This is Bloomberg Law with June Brusso from Bloomberg Radio.
The crypto industry is like the wild wild West. To SEC chair Gary Gensler.
The wild West of the crypto markets rife with non compliance, where investors have put hard earned assets at risk, and highly speculative asset class such growth and rapid change also means more possibility for wrongdoing. Is the cop on the beat? We must be able to meet the match of bad actors.
Gensler told lawmakers five months ago that the agency had to expand to protect investors against a crypto industry rife with non compliance. So what has the sec accomplished in its six years of trying to regulate crypto? Joining me to answer that question is securities law expert James Park, a professor at UCI Law School. What has the sec accomplished so far? And it's battle over crypto.
It's been a long process, and I think the SEC has learned a lot over this period and it has developed its positions gradually over time. One criticism I think of the SEC is that its positions may not have
been entirely consistent. But I think it's clear now that the SEC views many crypto assets as being securities and believes that it can regulate a substantial number of not only crypto assets, but also exchanges exchanges where these crypto assets have been trading, and has disagreed with some of the determinations by these exchanges that the crypto assets trading on their marketplaces are not securities. So we have an SEC that believes that a significant number of crypto assets
are securities. We have some industry members who believe the SEC's position may be too broad, and there's also a criticism that the SEC has not done enough to provide clarity to the industry. I think that's another major theme that we've seen over the last four or five years.
What federal agencies are sort of jocking to play a role in policing crypto In addition.
To the SEC, the other major candidate is the CFTC. If crypto assets are primarily commodities, and that's typically under the jurisdiction of the CFTC. We also have broader issues relating to financial regulation, such as money laundering, which would
be the province of various federal banking regulators. So there are a number of different federal agencies that could regulate crypto But I think the SDC has been in the lead in certain respects and is asserting that many of these crypto acsets are securities and that these exchanges are under its jurisdiction.
The SEC has filed about fifty five enforcement lawsuits over cryptocurrencies since Gary Gensler took over. That's according to data from Cornerstone Research. How has it fared in those cases?
Generally generally fared fairly well. It's one of the vast majority of the cases. But that may also reflect that the SEC is picking cases that are favorable to its position. It may be picking cases involving egregious facts where there is a clear fraud and in cases like that, judges
tend to be sympathetic to the SEC's position. As it gets to bringing cases against entities that are not frauds, I think that its task is a little bit more difficult, and I think it's getting to that point in a number of cases where you don't have clear evidence of fraud, and so there's going to be questions about whether its position is valid or not.
Is the SEC embarking on a specific strategy when we see that it is suing coinbase and two other platforms. Is there a strategy involved here, Yes, I.
Think the SEC is trying to bring big impact cases and exchanges are key centers of activity. They're critical to the development of crypto assets because you need a marketplace where these assets are traded frequently in order to have confidence in the integrity of their prices. So exchanges are a very important part of the infrastructure. If you want crypto assets to become established as a valid asset class,
that would bring more investors in. And so the SEC is trying to assert its domain over these exchanges, and for good reasons. You know. In the background, of course, are the scandals at FTX and buyinand those scandals have given reason for the SEC to come in and regulate exchanges and has taught the SEC a number of lessons with respect of the problems that can come up in various crypto asset exchanges.
Do you think that the collapse of FTX and the criminal charges and finance do they sort of support Genstler's statement that it's the wild wild West.
They support I think the case for regulation. They support the need for regulation. Not all of these changes are the same, and so you know, I could see coinbase making the arguments that we're not the same as FTX and binus. We are making good faith efforts to comply. We're a public corporation, you know, we sold securities pursuing to a registration statement approved by the SEC that described very frankly what our business is, and so we're different.
We're different, and we are making substantial efforts to comply and to prevent market manipulation. The SEC, to my understanding, has not found evidence of market manipulation on Coinbase at this time, at least it's not alleged in their complaints, and so the key for defendants like Coinbase is to establish that they are different from FTX and buy it.
