SEC Attorney predicts a bigger crypto crash coming

he's a securities lawyer. Now, I don't have a lot of lawyers on and securities lawyers, but you know, I've been talking extensively about the FTX situation that's that's happened there. I put out a video on YouTube talking about how I think we might have seen the last crypto bull run, and I said, because I think securities are going to finally kind of make their way into the space, which will stop a lot of this venture capital money that's created these kind of pump and dump situations that are

going there. And I thought, hey, let's just talk to an sec lawyer about that. So James, so welcome to the show. Hey, Mark, I love your show. Thank you so much for having me on. I'm looking forward to the conversation. Now, I know you just wrote an article for Coin Desk and you were talking about UM things that you think Andrew Sorkin should be asking. UM, SBF, Sam Bankman freed. So for the audience that's not caught up, how could you have missed it by now f t X,

the second largest cryptocurrency exchange, blew up. Um. It looks like clear cut fraud to me. I know that the security laws are in a little bit of gray area, but fraud has always been fraud. That doesn't change that in my opinion. UM. And instead of Sam Bankman Freed defrauding and now even admitting too in messaging UH in the last week or two that he's done these things that I think are fraud, Um, he's still walking around

as a freeman. And even worse than that, he's going to go speak at an event I think set up by New York Times. UM. Sharing the stage with are criminals like Janet Yelling, Secretary of the Treasury, UH, Ben Affleck,

H Zuckerberg, UH, Larry Fink from Black Rock, etcetera. So, UM, he's going to be interviewed by H Andrew Sorkin probably going to be given up a bunch of softball lobs that he can just knock out of the park, or he can spread some misinformation on and uh, James, I know you had written this article said here's what he should be asking. So walk us through some of that. To start out with, Yeah, well, uh, great lead up.

I am interested in the world of digital assets and have been paying a lot of attention to you know, what looks like a number of dominoes that have fallen and will follow fall yet and there will be, of course, this impact on the overall market. Uh, and we can talk about that at great length. It's not just prices and viability of companies. But you know, when you have a spectacular collapse, it creates tremendous latitude for policy makers

and regulators to go after everybody else. And so I think I buy a significant part of your thesis about what is to come. But in any event, with respect to SBF, I am pretty uh plugged into the ft X bankruptcy and what's going on there. And um, you know, he has tweeted a little bit in ways that are nonsensical, and I thought, Wow, if he's really going to answer questions of a legitimate reporter, wouldn't it be nice if some real tough questions were asked, UH, and so I

started tweeting them out. You know, I said, hey, look, I've been doing this for thirty years. I've questioned con men many times, dozens of times, and other kinds of fraudsters. Here's how I would go about it. And so I started putting out some of these questions on Twitter. And then all of a sudden last night, UH, an editor at coin Desk called me and said, we like what you're doing. Can you put this into a format that we can run it on on coin Desk? And I said, yeah,

I would do that under one condition. And my condition is I want that out there in public before this interview of SPF happens. And so it's out there, people are talking about it. And so if I did want to make it harder for Andrew Ross Sorkin to throw softballs, there's now quite a little tiny army. You have a huge following. I've got a microscopic following because I just started Twitter or two months ago. But they're they're pretty

worked up. They do not want softballs thrown because many of them have lost their life savings, and so questions like hey, Sam, you understand that the terms of service for your platform, f t X say very clearly the assets that customers deposit on f t X are the property of the customer and not the property of f t X. It's in black and white, a simple statement

in their terms of service. You took that money that didn't belong to you and shifted it over to your hedge fund, Alameda, you understand, I'm sure that action is illegal, right, So you know this is why I am certain that any lawyer he has is has strongly advised him not to answer any of these questions. But I've seen this before,

and you've seen it before. These con men who are really really smooth, slippery, whatever, believe that they and convince the whole audience about totally different narrative that is not rooted in the facts. And so that's I'm afraid he may try that. They want to win in the court of public opinion. Um, not in law, but in public opinion.

