Cas Piancey and Bennett Tomlin are joined by Corey Frayer to discuss what was happening inside the Gary Gensler SEC, and the limits of crypto regulation.

This podcast was recorded on February 8th, 2025.

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English Transcript:

00:00:05:00 - 00:00:11:13
Cas Piancey
Welcome back everyone. I am Cas Piancey. I'm joined, as usual by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:11:13 - 00:00:18:09
Bennett Tomlin
Oh, let's go with. Okay. I'm okay. How are you Cas? I'm here. I made it.

00:00:18:09 - 00:00:24:11
Cas Piancey
alive. We're alive and breathing. But I think it's really cool because we're we're joined by a super special guest today, Corey Frayer,

00:00:24:11 - 00:00:28:19
Cas Piancey
was like the senior advisor, for crypto oversight for the, SEC.

00:00:28:19 - 00:00:34:12
Cas Piancey
And now is working for the Consumer Federation of America as the new director of investor protection.

00:00:34:14 - 00:00:36:18
Cas Piancey
Corey. Welcome to CCC, how are you?

00:00:36:18 - 00:00:37:04
Corey Frayer
Thank you.

00:00:37:04 - 00:00:50:08
Corey Frayer
It's a rough time right now. So, you know, not great. But, excited about this new, job. I'm excited about the chance to, you know, continue the work. I've been committed to my career, so, they're ups and downs.

00:00:50:08 - 00:00:58:06
Bennett Tomlin
And we should just say at the top here. Corey is here in his personal capacity. These are Corey's personal things. They are not the opinions of his employer.

00:00:58:06 - 00:00:58:14
Cas Piancey
Right.

00:00:58:14 - 00:00:59:01
Corey Frayer
Correct.

00:00:59:01 - 00:01:13:11
Cas Piancey
And on that note, I, you know, I mean, it might be easy. Easiest if we got started by. By talking about what your role at the SEC was, and what it looked like, you know, trying to regulate cryptocurrency.

00:01:13:11 - 00:01:36:00
Corey Frayer
Yeah. So there was obviously a lot going on. And the SEC is a large organization with a lot of different divisions, a lot of different policy areas. So my main jobs were essentially advising on strategy and tactics, and then making sure that all of the disparate parts of the agency were consistent and how we addressed crypto assets.

00:01:36:00 - 00:01:55:11
Corey Frayer
So on the rulemaking side, making sure we're using the same language there as we did in court filings, just making sure we were unified in that approach. And not in any places where we were addressing crypto, sort of especially creating litigation risk for ourselves, saying things that could be used against us in these, you know, big cases.

00:01:55:11 - 00:01:56:03
Corey Frayer
We were developing.

00:01:56:03 - 00:02:06:16
Bennett Tomlin
So, do you think you could talk a little bit about what the SEC’s mandate is, and how that affected the strategy the agency took when it came to cryptocurrency and crypto assets.

00:02:06:16 - 00:02:26:14
Corey Frayer
Yeah, I think that's one of the, big issues that, we have a very different mandate. I, I'm going to keep saying we, even though I'm not there anymore. So the mandate, is very different from, like, a banking regulator, which has what's called prudential authority or essentially safety and soundness authority. And they get to look at a product and say, this is bad for the banking system.

00:02:26:14 - 00:02:45:16
Corey Frayer
This is bad for consumers. You're not allowed to do that. The SEC mandate is one of disclosure. So I think we would often say inside the agency is you can do a Ponzi if you disclose it, if you say in your registration like we're a Ponzi scheme, you can do illegal things and disclose that in your business plan and that's it.

00:02:45:16 - 00:02:46:12
Corey Frayer
Like, that's

00:02:46:12 - 00:02:49:01
Cas Piancey
We're letting so many bad people know this right

00:02:49:01 - 00:02:56:07
Bennett Tomlin
You still may violate federal laws. You still may. You still may violate federal and state laws in the process.

00:02:56:07 - 00:02:58:09
Corey Frayer
fraud. You got. Yeah. Yeah. But it's just.

00:02:58:11 - 00:02:58:21
Corey Frayer
Yeah.

00:02:59:03 - 00:03:04:02
Bennett Tomlin
But the SEC goal is to make sure that the investors have all the information they're supposed to have.

00:03:04:02 - 00:03:09:07
Corey Frayer
That's correct. That's correct. The mandate is investor protection fair and orderly markets. Capital formation.

