Uniswap is facing a potential Supreme Court battle with the SEC after receiving a Wells notice. This caused a big dip in its UNI token price. Meanwhile, the sentencing of former FTX co-CEO Ryan Salame has been postponed amidst the ongoing fallout from the exchange's collapse. In Australia, ASIC appealed a court decision favoring Finder Wallet over its "Earn" product. Additionally, Queensland's CCC has called for reforms to address the use of digital assets in criminal activities, suggesting updates to the state's asset confiscation laws to effectively manage and seize digital assets.
Uniswap and SEC Brace for Potential Supreme Court Battle
Uniswap, the decentralized exchange known for its UNI token, recently experienced a huge dip in its token price after the announcement of a potential lawsuit from U.S. regulators. The price of UNI fell sharply by 15% from $11.21 to $9.39 after Uniswap revealed it received a Wells notice from the Securities and Exchange Commission (SEC). This notice pushed UNI's price to its lowest point since late February.
Hayden Adams, the New York-based founder of Uniswap Labs, shared his frustration but he is also ready to contest the SEC's potential actions, anticipating a legal battle that could reach the Supreme Court. Uniswap's response to the Wells notice highlighted their stance that UNI does not qualify as a security under U.S. law, nor does Uniswap meet the definitions of a securities exchange or broker.
The SEC has not commented on the matter just yet, but this is nothing new as it is the regulator’s policy to not discuss ongoing investigations. However, the process for the SEC to move forward with a lawsuit involves approval from its commissioners, but there is a lot of speculation suggesting that the lawsuit is highly likely to continue despite the potential for disagreement among the commissioners.
Experts in the field have offered mixed reactions to the news. Consensys senior counsel Bill Hughes advised calm, and pointed out that it's unlikely that the SEC would target individual UNI holders or protocol users. Meanwhile, former SEC officials and legal experts suggest that fighting the SEC through public relations campaigns is not a wise strategy as it often leads to a strong response from the agency.
There is a consensus among some legal professionals that while the SEC may have a strong case regarding UNI being a security, its ability to prove Uniswap operates as a securities exchange or broker is much less certain. This debate was recently echoed in a similar legal battle involving Coinbase, where a judge ruled that the SEC failed to prove Coinbase engaged in brokerage activities through its decentralized wallet.
The Details
The SEC served the Wells notice to Uniswap on Apr. 10, which was confirmed by Uniswap’s chief legal officer Marvin Ammori on X. A Wells notice allows the recipient to argue why such action should not proceed, offering Uniswap an opportunity to defend its operations and potentially deter regulatory measures.
Uniswap, known for facilitating automated token exchanges without the need for traditional financial intermediaries, has been under the SEC's microscope since 2021. The platform has made some adjustments, like delisting certain tokens, in response to the increasing scrutiny from regulatory bodies. The SEC's investigations are part of a broader examination of the cryptocurrency industry's compliance with securities laws.
In its defense, Uniswap Labs, the entity behind the development of the Uniswap interface, holds firm that its role is merely as a software developer. It distinguishes between the frontend application and the Uniswap protocol itself, which operates as autonomous code available for public use.
Marvin Ammori pointed out that neither the Uniswap protocol, its web application, nor its wallet qualify as securities exchange or broker by legal definitions. He is also pushing for clear and fair regulatory guidelines for the crypto sector, criticizing what he perceives as arbitrary enforcement and an abuse of power by regulatory agencies.
FTX Drama Continues
In other legal news, the sentencing of Ryan Salame, former co-CEO of the now-defunct crypto exchange FTX, has been postponed to May 28, according to court filings in the Southern District of New York. Initially scheduled for May 1, the reasons for this delay have still not been made clear.
Salame is one of the four senior FTX executives implicated by the U.S. government after the exchange's dramatic collapse, a group that includes FTX founder Sam Bankman-Fried, Alameda Research's former head Caroline Ellison, FTX co-founder Gary Wang, and former top engineer Nishad Singh. Unlike his counterparts, Salame did not testify against Bankman-Fried during the legal proceedings.