So let's let's talk about some of this. So I know your securities, attorney, but to the point that you made, you've interviewed lots of people, con men and mobsters, et cetera. So um, let's talk about some of these things. Because some people I can't believe it. People that known people in the space are saying, well, you know this happened in in this gray area, that these aren't really security so maybe it wasn't really illegal. But to your point,

I believe fraud is always fraud. And so if you said in the terms that these are your deposits, but then I take those and use them for my own use, misappropriating them to the words you used, regardless of what type of asset that is, isn't that still considered fraud, which is still considered illegal. Yes, okay, and you don't and you rarely get unequivocal answers from any lawyer, But

the answer your question is yes. If you are a valet at a fancy restaurant and somebody hands you the keys to your to their car, it doesn't become the valet's car to do whatever they want with it. But if the valet takes that car, it goes and crashes it, he doesn't hand the keys back and say, hey, you know, sorry, stuff happens. No, that's a crime. What what what just happened there? That's a criminal offense. When you when you when you give your money to the bank, though that

money is not yours anymore. They owe you that money, and there's a legal difference. And I thought that it might be the same with these crypto exchanges, where once you give it to them, they owe it to you and it's not actually your property anymore. But you're saying that's not the case in f t X. Now you're getting somewhere, Mark, What you just described is the situation at Celsius, and in terms of service are very very

clear that it is like the bank paradigm. You give us the money, then we you know, you are our credit or we owe you that money, but we take dominion over that money and lend it out to other people, just like a fractional reserve model of a bank. F t X was different. Coin base is different. Uh in saying no, that's not our money, that's your money, and you are the one who has complete control and all ownership rights over that money when you deposit it here.

We cannot borrow it from you and lend it or spend it, you know, in some other way. That's a that's a point and distinction. That's a big point. I'm gonna cut you off right there, James. You're listening to the Mark mos Show. UM in the studio with James Murphy. He is an attorney and we're talking about the f t X situation, the blow up, the biggest blow up in the cryptocurrency space right now, the second largest cryptocurrency exchange, and we're talking about some of the legality of what's

going on with this. Uh, if you've got money in the crypto space, you want to hear what we are going to talk about next. So don't go away. Um again, just listening to the Mark mo Show talking about the decentralized revolution and the f t X blow up. We're back with more in a minute. Don't go away, We right back. All right, welcome back. If you're just tuning in,

you're listening to the Mark Moss Show. I'm sitting down with attorney James Murphy talking about f t X, the second largest cryptocurrency exchange that blew up and disappeared with people's money and a lot of people say there's maybe some gray air there, and I'm talking to an attorney

about that. So, James, before the break, you were saying how um Celsius and some of these other exchanges are are like a bank model where the money that's there is, actually there's and they owe it to But with f t X, UM they said that it was actually customer funds, and that changes things on what they're able to do. I'm guessing yeah very much so, yeah, very much so. Um, they cannot use the money to invest in something else. They cannot use your asset assets and UH lend them

to UH traders who want to short assets. They explicitly cannot do that. And they of course can't just take the assets and give it to a different company to see if they can invest it profitably and put and then put it back later. Um. You know, that's how many Ponzi schemes evolve. Very often, a Ponzi scheme does

not begin as a Ponzi scheme. The person who is at the heart of it believes they can earn a return on the money that they are receiving from investors, and when that proves them not be the case or not be reliably be the case, that's when they start, you know, taking new money to pay off old investors and they find themselves in an impossible spot of a of a Hanzi scheme. So the rules were really clear. F t X made the rules there Uh, there, there's no way to get around it. It is a very

solid case of male fraud and wire fraud under US statutes. Yeah, now what about um, I'm guessing this is pretty big encompassing. But um, if we found out that there was customers had about one point four billion dollars worth of bitcoin that they had bought and that we're on the exchange, but then f t X actually had no bitcoin at all, So they sold one point four billion dollars worth a bitcoin to customers but actually didn't have it on their behalf.

I mean, that's another big piece of fraud. I would imagine, yes, that that is fraud. So whether this is a flower like a tulip, or it's a share of stock like apple, or it's a cryptocurrency, it doesn't really matter what it is, it's still fraud and that's still illegal, right, That's right. People do really fixate on does this, you know, fill in the blink the f t T token qualify as

a security. It's interesting, you know, if the answers yes, that means that the SEC could get involved to the extent that there are US citizens who are victims of of the you know, f t T fraud. Um, but they don't have to be that, the US prosecutors. It doesn't have to be a security. It's money, it's mail fraud, wire fraud, all day long. Yeah. Now, several of the questions that you had, UM that you that you hoped he just thought maybe they should ask him these questions.