00:03:09:13 - 00:03:16:12
Bennett Tomlin
And so how did that, like, interface with or affect how the agency came up with its cryptocurrency strategy?

00:03:16:12 - 00:03:17:07
Corey Frayer
So, I mean.

00:03:17:09 - 00:03:41:18
Corey Frayer
It was actually pretty simple because, the issue with crypto is, the vast majority of these tokens meet the Howey test. They are securities, but they weren't registered. And so they weren't meeting that basic disclosure requirement. So that's kind of step one is, addressing the fact that they are securities, they do have an obligation to register and disclose, and they weren't doing that.

00:03:41:20 - 00:04:04:08
Corey Frayer
So that's like a pretty straightforward step one. And even, you know, to their credit, Clayton's administration before us took on a lot of, those kinds of cases. You know, obviously we took on a little bit different strategy, which, hopefully we'll talk about later. But, yeah, the first barrier, to everything was demonstrating that these were investment contracts, securities.

00:04:04:08 - 00:04:13:09
Bennett Tomlin
Okay. And for our audiences benefit. We've talked about it a couple times on here before, but could you tell them what the Howey Test is and how that relates to these being securities?

00:04:13:09 - 00:04:36:08
Corey Frayer
absolutely. So there's actually a big misconception about what we were saying about crypto assets, which is that the crypto asset itself was a security. And what we allege is that, the crypto asset is part of a scheme that makes it a security. And so the concept of an investment contract is a longstanding concept from the blue sky laws.

00:04:36:10 - 00:05:02:10
Corey Frayer
And the reason it was included, in the act and the reason that the Supreme Court decision, the Howey decision came down was because Congress was aware when they passed a law that people would try to evade it. And so the investment contract test is a purely economic analysis. And it says, basically, no matter what you call yourself, if you are economically the same as a security, you're a security.

00:05:02:12 - 00:05:10:20
Corey Frayer
And so that test is an investment of money and a common enterprise, with the expectation of profits based on the efforts of others.

00:05:10:20 - 00:05:28:12
Corey Frayer
And quite frankly, like many securities meet that test regardless of whether that, you know, they're enumerated in the 33 and 34 act. But the Howey Test was really meant to sort of capture the evasion and all the ways that securities could be introduced in the market as sort of the, you know, something by any other name.

00:05:28:12 - 00:05:49:15
Bennett Tomlin
was the SEC's goal to get these cryptocurrencies to come in and try to find a way to register these things as securities. Because the refrain we've heard from the cryptocurrency industry over the last several years is that their tokens were incompatible with existing, registration documents.

00:05:49:15 - 00:05:54:20
Corey Frayer
So, yeah, getting them to come in and register was certainly the beginning of the strategy under under Clayton's term.

00:05:54:20 - 00:06:17:02
Corey Frayer
I think that kind of morphed there is that under Clayton's term, most of them were calling themselves ICOs or initial coin offerings. And so when you walk out into the world and you say, we're an ICO, it's very hard to go in front of a judge having named yourself after sort of like the most famous layperson understanding of securities and equities and be like, well, we didn't really know this was a security.

00:06:17:06 - 00:06:35:14
Corey Frayer
It's kind of like an absurd argument to try and make. So those cases were, you know, pretty easy. And I think that there was a, conception at the time that that market wasn't really going to get a foothold and expand in the way that it did. So, yeah, I think that's sort of, that was like sort of the first step.

00:06:35:14 - 00:06:48:17
Bennett Tomlin
Well, I guess, part of the refrain we cast and I have heard from the crypto industry is that these things can't be registered. The types of questions asked in these forms are fundamentally incompatible with the types of things these issuers are doing.

00:06:48:17 - 00:07:09:10
Cas Piancey
to tag on to the back of that really quick. They also were saying a lot and we're you know, we're still hearing this from like Coinbase and you know major operators in the cryptocurrency industry that like even if they did go in there and try to work with the SEC on stuff that ultimately they would just get bogged down in a mess and told off by the SEC or charged with something.

00:07:09:10 - 00:07:16:18
Cas Piancey
Or you know, that that regardless of how they were trying to play nice, the SEC would come after them no matter what.

00:07:16:18 - 00:07:31:22
Corey Frayer
In my experience, at the time while I was there. Absolutely untrue. No one has ever demonstrated to me. What is fundamentally incompatible about a crypto asset and the current set of, securities regulations?