On the other hand, I think the SEC can make the case that there are certain structural issues that we saw in FTX and binance that lead us to be more wary of exchanges, even those like Coinbase that we had approved a registration statement for. So I think that's one of the issues that will continue to see being litigated and developed over the next year.
Everyone in crypto is watching that case against Coinbase in particular. What's the SEC's case there.
They are arguing that Coinbase is a securities exchange Under the Securities Exchange Act of nineteen thirty four, the SEC has the power to regulate exchanges, and a securities exchange must register with the Securities and Exchange Commissions. That's the key issue here, and the question as to whether or not something that the securities exchange is going to mainly boil down to whether there are securities trading on coinbase wan.
Coinbase's defense is that we did rigorous evaluation and assessment of the crypto assets that we allow to be traded on our exchange, and we concluded that none of those crypto assets are securities. Therefore, we do not have to register with the SEC as a securities exchange. The SEC has taken the position in its complaint that there are at least ten or so crypto assets trading on coinbase
that are securities under the HOWI test. Therefore, this is an exchange that must register with US, and that you're violating the securities laws if you continue to operate without registration.
Now, Coinbase is going to ask a federal judge this month to dismiss the SEC's lawsuit. Do you think that there's a chance that a judge would do that, or might a judge weight.
There's always a chance, but I think it is unlikely that a judge will grant the motion to dismiss that
this stage given the complexity of the issues involved. One of the questions is whether or not the crypto assets identified by the sec are actually securities, and that typically is going to require a case by case determination evaluating each of these crypto assets based upon the HOWI test, and some of that work may require discovery and may require looking close lead into these crypto assets and evaluating the evidence, which is typically not something that a district
court will do on a motion to dismiss. Coinbase has advanced a very narrow interpretation of Howie. If they were to prevail on that very narrow definition of Howie, then perhaps the judge could say that I can conclude without further discovery that all of these crypto assets are actually securities, and that's a plausible outcome, but I think it's unlikely. That's just my opinion that may not necessarily turn out to be correct, but this is what courts are for.
They decide whether or not interpretations of tests are appropriate or not. There's also another issue with respect to the major questions doctrine and whether or not this may involve such a large expansion of the SEC's jurisdiction to run a foul of a doctrine that the Supreme Court created over the last year or so that prohibits expansive interpretations
of agency power with respect to that particular issue. I think that there is more fact finding that would be used on that issue, And there's also a good argument the SEC has that that doctrin has not really been applied to enforcement action. I think there's another argument that the crypto asset market that the SEC is seeking to regulate is not substantial enough a part of our economy
to fall under that particular doctrine. You know, if you look at the value of all the crypto assets out there, you know, the total values maybe around a trillion dollars
or so. But remember, the SEC is not asserting it can regulate all trillion dollars worth of crypto assets, because it's competed that bitcoin is not a security, and bitcoin represents the vast majority, the maybe supermajority, of the value of crypto that is out there, and so we're talking about a relatively small amount of value that the SEC is trying to start its jurisdiction over and so it may not fall under the major questions doctrine.
Coming up next is the Coinbase case likely to reach the Supreme Court. I'm Drew and Grosso and you're listening to Bloomberg. I've been talking to Professor James Park of UCLA Law School about the SEC's fight to regulate crypto. Jim, the SEC's lawsuit against Coinbase has a long way to go. But do you think it's a case that you could see ending up at the Supreme Court.
Yes, I think it could. You know, Coinbase has the resources, they have excellent legal representation, and these cases involved very important legal issues that have not gone up to the Supreme Court in some time. You know how he was decided more than fifty years ago, and there could be reason for the Supreme Court to weigh in on the definition of a security. I also don't see the SEC
backing down from its position. It just filed a case in November against another exchange cracket on November twentieth, making pretty much the same arguments that is made against Coinbase and Binance. So it is committed to its position as well, and so we could see litigation proceed all the way up to the US Supreme Court.