But some of these would be UM, missing money, so fifteen million that was suspiciously, suspiciously transferred from wallets, um, these loans that were issued to himself and other people, things like that, and so several of these questions basically hone in on that, like where is the money? Obviously we know lots of money is missing. Is there any reason why you would ask him specifically like hey, this

money it was misappropriated? Like where is it? Yes, there there is, Mark, And this is part of my training, Uh, trying cases for for thirty years on cross examination, quite often you really don't care what the answer is. The entire point is the question itself. So that's why I was tweeting out these questions so people would be aware. Sam Bankman Freed personally borrowed one billion dollars from Alma Alameda, which is now bankrupt. Sam therefore owes Alameda a billion

dollars which could pay off a lot of creditors. Sam's company, paper Bird, borrowed two point three billion dollars from Alameda, So we've got a total of three point three billion dollars that this guy borrowed. He needs to put it back. You know, we need to know where that is, because if you think about, uh, the entire context of the scope of the problem, three point three billion dollars would

solve a significant chunk the entire problem. But who knows, you or you and I have no idea if he's lost the money gambling, or or it's it's on some ledger or treasure wallet hidden underground in a bunk or somewhere. You know, we don't know. The point of the questions was simply to communicate to the world these issues and what his answers are. You know, unless he surprises us and says, hey, James, thanks for asking, I can have that three point three billion back over to John Jay Ray,

the new CEO, you know, in forty eight hours. I will say that the point is the questions themselves. So then the next question, which would be asking about which news organizations has he given money to? UM probably the answer again isn't isn't important as the question which you're just showing to the people, like, look, he bought off a lot of these people, would that be a fair assumption on that question as well? Yeah, well it's documented,

you know, I've seen documentation. I'm not going to name him because I'm not sure of like three or four, but it's just the tip of the iceberg. So he can't say none. But he probably has done it so many times he doesn't even remember how many news outlets that are supposed to be objectively reporting on f t X and the boy wonder Sam may have been somewhat compromised.

M hmm, yeah, definitely. And then of course all the ties with the political situation that we have, you know, uh, millions of dollars of their I know kind of had maybe some questions about that. He came out now and said that he actually gave money to Republicans as well, but he didn't want to say that because it would be looked at very bad. He only wanted to claim that he gave money to Democrats. However, lots of people have done diligence through open finance, and seeing that there

has there was no money claimed. Is that an even bigger can of warms? Now to go open up? This is a can of warms. I get a lot of questions from people about this. It makes customers who may be out all of their money or a substantial portion of it makes them pretty mad that where did this money come from? Are those my assets? Um? And the thing about Democrat versus Republican, just to get some clarity on that, he gave two Democrats with a couple of exceptions.

And those exceptions were Republicans who were willing to co sponsor his bill in Congress, and one of them was the Senator from Arkansas. Um, but it was, you know whatever, Democrats. His partner, however, UM, now I'm forgetting his name. It's something like salom A, who was the quote unquote president of f t X, was a Republican. He gave less, substantially less than than Sam, but he did give principally

to Republicans. And so if you look at the overall organization there there it's you know, some bipartisan giving there. But to me, the most brilliant move he made was when he gave an interview and said, you know what I'm really thinking, I just might spend one billion dollars to get the Democratic candidate elected in think about that. They got to cut you off right there. You're listening to the Mark Moa Show. I'm talking with James Murphy, attorney about the ft X fiasco. I'll be back with

more in a minute. Don't go away, we'll go back. All right. Welcome back. If you're just tuning in, you're listening to the Mark Moss Show. I'm sitting down with attorney James Murphy, securities attorney. We're talking about the ft X fiasco. And if you're just tuning in, we've been talking about a lot now. Right before the break, James, I had to cut you off. You were saying that one of the most brilliant things that he had done was saying that he was projecting he would give a

billion dollars to two Democrats in the future. Um and why is that even the more an interesting piece? Well, um, so they certainly were grateful, you know, to receive five thousand dollars, twenty thousand dollars whatever individual congress people or their packs, whatever, um. But to say I will spend a billion this is unheard of. Basically, what he is saying, is I single handedly can push a candidate over the finish line? That is what a billion dollars could do.

So think about it. This gives him a two year runway, how do you think Democrats will treat any human being who says, you know what, I may just give you all a billion dollars to spend as you see fit to elect your nominee. You know, he had meetings at the White House, he was calm, He was meeting privately with Converse people, meeting privately with Gary Gensler. He did well, He got a good return on investment of his money

in the twenty two cycle. But to say you'll spend a billion was really a stroke of genius because nobody would say anything against him, nobody on the Democratic side for at least two years. Uh, if he was still able and not now kind of run out and the money now, I don't know if I don't know how much favors he's going to get anymore. Now, um let's

jump to another another piece. So I put out a video on YouTube and then put out a with a thread on it, and basically I was making the case that uh, there would not be another crypto bull run and what I was talking about was if you look at and then you look at basically the entire cryptocurrency market cap went up. You could, you know, basically close your eyes and throw a dart um and and everything

