A U.S. appeals court upheld a decision to dismiss a lawsuit by Hodl Law against the SEC, which was filed in an attempt to clarify whether Ethereum (ETH) is classified as a security. Meanwhile, the SEC rejected Richard Heart’s motion to dismiss a $1 billion lawsuit, while Michelle Bond faces campaign finance charges related to her 2022 congressional run. There are also some concerns in the crypto industry over a revived Nvidia lawsuit that could set a precedent for frivolous securities litigation.
ETH Classification Lawsuit Dismissed by Appeals Court
A United States appeals court upheld a California federal judge’s decision to dismiss a lawsuit that was filed by Hodl Law, a crypto-focused law firm, against the U.S. Securities and Exchange Commission (SEC). The lawsuit was filed to push the SEC to clarify its stance on whether Ethereum (ETH) is classified as a security.
On Aug. 22, the Ninth Circuit appeals court panel ruled that Hodl Law’s complaint did not demonstrate a ”realistic danger” of facing enforcement action from the SEC merely for using the Ethereum blockchain and ETH in its operations. Hodl Law filed its complaint in November of 2022 in a San Diego district court in an attempt to force the SEC to clarify its position on ETH, especially after the regulator’s enforcement actions against several crypto firms.
However, the appeals court panel pointed out that the law firm’s complaint lacked allegations of any SEC investigation, prosecution, or threats related to its use of ETH or the Ethereum network. The panel also stated that Hodl Law failed to provide any evidence that the SEC engaged in ”final agency action” or made a definitive determination that ETH is actually a security.
In July of 2023, the California court dismissed Hodl Law’s case after finding that the firm did not identify any legal authority that requires the SEC to engage in specific rulemaking or to respond to private parties’ requests for guidance on the legal classification of ETH. The appeals court agreed with this decision, and stated that the SEC has not made any determination regarding whether ETH and assets on the Ethereum blockchain are securities, despite the agency’s approval of spot Ether exchange-traded funds (ETFs) earlier in July.
Fred Rispoli, Hodl Law’s senior managing partner, is disappointed with the court’s decision but still acknowledges that it was somewhat expected. In an Aug. 22 post on X, Rispoli stated that the firm only wanted the opportunity to argue that ETH is not a federal security.
He also criticized the court’s ruling, and argued that it completely contradicts how the rule of law should operate in the United States. Despite the setback, Rispoli shared that Hodl Law is still exploring some other avenues to compel the SEC to provide a definitive answer on ETH’s legal status.
SEC Rejects Richard Heart’s Motion to Dismiss
Meanwhile, the SEC pushed back against Hex (HEX) founder Richard Heart’s attempt to dismiss a $1 billion securities lawsuit that was filed against him. The SEC argued in a New York federal court on Aug. 22 that it has the full authority to bring the case against Heart, and argued that Heart’s motion to dismiss ignores the well-founded allegations and applicable law presented in the complaint.
Heart, or Richard Schueler, filed a dismissal motion claiming that the SEC has no jurisdiction over him because he lives abroad and was not present in the United States during the relevant period. He also argued that the SEC did not allege any conduct by him directed at the U.S. or any involvement with U.S.-based entities, employees, contracts, payment accounts, marketing efforts, or travel.
Screenshot of Richard Heart’s motion to dismiss (Source: Court Listener)
In response, the SEC stated that Heart specifically targeted U.S. investors in his promotions. The regulator also pointed out that he appeared virtually at Las Vegas conferences in March and September of 2022 to promote HEX, PulseChain (PLS), and PulseX (PLSX), which the SEC claims are unregistered securities. Additionally, the SEC shared that Heart was interviewed in person on a Miami-based podcast in August of 2022, where he promoted HEX and PLS, and that at least one U.S.-based developer was involved in creating these projects.
