UNCHAINED: Are All Crypto Funds Basically Engaging in Illegal Activity Now?

Sep 6, 2024

Larry Florio, a seasoned crypto lawyer and general counsel at 1kx, discusses the implications of recent settlements with the CFTC and SEC involving Uniswap Labs and Galois Capital. He raises concerns about these precedents possibly pushing regulators to adopt more aggressive enforcement. The conversation dives into the SEC’s unclear directives around qualified custodians, potential bans on crypto funds, and issues of preferential treatment in fund management. Tune in for insights on the evolving regulatory landscape and its challenges for the crypto industry.

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INSIGHT

Contradictory Regulations

The SEC requires RIAs to use qualified custodians but makes it near impossible.
They penalize crypto RIAs due to a lack of qualified custodians and block new entrants.

INSIGHT

Effective Ban on Crypto Funds

Not all assets held by asset managers need qualified custodians, only securities.
The SEC's ambiguous stance on which tokens are securities effectively bans many crypto funds.

ADVICE

Needed Clarity

The SEC should clarify why specific custodians aren't qualified.
Providing more details would offer much-needed insight and transparency.

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Uniswap Labs and Galois Capital have settled with the CFTC and the SEC, respectively, but crypto lawyer Larry Florio says these small settlements could set bad precedents for the rest of the industry.

The SEC and CFTC’s recent actions against Uniswap and Galois Capital could mark a turning point in crypto regulation. With both firms settling on relatively low fines, are we witnessing regulators establish precedent for a broader crackdown on the industry?

In this episode, Larry Florio, general counsel at 1kx, delves into the implications of these settlements, the frustrations asset managers face with regulatory compliance, and whether the SEC’s approach could push the crypto industry into a corner. Will these actions set a precedent for more aggressive enforcement ahead?

Show highlights:

Why the SEC's action against Galois Capital highlights a shift in language, focusing on tokens "offered and sold as securities"
What a qualified custodian is and why the SEC's action against Galois punishes them for using FTX, which could have fit one definition of a qualified custodian if it hadn’t been perpetrating a fraud
How the SEC demands crypto fund managers comply with regulations on qualified custodians while also limiting qualified custodians in crypto
Whether the SEC is effectively banning crypto funds by requiring compliance with impossible rules
How the SEC penalized Galois for giving affiliates better liquidity terms than outside investors
How SEC Commissioner Mark Uyeda’s call for clarity on "crypto asset securities" reflects the industry’s frustration with the lack of clear guidelines from the SEC
Why the CFTC's fine against Uniswap for alleged leveraged transactions may set a precedent for future enforcement actions
How Commissioner Summer K. Mersinger's dissent highlights the unfairness of punishing Uniswap despite their proactive compliance, according to Larry
Whether the New York Attorney General’s subpoenas to VCs about Uniswap signal a renewed adversarial approach to regulating DeFi
The timing of these actions, along with the SEC’s Wells notice to OpenSea

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Guest

Larry Florio, general counsel at 1kx

Unchained Podcast is Produced by Laura Shin Media, LLC. Distributed by CoinDesk.

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