just went up at this crazy amount. And I was saying that most that you have to understand how the cryptocurrency market worked in order to understand why it may not happen again. And so a lot of people just

looked at the headline. They didn't like that. But the part that I was talking about, James, was that most people don't know, but most of the cryptocurrency market was driven by venture capital money because they could get these tokens at extreme discounts and then instantly have liquidity and flipped them on the market onto retail at five, ten x,

twenty x or whatever. They loved it, and then they spent all this money to then drive hype, including uh hundreds of millions of dollars in advertising on Google and mainstream media, et cetera. Obviously Super Bowl whatnot, and so they loved it. All the hype was built. People thought everyone was getting rich, but really it was just vcs driving this. Now, my assumption was that based off of this,

and you kind of started talking about this in the beginning. Um, these big events that cause a lot of harm then allow governments to kind of run and maybe push policy. And if they push securities regulations on these tokens, then vcs can't keep doing what they've been doing, which would then drive up a lot of that capital. I'm not saying the technology goes away or that progress happens, but we maybe don't see these big bumps. So let's break that down little by little. So, UM, let's start with

why these maybe securities? And there's four pieces of this. How we test? I mean, should we start there and kind of look at that. Are these token securities? Will the sec maybe cracked down on them as securities? Well, I can tell you they've hired so taking taking a step back. At my at my firm where I worked until eleven months ago, we had sixteen of our partners

had worked at the SEC. We were constantly engaged to help people assess their risk that what they were doing was issuance of an unregistered security um and many of them, once they got our advice, many of them moved off shore to places like Estonia and the Isle of Man. Places I have not yet visited to do their their token offering, and then then they had to avoid issuance to um uh to US residents. UM. So the Howie

test uh to me is a is an artifact. And I disagree with Gary Gensler when he goes on every show and says, I don't know why people are clamoring for new rules or clarity of rules. Nothing could be more clear. There's a case at the Supreme Court in nineteen forty six that deals with Orange Groves in Florida that clearly explains what a native token on a decentralized platform, whether that's a security to me, it's a non sequit, or it's ridiculous. It is square peg and round hole.

And so now we have briefs. I filed these briefs where you try to apply the Orange Grove test to something that was not unheard of certainly in nineteen six, and I think that UM clearly the last two chairman of the SEC has said basically, everything they've seen is a security. Accept bitcoin and maybe accept ethereum. And so whatever the law is, that's a pretty interesting data point if you are in the business of minting tokens that

the SEC has said those are securities. So one thing people miss they see these SEC enforcement cases against UM issuers of these tokens. What they miss is it is a crime in all fifty states to sell an unregistered security, which is what the SEC is saying. These things are people have gone to jail for selling unregistered securities. So the risk is quite significant, and so you have many many projects. It's it's astounding. Really, if you go on

coin market cap mark you know this. There's was about to say twenty one, there's UH twenty two thousand tokens and the vast majority of them have the the inditia of securities UM. But you know what, in fairness, I what I would say is the how he tests is not a good test for what that these are securities. And the reason is that you do not gain an

equity interest in the underlying UH operation. You don't have a right to any of the profits generated by If you GO Labs does a project that has a token associated with it, you don't own a fraction of UGA Labs and the vcs. To your point, the vcs have on occasion bought these tokens with the thought that you know, they'll rapidly appreciate due to some factor, either the success the underlying operation or you know, the rising tide of

the alleged four year cycle. But really, the vcs are buying actual equity of the underlying companies, not just tokens where they have stock in these private companies. And when people talk about this or that is a unicorn worth a billion dollars, well, andreas in Horowitz was probably an early seed investor in the stock of that company. And therefore, should it get bought or go public on a stock exchange,

and treason Horowitz will reap. You know what vcs look for, a hundred x return, a thousand x return, uh, something like that. So, um, this is a big topic. There are many conferences that deal only with this topic. A lot of token buyers think they're actually buying some interest in the underlying business operation, and they're they're certainly not doing that. Well. I would certainly agree that a hundred year old law about orange groves can't possibly work for

something in the digital age. And so uh and and let me just set the record straight. I talked about my video and on my Twitter thread. Um, I am not for regulations. I think we should be free to do what we want with our money. And I don't need the government to protect myself. I actually be able to protect myself. So I just do want to say that as well. However, the law is what the law is, and so I want to dig into a couple of points on this how he tests and ask you about him.