00:07:31:22 - 00:07:47:03
Corey Frayer
We went in there very open to hearing that argument and and being given detail around that. I mean, we spoke, both to crypto asset issuers, and, crypto asset platforms and traditional platforms that were thinking about getting into the crypto asset business.

00:07:47:05 - 00:08:11:00
Corey Frayer
And none of them could demonstrate for us what the technological issue was, that made them unable to register and operate like any other securities market. The argument essentially boiled down to we set up these platforms with these huge conflicts of interest. If you make us look like the original securities markets, this business is not going to be economical.

00:08:11:02 - 00:08:14:16
Corey Frayer
So essentially, by making us follow the law, you're going to shut us down.

00:08:14:16 - 00:08:28:00
Corey Frayer
they were like, I think that was like really what was going on? And I also think that has to be taken in the context, like whether those were good faith or bad faith arguments. The initial idea behind crypto is this is going to be something that's not subject to government regulation.

00:08:28:02 - 00:08:36:10
Corey Frayer
Like, no matter like how you look at this, the underlying ethos is that they didn't think our regulation was ever going to be legitimate.

00:08:36:10 - 00:08:47:13
Cas Piancey
the original intent of Bitcoin was to undermine the existing banking. So it wasn't to necessarily like destroy the banking system. It wasn't to ruin governments or anything like it.

00:08:47:14 - 00:08:52:01
Cas Piancey
It was just to have a completely different and unregulated form

00:08:52:01 - 00:08:53:21
Cas Piancey
of, yeah, money. Right.

00:08:53:21 - 00:08:59:19
Cas Piancey
And I guess this comes to the question of like, at what point does the SEC feel like a

00:08:59:19 - 00:09:01:09
Cas Piancey
asset like

00:09:01:09 - 00:09:12:12
Cas Piancey
Bitcoin or Ethereum or, ripple? At what point are they, quote sufficiently decentralized and they are no longer a security?

00:09:12:12 - 00:09:13:13
Corey Frayer
I don't think.

00:09:13:15 - 00:09:47:15
Corey Frayer
Decentralization, other than the concepts, for example, a, a common enterprise, right? And sort of the organized efforts of others. I don't think decentralization, decentralization was ever sort of the right way to look at economic analysis. And like very unfortunately, before we got there, former director of corporation finance, which is sort of like they are the experts on what is and is not a security that's their lane said a lot of things about crypto in its nascent state that create a lot of problems for the agency.

00:09:47:17 - 00:10:08:18
Corey Frayer
And I think one thing, you know, getting into the constraints the agency has is that the courts don't look at the SEC as like a thing that changes administration to administration. The court looks at the SEC like a 90 year project that is supposed to be consistent with itself. So we're held accountable to things that have happened before us.

00:10:08:20 - 00:10:30:09
Corey Frayer
So, like those statements carried on, and we're used to challenge ripple as we continue to litigate it. That was an enormous challenge for us. And the other thing is like the fact that this market was allowed to grow so large was a big challenge because you got to go in front of court and explain, like, if this was so illegal, if this was obviously securities, why didn't the SEC do anything about it?

00:10:30:11 - 00:10:33:10
Corey Frayer
Why did you let it get so big before telling them this was an illegal business?

00:10:33:14 - 00:10:35:10
Bennett Tomlin
And during that era, you had

00:10:35:10 - 00:10:54:15
Bennett Tomlin
interesting messages coming out of the SEC with, like, Clayton saying. Basically every ICO I've seen is obviously a security. And then Hinman going, I don't know. Some of these seem like they're sufficiently decentralized and aren't securities anymore. Plus, you had the Dao report coming out in that era, which was like, this is very clearly a security and things that look like this are also securities.

00:10:54:17 - 00:11:04:22
Bennett Tomlin
And so there was a bit of, difficulty in getting everyone unified in the same message during that period, which seems to have had costs going forward for years to come.

00:11:04:22 - 00:11:05:06
Corey Frayer
I would.

00:11:05:10 - 00:11:25:22
Corey Frayer
Just add, you are absolutely correct that I think prior to us, things had been pretty inconsistent. And I would add one other thing that is not well known, which is that, there were a couple of, tokens that, were issued. They were not registered, but they were issued legitimately, in an exemption to the registration.

