relief,
basically that they have not properly registered as an exchange as broker dealer in the United States to offer these types of assets.
If they if they if they if the eventual you know the big question with the wells notice of coinbase which was how broad and sweeping that was going to be if it's as broad as sweeping as this is with respect to the request of relief you're going to expect maybe not in the co-mingling front but a very similar complaint sought against coinbase once the expiration of this well submissions expires.
Joe, I don't disagree that that's what we might see, but isn't that a bit absurd considering Coinbase has registered with the SEC?
He had a direct listing, is publicly traded.
Obviously, their accounts are extremely transparent and audited.
I mean, I'm not disagreeing that potentially we could see the same sort of claims, but I wanted to make it clear this is a vastly, vastly different situation.
Joe, don't, hold on one second.
Joe, don't repeat the nonsensical line that Gensler gives us is that they just need to register, because we all know that that's a lie.
I did. Hang on.
They did register.
I didn't say that, okay?
I'm just saying, I don't know how you can read this complaint and what is being requested and not be very nervous at Coinbase.
Okay.
I think that that assessment is fair. Mike, we promise we would come over to you, obviously, for anyone who doesn't know, Mike,
listen, we've been talking about Binance for, you've probably been on this train for a year, right?
And when we've spoke about it privately, you obviously say not any sort of vendetta or aggressive attack.
You just want the truth and believe that you see it, correct?
So, Mike, I mean, what do you make of the fact that we're seeing this news today?
I know it was not unexpected for you.
You've been telling me it's coming for many months.
Yeah, look, it's not surprising at all.
And I think there's a tremendous amount of nuance here.
I think you can both believe that Binance is not a good actor and also that the SEC is not a good actor.
I think Gensler is the worst SEC chair in the history of the Republic.
I think the grayscale stuff, the coin-based stuff is total garbage.
And at the same time, I think the CFTC and SEC are both smart to look at Binance, because I view
Binance as a slightly better version of FTX, Celsius blockfay, et cetera. It's not clear to me that
they've done anything correctly historically, right? So they don't have a CFO. They used to have one,
but that person resigned around the same time that the Grayscale Bitcoin Trust premium flipped
to a discount at the same time that...
Three Arrows and Salsies and BlockFind, a bunch of these firms sort of became early stage insolvent.
You know, they don't have a board of directors.
They don't disclose who their executive team is.
They move domiciles constantly.
I can go on and on.
We've talked about this ad nauseum, so I won't bore people with this.
But again, it was never emotional.
It was never personal for me.
I've never cared that much, you know, personally about what happens to finance.
But I see tons of social media influencers holding finance out as...
you know, a good actor, as a good firm that everybody can trust and they're better than FTX.
And in my view is that it's essentially exactly the same, just larger.
And it's so much larger that it hasn't failed yet.
But if it continues to operate in the same way that it's operated historically, it eventually will fail.
So like the question I have is do we care more whether the SEC and CFTC are able to put so much pressure on finance that they're able to shrink it down?
So by the time it fails, the impact is smaller.
Or do we want them to be allowed to continue to operate with essentially no guard rails globally and eventually blow up in a catastrophic way in a similar way to that FTX block fan Celsius blew up?
So again, my view is SEC is fucked, right?
Like I don't actually think Gary Gensler should stay in that role very much longer.
I think he's made a mess of the entire situation.
And at the same time, I don't think that Bynance is a good actor.
Mike, there's a lot to parse there, obviously, and you made an interesting point that we've been sort of discussing here before. And I think probably true of a lot of the larger companies in crypto that kind of came into existence over the last five to ten years. But is it possible in your mind that there was...
bad acting or co-mingling earlier and that now they've become compliance as we were discussing before and maybe these are things in the past that have been solved presently because a very different FTCS obviously was actively effectively even letting their customers deposit into Alameda directly and not into FTCS, right?
So we know exactly what was happening there. It was fraud and it was co-mingling of funds.
In this case, we haven't really seen that funds were ever at risk being traded.
So there's a lot of nuance here.
And I just think we have to be careful about going down the same as FTX Road.
So how do you parse that?
So one thing I would say is that this is a pattern of abuse that goes back to the very beginning of the company.
It's a cultural component.
CZ's made it very clear from the beginning that he does not want to follow anybody else's rules or regulations.
He's not going to stay in domiciles where he's going to be held accountable.
Very similar vibe to what you get from like the three arrows guys.
like, let's just move around as much as we can or what's his name from Tara Luna, right?
Yeah.
Like, let's just move around as much as we can so basically nobody can hold us accountable.
So it may be true that based on the pressure that CZ's gotten over the last few years, that he's made some adjustments, right?
He's agreed to follow some rules.
He's agreed to segregate some accounts, et cetera.
But when the culture of the firm from the beginning
is such that it's literally designed to evade regulation,
I don't think that's going to change until CZ is no longer the CEO.
And I don't think CZ would ever step aside willingly
unless the company fails a la FTX.
I don't think there's any substantive change, though,
candidly, Scott.
I've looked really closely at this over the last seven, eight months.
And if you look at the way they operate, it really has not changed at all.
He has a whole bunch of in-house market makers that are trading tokens against customers probably, right?
In the very similar way that Alameda was trading on the FTX platform.
The Binance US platform was completely commingled with the Binance.
You know, the Reuters just did a great piece today on the bank component of this,
that literally Binance U.S. executives never had control.
of those bank accounts, which explains why Brian Brooks and Catherine Colley and all these folks were scared shitless of working there.
They didn't want to end up in jail and they probably could have ended up in prison if they had continued to work for CZ.
So yes, it's true.
If you talk to the investors, like I've talked to some of the largest investors in that initial $15 million round in Binance.
And they all say what you just said, Scott, they said they're working hard to make it better.
And I'd love to believe that, but I see zero sign.
that there's any sort of significant cultural change within Binance that would enable those changes to happen in any substantial way that would actually make the company safer.
So my view today is finance is just as risky today as it's ever been.
And these lawsuits of anything, even though they may be misguided on some dimensions, will lower the risk for the average finance holder.
And for example, the Paxos.
Paxos is a safer company today because they're not supporting BUSD.
When they were supporting BUSD, I was very concerned that Paxos was going to collapse.
I think, unfortunately, right, for people who believe their valuation was going to be held up by BUSD and all this other garbage.
Like, maybe that's gone.
But in terms of its long-term safety, I think Paxos is a much better company now, now that they're not.
Mike, have you read the allegations about Paxos in this complaint?
What specifically? I haven't gotten all the way down to there.
So if you control F, trust company A, which is, and read all the allegations about Paxos,
they sanitize the name, but they make it very easy to know that's trust, that is Paxos,
because they talk about the NYDFS's order on February 21st, CASE and Dissist order, which was PASCO.
So we can reverse engineer that all the allegations relating to trust company A are in fact relating to Paxos.
So you should read them.
Can you give me just a high-level summary of what you saw?
Did you like what you saw?
Did you not like what you saw?
What did you read?
Well, I'm not going to comment for a variety of reasons, but I think you should read them.
We'll have someone dig in and find that language in the research group, guys, take a look at that and we'll bring it back around.
I see a lot of people have the hand up.
Ryan, I saw you quickly came to respond, so please go ahead, and then we'll go over to Naut Tiger.
Yeah, I just, I think whenever there's a negative headline and their speculation, people can get spun up.
And this is not a criticism of, you know, the comments that were just made, but I think people can get spun up around the worst-key scenarios.
So just to take a step back, what actually matters for folks on this call?
It's the health of the industry.
It's the health of finance to the extent that they're doing business with finance.
And it's the long-term...
brand impact that negative headlines around finance and any of its supposed actions are going to have on the ecosystem and the rest of its players and their ability to move forward.
But in terms of like immediate risks, the absolute number one risk is insolvency.
The number two risk is criminality.
The number three risk is regulatory hiccups, right?
And everybody is having issues in bucket three and they're all civil.
Number one is the FTX scenario, right?
So if you just look at finances earnings power based on its market position, based on how dominant it's been, and based on the fact that we've never had any kind of reported leverage issues or reported insolvency or major hacking issues, just their earnings power alone can support a tremendous.
level of fines, it could support a tremendous level of legal bills. And I don't necessarily put
as much, you know, just to play devil's advocate, I don't necessarily put as much credence
into the, you know, these guys are similar to three arrows argument so much as every company in
crypto.
is playing some form of jurisdictional arbitrage based on different local government's ability
and willingness to engage with this new tech and think about how it fits within their existing
regulatory structures, right?
So you are more likely to move around if there are governments, if there are domiciles,
where you are able to get in front of the right regulatory bodies and feel like you're
developing a safe nexus.
Now, obviously you want to do it in major markets to the extent possible, but that just hasn't really been an alternative in the U.S.
It's only recently been an alternative in the EU to a limited extent with Mika.
It's happening a little bit more with Asia.
But there was this five-year lookback period since finance has been around where everybody is going to play catch up and have to do some level of remediation in terms of how they were operating five years ago.
and four years ago and three years ago.
So that kind of brings me down to number two.
If you think that Binance's market position and earnings power rules out insolvency.
And again, I'm not vouching for them, but I'm just saying Occam's Razor,
I would tend to believe that insolvency is not an issue for them like it was with FTX.