If you're just tuning in, you're listening to the Mark Moss Show. I'm sitting down with special guest James Murphy. He's at a securities in exchange SEC lawyer, and we're talking about kind of the ft X fiasco and what's happening in the aftermath of that. I want to ask him more about a couple of pieces of this, uh and then ask him for his crystal ball what's gonna happen next? You don't want to miss it, don't go away?

Well right back, all right, welcome back. If you're just tuning in, you're listening to the Mark Moss Show, I'm sitting down with special guest James Murphy. He's the founder, was the founder and chairman of law for Murphy and McGonagall um, and he's the securities and exchange SEC attorney. Now, um, James, you had said, you know, this hundred year old law about such as orange Groves doesn't fit for digital assets.

And but the one key piece I want to hit on is you said that UM, that's typically meant for um people who think they're buying an equity or some part of a share interest in a business. But when I read the four points, and I know these four points are broken down by another ninety eight points or something like that, But when I read just the four points, it says an investment of money, so I'm giving someone money, uh to in a common enterprise, so somebody, some sort

of people are running this kind of a thing. But three an expectation of profit. So it doesn't say anything in there, and that I should have ownership. That's not listed in this at all. But it's did people buy it thinking they would get a profit? And UM, I guess you know. Now that's subjective. You have to go back and ask every single person in the world, why did you buy this? UM? But I think if you just google and I did this, if you just google, like uh, you know crypto or all coin, like, it's

all is about investment. Like that's the number one keyword that matches up with that, and so they all bought it. I mean, whether you know people bought f t T token because they can get a discount of trading fees on f t T. That's not why they bought the token. They thought that token up in value, right, Like I get a discount at the grocery store when I type in my phone number. But I didn't buy anything to get that, because I don't think it's kind of go

op in value. It's give me a discount. So anyway, I think that's what that expectation of profit. And so I guess the question is did people give up money and were they hoping into to a group of people, and we're they're hoping for it to go up in in profit, And I would guess the answer would be yes. Well, mark your take. I don't know if you you have you sound a little bit like a lawyer, but your take has prevailed almost everywhere, you know, so you're on

the winning side of this argument. And Gary Gensler's argument that this is this old um test is the one we're going to use, and under that test, all of these tokens fail. So if if if, if hypothetically so I'm hey, you know, all these people that got Ato mad at me, they say, oh, Mark, you don't understand,

like no one, they can't stop the progress. So yeah, So if I started a project and I created token, I didn't raise any money or I had had I had some early you know, friends and family rounds or some VC rounds, right, and we created the software, and then I decided to launch this token UM that was available UM and then maybe on a third party market, those tokens became valuable and there was some resell going on, But I wasn't actually selling those two people, and that

would be totally different. I think it seems it's the very act of me trying to raise money for my common enterprise selling something. Is what kind of makes it that security? It's a it's ah yes, that's a telltale sign of a security. Uh. And it's in you know, the list of factors that have dribbled out from the SEC over the last uh you know, ten to twelve years.

The way I look at it is everybody tries to apply the Howie facts and test to their circumstances of a token issue, and I would argue what we ought to is the reverse. Let's look at the situation of this token and see what it would mean to the orange grows. Here's what I mean by that. What if the investors in those orange groves did not acquire any acreage of the orange groves, just as token buyers acquired no property other than this ephemeral token. It doesn't represent stock,

it doesn't represent a claim on profits. Let's say we took the facts of a token and put it into that case. All right, So the investors in that case now have no property. They own no orange grows. Secondly, let's take the of tokens where there is no income stream. There are a few out there that operate a little bit like a bond, but let's forget those and look at the Those also have no claim on the profits

of the underlying business. So there is a business that runs this program called the Graph and there are graph tokens, And when you buy those Graph tokens, you don't own any of the underlying business and you have no right to their profits. So let's apply that to the orange grows. Now, not only do the investors have no property in Florida, they also have no right to split up the interests of the harvest each year. They don't get their percentage

of the orange harvest. If that was the case, mark in of that situation with the orange groves, with those two factors, it's not that the government would lose that case. The government would never bring that case. That never he would have been brought. If the investors own nothing and have no rights to any harvest, there is no case. And so I'm arguing in the wind a little bit on on this score. And I will probably submit amikas briefs when the time comes, perhaps even in the ripple case.