00:11:25:22 - 00:11:26:10
Corey Frayer
So there's a

00:11:26:13 - 00:11:27:12
Bennett Tomlin
Like stacks?

00:11:27:12 - 00:11:53:22
Corey Frayer
registration. Yeah, exactly. Stacks. Maple, where they were trading on exchanges. And, the moment you're a platform that facilitates trading of a security, you're a securities exchange. And even though, those securities were on platforms that meet the definition of exchange, the prior administration didn't go after those exchanges. So that was another sort of inconsistency and interpretation of the law that was challenged.

00:11:53:22 - 00:12:08:14
Bennett Tomlin
Yeah. And I think even since then, one of the STAX like, founders has come out and said they've regretted using that exemption because it made it harder for them to convince some cryptocurrency exchanges to list them, because they were worried it would end up drawing SEC attention to them.

00:12:08:14 - 00:12:08:22
Corey Frayer
That was an.

00:12:08:22 - 00:12:16:21
Corey Frayer
Enormous hurdle to actually getting someone to come and register. And I'm sure you guys have heard her, Gary, a million times, say, hey, just talk to us. Just come in and register and,

00:12:16:21 - 00:12:23:03
Corey Frayer
even people who wanted to come in and legitimately work with us, and we met with a lot of people. We met with anyone who would who would come talk to us,

00:12:23:03 - 00:12:25:19
Corey Frayer
an issue that we also like, an economic issue.

00:12:25:19 - 00:12:33:11
Corey Frayer
You couldn't get around with that if you became a legitimate exchange, it was really hard to find a token that was willing to register and join your exchange.

00:12:33:11 - 00:12:47:19
Corey Frayer
And the tokens didn't want to register because there was no exchange for them to trade on once they were registered. So you had this like chicken and egg problem of trying to get both sides of this market to come together and have one legitimate, exchange and registration process.

00:12:47:19 - 00:12:59:09
Bennett Tomlin
Yeah. Which results in like people like Prometheum declaring other tokens. Securities without those tokens agreeing to register. Do anything to try to solve that chicken and egg problem.

00:12:59:09 - 00:13:12:04
Bennett Tomlin
Is there any additional context you can bring to give it to us here? And like what seemed to be one of the biggest cryptocurrency cases that, like the Clayton SEC brought that ended up being continued on the ripple case.

00:13:12:04 - 00:13:14:23
Bennett Tomlin
And like what the strategy and thoughts were behind that one.

00:13:14:23 - 00:13:24:12
Cas Piancey
And quickly, just to to jump in here. Like, if you can, I. I think Bennett and I have, like, hardly ever talked about, the ripple case at all.

00:13:24:12 - 00:13:26:13
Bennett Tomlin
Because ripple so pointless.

00:13:26:13 - 00:13:36:06
Cas Piancey
Well, not only because it's pointless. I actually think we largely felt like it once it had become. Once you guys went after them, we were like, okay, well, this is a slam dunk.

00:13:36:07 - 00:13:52:01
Cas Piancey
Like, I think we genuinely thought that that it was like, okay, well, this is over. We don't really even need to talk about ripple anymore. This is done. And then years later, it just feels like we really lost the plot on that one. So, if you can help help our audience and us understand it a little better.

00:13:52:01 - 00:13:56:03
Corey Frayer
I will start with the most controversial thing I'm going to say about this. Which is like,

00:13:56:03 - 00:14:00:22
Corey Frayer
despite the press and despite what crypto said about it, ripple was a win for the SEC.

00:14:00:22 - 00:14:08:20
Corey Frayer
established that, at the very least, those first contracts that went out were, in fact, securities.

00:14:08:20 - 00:14:23:01
Corey Frayer
the second part of that decision of the Torrez decision was a pretty wild interpretation of the securities laws that took this crazy argument about, investment contract and gave it, a life that it it shouldn't have had,

00:14:23:01 - 00:14:25:18
Corey Frayer
the investment contract concept.

00:14:25:18 - 00:14:36:13
Corey Frayer
Can't be split up into the idea of an investment in the idea of a contract. It's like the point isn't literally about a contract. It's like saying a skyscraper isn't a building because it's not the sky, and it doesn't scrape anything.

00:14:36:13 - 00:14:45:14
Corey Frayer
the fundamental thing you're representing there, is a broader concept. And what crypto was arguing is that you needed privity because it's a contract.