So now you're talking about the commingling issue, the criminality issue, you know,
have there been sanctions issues, have there been other issues,
risks that are going to be flagged in court orders.
And that has kind of been telegraphed in some of the complaints and some of the things
that have been insinuated in the CFTC and now this SEC complaint.
So that's really what to look for.
And at this point, you know, that process has to play out in court and we just need to see
what else is in the government's hands.
before, you know, we jump to these wild conclusions.
Yeah, right.
When we talk about it's likely that they're, you know, I would expect that there was probably
shortcuts or early missteps during the company's scaling.
And, you know, whether they were intentional or based on, you know, rapid scaling or somewhere
in between, I think that there's a lot.
that can be remediated just based on the financial cushion that this company has
and what they've already telegraphed as potential new leadership that would come in
if things went really shit sideways.
Yeah, Ryan, I'm already seeing the insolvency tweets all over Twitter, of course,
and people jumping to that conclusion and going down the FTX rabbit hole,
which I think we expected.
I think it's important to note just for reference that the last time we saw this FUD,
I believe it was when BUSD was obviously being targeted and Paxos.
We saw, and during FTCS, 6 or 7 billion dollars,
maybe more in withdrawals from Binance that were handled somewhat substantial
seamlessly also to note that we've seen the same with tether um so they have been let me let me
let me let me give a quick market update yeah go ahead well yeah let me give a quick market update
and then we'll ryan continue just bina sorry bitcoin's down almost 6% now it's at 25.5 and then binance
coin is down over 10% it's at 273 and it continues to slide it's at 272
I didn't even see that Bitcoin crash while we were talking here pretty crazy.
I just saw it.
Yeah, it's down 5.7%.
Can I respond to some of the stuff that Ryan just said?
Yeah, sure.
Ryan, yeah, go ahead, Ryan, and then we'll go to Mike.
Yeah, go ahead.
Yeah, just 10 seconds, right?
There is an element here where Binance is such a large player that if there was an FTX 2.0,
it's kind of curtains for the industry, so this space doesn't matter.
But like, let's just, let's just be honest here, right?
Like, I think, this Twitter space, right?
I just think that it would set us back for so many years that the market would look, you know, structurally like a brand new market if there was another major kind of bankruptcy insolvency that took out this many market participants.
So I just, first of all, I don't think that that's the case.
And I think we're talking, you know, about the wrong thing if people are speculating on insolvency.
But, you know, the other issues are very real, right?
With respect to compliance, with respect to sanctions, with respect to commingling funds.
So we're just going to have to wait and see.
And I'm hoping for the best.
But, you know, this is this is going to be a multi-year issue that has to work its way through the markets and out of the markets before we have, you know, a real, real clear compliant pathway for some of the big crypto exchanges.
Tom board new customers and actually cross back into traditional financial services and
not just the insular crypto community.
I appreciate that.
I've got a thumbs up from me, Ryan.
I just want to make a few comments because it seemed like some of yours were in response to me.
I want to be super clear over the last seven, eight months.
I never once said that I thought finance was insolvent or would be insolvent.
What I talked about was all of the red flags and risk factors.
that make finance different than most other companies of that size historically, right?
Which, again, I've given a list of a hundred of these things that would lead you to believe that there are potential issues there.
I don't think finance failing, if it were to fail, and by then, that's not my call at all.
I don't think necessarily finance fails, but if it were to fail, I actually don't believe that would be that problematic for the industry.
I think a year or two, the industry would be stronger.
if a company that was allowed to operate like that, you know, failed.
But I want to go back to the point from the beginning,
which is that finance doesn't have to be insolvent to be doing the wrong things, right?
So, for example, they always claim that they didn't borrow money and they didn't lend
and then all of a sudden you learned from the Mazar report
that they do in fact lend out Bitcoin
and then all of a sudden their PR person was like,
well, yeah, we do lend some out.
Then they claim we never commingle,
we always segregate the accounts.
And then a month or two later,
I was like, well, you know,
we actually do commingle pretty much everything.
And more importantly,
they redenominated people, right?
So people deposited people,
Ethereum people deposited USDC, people deposited other tokens and they redenominated them into BUSD or BNB behind the scenes, right?
And so you don't have to be insolvent.
Celsius initially probably wasn't insolvent, but they kept taking people's Ethereum deposits and reinvesting them in shittier coins that underperformed Ethereum.
And so even though they still had the coins.
on paper six months a year, 18 months later, they didn't have them in the right denomination to give those coins back to people when they wanted to take them out.
And then the last point I just want to make on this is that it's very hard to have these conversations because there are like 20 people or 50 people in the industry that actually have access deeply to see the financials of some of these companies, to have conversations with the CEOs, to get the inside intel from the hedge funds about what they're hearing.
when they trade with some of these counterparties.
The problem is that all the insiders are conflicted.
Nobody wants any of these companies to fail.
Nobody wants any bad things to happen to the space
because that will impact their mark to market on their funds,
on all the investments that they've made.
The CEOs of all the companies can't talk
because they'll offend all of their customers.
I remember this when I was running digital assets data.
I was afraid to say anything about anyone in the space.
because I didn't want to preclude getting business from them.
And so I just think we have to be honest with ourselves.
Like you can't actually say what you really believe about these companies
without having it have some negative impact if you're deep in the space.
And if you're not deep in the space, then you have no idea.
So if you're just a social media influencer speculating,
but you don't actually talk to the counterparties who are trading with these firms every day,
then you're just not going to know.
So I have no idea what's going to happen in the very short term,
but what I'll say is that I'm not calling or rooting for them to fail.
I never called or rooted for them to fail.
I've simply said it is a far riskier company than most people in this space are willing to admit
because they are conflicted, end of story.
I agree with that.
Can I jump in for a second?
Yeah, sure.
Before you do, Joe, Scott, just for all the new people,
can you just give a brief overview of what we know so far?
And I'll kind of mention a few of the tweets that would be good to reference.
But you want to just give it a quick overview for the audience?
Yeah.
Yeah, happy to do. So I'm actually scrolling back because there was a great tweet here that sort of alluded to all of it.
We've seen that there's an SEC enforcement action against Binance.
This is on top of previous action from the CFTC and other regulators.
Not altogether surprising, but I can sort of hint at what it's about here.
The main points of the document against Binance and Zauer as follows.
that they unlawfully solicited U.S. investors.
The defendants engaged in multiple unregistered offers in sales of crypto asset securities.
That's the one we are all anticipating.
The defendants defrauded equity, retail, and institutional investors about purported surveillance
and controls over manipulative trading on the Binance U.S. platform.
The defendants evaded regulatory oversight in the United States by unlawfully offering essential
security market functions without registering with the SEC.
The defendants made misrepresentations to investors about controls they claimed to have implemented on the Binance U.S. platform.
Sound finance delivered a plan to evade U.S. legal scrutiny while continuing to profit.
There's a lot here, guys.
Yeah.
Yeah.
I think the bottom line here is that there's...
There's a pretty massive claim here of quite a few misdeeds by Binance, including commingling funds,
which is, I think, a triggering word for everyone.
And we're just trying to parse it and get to the bottom of it.
Of course, there's a 136-page document that we've only all seen within the last hour,
so we're doing our best to report accurately on it.
Yeah, and just, Joe, before you jump in, George, sorry, do you mind?
Okay, Joe, you have to, if you have to jump off, I'll let you go,
and then I'll mention a few things people tweeted.
That would be worth mentioning.
But do you want to go first, Joe?
Yeah, so the big story here, guys, even but beyond the allegations,
I just wanted to tell you guys, because I just got through the complaint.
I actually have to jump on a call with a client who's personally affected by this.
So I'll just tell you,
The key thing that's different about this versus most SEC enforcement actions is that in the prayer for relief on page 133, there is a reference there that the commission respectfully requests a temporary and preliminary injunctive relief, including not limited to the freezing of assets, a verified accounting, repatriation of assets, expedited discovery, and preservation of documents.
So let me translate what that means.
In a typical lawsuit that's filed, it gets really slow moving at first, right?
You can take, it can take months for the defendants just to appear and answer and begin the process of discovery.
This means the SEC is going into court in the near term, in the near future, to seek a TRO or a preliminary injunction, effectively that,
very similar concepts where they're trying to freeze assets.
They're actually trying to get the verified accounting.
That's different than most litigation.
That's the key takeaway that I can leave with.
I wish I could talk more,
but I got to get you up on a client call.
Joe, can I ask you one question about that?
Would that, you reckon that would be just related to US or?
It's all the BAM entities.
So, Albam trading, all of them, they effectively make the same allegation the CFTC made,
which is that these are all part of the overall umbrella.
So we're seeking freezing of all these assets.
We want an injunction that compels you to preserve the documents.
We want accountants in there.
And we want to do that on a preliminary basis.
What that means is we want to do that before the finance gets their day in court effectively.
We want an order from this judge indicating that assets on the platform are frozen and cannot be moved.
And that increase client assets.
Yeah.
Yeah.
It's a very high bar.