But I believe people are looking at it wrong and that you should take the facts from the token world and apply them back to that case, and and the and the result is that case would never have been brought because it would have no possibility of prevailing in court. So there is an argument on the other side. Your

side has been winning and winning quite consistently. I don't want to say my side, because, like I said, I don't think we should even have I think we should just disband the SEC That would be my that would be my guess. They're supposed to protect consumers, but look how good of a job they're doing. Um. What I would say, though, is uh. And again I would ask, um, I believe that you have like court law, our precedents like this, how he is right, But the more times

it's used than the stronger it gets. And it also starts to morphin evolve over time how it's being applied to other things. So I'm obviously not an attorney, don't listen to what I'm saying, and I'm just reading something off of investopedia here. But it doesn't say anything about applying it to an orange grove. I know it started from that case. Doesn't say anything about they owned it or whatever. It just says an investment of money with

an expectation of profit and a common enterprise. So I would just go back to say, well, uh am I giving it? Why did these people give up money? They thought they were getting something back in return. But um, let let's get how about this? How about this mark? What if you go to a casino in Las Vegas and buy tokens and you're hoping that you can gamble those tokens and make more tokens and then go back and cash it in for money. Those aren't securities because

you don't own part of the casino. You don't have an interest in whether that enterprise is successful. A better example would be like Chuck E Cheese. Right, so I go to Chuck E Cheese, I buy tokens and I don't have any control or interest in Chuck E Cheese. So maybe that's a good example. That isn't That's that's an example. Yeah, but depending there's utility tokens, utilitial tokens. You've heard of those. I think of UM airline mileage points.

You know that you receive these, but you don't own any part of the airline, and you can use them for stuff. To me. To me, the difference would be and again I'm no attorney and I don't really want to be taking the SEC side of this, but for playing Devil's advocate, UM, the way that I would look at it is is if I'm going to Chuck E Cheese and I'm buying tokens to play video games, I'm buying, I'm buying the tokens, I'm playing the video games, and

then I'm done. But Chuck E Cheese didn't do a I p O selling tokens to raise money to go build all the Chuck E Cheeses that you hope one day if they do a good job, they'll build the Chucky Jesus and at some point I could then go use them. So does it happen to do with like the proceed of funds kind of thing like, where like it's a it's a factor that the SEC definitely uses. And I would simply endorse what you said at the beginning. There's really nothing unusual about an old precedent kind of

growing over time to accommodate new things. When you say that, you are, of course describing the United States Constitution. So there's no air travel at seven, you know, it's seventeen eighties and all these things. It had to adapt to new technology. But yes, I'm a little bit of a voice out in the wilderness here saying let's let's let's reconsider um whether it's really a good match for the Howie Howie tests. So now let's see how good your crystal ball is, and let's see, like where do you

think this goes? So you you had made the case that you think that you know, now it's one I had at another video where like maybe this was a little bit intentional where he was taking all this money, he was then working with regulators to impose all these new regulations trying to almost kind of corner the market. Um now even with them being bust, it brings even more maybe potential firepower or attention that they could bring

and try to push through all these regulations. So I guess the question I would ask is like, where does this go? Do you think that to the point you said that maybe this gives them some public attention they can now push through a lot of regulations. Do you think they'll start cracking down or do you think no, they probably are not cracking down because they know they don't have a good case and maybe nothing really will actually come of this. Well, I think a lot is

going to come of it. And I put out a list of top ten winners and top ten losers as a consequence of the f t X implosion, and the number one winner was Gary Gensler. So Gary Ginstler has been getting some bad publicity because of this ripple k which he inherited from his predecessor. Jay Clayton is the one who authorized that lawsuit very shortly before he left office, so he knew he was gonna have nothing to do with it. The problem with that case is the public perception.

The problem is there are a class of x RP holders who have intervened in the case. These are the ones who are supposedly injured, the ones that the SEC is supposed to be protecting. They've entered the case together in a class action to ask the SEC to stop what they're doing and stop destroying Ripple because they believe in it. They owned the token, they knew what they were doing when they got the token, and this is a big waste of time. We are not victims here,

were good. We want you out of here. That is an uncomfortable spot SEC in our investment. We're hoping to get some money back out. Don't crush it to zero. Pre that that is precisely at mark. As you think about I know you're an investor, as you think about risk, um you know, categories of risk uh and counting them out. The biggest risk associated with Ripple is the government itself. It's not fraud or misconduct or the market uh, you know, reception to XRP or anything. It's the government is the

risk factor. That's not how it's supposed to be. And what's weird And this sort of gets to your question, what's weird is everybody in crypto you know this I know this, everybody knows it. Of the twenty two thousand tokens, some of them are out and out frauds that where the people just issued a token, took the money and split at the top of that though, I would put XRP up there, e O s maybe the biggest four

billion dollars they took and disappeared. But x r P, I mean they created a hundred percent of the tokens in a pre mine, and they just enriched themselves, and they spend it all in public policy and and uh most a lot of what I would consider fraud in a sense of promising things, promoting things that just aren't true. But they have created utility uh situations, banks have settled uh international remittances using ripple UM. So there's something there.