00:14:45:14 - 00:14:51:19
Corey Frayer
You needed a direct relationship between the issuer, and the buyer in order for it to be an actual contract.

00:14:51:19 - 00:15:01:12
Corey Frayer
It would be like saying in an IPO, the first buyer of a share, it's a security. But once it trades on the secondary market, the securities laws don't apply anymore.

00:15:01:12 - 00:15:03:10
Corey Frayer
So it's a wild interpretation of the law.

00:15:03:10 - 00:15:34:19
Corey Frayer
And shortly after it was issued, Jed Rakoff, who is seen as like the dean of securities law, on the the Southern District of New York, where that case was decided and the, the district that Torres's in, ruled in Terraform on a lot of similar issues that it was they were obviously securities. And it was the way that was phrased and some of the things that he said after that made it very clear that he thought the Torrez interpretation was really wild.

00:15:34:19 - 00:15:51:16
Corey Frayer
And so one of those issues is that, like, we have a very different court system, a lot of judges have been appointed and like, you know, this was an Obama appointee. But a lot of judges have been appointed that, that make that have upset the traditional interpretation of the securities laws. And that's been an enormous challenge as well.

00:15:51:16 - 00:16:03:22
Cas Piancey
sorry. And just to, like, backtrack even a little bit more. What exactly is ripple and what is XRP? And, like what? Like what what what was their goal? Why were they coming to you guys. Like why why were you guys going after them.

00:16:03:22 - 00:16:05:12
Corey Frayer
Yeah. So I mean, I'll start by.

00:16:05:12 - 00:16:05:22
Corey Frayer
Saying that

00:16:05:22 - 00:16:10:05
Corey Frayer
if I were in the position at the time, I'm not sure ripple is the case, I would have chosen,

00:16:10:05 - 00:16:21:02
Corey Frayer
that said, they did pretty straightforwardly, raise capital. They, you know, asked people to invest money and then creating an ecosystem that essentially was,

00:16:21:02 - 00:16:27:19
Corey Frayer
first and foremost going to be sort of like an intra bank, payment system.

00:16:27:20 - 00:16:31:13
Corey Frayer
And then like eventually, I guess a world currency and payment system.

00:16:31:13 - 00:16:47:22
Corey Frayer
So, yeah, like, that was the pitch. But it's like really clear that if you're going to take someone's money to build a project, they're relying on you and your expertise, and you're pooling a bunch of people's money, to build that project. You're you're squarely within the securities laws.

00:16:48:02 - 00:17:12:08
Corey Frayer
Now, we ended up running headlong into, for example, the Hinman statement, and there was a huge fight over not just the statement itself, but getting sort of all of the staff comments and the way staff comments work on those issues is like, you pressure test that stuff. There's a lot of things in those documents that the SEC didn't necessarily believe, but staff raised, as you should think about this, you should think about this.

00:17:12:10 - 00:17:13:09
Corey Frayer
And that was.

00:17:13:11 - 00:17:14:14
Corey Frayer
A costly set.

00:17:14:14 - 00:17:16:22
Corey Frayer
Of facts. In that case.

00:17:16:22 - 00:17:33:20
Bennett Tomlin
And if I remember right, the Hinman statement was supposed to be a statement in his personal capacity at some event to like it wasn't a vetted, sec speech, if I remember right. But it got covered, and then he's still in his role. And so they attributed the statement to him.

00:17:33:20 - 00:17:34:21
Corey Frayer
Yeah.

00:17:34:23 - 00:17:55:03
Corey Frayer
Sort of. One of the fundamental truths about financial regulation generally is it's a one way ratchet. It's really easy to deregulate, and it's really hard to regain ground. You can deregulate by just not doing something. You can deregulate by having someone who's in a position of power, even if they're just staff at the SEC, sending a message to markets that this stuff is legitimate.

00:17:55:03 - 00:18:12:09
Corey Frayer
like, I don't agree with it. And I don't think someone, you know, one staffer who was not appointed or confirmed by the Senate, should be able to make proclamations that have effect in the marketplace. But it's a somewhat convincing argument to a judge to say, hey, this guy who is in charge of this division at the SEC said it was fine.

00:18:12:10 - 00:18:13:14
Corey Frayer
Like, what gives?

00:18:13:14 - 00:18:33:11
Cas Piancey
I'm curious. I, like we we briefly touched on it before. I feel like you like you said, you guys are dealing with 90, almost 100 years of history here where you are expected to be consistent in the structure of how you regulate these markets.