So you mentioned Finance's problems. It was criminally charged in November and admitted to violating laws that require financial companies to have anti money laundering controls, and its founder pleaded guilty and faces eighteen months in prison. Do those factors play into the SEC's case against Finance.
The SEC did file motion in the District Court making note of that conviction and what it does. I think it highlights some of the dangers of exchanges and it puts Finance in an unfavorable life. I mean that could be a background consideration in the district court assessment of the case. However, these securities law issues are different. They are different than issues relating to money laundering. The issue
of whether or not the crypto assets are securities are distinct. Also, the sec as allegations of market manipulation, which are still being litigated as well. I'm having said that it's a bit of an uphill battle for a defendant who has pleted guilty to criminal charges on one set of regulatory issues in terms of litigating another set of issues before
the district court. And you know, Coinbase can't be extremely happy about the fact that Binance is making pretty much the same arguments as coinbase, and so that there's a possibility that the District Court in DC, which is deciding the finance case, could look unfavorably upon finance and securities law theories which are the same as coinbases, and so there could be a greater risk of a adverse decision in the decail court that could in turn have some
influence on the way the coinbase litigation is happening, which is in the Southern District of Now. I do think the district court judges will look independently at these cases and assess them the arguments for what they are. But it is worth noting that Coinbase in Binance are pretty much making the same arguments against the SEC in terms of the legal arguments.
How will the decisions in those three cases affect the SEC's push to regulate crypto.
They will have a very significant impact, and I think the most immediate impact is that they will give three more district court judges the chance to tell us more about the howie, can we have a couple of dueling decisions, as you know, in the Southern District of New York and the Ripple and terraform cases coming to a different conclusions.
And now we have three more judges who are going to have to decide whether or not particular cryptoascids are securities and apply to how we test in doing so, and so that, you know, gives us the opportunity to see which interpretation is more persuasive or looking more persuasive to the federal District Court judges. And you know, if you see the district court judges overwhelmingly tilting one way versus the other, then that can give momentum to one side over the other.
And where does the effort to launch exchange traded funds that whole bitcoin, Where does that effort stand?
Mind is staying. The sec is considering the petition, and my sense is that it's fairly likely that it will be granted. And if that's the case, then we're going to have a bitcoin exchange traded fund. As I was, you know, in the airport recently, I saw an advertisement for Great Scale and the Gray Scale ETF. So they seem fairly confident that this is happening, and they, you know, are obviously probably in touch with the SDC. I mean, that's why bitcoin has rallied and that's been a bright
spot in the stew acid industries. We see bitcoin the price increased from around twenty five thousand dollars to around forty five thousand dollars and the last four months or so, with that additional value, that may attract more investors into crypto assets. More generally, the fact that there's an ETF may increase the legitimacy of cryptoacid as an asset class, and that is certainly something that is a positive development
for the crypto acid industry. On the other hand, remember the sec though, has always distinguished Bitcoin from other crypto assets, and so the fact that we have a Bitcoin ETF does not mean that other crypto assets that are securities are going to escape a regulation. That does not mean that this crypto assets other than bitcoin have any real
economic value. And so I think that it is something that is a very interesting dynamic that we'll see over twenty twenty four what the impact of that is and whether or not that's going to spark more interesting crypto assets.
And by the end of twenty twenty four, do you think that there'll be more certainty about which agency regulates crypto It's.
A good question. I don't know if we'll get more certainty. To be frank with you, I think the litigation process is going to move slowly. And we are coming up on an election. There's some time before we get into that election season, but administrative agencies may slow down what they're doing as we get into the summer and into the falls. You know, we don't know who's going to win the election. That could also result in changes in policies,
changes in priorities. So there's a lot of uncertainty over the next year or so that makes it difficult to predict whether or not one agency is going to sort of rise further to the top.
Jim, thanks so much for helping us understand all these crypto lawsuits it's going on. That's Professor James Park of UCLA Law School coming up next on the Bloomberg Law Show. Lawsuits in the fight against anti Semitism on college campuses. This is Bloomberg.