SEC doesn't even tend to normally seek this type of relief because judges are reluctant.
into granted. They want to have people have their day in court and present evidence. They don't
like to do things on a preliminary basis. And if they do it, it's usually for a certain limited
time period, 30 days, 14 days, something like that. So here's the key thing. There will be a
hearing, okay, in the near future. Sometimes it's within 48 hours.
where the SEC will be in court, they will be for a judge, they will be presenting evidence,
they will be saying you need to freeze this now because there is a significant risk of irreparable harm.
That is the standard imposed by the law.
Hope that makes sense.
And we do have two other attorneys, Joe, I know you have to jump off and do jump back on when you're done with the call if you have some time, but if you have any extra information to share.
So I appreciate you, Joe.
I want to go to lawyer.
Appreciate you being here.
And there's another attorney that I think dropped off.
So I'll try to see it bring him up.
But I want you to jump in on what Joe just mentioned.
The TRO, how concerning is that?
Why do you think that the SEC is seeking an injunctive relief?
a preliminary injunction and to freeze the assets.
And what does that mean for Binance?
Well, I think it's pretty obvious that this is a crypto in general, right?
There's a lot of ways to go about this.
If their goals were, let's say people who wanted to make crypto a place safe to invest,
then this would be very different, right?
So, you know, what this will look like in a court is a very good question.
And I can only hope that the court will see it the same way and put this sort of back on proper rails.
But what this means for Binance, I mean, it could be very bad.
The U.S. government has quite a bit of power when it comes to banking relationships.
We're seeing Binase coin recover to 7.6% drop now.
It's back up.
It dropped all the way.
No, I'll hear me.
You can hear me?
Bring it down.
Yeah, let me bring you down and back up.
Yeah, so it's down to...
282 it's up to 282 now it was done all the way to was it 270 something 275 I think
273 and so it's back up to 282 we're seeing Bitcoin bounce up as well and now it's at 4.4%
drop it dropped as low as let me see what dropped as low as where is it 225.
Yeah, 25-ish.
Yep.
Yeah, yeah.
So let me read out a few tweets that I,
or that the team said,
and I think are worth reading as Scott.
You can see them,
I pinned them,
I replied to them in the group.
So let me go through those.
So there's one here.
It's interesting.
DB, so which is tier 10K,
which is a pretty good account.
As far as I know, it's a pretty good account to follow.
But these are just tweets we're going through.
He says,
the SEC complaint versus Binance.
Binance is U.S. affiliate transferred at least $145 million
to an account of a CZ controlled entity.
And then that account bought a yacht.
So this is, again, we're getting bits and pieces of the report.
So I would love some thoughts on this and whether this is...
how concerning this is.
Because what concerns me the most is two things.
There's three things that concern me
if I continue going through tweets
and that's with me with the limited knowledge
compared to the panel.
From what I'm hearing is number one,
the fear that this could create.
Let's say bin Laden is very little to nothing wrong,
not nothing wrong, but very little wrong,
nothing to be too concerned about.
But I'm worried about the fear this is causing
what that could do to Binance as an exchange.
So that's the first thing.
The second thing is the co-mingling of funds,
which again, we don't have clarity
where those funds are.
Obviously, that tweet I read is just, you know,
We're talking about one particular purchase.
And it doesn't mean anything, but it's at least worth asking questions.
And then the number three is the freezing of assets that the SEC is requesting,
what Joe mentioned earlier, and how big of a deal this is.
Before I read more tweets, I'd love to get some thoughts on these three particular points that I mentioned,
three particular concerns and what Joe said earlier.
I'll go to Simon.
Do you want to jump in?
Yeah, guys, I do want to say I haven't actually read it yet.
I just jumped in, so I'm just catching up as we go through.
But from the list that Scott read out earlier, it looks like they've listed pretty much everything a financial institution could do wrong and listed everything.
So, you know, if you were, and again, we've got to be really careful with our words here.
But what have we learned in this space that, you know, if we used to do this whole proof of keys thing where every year we used to ask everyone to withdraw their funds from exchanges to check that they still had one-to-one backing and the right amount of funds.
The SEC's announcement just from what Joe said, the only logical conclusion that someone rational can come to is that you need to at least withdraw your funds.
And for an exchange, that's not an issue.
For somebody that is utilizing those funds in ways that they're not meant to be utilizing them, that is an issue.
And so it really gets to put that theory to the test.
And the other thing that we've learned in the crypto space is that you can...
use a token
and if you're not that one to one
and there's only
you know if you are one to one it doesn't really
matter what the price of your asset is
but clearly
You know, Binance token was as a security as a token could ever be.
It was connected to the profits of the company.
It was, you know, the clearest ever indication.
When in 2017, everyone was kind of creating utility tokens.
And they were like, yeah, you can use it to get membership.
You can use it to get access and therefore it's not an investment.
It overset the line when they said it's connected to the profits of the company and we'll buy back the token to push up the price based on how successful we become as a company.
That was when it really crossed the line when utility just turned blatantly into...
This is a company security without all the benefits of equity, without all of the disclosures that are required, and without any of the risk warnings.
And so, if it turned, you know, the real test here is, does BNB, you know, is that keeping, you know, I think they've reported in the past that they've got $40 billion of operational funds?
Is that B&B?
The answer is we don't have a clue.
Nobody knows the answer to that question.
And an exchange of the size of Binance that is so, you know, that is dealing with response.
I've always said that you don't need to be regulated to know that respecting client money is very, very important.
And, you know, only allocating the bits of client money that are allocated to that particular thing.
means that you don't have an issue.
And if you invest in a security, then you can lose your money in a security,
but you can't be demanding money that doesn't exist.
And so that gets to be put to the test.
And that's a problem.
And I do disagree with if finance goes, our industry goes.
It just puts us back.
We've been here before.
And people start to realize that you need Bitcoin and self-custody.
This is the second time that that's been directly responded to.
You know, early equals wrong in investing.
And my point is if we had another catastrophic failure in a critical piece of global market
infrastructure and liquidity, it would set us back years, many years.
Because this is coming on the back of...
uh signature and silicon valley bank and silver gate you know basically um
getting shut down or seized or acquired.
And so we're losing a lot of market infrastructure
on the traditional kind of financial rails
and settlement platforms like CEM.
And some of the banking institutions
that these counterparties were actually settling with.
If you do the same thing with global settlement
on crypto to crypto rails,
which is where Binance has an outsized position in the market,
and it's the...
widest reaching a global marketplace, that's going to set back market structure for years
within the crypto space. So yes, there will be others that absorb that volume, that absorb
that demand. But I think, you know, I wouldn't be sanguine about what the market outlook
looks like under a doomsday scenario, you know, that's as bad as people would speculate on.
Now, I don't think that's my base case. My base case is ultimately...
This is going to be, you know, settled.
It will probably be, you know, depending on whether there is action from the DOJ,
it'll probably be a historic fine that is ultimately negotiated.
But there's reason to be optimistic that if we rip the band-aid off here and get to the other side of this and
Binance is still a going concern, but it's just coming into more sensible regulatory framework in the U.S. and abroad, and they take their medicine.
Then it's a clean bill of health or as close as we're going to get to a clean bill of health with a pretty integral market player for the next several years.
Thank you.
So just so any attorneys in the audience who are inviting some...
Go ahead, Ryan.
Yeah, actually, right.
I must have heard.
And really quickly, before you guys jump in,
finance says they believe the SEC lawsuit is baseless,
and we intend to defend ourselves vigorously.
Not that we would...
Not that it's unexpected that they would say that,
but they are making that claim.
Yeah.
Okay, I appreciate lawyers.
So, Ryan, I'd love to get your thoughts on, you know, there's a whole bunch of things in the report that we'll be covering and there's more coming out.
I'll be reading out shortly.
Have you gone through it and what are your initial thoughts?
I've been through a couple of them, and I think I share the same sentiment as Ryan.
I think that these things, when they happen around the SEC, they seem much more serious than they are.
Now, I remember that this is what the SEC, this is effectively the SEC's best foot forward.
This is all the things that they want to get Binance out for.
And I think that what's going to happen now is Binance is going to start defending them one by one.
They're not going to get a clean bull of health, that's for sure.
But I also think that that...
that it's just a case of there's going to be a fine or a series of fines.
We all know that Binance can afford to pay the fines.
We kind of know the quantoms of these fines.
I mean, you think about Block 1 and EOS where they did a...
$4 billion ICO and they ended up paying a $25 million fine or something.
I don't remember the exact numbers,
but those were the orders of magnitude that were being spoken about here.
And I think that the markets, I think the markets,
I'm not going to say overreacting,
but the market's reacting a little bit harshly to the news here.
But I just want to make sure you,
Joe did mention something important and you had to jump up for a call,
hopefully you joined back,
but he did mention that in the report,
hidden somewhere in the report,
that the SEC is requesting a preliminary injunction.
So they're requesting to freeze Binance's assets,
which is not very,
and it's not common for the SEC to do that.
Are you aware of that?
That's one point I wanted to mention.
Yes.
So that is, I don't know if it's common, but it's not uncommon for them to request an injunction.
It's not, that's not uncommon.
And I think specifically they're going to get an injunction into binance.us and not Binance International.
Now, remember that Binance International is a, is a much, Binance US is like a little, it's a blip on the, on the radar when it comes to Binance.