00:18:33:11 - 00:18:59:04
Cas Piancey
I'm curious how political the SEC is now. Maybe even before. I think it's clear that now there is no like it is the same as politics. And clearly they've decided to do whatever they want with it. I would also be curious what your relationship was like in terms of the regulation of crypto for you personally with, I don't even know how to say your name, but Hester Peirce I'd like.

00:18:59:04 - 00:19:02:10
Cas Piancey
I don't know how to say her. Her last name? Peirce Yeah. Hester. Peirce. Yeah.

00:19:02:10 - 00:19:04:13
Corey Frayer
It's a really good question. I.

00:19:04:13 - 00:19:05:13
Corey Frayer
Think.

00:19:05:15 - 00:19:23:04
Corey Frayer
Everybody in the independent agencies does genuinely try, to operate without political influence. Generally tries to recognize that we all have a bias, and try to be consistent and fair in our decision making. I would also say that,

00:19:23:04 - 00:19:32:17
Corey Frayer
there is nothing in our democracy that is not political like it just fundamentally true of economics and political economy is that everything is, in fact, political.

00:19:32:17 - 00:19:38:05
Corey Frayer
The person who's charged in charge of the SEC is is chosen by the president. That is a political position.

00:19:38:05 - 00:19:53:05
Corey Frayer
So certainly there are politics involved, in terms of the efficacy of political pressure. I don't think at least in our administration, we were ever driven by political consequences,

00:19:53:05 - 00:19:54:06
Corey Frayer
or political pressure.

00:19:54:06 - 00:20:10:13
Corey Frayer
like the closest you could characterize us is getting that is sort of like trying to demonstrate reasonableness in response to the fact that although judges are, you know, supposed to be fair interpreters of the law, there is inherently a political angle to that.

00:20:10:13 - 00:20:34:13
Corey Frayer
And, just everybody's human. And so we did, I think, sort of try to, speak to some of those things and demonstrate reasonableness, because you kind of have to contend, with that, political issue. Certainly the amount of criticism we got, from Congress, and a lot of the beatings we got, were because crypto had become a pretty powerful political entity at that point.

00:20:34:13 - 00:20:35:00
Corey Frayer
So,

00:20:35:00 - 00:20:49:10
Corey Frayer
I think the courts really had a lot more impact on what we were trying to do and what we did, and sort of trying to navigate around that extremely challenging judiciary environment we were in. Then any kind of, political influence.

00:20:49:10 - 00:21:18:09
Bennett Tomlin
One of the most, like, interesting political things I observed, before was, the politicians who wrote an angry letter because members of the SEC were meeting with members of FTX and FTX, us. And then a few weeks later, after FTX declared bankruptcy. They wrote another letter to the SEC asking why the SEC and it taking more aggressive steps on FTX.

00:21:18:09 - 00:21:31:05
Bennett Tomlin
Speaking of FTX, that kind of political things. Do you have any thoughts on, oh, how all of that went down leading up to the collapse? After the collapse, the interaction between, like the politics and the regulation there?

00:21:31:05 - 00:21:48:01
Corey Frayer
Yeah. The first thing I want to say about that is, again, just like one of those fundamental truths about financial regulation, which is you don't get credit for the things you prevent, and you always get blame for the things that you didn't. And I think that's like, really well reflected in the like the political position of at first being like, how dare you regulate this?

00:21:48:05 - 00:22:10:17
Corey Frayer
And then being like, well, how on earth did you miss this? And that's just sort of like part of being, in that space. Another thing that, I think, I like, I, I would want to give us lots of credit for, because, the FTX thing wasn't like, a total surprise. I'm not going to say we sort of knew the ins and outs of what was going on inside that business, and there are a lot of reasons for that.

00:22:10:17 - 00:22:10:23
Corey Frayer
Like,

00:22:10:23 - 00:22:16:08
Corey Frayer
the, hook to US oversight, at FTX came fairly late,

00:22:16:08 - 00:22:31:05
Corey Frayer
in their development as far as FTX, US was concerned, they initially only offered a handful of things that were really hard to argue were securities, Bitcoin, Bitcoin cash, Litecoin, a stablecoin or two. And

00:22:31:05 - 00:22:36:03
Cas Piancey
I always forget about, like, coin until someone mentions it.