This is Bloomberg Law with June Brusso from Bloomberg Radio.
Instead of studying for finals like his classmates, University of Pennsylvania student Ayal Jacobe went to Congress on December fifth for a press conference on the anti Semitism at the campus.
Penn's ambivalence fuels the crisis that has shattered my academic sanctuary policies meant to safeguard us have become hollow promises, and let us be clear, if they failed Jewish students today tomorrow, they will fail the rest of us.
On the same day, Yakobe and another student also sued Penn, claiming the school fostered a hostile environment that left them feeling unsafe in class or crossing the campus. Their lawsuit is one of several filed in recent weeks against universities by students citing Title six of a Civil Rights Act of nineteen sixty four. Joining me is Bloomberg Legal reporter David Voriakis, David, is there any kind of measure of just how much anti Semitism Jewish students are facing on campuses these days?
Several Jewish organizations stay that the anti semitism they have seen before October seventh and since the October seventh attack by HMAS on Israel is unprecedented, and the numbers have
spiked dramatically in the last couple of months. So by various measures, there's different ways to look at it, but the number of anti Semitic incidents that Jewish students have seen has dramatically increased, and the Anti Defamation League has said something like more than half of American Jewish students have seen some type of anti Semitic behavior.
And what about Muslim, Arab and Palestinian students? Is Islamophobia prevalent on campuses today?
They also are facing a significant increase in Islamophobia. And there's an organization known as care caai R as the Council of American Islamic Relations, and they say that the number of Islamophobia incidents has also dramatically increased.
So tell us about aal Yakobe University of Pennsylvania student to suit his university.
Al Yakhobe is a senior at ten and he had started to complain to university administrators before October seventh about anti semitism on campus. In particular, in late September, there was a writer's conference of Palestinian writers that's been roundly criticized as sponsoring anti Semitic speakers, and he sent a number of emails and letters, He organized petition drives and had very little success with pen administrators, and he was
quite frustrated after the Hamas attack. He continued to complain about a spike and antisemitism on campus, and he said that he felt quite unsafe on campus, that he was in the Hillel building on campus when there was a bomb threat that was not announced, and he felt that the university was not enforcing its policies that were already on the books to prevent this type of conduct and speech. And so that's what led him to go to Congress
on December fifth for a press conference. And this was on the same day that the three university presidents testified to Congress, and that testimony went badly for a couple of them. But during that press conference on December fifth, he spoke about what he called the chilling landscape of hatred and hostility at Penn. He said, despite what my university says, I do not feel safe. Let me be clear,
I do not feel safe. He then told me that about a week later, he had already gotten hundreds of threats because of his outspokenness at that press conference.
So he filed a lawsuit against Penn, he and another student, and that's one of several lawsuits filed in recent weeks against universities, and they're citing Title six of the Civil Rights Act. Has Title six been used in this context before.
Title six has been used in different contexts, often by African American students, But it's a new development that Jewish students have gotten so organized and have really concentrated on how they could use this law to abate the spike
in anti Semitism on campus. Title six is enforced by the Office of Civil Rights at the Education Department, and so it can either be enforced by the government itself through the Education Department's Office of Civil Rights, or in what is sort of a novel twist that we wrote about, there are a series of private lawsuits that have been filed that seek a potentially the same goal, which is to force colleges and universities to use the policies that
are on the books that prevent the sort of harassment that Jewish students are now complaining about.
Well, for the University of Pennsylvania, what kind of policies does the university have that the two students are looking for them to enforce.
Well, for instance, there's a code of conduct that seeks to prevent harassment and also to prevent a hostile environment based on someone's beliefs. So they want the university to enforce those codes of conduct, and the remedy that they're seeking, for instance, is to ask a judge to order PEN to fire faculty and administrators that are responsible for what they say is the anti Semitic abuse permeating the school. They also want a judge to order PEN to suspend
or expel students engaged in such conduct. They're also looking forward financial damages.