Yeah.
No, right. Jay said they'd go in after everything.
Complete freeze and every entity.
They're going after, so Joe's an attorney and they're going after both Bynas and Bynes U.S.
Iran.
Binance just posted a somewhat long-form blog with a response, so we're going to just
saying that that is out now and available.
I'll put it into the nest, but we'll be able to review that and also dig into that imminently.
Let me get at the first part.
Let me, yeah, Mike, I'll read up the first paragraph of this and then Mike, I'll let you jump in to respond to Rand.
Rand, you feel on mute.
You've got a lot of feedback on your end.
We are disappointed that the SEC chose to file a complaint today against Bynas, seeking, among other remedies, perpetrated emergency reliefs.
From the start, we have actively cooperated with the SEC's investigations and have worked hard to answer their questions and address their concerns.
Most recently, we have engaged in extensive good faith discussions to reach a negotiated settlement to resolve their investigations.
But despite our efforts, with its complaint today, the SEC abandoned that process and instead chose to act unilaterally and litigate.
We are disheartened by that choice.
So, the first paragraph, I'm going to pin it above.
There's a few more.
I'm going to quickly read through it now, Scott, I'm sure reading through it.
Mike, I'd love you to respond to what Rand just said.
Yeah, so I was just going to say, Rand brought up a good point related to the settlement.
I spoke with, again, one of these investors who's deeply involved, finance,
who's connected with somebody who was in Asia with CZ at the time.
And I think it was in January, I tweeted about a likely multiple billion dollar settlement.
They were talking about a $2 billion plus.
settlement. I know Andrew was on the space earlier. I thought that was too high, but I think
that's more or less the right number. And I think that was to resolve all of the criminal
investigations that were going on. My question and slash concern now would just be, you've got a
CFTC lawsuit, you have an SEC lawsuit, and then you have criminal investigations. And then
there's some other agencies that are involved in some of this as well because of the Iranian
you know, component to this.
So I just wonder whether maybe they were in settlement negotiations
and at some point, some of the agencies went rogue
or they decided not to operate together.
And given that Gary Ginsler is a political power grab type of person,
potentially kind of went off the reservation and just said,
hey, we're going to move forward on our own
because we are not satisfied with the way these discussions are going.
Or it's possible that they're just operating completely independently
and they were never involved.
But I did expect that there would be a multi-billion dollar settlement announced in the first half of this year.
And obviously that hasn't happened.
And now you have the SEC moving forward.
And I think they're probably all linked.
And I think finance basically alluded to that in that blog post that their settlement discussions have broken down.
And now, you know, you have this issue.
Yeah, so just two things, two conflicting pieces of information.
So based on this response by Bynas on their website,
and Hanes-Scott pinned it above,
and based on what CZ and the other guy, the PR guy said,
this came as a surprise to them.
They haven't even seen the report, which I still need someone to ask me,
like lawyer, maybe you can tell me whether this is coming,
that the...
and why is the press talking about this without Binance even having seen the report apparently.
But then Eleanor Territ, she put out a tweet about 40 minutes ago and we just invited her.
She was meant to come to the space.
She'll be joining after an interview.
She says it's the following.
According to a source close to Binance, the company knew there was a, quote, high likelihood that the SEC would file the, quote, exact same compliant.
the CFTC, oh, the exact same complaint the CFTC did, but marking the assets as securities.
They were apparently not made aware that the action was coming down today.
So that's from Eleanor Terry.
Go ahead, Lawyer, if you can give us some more clarity, it'd be good.
Yeah, I mean, as for why the media is jumping to conclusions and sensationalizing it, everyone can draw their own conclusions.
But I don't, unless there's something seriously criminal that's surprising here, then, you know, they can freeze the funds, but they're not going to lead to an F.
The X situation, unless there's not enough funds.
And I think there's been a lot of evidence that there is, right?
So...
It seems to me like this is, again, an attempt, an attack on crypto and not an attack on finance in particular.
But all the legal issues, they will get cleared up.
You know, these things will see the light of day.
So it's just interesting how they're going.
Lord, can you give us some clarity?
When someone hears commingled funds, obviously after FTX, all the alarms go off.
And there's someone tweeted...
And someone can refer to a tweet by Sam saying,
I'm not going to comment on another sparring partner.
So already people are linking this to FTCS.
Can you explain that?
Co-mingling funds is not equal whatever mentioned.
It could mean different things.
What is the best case scenario for the co-mingling of funds?
Yeah, so the reality is that to run an organization like finance
is incredibly complicated.
And at least in the early days, they probably all had to, right?
Because you've got money going in one account and then someone else is selling that asset and it's coming out of another account.
And it's really complicated.
And I think what we've seen is after FDX, companies like finance have been making very big efforts to not only make sure that that's not the case,
but that everything's accounted for and done properly.
So if there's some commingling, I mean, I think that's likely just...
how it was done in an accounting way, money in one account, money out of another account,
let's throw up tonight, or we'll true up next month because there's so much money.
I highly doubt it means, the only thing that would matter is that it means that in the end of
the day, when we do the accounting, there's not enough money there.
And I doubt that that's the case.
I don't think this yacht purchase proves anything that are like, you know, indicates to me
to be nervous.
And again, I think that there's a lot of ways to go about doing this and getting information
in front of a judge with.
without scaring the crap out of an entire industry that you seem already hellbend on destroying.
Yeah.
I think it's important.
Really quick, Mario, I just want to say that when this came out in Reuters, I believe last week,
Patrick Hillman from Binance quickly responded to the commingling of funds saying that it was
specifically about customers purchasing BUSD and was just...
I can't speak to the validity of this, but was just how it was basically skinned on the website,
is that they were depositing, or buying the USD,
and that they were never actually commingled beyond the money from the customer's account
going to purchase the stable coin, which was immediately redeemed and put into their account.
So this has actually been addressed on this accusation, although this may go deeper.
That's a good point.
For further co-mingling, it is, you're right, a bit of a catch-all, but there's different layers.
They're all pretty serious, but they have different severity.
So the first is, do you have the financial controls in order to ensure that all the right funds are in all the right places,
belonging to all the right people?
And so when you're in a multi-jurisdictional regulated business,
each of those entities will be regulated in their own right.
And normally a regulator would require audit of that entity.
And, you know, you, so if one, if all funds are put into one omnibus wallet,
and then you're going to have full segregation of U.S. entity from all the other entities,
then that's one layer.
The most obvious layer is operational funds versus client funds.
But then when you've got like FDX had like 160 different companies
and each of those would have their own segregation as well.
Where it gets really complicated is when you have lots of different products.
So if someone's just putting money on a spot exchange and you would not commingle that with money that is being lent.
And then if you end up with directional risk, which is where everything blew up with FDX and Celsius,
because essentially they weren't even moving the funds, they were just allowing people to change tokens on a database for free.
and then you're kind of just completely gambling.
You know, those are the outrageous ones.
And we hope that that's not the situation here.
But there's lots of different layers of what co-mingling could mean.
And one of the things that was pointed out, you know, if you have a client wallet,
Then you've got the stable coin thing.
That's even more complexity and nuance to add.
So if you're swapping in, which stable coins are backing which?
And are those backed one to one?
And then what if you have a DPEG?
Suddenly you're in a situation where that could cause some kind of issue.
So these are all the reasons why there are separate entities
and you've got to have really robust financial controls to ensure you don't end up.
And we know they don't.
And that's the key points.
I mean, you just nailed it right there at the end.
You have to have robust financial controls.
And we have all of the evidence to know that finance does not have financial controls whatsoever.
They don't even have a CFO.
That's not or did not.
Mike, does not or did not.
They do not today.
They don't have a CFO.
They have an office of the CFO with 20 people because CZ is afraid of one person knowing where everything is.
So CZ is the linchpin of the entire financial strategy, obviously.
But unlike a large publicly traded global company that you would...
would see there was no audit, there's no third party oversight, there's no governance,
there's no board, there's nothing to keep him in line.
So again, nobody's saying they're insolvent today.
That isn't really the point.
Like that's a really, really like small component of this.
The important point is that they're not doing anything that you would expect a normal,
well-run, well-governed company to do.
And so over time, that creates risk, even if the risk isn't immediate insolvency,
again, nobody's saying that.
I'm not saying that.
But what we are saying is that they're not doing anything correctly.
They're not doing any of the financial controls correctly.
They're not doing an audit.
They tried to do an audit and the audit was such a disaster and never finished.
And Mazar is basically shut down the process.
None of the auditors want to take the risk of destroying their entire business
and becoming the next Arthur Anderson auditing these companies because it's basically
impossible to do it because the data is not even all there.
right there's no way to confirm what's going on on the binax smart chain there's no way to
confirm you know whether or not the bUSD the bnance peg version was fully backed and of course
finance admitted in reuters that in an article that that that that wasn't backed by more than a
billion dollars and that they're sorry the problem is there's been like 50 sari's 50 miacolpas
and no real fixes.
And we're still there.
So the SEC thing is almost like a red herring.
It's just calling out stuff that was already there.
This stuff has existed for years.
I called it out last fall and I said all this stuff is there.
Do you want to believe that this company is operating above board?
