Blockchain org supports case against SEC's gag rule
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Aïda Amer/Axios
The Texas Blockchain Council has opened a new front in the cryptocurrency industry's battle over regulations by submitting a friend of the court brief to a case challenging the Securities and Exchange Commission's (SEC) policy of requiring silence in all settlement agreements.
Why it matters: Since the 1970s, the SEC has refused to enter into a settlement with any company unless it agrees to never discuss their case in public.
- "This case stands out because nobody can believe there is such a rule," Peggy Little, the litigator leading the suit for the New Civil Liberties Alliance (NCLA), told Axios. "It's very easy for the public to understand."
- SEC has settled with thousands of companies, including many in cryptocurrency in recent years, such as Genesis, Nexo, Block.one and BlockFi.
The latest: The council joined other organizations submitting amicus briefs to Powell, et. al., vs. the SEC. Parties to the case include people under a settlement gag rule, one person seeking to avoid a settlement and two media organizations.
- The latter — the Reason Foundation, owner of Reason Magazine, and the Delaware Cape Gazette — joined the case because they argue the rule prevents them from fulfilling their mission of fully reporting cases before the government.
Catch up fast: In January, the SEC declined to revise Rule 202.5(e), drawing a dissent from a member of the commission.
- The petition to reconsider the rule was brought by NCLA in 2018. The ruling allowed it to bring a case before the Court of Appeals for the Ninth Circuit, which covers the Western U.S.
What they're saying: The blockchain council objects to the rule on the grounds that it makes it harder for industry participants to chart a path to operating without running afoul of the law.
- "The public does not know what underlying facts may have led the SEC to allege certain violations but not others. Nor does the public know whether a Defendant had strong defenses but simply no resources to continue defending the case," it writes in its brief.
- The SEC declined to comment on the case to Axios. In its letter rejecting the rule change, the commission said the rule allows it to go to court if a defendant later chooses to deny the factual basis for a settlement.
Details: The NCLA is arguing that the SEC imposed the rule without proper public notice.
- "It was unlawfully enacted from the day it was conceived in 1972," Little said.
- It's also arguing that the agency is asking parties to settlements to waive rights that can't be waived.
- Yes but: "It's an entrenched practice and for that reason it will be an uphill battle to get it dislodged," Little said.
What's next: The SEC will respond to NCLA's brief. Then the NCLA will respond to that, and perhaps in the fall, there will be a hearing before the court.