Are they asking the school to suspend or expel students who protest against Israel or in support of the Palestinians.
No, this is a very interesting area of the law, and what they say they're interested in putting it end too, is harassment, either physical harassment, physical threats, or verbal statements that are perceived as threats. So mere protests themselves are not subject to this type of litigation. What they're trying to do is prevent the type of speech that is seen as harassing or intimidating speech and conduct. And so that's a bit of a gray area, obviously, and it's
open to interpretation. But one of the aspects of this type of litigation is a question about just what is anti semitism and what constitutes anti Semitic speech, And there's an international interpretation of anti semitism that if you deny the ability of Israel to exist, or you say that Israel should not exist, then that's considered anti semitism. That's actionable.
And the expression from the River to the Sea is very controversial. Some see it as antisemitic, others do not. How do the plaintiffs here view it.
So the lawyers that are assuing believe that that is antisemitic. It is open to interpretation whether the Palestinian supporters who say that are in fact advocating the elimination of Israel
or not. And so this is a very difficult area that's going to be resolved in the months ahead, as dis litigation moves forward, and as the Department of Education's Office of Civil Rights negotiates with schools to reach civil settlements in their open investigation of schools that they're looking at for possible anti semitism or Islamophobia.
And the big threat is that schools could lose federal funding. Does that happen often?
It's a major threat that the government has because Title six of the Civil Rights Act essentially bars discrimination in several areas for agencies or programs that receive federal funding. Now, the threat is that that funding would be removed because
of discrimination. In reality, it's very rare for the Education Department, for instance, to actually withhold funding, and schools are aware that it's a very bad practice to be considered to be discriminatory by the Education Department, and so they generally come to the bargaining table and reach agreements to change their practices.
It's been publicized a lot that displeased donors may pose more of a financial threat to the schools.
Right The Title six lawsuits and the Title six investigations by the Office of Civil Rights are just one way to try to change behavior on campuses. There's also pressure from alumni who are trying to essentially name in shame schools to protect Jewish students. And there are powerful and influential, wealthy donors who have either directly withheld their gifts or
they have threatened to do so. So there's a sort of multi pronged attack in this effort in the last two or three months to try to protect Jewish students on campus.
This lawsuit, is it expected to continue to trial or is the Office of Civil Rights going to take it over? How does it work?
The lawsuits that are filed under Title six are in federal district court, and so far there have been several schools that have been sued, including New York and cal Berkeley and Carnegie Mellon as well as Pen, and there's more cases expected against other schools, including Harvard and Columbia. They will proceed as civil litigation under the federal rules of evidence. As in any civil libation, They'll either go to trial or they will settle. What the government is
doing is something separate. Those are administrative cases that will not be filed in federal court, and so because their administrative cases, it's more likely that they will work more directly and cooperatively with the schools to make changes.
Is the situation getting better with these lawsuits or with the publicity brought to this issue, or is it the same getting worse? How do the students see it?
I spoke with lawyers who work for prominent law firms who are helping to collect student complaints then get detailed information about just what happens on campus, and they said that the pace of complaints has been slowing a bit, but really it is too soon to tell what the outcome will be of these various lawsuits.
Thanks so much for being on the show, David. That's Bloomberg Legal reporter David Voriacis And in news connected to the controversy over antisemitism on college campuses, Claudine Gay is stepping down as president of Harvard University, ending a brief and tumultuous tenure marred by allegations of plagiarism and the controversy over antisemitism. Her exit is a dramatic about face from her acclaimed start in July as Harvard's first black president.
Even as recently as December twelfth, she enjoyed the unanimous backing of the university's governing council. However, since then, new questions have surfaced about her academic work, and a donor revolt over the school handling of antisemitism has only worsened. It's the second departure in recent weeks of an Ivy League president following a House committee hearing on antisemitism on US college campuses. Hen President Liz McGill resigned four days
after that Congressional hearing. And that's it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot bloomberg dot com, slash podcast, slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm Junie Grosso and you're listening to Bloomberg