00:22:36:03 - 00:22:38:06
Corey Frayer
Fair.

00:22:38:08 - 00:22:50:09
Corey Frayer
And it was only in 2022 that I, they introduced the no fee stock trading. And that's when like we really had a hook into that. But that's like pretty late in the game. For where they ended up.

00:22:50:09 - 00:23:06:00
Cas Piancey
I also tell me if I'm wrong, but, like, it seems like regulators essentially did a pretty good job. Because what ended up happening is FTX international did all the fraud. And as far as from what I've heard, like there was very little crime happening at Ftx's

00:23:06:00 - 00:23:15:14
Bennett Tomlin
Probably some. Probably a non-zero amount. But. But they had. They had at least most of the money most of the time, which is vastly different than FTX international.

00:23:15:16 - 00:23:26:18
Cas Piancey
Exactly. I think that's I think my point being that you got you guys, along with other regulators, kind of are told like, oh, look at what FTX happened. And that was an American company. And it's like, well

00:23:26:18 - 00:23:29:07
Bennett Tomlin
Yeah. Where were the Bahamian securities regulators?

00:23:29:07 - 00:23:35:07
Cas Piancey
exactly. Exactly, exactly. Like, I don't know how you guys can stop fraud all over the world. I like it.

00:23:35:07 - 00:23:38:10
Cas Piancey
That seems like a tough ask, you know?

00:23:38:10 - 00:23:38:16
Corey Frayer
Yeah.

00:23:38:16 - 00:23:56:05
Corey Frayer
And I got put that on my list of constraints is there is a ruling called Morrison which, really narrow down, SEC authority to deal with, foreign, securities, that make it into the US market. And so the foreign ness of FTC was also a challenge. I'm sorry. FTX

00:23:56:05 - 00:24:03:09
Corey Frayer
would say that, you probably don't want to separate the parent company from a subsidiary in terms of crimes and fraud.

00:24:03:09 - 00:24:15:15
Corey Frayer
But more than anything, it was that inability to look into the US entity until fairly late in the game that I think was the more driving factor of just not knowing what was going on in there until, you know, it's too late.

00:24:15:15 - 00:24:25:01
Corey Frayer
one other thing I want to say about that, is, again, there's a conception that, like the fragility of the crypto market sort of caught us off guard and, you know, we weren't doing anything beforehand.

00:24:25:03 - 00:24:29:02
Corey Frayer
And one thing I'll say is that it takes a long time to develop cases.

00:24:29:02 - 00:24:42:15
Corey Frayer
as soon as we walked in the door, we decided we were going to take a different strategy in Clayton. Instead of playing Whac-a-mole with all these securities, we're going to hit them in the notes. We're going to hit them at the intermediaries at the exchanges where this stuff was collecting, because he had a bigger, impact on that.

00:24:42:15 - 00:25:01:11
Corey Frayer
The other thing I want to say is that, there was an accounting interpretation we did called SAB 121 is extremely unpopular. But in April of 2022, working with our accountants, we had identified that the custody arrangements and the safeguarding around crypto were actually really unpredictable in terms of,

00:25:01:11 - 00:25:06:21
Corey Frayer
established bankruptcy law, state, treatment under the Uniform Commercial Code.

00:25:06:23 - 00:25:23:02
Corey Frayer
We identified that was an issue. We thought it was bad for investors that, investors in crypto companies, that they would not be aware of the potential liability of that company to its customers. And so we said, look, you've got to disclose this liability. You may have,

00:25:23:02 - 00:25:27:16
Corey Frayer
in the case of bankruptcy or in the case of, you know, being resolved by the FDIC or something of that nature.

00:25:27:16 - 00:25:48:19
Corey Frayer
it's an example of good financial regulation begets good financial regulation. So what ends up happening is banks, which are also public companies, also had to follow, that GAAP interpretation. And the banking regulators didn't I mean, they have their own accounting. It's called regulatory accounting instead of GAAP. And they decided not to change that accounting.

00:25:48:21 - 00:26:15:07
Corey Frayer
And ultimately, banks would have had to raise more capital in order to justify having those, assets on their balance sheet. And so we sort of fundamentally kept the traditional markets separate from the crypto markets before that crash happened. And that was a really big deal in terms of, contagion into our markets. And I think you look at the 2023 regional banking crisis, and three of those banks were heavily involved in crypto.