All four executives have entered plea agreements with prosecutors, with Salame currently out on a $1-million bond. He has admitted to federal charges related to the FTX collapse and is additionally accused of campaign finance violations linked to Michelle Bond's unsuccessful campaign for New York’s First District in the House of Representatives. These charges cumulatively carry a potential sentence of up to five years in prison each.
The campaign contribution allegations against Salame were a point of contention in Bankman-Fried's defense, with his legal team arguing that these charges fell outside the scope of his extradition terms from the Bahamas. Nevertheless, these charges were ultimately integrated into broader fraud allegations against Bankman-Fried, who has maintained his innocence regarding political donation discussions with Salame.
Salame's involvement in the FTX saga paints a complex picture. Reportedly distant from Bankman-Fried's inner circle, Salame's reaction to the exchange's implosion was one of profound shock, to the extent of physical illness. However, he later played a crucial role in unveiling the scandal by alerting the Bahamian Securities Commission about discrepancies at FTX, sparking an official investigation in November of 2022.
ASIC vs. Finder Wallet
Meanwhile, the Australian Securities and Investments Commission (ASIC) lodged an appeal against a recent court decision that favored Finder Wallet, a branch of the Australian fintech entity Finder.com, concerning its "Earn" product. Last month, a federal court ruled that Finder Wallet's yield-bearing offering did not contravene Australia's financial regulations, countering ASIC's claim that the service was provided without the necessary license or authorization. The ruling on Mar. 14 by Judge Brigitte Markovic stated that ASIC failed to prove the Earn product was a "debenture" under the Corporations Act, as it did not involve the depositing of money or a loan to Finder Wallet, nor was there an obligation by Finder Wallet to repay money as a debt.
In its appeal filed on Apr. 10, ASIC contested Judge Markovic's conclusions, holding firm that the product was offered without appropriate licensing, thereby lacking essential consumer protections. The case is set to be reviewed by the Full Federal Court at a yet-to-be-determined date.
Finder, on its part, expressed disappointment over ASIC's decision to appeal but affirmed its readiness to defend its product's compliance with Australian financial laws in court. The Finder Earn product, available from February to November of 2022, allowed users to convert Australian dollars into TrueAUD (TAUD), a stablecoin pegged to the Australian dollar, and earn yields between 4-6% by transferring it to Finder Wallet. ASIC's lawsuit, which was filed in December 2022, argued that Finder Wallet was operating an unlicensed financial product, a claim Finder contested by attributing the product's discontinuation to strategic business considerations rather than regulatory pressures.
Despite the court's favorable ruling last month, Finder has indicated it has no plans to reintroduce the Earn product.
Queensland's CCC Calls for Crypto Law Reform
In Queensland, Australia, the Crime and Corruption Commission (CCC) pointed out some deficiencies in the state's legal framework, which it believes are facilitating the criminal use of digital assets, including cryptocurrencies. The CCC has called for an overhaul of Queensland's asset confiscation laws to better address the challenges posed by the digital evolution of criminal activities. Specifically, the CCC pointed out how outdated the Criminal Proceeds Confiscation Act 2002 (CPCA) is, which currently lacks the terminology and provisions necessary to effectively manage the seizure of digital assets tied to crimes like money laundering.
The commission's call for reform includes the introduction of definitions and provisions that would allow investigative agencies to seize digital assets more efficiently. This inability to adequately handle digital assets is seen as a major obstacle to law enforcement's efforts to collect evidence, determine asset ownership, and manage the storage or transfer of these assets.
To address these issues, the CCC recommends several key reforms, including the clear definition of "digital assets" and their incorporation into existing money laundering laws. Additionally, the commission suggests that seized assets should be converted into stable currencies during legal proceedings to facilitate automatic forfeitures.
This push for legislative reform in Queensland comes as Alan Kirkland, the commissioner of ASIC, outlines a strategy for fostering responsible financial innovation. Kirkland emphasizes the importance of balancing consumer protection, market integrity, and the promotion of financial innovation, pointing out that effective regulation can mitigate risks and help bring digital assets into the mainstream.
