Marco Santori
@msantoriESQ
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Senior Advisor @krakenfx Not your lawyer. Assumptions, opinions, prevarications and predictions are mine, not my employer's.
Joined November 2013
My watch has ended. After five years as Kraken’s Chief Legal Officer, I’m passing on the reins to a successor. I’ll stay close as a senior advisor. I’m going to help train up a successor and help to build a global advisory council for the company. I couldn’t be more proud of.
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Today, the Federal Court for the Northern District of California ruled, as matter of law, that none of the tokens trading on Kraken are securities. This is a significant win for Kraken, for the principle of clarity and for crypto users everywhere. It also confirms Kraken’s.
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Last week: You read @krakenfx's motion to dismiss the SEC’s case against crypto. Today: You’re reading about “a regulatory power grab,” how “the SEC has appointed itself crypto regulator“, and that ”the SEC… puts consumers at risk”. But wait. That’s not Kraken talking.
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Last night, @krakenfx fired back at the SEC with its final brief in the motion to dismiss the SEC’s complaint. The SEC had its opportunity to tell the Court what, precisely, is the investment contract that supposedly trades on Kraken. But they couldn't. 1/🧵.
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6/ The SEC unqualifiedly lost on this “tokens are securities” theory, and will not be permitted to rely on it going forward. Instead, it will need to prove, for every alleged transaction on Kraken, that the Howey Test factors are satisfied. They aren’t, and we look forward to.
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In May, 2023 I testified before Congress on behalf of my client, @krakenfx, that America needs a comprehensive and balanced regulatory framework for digital assets. 24 hours later, down to the hour, the SEC called to say they were going to sue. Today, the White House says.
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10/ To deliver clarity to the industry, to protect consumers and foster the growth of blockchain technology, Congress must pass a comprehensive market structure framework. We applaud all of those in our government working tirelessly to make this a reality and we thank the Court.
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2/ Furthermore, the Court found the SEC’s self-serving invention of the “crypto asset security” concept to be “unclear at best and confusing at worst.”.
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9/ Today’s ruling confirms what we’ve been saying all along: the SEC cannot credibly regulate crypto by enforcement.
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3/ The Court called out the SEC’s straw man tactics, too, wondering aloud and on the record why the SEC consistently mischaracterizes Kraken’s position as requiring a “written contract” for there to be a security.
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4/ Plain talk: . Kraken doesn’t broker, trade or settle “expectations”. It doesn’t list a single “investment concept”. The exchange has never passed an “ecosystem” on from a seller to a buyer. The SEC’s theories here are nonsensical.
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7/ But more importantly: Applying this standard across the industry under the SEC’s regulation-by-enforcement approach will require extensive, expensive, and time-consuming discovery for each of the millions (billions?) of transactions in a given asset.
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I won’t reveal the size of the team’s annual budget. I’ll just say:. Debanking and Chokepoint 2.0, the SEC run amok, stablecoin solvency controversies, class actions, the DCCPA, IP trolls, antitrust allegations, the Anti-crypto Army, the Travel Rule, the Broker Rule, SAB.
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The first standalone crypto bill has passed the US Congress. An historic day. The SAB 121 accounting guidance is punitive politics and has no business being on the books. We should all commend the House and Senate's leadership in ensuring crypto users are treated fairly under.
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5/ Fundamentally, the Court in Kraken’s case made the same distinction as in the Ripple case: A token isn’t a security, but agreements around a token could be.
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13/ Trouble is, there are already cops on that beat. Enter the states. Eight of them, actually. -Montana.-Arkansas.-Iowa.-Mississippi.-Nebraska.-Ohio.-South Dakota, and.-Texas. In a new amicus brief, all are urging the court not to endorse the SEC’s power grab.
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6/ Sad to see a federal agency deploy a straw man fallacy so brazenly. All the more reason for Congress to put in place a regulatory framework that doesn’t require sophistry to enforce.
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Huge congratulations to the Coinbase Legal Team. Not only will the Second Circuit consider dismissing the SEC's case, the trial court will pause it in the meantime. Big win for the whole ecosystem.
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12/ The SEC wants a federal judge to hand them authority over any asset that could increase in value, security or not. Investment or not.
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4/ Yet, the Court still permitted the case to proceed to discovery. How? Read on.
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15/ . "The SEC wrongly expands the definition of investment contract” in this enforcement action to any asset that could increase in value.".
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@inkonchain @jespow @DavidLRipley it’s been an honor working with you both. Couldn’t have asked for stronger leadership through historic times. @arjunsethi you’re going to crush it as co-ceo. You’ve got the energy and the vision to help take the team to the next level. The team is.
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5/ Worse, they’re disingenuous. Kraken’s position has always been straightforward: . Investment contracts must be contracts. The SEC tries to rebut this by arguing:. “There is no requirement that an investment contract be a written contract.”. Well yeah. Kraken never said a.
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3/ Kraken even testified before both the House Financial Services Committee and the Agriculture Committee. We testified that Congress should make new rules that limit the SEC’s jurisdiction in favor of other agencies.
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2/ Kraken has long advocated for clear, concise rules for digital asset exchanges from Congress. There are multiple bills pending right now on both sides of the hill.
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7/ Look, courts are reluctant to dismiss complaints - especially those brought by the government - at this preliminary stage. It’s critical nonetheless that the truth be heard early, and we thank the Court for its time and consideration.