I'm just saying, why don't you get the actual fraud people who had no intention of building something gross ones? Yeah, what about this case when the library? Um where that? I mean that obviously the ripple is sometime next year we'll find out. But library just got settled. Library created utility. They actually have a working product that actually people use

my videos go on library or on Odyssey. Now, UM, I don't know if anybody used x RP, but they used library um, and they claim that they have utility. And the judge said, there's no tribal defense for that, being a uh, that's what that's the words that wording that he used, Um, no tribal defense for that, Like it's a security black and white. What does that have an effect on potentially with ripple and other things. Well,

that had a ripple effect. Um. So yeah, all the lawyers in the business were passing around that decision when it came out, and you know what you'll hear people say, Look, it's one judges decision. What matters, what constitutes a precedent

is a decision of an appellate court. And so we have all all these courts of appeal throughout the United States, and then the Supreme Court sits on top of that, and there are you know a lot of judges who get things wrong, mostly get things right, and so people will disregard a single judges opinion and what matters are um, what appellate courts say. And so I got this question on Twitter yesterday about what do you think is gonna happen on Ripple? And I said, what I think is

gonna happen. Is everybody's gonna overreact whether it's a win or a loss, because what this judge has to say about it is really not going to be that important. There are two more layers of appeals. What an appellate court says about this and eventually the Supreme Court, that's what will matter. But people will overreact. And what is that overreaction gonna look like? You could see a lot

of other tokens get delisted in a hurry. Then the liquidity fall fall out of bed and therefore, if you can't sell a token easily, the value is gonna plummet um, So there would be I would expect significant market fall out if it's a you know, full on win in for the SEC at the trial level. When you said it was a win for Gary Gensler, Uh, you thought he would be the biggest winner from this, you said, um, And it is he the biggest winner because he got

it inherited this horrible case. But now it gives him some leverage on that. Is that why you were saying he might be the biggest winner. No, I was saying it because there were people pushing back, you know, politically on regulation of the space and pushing back on his enforcement efforts because he picked one with with a bunch

of people who do not view themselves as victims. But I'm getting, you know, direct messages from people who are extremely distraught that they then wiped out as a consequence of the f t X complosion. So having a million, you know, victims and a lot of bad stories clears away a lot of opposition in Congress and in the media of who's the good guy who's the bad guy? Here? There's a lot of Hey, I told you so, I told you if they didn't come in and register with

the SEC, this sort of thing could happen. And now it's happened. And now we need two things. We need draconian legislation to regulate the heck out of this thing. And I'm going to use my you know, much much larger enforcement staff to bring a bunch more cases. And my fear is that they're gonna decide to go after domestic exchanges on the ground crypto exchanges on the grounds

that they are trading unregistered securities. It is just as illegal to facilitate a trade of an unregistered security as it is for you or me to sell an unregistered security. That we own and sell it to somebody else. That's illegal. Arranging for that to happen is also illegal, and so I will not be shocked. And Geinstler was gonna set we'll be able to say. Look at a hundred quotes in the New York Times over the last two years in the Wall Street Journal where I have said, hey, exchanges,

you're trading unregistered securities. You need to come in and register with the SEC, and they have not done that. And so one could wake up one day and there be at a court order that fill in the blank exchange must cease and desist trading in one or many tokens that the SEC is very confident they would win uh in in establishing that it's a security under the Howie test. So he doesn't need to go file lawsuits

against twenty thousand cryptocurrencies. He could just go after the three or four biggest exchanges in the US and he could just kind of take it right there, right, And I think you're aren't you one of the self custody keeps, you know, no keys, No, I am, yeah, yeah, Well you've had a big I told you so over the last few days. So um to kind of again try to clear up your crystal ball a little bit, like,

how do how do you think this plays out? Do you think that, um, you know, maybe we kind of wait and see he builds up some strength and then we'll see what happens with Ripple. I think what Q two of next year? Or do you think maybe the more likely chances that he might just go after a couple of exchanges and kind of do something there, or do you think just government bureaucracy gets in the way and we go another couple of years and nothing really happens.