Do you want to believe your money is safe or not?
And my argument is simple.
It is much, much riskier than it appears
because the entire industry is conspiring to convince you
that everything is okay.
because their economics and their incentives are aligned with that.
So, yeah, it could be the risk-case company in the world,
but everybody in the industry is going to tell you it's fine.
And so if anything, at least, even though Gary Gensler's a total idiot in a lot of ways,
like if anything, it's at least putting a spotlight on the fact that all of these crypto companies
are not being run correctly.
And so, Mike, a question actually, a question for you.
I'm not saying.
I agree with Mike. I agree with Mike on that point. I also want to probably take a little bit of an unpopular opinion here and say that I actually think that this is one of the good things that can happen to our industry. And the reason why I say that is because I love CZ. I love Binance. I love what they've built. And I do think that they are one of the best exchanges in the world. But I don't think that any industry is healthy when you've got one company, one company.
centralized point of failure
which controls such a big
part of the of the industry
and I think that if anything
these attacks on finance by the SEC
and by any other regulator
I think that any of these attacks
actually in the long term are very good because what they will do is that it may get people to move away from Binance
and to start moving to other exchanges that they believe are much better regulated and they can't face the same kind of attacks that Binance can take.
I think one of the biggest custodians here is probably Coinbase and I'm actually quite surprised to see that their share price actually isn't up, actually down on this.
But I would say if the if the SEC is going guns blazing against Binance,
This is long term a very good thing for the industry.
I, to be honest, if you ask me one of the biggest risks in crypto,
one of the biggest risks in crypto for me is Binance.
And the sooner we can get away from Binance risk in crypto for all of us,
the better.
And no disrespect to CZ,
no disrespect to Binance.
I think they've got a great business,
but I just don't feel comfortable
that one incumbent
has such a big market share in an industry.
I just think that from this point,
I think that in the short term,
we may feel a little bit of pain,
but in the long term,
we'll create a landscape
where there are multiple big players
and money will flow to the ones
where consumers feel
in the
the opposite of what Mike just described.
So they'll go to places where they feel people are more regulated, more transparent.
And that's why it's a mystery to me.
I think Coinbase should be flying today.
Yeah, but actually to respond directly to that, I mean, Coinbase, and we're talking
about how BNB is down and it's slightly recovering.
Coinbase is down like almost 11% on the day.
And I'm a little bit, you know, I love to get people's reactions about whether, I mean,
I think Mike and others talked about, oh, you know, Binance.
has had issues with custody.
I mean, what's our opinions about how Coinbase does it, right?
Or other people, right?
I mean, I'm familiar less with Coinbase.
Coinbase.
It's just sector risk.
Yeah, Coinbase has, you know, I mean, they do a lot of stuff in like cold, you know,
cold storage, right?
Like, you know, like hard, you know, not even hardware wallets where they're like literally
have putting stuff into states.
You know, I know companies like NIDG and, you know, I'm pretty good friends with
the president of NIDIG.
And they literally put their cold storage, you know, wallets, their private keys into places
and have people with machine guns.
literally like protecting these private keys, right?
So, you know, really interesting.
And they hold stuff for large institutions.
So I guess, you know, Mike, you mentioned,
and maybe this for the group or Mike,
you know, hey, you know, let's move our stuff to places that are better.
So if we're talking about centralized exchange, of course, I think not your keys, not your coin, very much about that.
But, I mean, do you think, for example, Coinbase is a better run?
I mean, it's down way more, even more than Binance today.
Yeah, yeah, but just to be clear, though, and by the way, I was head of strategy in MNA at NIDIG, so I know a lot about what Nighting does.
And Nighting is a great...
company but the market reaction in a single day has nothing to do with how well run a company is right
like the market can go up and down individual securities can go up and down a lot of its market
beta right it's it's it's quant funds it's crypto funds it's people who hold a bunch of these
securities they need to de-risk a portion of their book and so they sell anything that's liquid
i don't think this is a referendum in any way
On Coinbase today, if you just look at the facts, right, at the high level.
Coinbase is a publicly traded, audited company with a named board of directors.
Many of the people on the board, you know.
They're people that you know, they're personally responsible.
And yeah, they're indemnified by the company, but they don't want to ruin their reputation.
Right.
in doing it, they have financial controls, right?
Because their auditor, in order to Deloitte, I think it is, has to come in.
It's either Deloitte or Ernst & Young, but they have to come in and actually review
every single transaction or a sampling of those transactions in order to make sure that they're legitimate.
And so they have to prove reserves because they have to say, look, we hold all of these assets one to one.
Remember, Coinbase doesn't lend.
the way that FTX, Celsius, BlockFi, Binance, et cetera, have all admitted to doing lending.
They don't take your tokens and turn around and lend them to some offshore crypto fund that's domiciled off the coast of Asia somewhere, right?
Like, they just, they don't do that.
And so I think the response that Coinbase stock today is actually quite rational, though,
because the market is correctly pricing in the broader regulatory risk of operating in the U.S. at all.
Clearly, the U.S. regulatory apparatus is...
going to attack any company that provides crypto services,
irrespective of whether they're run properly.
So you can both say that Coinbase is a substantially better run company than Binance.
I think that's pretty clear.
And that's not even my America bias.
That's just looking, again, the high level facts about the corporate governance,
the way the company is funded, the way the company is structured,
the audit, et cetera, the transparency, right?
Like if you just look at that, it's clearly different.
But the market doesn't care right now because the U.S. government appears to want to attack
anything that's moving on u.s soil and and of course coinbase is way easier it's a way
easier attack surface to attack in the u.s because because they depend on the u.s markets for survival
and finance doesn't so before you jump in ryan just just quickly let me read out cezi just tweeted
less than a minute ago
Yeah, he said a preview of what's next. We need to unite. And he quote retweets Wu blockchain.
And the Wu blockchain tweet talks about how the SEC accused Binus are providing trading for securities and it included BNB, BUSD, Saul, Ada, Madd, Filecoin, Adam, Sand, Mana, Algorand, AXS and Cody.
So just on that point, and they did not include XRP, just want to point that out as well.
So I'd love to get your thoughts for Ryan on what Mike just said, on what I just read out in LCC's tweet, but also in the audience.
I want to get a sense of how worried is the average user or the investor in the space in the ecosystem.
So you put it in the comments.
How worried are you?
What questions do you have?
Try to be as detailed as possible so I can go through them to get a sense of the audience and the sentiment here.
Ryan, go ahead.
Well, I think some of this.
We're wishing for a reality that doesn't currently exist when it comes to some type of clarity in the U.S., internationally, in terms of what the rules of the road are with respect to crypto.
The problem with the SEC action today is no one trusts the SEC under Chair Gensler.
He's ineffective.
He's guilty of almost daily double-speak.
I think he's corrupt and he's beholden to some of the most powerful senators that are,
you know, his progressive allies and frankly the only people in D.C. that like him.
So, you know, this is not coming from a good place or, you know, any degree of good faith.
Anytime you see an enforcement action or a legal complaint that just lists a broad smattering of assets
and is, you know, frankly, just part of a power grab to, you know, slowly eke out
ground wins when it comes to the SEC's jurisdiction.
The SEC has failed at protecting investors in every meaningful way over the last several years
when it comes to crypto, whether it's the gray scale ETF, whether it's being asleep at
the wheel on FTCX, whether it's, you know, just not understanding the magnitude of some of the
lending issues that hit the market in large part because of the toxic collateral asset of
GBT that's an SEC reporting company.
Like, I mean, the list goes on and on.
This...
is just not an agency that's operating in good faith under its current leader.
Now, these agencies are not monolithic, right?
There's a lot of good people within the SEC that I think would be thoughtful about
crypto policy and a regulatory framework that would actually work and protect investors and ensure
the markets are fair and efficient.
And we actually saw a preview of what that could look like with some legislation and a draft
bill that was dropped on Friday.
But, you know, to the point at hand with finance right now, the reason I say we're kind of conflating a reality that doesn't exist in some future state is,
I would actually look outside of the exchanges and look to what's going on with like tether and U.S.D.C.
It's like a perfect counter example.
And another similar situation is playing out.
We had banking crises.
We had a bunch of regulatory heat on U.S.D.C.
and U.S. dollar denominated stable coins.
And Paxos got slapped on the wrist.
USDA deposits came down.
You know, since the beginning of the year, tether...
issuance is up, right? So this offshore euro dollar that's intentionally operating in a little
bit of no man's land and has created this wild west stable coin that's the backbone of a lot of
global crypto trade, that is now the dominant currency because we don't have any clear regulatory
frameworks in the U.S. or abroad just yet. Europe, making some progress, U.S., you know, there's some
legislative proposals that are just getting out of the gates. But I think it's a little bit
difficult to have this conversation and conflate, like, what is the SEC accusing Binance of with what can reasonably be anticipated from any good faith crypto infrastructure company in terms of what their expected behavior is?
Now, there's been a lot of good comments on...
finances financial controls or its governance structures or, you know, historical, you know, sins of the past from 2018, 2019 that are alleged in this complaint. But the reality is there are no clear...
guidelines right now for global crypto businesses.
And we have a bunch of companies that are working, in my mind, to the best of their
abilities, at least today.
