The Crypto Roundup: 24 September 2024

Coinbase is urging a federal appeals court to compel the U.S. Securities and Exchange Commission (SEC) to create specific rules for digital assets, arguing that the SEC has failed to clarify whether digital assets qualify as securities. Coinbase’s lawyer, Eugene Scalia, presented the case to a three-judge panel in Philadelphia, criticizing SEC Chair Gary Gensler’s approach, which he described as aggressive enforcement without providing a clear registration pathway for crypto companies.

Coinbase initially filed the lawsuit in December 2022, after its request for formal rules regarding digital assets was denied by the SEC without explanation. Scalia argued that the SEC has been inconsistent, with Gensler previously acknowledging in 2021 that exchanges were not regulated but later reversing course to enforce actions against companies like Coinbase without a clear framework.

The SEC views most digital assets as securities under the Howey test, a legal precedent defining a security as any investment of money in a common enterprise with an expectation of profits based on others' efforts. The SEC has brought significant enforcement actions against crypto firms, including Coinbase, for failing to register.

In response, the crypto industry has lobbied for clearer legislation. A bill proposing a regulatory framework passed the House in May 2023 with bipartisan support, signaling growing momentum in Congress for crypto-specific regulation.

The case is complicated by upcoming presidential elections, with candidates such as Donald Trump and Kamala Harris making promises to revise or support crypto regulation. Judges in the panel expressed concerns about regulatory uncertainty, but the SEC argued that existing laws, guided by the Howey test, are sufficient. The court has not yet ruled on the matter.

A group of eight doctors specializing in neurodivergence submitted an amicus brief in support of Sam Bankman-Fried’s appeal, arguing that his autism spectrum disorder (ASD) and attention-deficit/hyperactivity disorder (ADHD) negatively impacted his trial proceedings. In March, Bankman-Fried, co-founder of FTX, was sentenced to 25 years in prison for defrauding FTX customers of $11 billion.

The doctors argued that Bankman-Fried’s neurodivergence led him to give long-winded responses, which the court interpreted as evasive. They explained that individuals with ASD often interpret language literally and may feel the need to clarify questions thoroughly, which resulted in Bankman-Fried being frequently rebuked by the judge.

This reprimand, the doctors argue, led Bankman-Fried to make a “significant course correction” once the jury was present, providing short and clipped responses such as “Yup.” The brief noted that these concise answers may have appeared to the jury as arrogant or indifferent, further undermining his defense. The doctors emphasized that the inconsistency in his responses was due to the pressures of his neurodivergence and the trial structure rather than intentional evasiveness.

In addition to this, the brief highlighted that Bankman-Fried lacked access to key FTX documents, which could have provided him with concrete references to anchor his responses; it argued that for individuals with ASD, having such documentation is crucial for offering precise answers, and its absence may have made him seem uncertain or evasive.

The doctors also pointed out that Bankman-Fried was not given his full dosage of ADHD medication during the early stages of the trial. They claimed he required extended-release medication twice daily to maintain focus but was only given half his previous dosage and not the extended-release version until later in the trial.