I think he would really really like to have a positive ruling in Ripple that he could use all around the country. I do know they have many many cases in the hopper that they have investigated that are pretty close to ready to go, ready to file in court. Um, I don't know, don't have a crystal ball about whether he's gonna wait. I doubt that he's gonna wait. You know, the iron is kind of hot now. People are angry. He's got Elizabeth Warren and in this congressman, I don't

know if you know him, Brad Sherman's from California. Yeah, So they're just, you know, absolutely thrilled by this f t X collapse in our demanding action immediately. Um. And so whether that can meander through Congress or not yet to be determined. But I think you are going to see significant enforcement actions in and I hate to say it really but because it's will be really bad to the whole ecosystem, but I could see a case against

and it's change coming in now. Um. Yeah, just to clarify something you said, so Sherman and Elizabeth Warrent trying to push new laws or new regulations through Congress because laws have to be set through Congress. The SEC just would enforce laws, right, So they're an enforcement agencies. They would enforce laws already there, so they don't need to go pass new laws to just go enforce what they think they already have. Those are two different things, Okay,

it correct? So yeah, I mean you could see laws that say all digital assets or securities. You know, then we don't have to bother with the Howie test and everybody's dead, you know, all all everything's dead. Um, and just for the just for the crypto bros. They're like, no, no, they can't stop. This is progress. Well, it doesn't mean that these companies can't exist. It just means they have to just file the securities, which people do every single day. Right. Um, No,

not that easy. It's not It's not easy at all. I mean it's expensive and as I made the case in my video, it's expensive and there's lots of discol closures and there's all types of things that you have to do. Um, it's not that easy. It's PI. Yes, yeah, it's complicated. So it is expensive for sure. But once you are a registered UM issue of securities like a any stock any company trading on the NASDAC or New York Stock Exchange or whatever, it's a whole new ball

game in terms of how you run that company. You become subject to controls requirements in Sarbanes Oxley that mean you're going to have to double your head count immediately in order to generate the UM data and test the data rigorously in order for it to percolate up to accounting so that people can sign off on quarterly financials that must be reported to the SEC into the public

every quarter in ten queues. It's it's uh. And then you know, the compensation of the top five executives in the organization needs to be approved every year by the by the shareholders. It's it's a radically different looking proposition once you are a public entity and your securities are listed with the with the SEC, the registered with the SEC.

So it definitely slows things down, to say the least. Yeah, well, you know, on the bright side, I guess you know, instead of twenty two thousand projects there, you know, there might be fifty or something that are really you know, valuable and and and good projects or maybe less, I don't know where it is a you know, an income and perhaps profit generating enterprise. Then they could do it,

and you know, the rest would simply fall apart. But if they have useful technology or intellectual property, it would be acquired by the survivors. And that's why I look at this is a little bit of a deja vous potential to the nineteen nineties when they're all these young kids who quit there what they were doing at Harvard and m I T And Stanford and all congregated in one spot called Silicon Valley to build businesses on an emerging technology called the Internet. And so now we have

the same thing. We have an emerging technology called blockchain technology, and people like Vitalic and all the rest of them are dropping out of school or dropping whatever else they were doing to work on projects. Well in the nine nineties, most of them failed, but some of them succeeded spectacularly.

And if I were to have a crystal ball, that's my guests as to what this crystal ball would tell me that we're going to find some really innovative, durable survivor from uh this shakeout that is caused both by market conditions, the crypto winner vcs pulling out and the government cracking down. That's quite a trifectorate. So you should see a lot of projects go away and the strong survive hopefully if we're still in a capitalistic system. I

agree with that you can't stop progress. I'm super bullish on humanity and entrepreneurs um. The one thing I would just say, and it's a good parallel that you drop, is all those people went to Silicon Valley and they started all these companies, and they raised money through friends and family and and through early VC rounds. And there's nothing stopping from people building on blockchain technology and raising

money through friends and family and VC rounds. It's the selling of the token that seems to be the sticking point. So no reason why you can't still go build on the technology, and no reason why you can't still raise money from your friends and family and from from venture capitalist et cetera. Um, that's how it's done the Internet days. Um, all these That's how Uber got started, it's how Instagram

got started, and so you can certainly do that. Of course, me being in the bitcoin camp is I don't believe everything needs a token. So that's that's that's that's a whole different conversation. UM, I think we went we went pretty long here, James, a lot of really good information. I appreciate you taking the time and give me your professional and expert opinion on this stuff. UM. I know

you're on Twitter, just kind of getting started. You said, you just kind of created your account, so everyone go give him a follow at Meta law Man m E. T A Metal law Man. You're listening to the Mark Mo Show. Thanks for tuning in. That's what I got