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2/ Instead of identifying a contract, the SEC argued there are investment-like “expectations” and “investment concepts” in the air and those should be good enough.
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Tomorrow, I’ll join @RepRoKhanna’s roundtable in Washington to discuss the path forward for crypto regulation in the US. Warning: Some people from the Other Team will be there. 1/🧵.
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3/ Instead of identifying a common enterprise (required by the law), it said there is an “ecosystem” and that should be good enough.
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11/ Beanie Babies, Rolexes, and as we argue, DeBeers diamonds, would all be securities under this theory.
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@BlockchainAssn @SenLummis @paradigm @DigitalChamber 21/ Kraken will fight in the courts and we will win. But years of litigation will do nothing to protect American consumers. It is time for all stakeholders to come together, including this US Administration, to support the bipartisan bills that Congress has worked tirelessly.
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16/ . "The SEC’s theory functions as a regulatory power grab through an expansive interpretation of “investment contract” that would encompass many non-securities transactions.".
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19/ It really isn't Kraken's place to thank the states for weighing in. They're neutral on SEC vs Kraken. They're focused on this specific unconstitutional expansion of the SEC's power, and focused on consumer protection. Nonetheless, we're pleased to see these cogent arguments.
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4/ The next day, the SEC called to say they were going to sue. And they did.
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18/. "The SEC’s exercise of this undelegated authority puts consumers at risk.".
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10/ There are plenty of problems with the SEC’s argument. Chief among them: . It has no limiting principle.
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5/ But the theories in the SEC’s Complaint didn’t make sense. The SEC's jurisdiction is limited to securities, but the Complaint never actually tells us what the security is. .
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Look, when I joined as Kraken’s first CLO five years ago, there were four lawyers at the company. Four. Now, my legal team is almost seventy-strong, and has been for some time. We brought this force to bear on the biggest, most intractable problems in crypto.
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17/ . "The SEC’s actions seek to radically expand its authority into areas of traditional state regulation and other fields of law such as general consumer protection, which could preempt state laws that are more protective of consumers than the securities laws.".
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9/ Wait then they say no, actually the investment contract is the “ecosystem” that exists outside of the token. And ecosystems are contracts. Or something.
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7/ Then they say no, actually the token itself isn’t an investment contract; it’s just code. A token is just “sold as” an investment contract.
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@BlockchainAssn @SenLummis @paradigm @DigitalChamber (You can read some of the briefs here as we collect them for public review). As always, Kraken thanks the Court for its consideration of these important matters.
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14/ We should be clear about something: The states did not file in support of Kraken (or the SEC) and we shouldn’t put words into anyone’s mouths. So here’s what they actually said….
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Not just lawyers, but policy professionals too. We built a garrison of full time, in-house lobbyists and government relations teams in Washington, London and Brussels. In just a few years, we went from wondering “Gee golly what is the government going to do to us?” to drafting.
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6/ At first, the SEC seems to argue that a token is an investment contract, therefore a security.
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8/ Then they say actually that’s not it either. It's that the token “represents” an investment contract.
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20/ Others have weighed in, too: . @BlockchainAssn .@SenLummis .@paradigm .@DigitalChamber, and.Investor Choice Advocates Network.
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We secured almost a hundred licenses and registrations. VASPs! MTLs! EMIs! Then we had to work closely with regulators to actually maintain them. I am sorry to disappoint the revolutionaries in the crowd but I have now met every financial regulator on the planet and can say with.
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We won the USA’s first crypto bank charter. A crypto bank! Those words strung together would have been incomprehensible in 2012 when I took on my first crypto (Bitcoin) client. Then we launched it and it now has its own clients. Wild.
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@inkonchain We soundly - and publicly - defeated the SEC’s “cryptoasset security” fiction in federal court.
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@inkonchain A lot has happened in the last five years because five years is an eternity in crypto time. I’ve watched as a whole ecosystem of fascinating projects has grown up around me. In my next role, I want to get out there and be a bigger part of it. So yes, my watch has ended. But it’s.
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We’ve built and now we manage over 40 operating entities in god knows how many jurisdictions. (ok I guess I could just go add them up but this is Twitter not Excel).
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Thank you @SenatorTimScott for the conversation and for your enduring support of the crypto ecosystem.
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@inkonchain We signed decamillions in marketing deals and now there’s a purple F1 car with our logo on it and can the 2012 mind even comprehend this I mean honestly.
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Agree. Hagerty is a prince. A terrific choice to serve as Treasury Secretary.
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3/ Who’s on Our Team and who’s on the Other Team? It has less to do with political parties than you might think. @krakenfx is a single-issue advocate, donor and supporter. If you support crypto, Kraken supports you.
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And that’s why I’m going. It’s a bipartisan meeting on a nonpartisan issue that will benefit all Americans.
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@krakenfx 4/ It’s easy to complain on crypto twitter about agency policy you don’t like. It’s harder to reach across the aisle and forge a deal to fix it. But it works. That’s what we’re doing and that's why I'm going.
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@krakenfx 6/ We’re starting to see consensus emerge around a new, durable set of rules for crypto projects. It’s come after years of advocacy and negotiation by some of our best. @RepRoKhanna and others have my thanks for their leadership on this issue.
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