The SEC reiterated its central allegation that Heart used millions of dollars that was raised from PulseChain investors to purchase luxury items, including watches, cars, and what is claimed to be the world’s largest black diamond. According to the SEC, Heart raised more than $350 million from investors to develop an Ethereum fork but spent over $12 million on personal luxury goods.
Heart’s dismissal bid argued that the SEC failed to allege any deceptive conduct or provide any false or misleading statements. He also claimed that the SEC’s case infringes on his free speech rights, as it uses his public commentary to allege securities offerings.
The SEC did not think much of Heart’s free speech argument, and called it ”novel and untenable.” The SEC even compared it to a bank robbery defendant claiming his constitutional rights were violated if prosecutors quoted him saying ”stick ’em up.” His next hearing in the case is scheduled for Oct. 24.
Campaign Finance Charges Filed Against Michelle Bond
In other legal news, United States authorities have charged Michelle Bond, the partner of former FTX Digital Markets co-CEO Ryan Salame, with campaign finance violations. The indictment was unsealed on Aug. 22 in the U.S. District Court for the Southern District of New York, and accuses Bond and an unnamed co-conspirator of illegally funding her 2022 run for the U.S. House of Representatives.
U.S. Attorney Damian Williams shared some details about charges against Bond, which includes conspiracy to cause unlawful campaign contributions, causing and accepting excessive contributions, and making false statements to the Federal Election Commission and a congressional committee.
The indictment suggests that the unnamed FTX co-conspirator, likely referring to Salame, arranged a $400,000 payment from the firm to Bond. These actions were allegedly concealed through false statements.
Bond ran as a Republican candidate in New York’s 1st Congressional District in 2022 but did not advance past the primary. Salame pleaded guilty in September of 2023 to charges including conspiracy to operate an unlicensed money transmitting business and campaign finance fraud, and was sentenced to 7.5 years in prison. He is scheduled to report on Oct. 13.
On Aug. 21, Salame’s lawyers filed a petition to void his guilty plea, arguing that he had a verbal agreement with prosecutors that Bond would not be charged. Salame and Bond have a nine-month-old child together, and Salame claimed that authorities were targeting him and his loved ones.
In the middle of these legal challenges, Bond launched a crypto-focused think tank with the goal of creating a favorable regulatory environment for financial technology, digital assets, and artificial intelligence. She has been the CEO of Capitol Advisory, a consulting firm, since 2023.
Nvidia Lawsuit Revival Sparks Crypto Industry Concerns
According to a crypto advocacy group, the United States Supreme Court’s decision to allow a revived legal battle between chip maker Nvidia and a class group of its investors to continue could hold some risks to the cryptocurrency industry. In an amicus brief that was filed on Aug. 20, The Digital Chamber (TDC) supported Nvidia’s bid to reverse an appellate court’s ruling from last August that revived a lawsuit alleging Nvidia downplayed the extent of its GPU sales to crypto miners.
Perianne Boring, TDC’s founder and CEO, is now concerned that the decision could lead to a surge in “frivolous securities lawsuits” targeting the crypto industry. The brief argued that the class suit against Nvidia relied on expert opinions based on “unsupported assumptions and inferences” about the crypto industry and Nvidia’s sales, without identifying any specific evidence to back the claims.
TDC warned that if the plaintiffs succeed, it would set a very dangerous precedent that allows speculative and unsupported claims to gain traction in court. The group also warned that this could especially harm innovative companies in the crypto sector by burdening them with costly litigation and discouraging investment.
The lawsuit was originally filed in 2018, and accused Nvidia of concealing over $1 billion in GPU sales to crypto miners and downplaying the size of these sales in public statements. The suit also claimed that Nvidia’s financial results declined in tandem with the crypto market, which proves the company’s dependence on sales to miners.
On the other hand, TDC argued that the case does not meet the standards set by the Private Securities Litigation Reform Act of 1995 (PSLRA), which requires clear identification of misleading statements and supporting facts.
This article was originally Posted on Coinpaper.com