And those that have made mistakes in the past are likely trying to remediate those
mistakes.
Right.
And we're just going to be in this state of limbo and some of these negative headlines and some of these really shitty situations because there's been gray area and in a down market where there's already been a bunch of market damage from three arrows, from Terra, from FTX.
Everything is going to get magnified 10 to 100 X or 1,000 X whenever there's been a misstep from a crypto company because they're not explicitly blessed by the state.
They're not explicitly regulated.
So I always take that with a grain of salt whenever there's a complaint that comes out like today's complaint.
That's not to absolve finance or anyone else that's on the wrong side of this from all wrongdoing.
But it is to say...
that, you know, if I were to put my chips on the table, I would say, you know, nine times
at a 10, this is going to be resolved with some combination of exorbitant fines, a go-forward
operating plan that includes a much heavier dose of compliance than what we've seen previously
from any of the impacted entities. And then in severe cases, maybe a leadership change. That's not
to say that the whole thing's going to unwind or the whole company is going to get shut down.
Ryan, I think you made an interesting point about the SEC not being a monolith.
And I think it's important for people to also understand that just because the SEC or any regulator claims something does not mean that it's true.
And that is up to the legal system to define.
And the SEC has had no lack of trouble with the legal system.
judges have been pushing back against the SEC consistently in a number of these cases,
including Grayscale, the Voyager bankruptcy judge.
So I want people in the audience, especially because I know with a lot of Mario's people here,
we have a lot of non-crypto-native people necessarily in a very large case.
crowd. Just because the SEC says something does not make it true, and this will take a very,
very long time to be litigated and sorted in court, it does feel like the SEC is throwing effectively
every claim that they possibly can at the wall in this single suit to make it take as long as possible
and make it as complex as it can be. But it is...
certainly possible that the SEC will lose on a lot of these points and that they could lose in a lot of
the other cases that are setting precedent for that that there's a precedent for this that are happening now
now uh joe go ahead yeah joe before you go ahead go ahead and then go to joe go ahead run yeah i was
going to say i was going to say the cc doesn't have a very good track record in court number one and i think
again scott you brought it back to the crypto users but
We don't jump on the Twitter spaces and we don't break news every time that this happens in the banking sector.
Believe me, this happens a lot in the banking center.
We're just not focused on it.
As I said, it's part for the course in the banking sector for the banks to pay huge fines for issues with the SEC, with the CFTC, and with other regulatory bodies.
We're just now coming into crypto.
And yes, I believe that mistakes were made.
But I think we're just starting to get into the game.
And this is actually what the game is when it gets played.
all right so we do have joe back which is great joe you've been giving us a lot of insight into this
and you've to talk about the freezing of assets as one point of concern before you have to jump
into a call i want more clarity on that particular point i'll read out quick tweet he goes back to what
ran said the cc going harder says a tweet by otto su and s cc going harder at binance coinbase crack and ripple
than it ever did at FTX.
That says all you need to know about the situation
and just taking a bit of a jab on the SEC.
But Joe, can you just explain to us again?
You kind of mentioned it and you had to drop off for a call
with the client that's impacted by all this.
You did talk about the preliminary injunction
about the freezing of assets,
which is very uncommon by the SEC.
I want more context on this
because I'm really stuck in mind.
I wouldn't say it's very uncommon.
It is the exception, okay?
It does not tend to happen, to my knowledge, in many crypto cases.
At least the ones I followed, they typically have a more drawn-out process.
But going back to the second, somebody who's made the comment, I couldn't quite see you on my phone,
but the SEC is not very successful in court.
That's fundamentally wrong.
Law 360 had a report that every of the suits that have been filed in the last 10 years, 95%
of those filed by the SEC end in a settlement
that is consented to by the SEC,
meaning they, in their minds they won,
or judgment in their favor, 95%.
So something happens.
That's almost as good as Japan,
Yeah. So the notion that they don't have a lot of success in court is wrong. They get maybe not all that they want, but that's the whole nature of an enforcement agency. You overcharge and under deliver in many cases. But anyway, let's go back to the, I'm told from a source that I can share that there's likely to be a preliminary hearing on this in the next 48 hours.
It's being set right now with Bynance's counsel because they, you know, they're not going to do it ex parte, meaning without the Bynet's counsel being present there.
That will be in the D.C. circuit.
So we're going to have that set.
We'll have the date.
I'm monitoring the pacer docket.
I'll report it as soon as it pops up here.
That will be regarding the preliminary relief that was sought regarding the freezing of the accounts.
And again, just to make it abundantly clear, I've checked the complaint on this two times.
The order seeks to freeze all of BAM's accounts, okay?
Not just the US, not just finance US.
It's freezing all of the accounts associated with the entity.
That's how they go through this long, you know, multi-page explanation of how it's effectively one entity, that there is no real distinction.
And they show the commingle of finance US assets with foreign assets, which gives the jurisdictional hook to the SEC that they need.
And I think going back for a second to the discussion, which is fascinating about Coinbase and my Coinbase down 10% in the day, the reason why, remember, keep in mind, we got a Wells notice against Coin Space.
And the Wells notice is somewhat cryptic.
It doesn't tell you how broad sweeping the relief sought against Coinbase will be.
If you read this complaint, guys, there's no way you can read it without getting a clear understanding of the SEC's position that...
these exchanges,
crypto exchanges broadly,
are broker dealers,
they're clearing houses,
they have to comply
with all elements
of the Exchange Act,
they have to comply
with elements
of the various regulatory requirements
regarding clearing houses,
and none of them are doing that.
That's why there's this sort of broad spread
requirement
You read this complaint and look at the position that's taken in writing by the SEC, there is no justification where they cannot bring the exact same suit against Coinbase.
Joe, I just want for clarity there with the freezing of funds because I think that's really important.
You're saying they're calling for it for the...
duration of this, but why would
Binance ever actually do that
until they're charged or
found guilty or anything? I mean, that's
Well, that's a preliminary
injunction, right? So, so
that's the whole point. It's extraordinary
preliminary relief before
any finding of fault.
It's basically saying, we want to maintain the
status quo because court, if you do
not maintain the status quo, there is a chance
that there can be irreparable harm
to customers and people interacting with this
exchange. It is...
Literally, law describes it as extraordinary relief.
It is not granted me.
I understand that, but they can't actually force finance to do that as the United States regulator right now, can they?
But that's what I'm looking for clarity on.
Well, it depends where the money's at, right?
Like, ultimately, if you get an order from a court, let's just play this out.
Say there's a hearing, and they are successful in convincing a federal judge that there is a sufficient basis to enter an injunctive order.
If that's the case, it will be temporary in nature, meaning that the judges will set a time limit on how long it will be in place.
And number two, the question is, even if you get an order, will a court that is subject, will a jurisdiction respect the order? Put it that way. Obviously, accounts in the United States, yes, everything in the United States will be, will be frozen if that order is entered.
outside of the United States, it gets a little bit more dicey.
Where is, in fact, where is the money held?
Are those jurisdictions going to observe the order?
Are banking partners with them?
Is there ways that, you know, international courts could potentially respect the order?
There's a lot of jurisdictional issues outside the United States.
But theoretically, yes, there are jurisdictions where money could be held, where accounts could be frozen.
Go ahead, Ryan.
Just just just one more point.
One more point.
Just to clean up one more point.
Okay, I'll just tell you this, and we know this recently from all the issues with the stress in the U.S. banking system, sometimes, guys, it doesn't necessarily have to be an order that can be enforced to create enough of a panic.
And I'm not suggesting anyone panic.
Okay, that's never a good thing.
But you know how social media works, right, and how things can spread like a virus.
And if there's at least the threat of this order, if there's a hearing, that can cause a ripple through the entire industry, I think.
And this is the point I was mentioning, this is the point I was mentioning earlier, is that, and I wanted to ask it, Ryan, perfect, it'd be good to take it out. Like, I wanted to ask that question without actually playing a role in causing any panic. Is that how much of an impact will this have, especially with the hearing in 48 hours?
And Joe, if we're seeing a hearing so early, preliminary hearing, before going to Ryan, is that, so I've got two questions for you.
Are preliminary hearings like this comment?
What does it take to be able to get a preliminary hearing?
And the second one is, do you have any insight into preliminary injunction, sort of freezing the essence of Bynos?
What is the success rate of such action based on your knowledge, Joe?
And I know this is a tough one.
Yeah.
No, it's not actually.
There's data on this.
So of the TROs that are fought, which is the TRO can be, the distinction between a TRO,
temporary restraining order and a preliminary injunction is largely that TROs can be entered
ex parte, meaning that finances, counsel doesn't even have to be present.
Sometimes counsel bring those.
purposely to try to get one-sided arguments in front of the court without opposition making the case.
And they think that judges will be more inclined, in my experience.
They're less inclined to grant TROs.
Preliminary injunctions are one typically where...
They are entered with the other council participating, presenting contrary evidence, trying to beat the standard.
And I will tell you, based on public data in the federal court system, on TROs that are filed, there's like less than a one and 14 chance they actually get granted.
So, yes, they're sought frequently.
They get right to the top of the court's docket.
They bring the court up to speed.
Sometimes there's a hearing.
