Hodder Law Newsletter - August 23, 2022
Updated: Sep 26, 2022
Hello everyone,
I hope you are all having a great week! The price of Bitcoin as of Tuesday, August 23 at 2:00 EST is 21,528.09.
The crypto world has been caught up in a storm since the US Treasury Department banned Americans from using crypto mixing service Tornado Cash earlier this month. Here are some of my thoughts which I shared on Twitter last week: Communication should not lose the first amendment protection as “speech” simply because it's expressed in the language of computer code. Math and music scores are written in “code.” First Amendment embraces “[a]ll ideas having even the slightest redeeming social importance,” including the “`advancement of truth, science, morality, and arts in general.’” Board of Trustees of Stanford University v. Sullivan, 773 F. Supp. 472, 474 (D.D.C. 1991). However - First Amendment does *not* protect instructions for violating the tax laws. See United States v. Raymond, 228 F.3d 804, 815 (7th Cir. 2000). The amount of protection afforded for speech depends on the content of the speech. Content restrictions are allowed for a "compelling" state interest, but must be imposed in the least restrictive means possible. Content restrictions should be narrowly tailored, "that the means chosen do not `burden substantially more speech than is necessary to further the government’s legitimate interests.’” Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 662 (1994).
Restricting Tornado Cash burdens 89.5% more speech than is necessary according to this Tornado Cash chart from Chainalysis. (Ok, maybe it's 71.8 if you count the sanctions addresses - but those were mostly sanctioned AFTER the transaction, not before). There must be less restrictive ways the government could achieve its compelling state interest - stopping the North Korea hackers - without restricting 70% of the non-threatening "speech" (aka the use of Tornado Cash code). Full blog here. I was thrilled to be invited onto the CoinDesk First Mover advantage show where we discussed the free speech implications of the Tornado cash ban along with the recent developments with Celcius. Rep. Tom Emmer (R-Minn) shared is concerns with CoinDesk, stating “My problem is that this software is controlled by code, not by any person or entity. So if you think about it, the sanctioning of Tornado Cash is an unprecedented shift in the Office of Foreign Asset Control in their sanctioning policy.”
The Department of Justice has called for an independentt examiner in bankrupt crypto company Celcius Network LLC’s chapter 11 case. Allegations of mismanagement at Celcius will be investigated and could determine if legal claims are brought against company management. Yahoo news picked up my interview with CoinDesk last week discussing my thoughts on the matter. As well as individual investors, Canada's second largest pension fund had to write off $150 million worth of a Celsius investment. How any reputable investment advisor could invest pension funds in CEL is beyond me! A new coin report showed Celsius Network had a balance gap of $2.85 billion, that’s more than double what it had reported in the bankruptcy filing. However, Celsius did get the sign-off it was looking for last week from a bankruptcy judge who allowed them to continue operations.
The HODLCast Podcast is back - On Episode 128, we did a deep dive on the OFAC sanctions. Check it out here.
The Federal Deposit Insurance Corporation recently issued letters to five crypto companies warning them to stop misleading customers about deposit protection. FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com all received warnings from the FDIC. Federal deposit insurance is there in case of a failure of an FDIC-insured institution. Claims that mislead investors bring disrepute to the crypto world and should be dealt with accordingly. In this case, the cease and desist order should correct the behaviour and make others think carefully before making similar claims.
The Federal Deposit Insurance Corporation recently issued letters to five crypto companies warning them to stop misleading customers about deposit protection. FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com all received warnings from the FDIC. Federal deposit insurance is there in case of a failure of an FDIC-insured institution. Claims that mislead investors bring disrepute to the crypto world and should be dealt with accordingly. In this case, the cease and desist order should correct the behaviour and make others think carefully before making similar claims.
OFAC banks Americans from using free privacy software
OFAC has exceeded its sanction powers with Tornado Cash because, (1) it can only sanction individuals or entities, not code, (2) the sanction represents an unconstitutional prior restraint on speech, and (3) the content restriction burdens substantially more speech than is necessary to further the government’s legitimate interests.
Hodder Law's comments for the California Dept. of Consumer Protection & Innovation
California did a call for comments from industry participants to answer certain questions about how to best regulate the industry. The majority of our recommendations were to avoid adding any additional burdensome regulations and for the state to focus on educating consumers.
Why the funds travel rule and funds transfer rule should not apply to bitcoin ATM operators Since the Bitcoin ATM transaction takes place immediately between only two parties and does not involve any transfer or travel of funds between financial institutions, Bitcoin ATM transactions should be excluded from the definition of transmittal of funds, which then would exclude Bitcoin ATM transactions from the record-keeping requirements of both the funds transfer rule and the funds travel rule. Text Link
That's all the crypto news from Hodder Law for the week of August 23. Look for next week's edition of the Hodder Law Firm crypto newsletter on Tuesday, August 30.
None of the information in this newsletter should be interpreted as investment advice.
Sincerely,
Sasha Hodder
Hodder Law