But the vast majority of them are actually denied.
And that's for the reason that in these types of situations, judges say, yes, you may have a viable case here.
You may have a likelihood of success on the merits, which is what part of the elements of a TRO.
However...
we do not believe it justifies an extraordinary remedy of doing something now.
Go through the normal process, get discovery, follow your motions, and then I'll rule on it.
I don't need to act right now.
And typically to show irreparable harm, it has to be something more than compensatory damages would be sufficient.
You have to show, you know, there's a,
There's a risk that all the money might be gone.
There's a risk the entire entity might be insolved.
There's a risk that someone may steal the money,
and it will never be recoverable.
Those types of things could rise to the level of TRO,
but generally not.
Yeah, I just want to say it's Ryan, and then you're going to go...
Sorry, I would just want to say one thing.
I mean, that would literally be freezing the accounts of tens of millions of retail customers around the world, effectively,
freezing their bank accounts, which is how a number of people around the world use their Binance accounts
because they're interacting and utilizing stable coins effectively.
So I just cannot imagine that a judge would rule on that to, damn it, to hurt that many people around the world just to get here at Binance.
I think you also got to take into account that with these regulatory agencies, you've got to take
into account that what they're going for is they go for the jugular and then they negotiate their
way from down there. They go for the maximum that they can go for legally within the confines. And
And then they know that they're going to be negotiated down from there.
You know, they started and said, well, you know, we want X, Y, Z.
Then you've got to take into account where this comes from.
This is a normal legal tactic that not only regulatory agencies use, but lots of agencies, lots of lawyers use.
For the better part of more than, let's just say, for the better part of a decade, right, the SEC could have brought this suit against exchanges operating in the United States.
And you have to ask yourself why they haven't.
The allegations in here, the broker dealer, clearing house requirements, that the exchanges satisfy the requirements of typical exchanges, all of these things could have been filed five years ago.
So you have to ask why are they doing it now.
Ryan, I know you've been waiting. Please go ahead, Ryan.
Well, I think the answer as to why it's happening now is pretty obvious because they're going to have a pretty significant backlash towards anything that even appears unregulated or a foul of U.S. securities or other finance laws in the wake of FTCS.
But I know we have we have so many people coming into this live kind of broadcast even since the beginning and some of the comments that I made previously.
But just to just reiterate.
There's like four different things that can be conflated here.
There is Binance U.S. versus Binance International.
And I think we have to think about those two as related, but potentially treated separately.
There's what are the tokens that are outlined in here?
And what is the SEC claiming?
And do they have standing to make those claims in a complaint against finance versus directly against the projects?
There's the criminal versus civil elements, which is night and day in terms of what we should be thinking about in terms of potential fines and liability and what would happen in the worst case scenarios with a big exchange like finance.
And then there's the credibility of the regulators and the various enforcement actions that are coming out, both in the U.S. and internationally.
And I think to start from the top, I don't know, Joe probably has the data, it sounds like, on things like an injunction.
Scott made a good point about the number of impacted investors if something like that were to be granted.
But there's also the element of, is the U.S. likely to, you know, win an injunction β
versus an international entity and all of its international users and and
legal entities. And I think that seems like it's pretty low probability. But regardless,
I think you're going to have two different paths for what finance US looks like on the other
side of those versus finance international. In terms of the criminal versus civil, just to reiterate
for all the newer listeners, this is all civil right now at the SEC. So worst case is
really fines and restrictions on what their behavior is in the U.S. markets.
The concerning unknown in this whole situation is whether there is a subsequent action on the Department
of Justice's side, which could include significantly larger penalties and significantly
larger claims to the extent that we're looking at things like commingling of funds or
sanctions or, you know, OFAC violations, etc.
That is just rumor and speculation right now, but there have certainly been some hints drops in the CFTC and now this complaint it looks like.
Then there's the SEC's approach towards tokens and the clarity that they've offered historically.
They've done this several times now where they try to designate certain tokens as investment contracts by going directly at the exchanges in some of the secondary trading marketplaces versus to the projects themselves in these decentralized communities.
Right.
And I actually thought there was a really good tweet that just came out a few minutes ago from Jeff Roberts at Fortune.
He makes the note, the SEC in this complaint cites its 2017 Dow report to say that Binance broke the law by selling B&B tokens.
But the B&B sale came before the Dow report.
As you can see from the SEC's own complaint from June 26th through July 3rd.
So this kind of goes back to my previous point of...
you know, the SEC is not necessarily ineffective or good faith regulator under his current leaders.
It's being very reactive.
in large part because of the egg they have on their face from the failure to recognize FTX
and its shortcomings early on and the fact that they'd had meetings with FTX and Sam and his team
rather than some of the other regulated entities in the U.S.
So now they're flailing wildly and Minance is just the latest entity that's going to be in their crosshairs,
but certainly not the only one.
So let me just give a quick market update.
And Scott, I see on mute.
So I'll give you the mic right after.
So Apple does have a conference right now that we're going to be talking about in which they're going to be unveiling their headset, their VR AR headset, which we don't know much about yet.
We'll be getting updates on this.
We'll be sharing it here as well because I know it's major, but the focus is still going to be Binance and the investigation.
A market update is Coinbase is down over 10%.
Binass is down 8.5%.
That's Binance coin, and then Bitcoin is down 5%.
So we saw a very brief recovery of both,
a very small recovery from both Binance and BTC,
but it seems to have stabilized for now.
I'm guessing just investors are going through the report,
trying to make sense of it.
I also want to give an update on this so you can see here it's not me hosting the space,
me Scott and Ryan. We are doing a daily crypto town hall many of you know about as well.
We started it last week and we were going to be doing a normal show today until the
Bynast News broke. So you'll be seeing us every day at whatever ET. So it was like what
two hours ago? What time is it got?
1015 Eastern Standard Time. Yeah, we had we rubbed with the first few attempts as everybody knows.
Yeah, exactly. So we do that. We do that every day. So anyone that wants to jump on as a sponsor or work with us, just hit us up. Any of us three, just DM us.
But otherwise, Scott, I'll give you the microphone of you. I'm muting because I try to go into the news.
See what else. Scott, just real quick, I have to jump, but thank you again for including me.
Thanks, Ryan. Appreciate it.
More regularly. Thanks.
Right. I think you know you're welcome anytime, and we appreciate the time. Thank you.
uh Eugene you have your hand up still so I'm going to let you go ahead because I know you still
wanted to respond to what he was saying yeah I mean it was all very interesting and one of the things
is the kind of whine-out question.
But, you know, I think a big question around, I mean, this lawsuit is like 130 pages, so or this complaint is 130 pages.
So still going through it.
But the question is how different is this, right?
I mean, some folks have said, hey, you know, this is like, you know, kind of par for the course.
And I, in many ways I agree with that, right?
Like finance companies in general have to deal with this.
But on the other side, I'd love to hear.
And as I look through this, think about how different this is than potentially other complaints, right?
Like, to what extent is that? Because I think the big, the big thing is that the U.S., I mean, finance has like 10x training volume the last 24 hours in Coinbase, right? I mean, it's.
it's phenomenal how much finance has grown versus coin base and it's got to irk regulators and also
us lawmakers that finance is not under the control of you know of the u.s and in so many ways right i mean
finance has you know left singapore for example i was just in singapore speaking at a crypto conference
and everyone in singapore is pointing to potentially hong kong and even more so dubai which i was just at
as well as being sort of the next centers for potentially where crypto is going to going to succeed over
certainly even the u.s right because the u.s
because it has a world's reserve currency is sort of like fundamentally arrayed against this
this idea of decentralized money. And I think that that's going to rear its ugly head more and more.
You know, Coinbase, as we know, has started opening operations in Bermuda and it's starting to,
you know, diversify away from the U.S.,
But, you know, if you're the U.S. regulator, you got to say, well, you know, Coinbase is firmly an American company, you know, unlike Binance.
So I guess the question is, is this just, hey, you know, we want to make an example out of finance or is the SEC have a, the SEC and U.S. regulators overall have, I don't want to get to you tenfoil hat about this, but do they have a deeper agenda against certainly non-U, particularly non-U.S. regulated centralized exchanges, let alone decentralized cryptocurrency, which is global, obviously.
Yeah.
That's a question.
Well, I think that there's a clear uptick in rhetoric and action against companies both stateside and abroad.
I mean, it's hard to think of it as anything otherwise when you see what's been happening with Coinbase,
who had over 30 meetings with the SEC in the process of getting their direct listing.
and being listed on the stock exchange, right?
I mean, for the SEC to now come back around and claim that a bunch of things that were already presented or problematic is nonsense.
And so I think this is just a symptom of the larger issue here.
Joe, you jumped in.
Go ahead.
Yeah, there's, well, there will be a suit against Coinbase, guys.
I mean, the Wells know.
Of course.
Absolutely.
Absolutely.
It gives a prescribed time period from which there should be a complaint filed.
We know based on the timetable, the Wells notice was issued, it will be some point before early to mid-September.
So that's coming, right?
The shoe's going to drop in that.
And I think the sweeping nature of this complaint, just to read it again, the fact that they're taking this position that is really an existential threat to exchanges operating in the United States, currently as they are,
that is is being read into what will be in the Coinbase complaint, right?
It's not going to be a Coinbase complaint that is isolated to just a few tokens and
and staking activities.
It's going to be you are operating as a broker dealer unlawfully in the United States.
That will be the allegation in the complaint.
And we'll see.
We'll see what relief is instructed.
Are they going to seek a similar TRO against Coinbase asking them to freeze assets?
I mean, you know, as an American, you know, I,
I had sort of, you know, I'm rooting for U.S. crypto companies, but the more I think about it as an investor, I wonder if, you know, like AI has a similar thing, right?
I mean, EU has made AI development so prohibitively difficult that it might be better for European-based AI startups, like stability AI behind stable diffusion to just kind of go elsewhere, right?
And I think what, you know, as if America wants to be part of this, you know, next wave of finance, I say we,
embrace the ripples and the coin bases of the world work with them.
But nowadays, I wonder, like, I think this is going to be Hong Kong's game, potentially, right?
Dubai's gain, other sectors in the world's gain.
I was meeting with entrepreneurs in Dubai, and it's just phenomenal what's happening out there.
Joe, yeah, Joe, I'm far more optimistic than you.
I don't think that...
I don't think it's fair to throw the baby out
with the bathwater here with Coinbase.
I do think that we're seeing a bit of a roadmap
for what could potentially come from the SEC
against any given company,
but I think it's very clear that they view
Binance as far worse of an actor than Coinbase.
Once again, they approved Coinbase listing.
Yeah, but people keep repeating that's...
But that's not right.
We have zero reason, we have zero reason, zero reason to believe that Coinbase has
commingled customer funds.
It doesn't matter.
That is irrelevant for the purposes of whether they're operating in unregistered exchange.
which is the absurd position.
And let me just speak to that issue again.
The fact that you get a registration statement approved, okay?
It's an entirely different division, okay?
And it's bureaucratic red tape.
I agree it's nonsense and it's completely absurd reasoning.
But you basically have people that look at the paperwork and say,
are you disclosing everything?
Are you making sure that you're not hiding anything for investors for a publicly traded entity?
Or we're going to greenlight that.
even though the underlying activity itself is not lawful in their mind.
That's how absurd their reasoning is at the SEC.
With all due respect to the people at the SEC, that's what they're doing.
And I would not, again, I'm not overly negative or I don't think this necessarily has to be the case.
I'm not even making a prediction on this.
I'm just saying this complaint as drafted against Binance, the positions they're taking
regarding what it means to be a crypto exchange and
and necessary regulation and registration makes me believe that the complaint that eventually comes against Coinbase is more likely to, in fact, be broad and sweeping.
And I think that is something everybody should take note of.
Yeah.
I think it's a definite possibility.
I'm still, and I know you just addressed it, I'm stuck on the fact that the SEC approved this exact business.
Right.
The thing is, though, what he's saying is that when the SEC does a, they're not approving a business.
In fact, they're really, really specific when they, when you do securities offerings to say the SEC is not approving this.
they never approve any offering.
There's no offering that they approve.
What they will approve is a registration statement,
and they basically say, this is complete,
you've disclosed all the things you need to disclose,
you've got the auditing that you need to do,
and you've got the stuff that you need to do to be a publicly traded company.
They don't make,
They don't pass judgment, just like if it was a marijuana business in Colorado or, and they want to expand to New Hampshire where it's not legal.
The SEC is not going to make pass judgment on the merits of that business to say, oh, wait a minute, marijuana is not legal in Colorado.
They're going to, they're going to maybe at most make sure that there's disclosures of that saying, you know, our industry is heavily regulated or whatever.
But they're not, by approving the offering of a public company, they're not passing merit on the,
on the business the investment yeah it's is your paperwork complete that's basically what
they're doing is your paperwork complete Bruce is 100% correct
And Joe's point, and I wasn't giving you a hard time on this earlier, Joe, when I said you're repeating the SEC's line. I know you don't agree. You're just, and I agree with you, unfortunately, I think you're right. But I take more issue with the SEC's position of, you know, I think Joe is right. Unfortunately, they probably will use this. If they're listing a list of,
whatever, several coins, eight coins or something that they say are securities, which Coinbase trades those.
I mean, if the SEC has a position that those are securities and you need to be an exchange to trade those
for Binance, then presumably that means that Coinbase has to do it as well. So it wouldn't surprise me if that's
If that's part of it.
But the point that I always hammer on that I think is particularly egregious and unfair about this is that Coinbase doesn't have a mechanism to do that.
Coinbase tried to do that.
They've actually acquired, I believe, two or three broker dealers, at least two.
So again, going back to Gensler's line of like, oh, just come on in and get registered as if that's all we needed to do.
You know, you think Coinbase wouldn't have paid $100 million to solve this problem a year ago or two years ago or five years ago?
You know, the whole industry has tried.
And there's been many, many, many efforts of companies to try and, you know, just come on in and get registered, as Gary says.
Yeah.
and it's not workable.
And being a registered broker dealer
isn't workable either.
I'd love to send a letter.
Maybe one of the lawyers
wants to volunteer,
but this is the problem.
We spend so much money on lawyers.
It's just a waste of effort,
and I wouldn't want to spend
a bunch of money on it.
But, you know,
I mean, we're a registered broker dealers.
Does that mean we can sell this stuff?
Say, oh, okay, you say ADA is a security.
Great, we're licensed to securities.
Can we do that?
Wonderful.
I'll put up an ADA Bitcoin trade pair on my broker dealer tomorrow.
See what happens.
Of course, we wouldn't be allowed to do that.
So it's a no-win position.
It doesn't matter what license you have.
We have a zillion licenses.
It doesn't matter.
We can barely do anything with them.
The SEC...
has made it impossible to do business with the licenses or without the licenses.
And I think a lot of people don't recognize that.
And frankly, you don't hear that from a lot of the companies that have tried to go down this road because they're afraid of the SEC.
They're afraid to say it.
And they're also afraid of looking bad for their investors where they've spent a lot of money on these wheel spinning efforts.
Such smart mess.
Such smart commentary from both Bruce and Joe here.
And I think it's important to point this out because a lot of people aren't going to want to hear it.
But yeah, the SEC can approve your IPO, but also at the same time not tell Coinbase how to register as an exchange.
And I've got to run guys too.
I just want to make one more point.
I think that my high level takeaway for me is that it's nuanced, but you have to understand that it can both be true that the SEC is not correct or out of line in the way they're approaching.
regulation in the US in a way that's destructive to our competitiveness in a way that's destructive
to companies that are trying to play by the rules. And it can also be true that
finance is operating in a way that is reckless that will eventually cost their customers money.
I think both of those two things can be true. That's going to explode some people's brain
because they want to jump immediately to saying, you know, holding up the number four and saying,
you know, everybody's just trying to basically, you know, make finance fail. But like, that's not the case.
I don't think most people want buying itself.
We just want people to stop diluting themselves and stop pretending that it's a great well-run company because it simply is not.
I got to run.
I think it's worth pointing out how significantly and radically different the user experience would be if it was done under securities versus how people are used to trade in crypto plus.
the fact that if you want retail involved, then all of the offerings, you know, would actually have to be approved offerings.
So if we're saying ADA is a security, then that would have to be an approved security if it's available to retail.
It's, you know, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's a
Yeah, it's not workable for ADA or F or any of these things because you have to do things like filing a statement of beneficial ownership.
You have to know who the owners are, you know, all kinds of things that aren't workable for those projects.
And also, you know, not workable for the exchanges either.
The overall thing in the United States, we've spent a lot of time as an industry going back and forth on like,
You know, is this a security or not?
Is it utility?
And there was a lot of people who spent a lot of time and money five years ago on those kind of exercises.
But really, in a proper world, in a morally and just and properly regulated system, the question wouldn't be us obsessing about whether something is a security or not.
It would be like, who cares?
Right.
So what if it's a security?
Stock is a security and stocks are good.
And we should make stocks easier for people to buy and sell.
It shouldn't be the kiss of death in the United States like, oh, no, this is equity.
Now you can't do anything.
That's just absurd.
Equity's awesome.
And so are bonds and so are a lot of other forms of securities.
Right.
so we should make it so that people don't care
if you're a security or not
but also the rest of the guys
solve this Bruce
they've called it virtual assets
and they've implemented virtual asset
service provider regimes
and financial action task force
has told the world they've got to do it
but the US isn't
I mean, Bruce, I do want to just kind of give the final quick thoughts for the audience as we wrap up.
I'm going to wrap up in about five to ten minutes just for the audience because we have to prep for the RFK interview space.
But I want to go, Ryan, are you there or you've gone off for a few minutes?
I'm here.
I'm here.
I'm here.
I'm here.
All right.
Maybe you can kick it off because I know you've got to put the kids to bed.
Ryan, what are your thoughts on what we saw today?
How concerned are you and, you know, what impact?
The market is responding to, in my opinion, it's responding better than I expected.
I expected by an ice coin to take a bit, a hit, et cetera,
based on what I've read so far,
but then again, I'm not the expert.
What are your thoughts on the market reaction?
You said the market overreacted.
I think the market initially overreacted.
Host
Speaker
Faith Tribe
from
Faith Tribe