00:26:15:09 - 00:26:23:10
Corey Frayer
We bailed out like $3.3 billion of U.S Usdc reserves. Signet at signature was a huge player in the crypto space.

00:26:23:10 - 00:26:42:03
Cas Piancey
You've walked right into my trap. I wanted to ask you about, about stablecoins. So, you're bringing up stablecoins and I think for Ben at, I, it has probably been the number one most important systemic risk for cryptocurrency and for the globe

00:26:42:03 - 00:26:44:04
Bennett Tomlin
I wish I knew less about stablecoins.

00:26:44:04 - 00:26:46:23
Cas Piancey
Yeah, me too, me too. So I

00:26:46:23 - 00:26:48:16
Corey Frayer
I wish I knew less about crypto.

00:26:50:14 - 00:27:16:04
Cas Piancey
Sorry to have you on Corey. But, I think our, our forte at this point is, is stablecoins, and I am curious why I maybe I'm wrong again, but I think the only stablecoin you guys have really gone after was Luna. Terra? Is that. Is that right? Is that the the kind of the the feeling that

00:27:16:04 - 00:27:21:13
Cas Piancey
the stablecoin market just is not something you guys are supposed to be regulating?

00:27:21:13 - 00:27:30:22
Cas Piancey
Is this like, is this a market for different regulators? Is it, like, yeah, I guess I'm just curious why that's the only stablecoin you guys have gone after.

00:27:30:22 - 00:27:37:04
Corey Frayer
Yeah. In terms of the question you just ask, in terms of who's whose job it is, the unsatisfying answer is it depends.

00:27:37:04 - 00:27:51:22
Corey Frayer
You know, as we talked about earlier, one of the prongs of the Howey Test is an expectation of profit. So if you're getting a stablecoin, it's hard to argue that you're expecting that to rise in value when the selling, when the pitch is this is going to stay at this price.

00:27:52:00 - 00:28:12:18
Corey Frayer
Now, that doesn't mean there can't be arrangements that do make a stablecoin a security. What happened in the Terraform case, with Terra Luna? Is that they had created a secondary market, and the anchor protocol where they were saying, okay, like you, you get this, and then if you deposit it with us, you're going to make a profit of the interest rate you get in this, in this account.

00:28:12:20 - 00:28:37:09
Corey Frayer
So there you have, a promoter saying essentially you're going to make a profit off of this in a way where at the very least, I'm not going to say it. You know, none of the other ones are securities, but it's, it takes a lot more work and it takes a lot more Fact-Finding to try and demonstrate that there is a profit motive or a promise of profits as part of that arrangement.

00:28:37:09 - 00:28:38:03
Corey Frayer
Not impossible,

00:28:38:07 - 00:28:56:22
Cas Piancey
Yeah. I mean, like, I just, like, off the top of my head, I'm like, oh, yeah. I remember that time that tether had all their problems and started their unit, said Leo Token, where they basically promised, like, we're going to give you a return on your money and more cash and interest at the end of it. And it's like, that's tether related, that's Bitfinex related.

00:28:57:00 - 00:29:07:02
Cas Piancey
But I guess you're saying like, just the complexity of it and then not being based in the United States and them saying they don't serve U.S customers, like, does that just throw a wrench in all of that?

00:29:07:02 - 00:29:07:14
Corey Frayer
Yeah. I mean.

00:29:07:14 - 00:29:45:08
Corey Frayer
There are lots of challenges. And again, this this gets back to, some of the other fundamental constraints of the SEC. We had to apply our resources very, very carefully. So, the SEC has 4800 employees. We have a budget of $2 billion that is appropriated by Congress. They said our budget, even though we get all that money back by charging our registrants and we have 1400 enforcement attorneys, we oversee $125 trillion market, to sort of give that a comparison, there are three banking regulators the fed, the FDIC and the SEC.

00:29:45:10 - 00:29:49:13
Corey Frayer
The fed has 25,000 employees, 1500 of those are bank examiners.

00:29:49:13 - 00:29:58:18
Corey Frayer
The FDIC has about 6300 employees. The, SEC has like 3500. They oversee a $24 trillion market.

00:29:58:18 - 00:30:00:16
Cas Piancey
You are so short staffed.

00:30:00:22 - 00:30:03:19
Corey Frayer
Like we said, we're super resource constrained.

00:30:03:21 - 00:30:15:18
Corey Frayer
And then when you think about the places where they need to focus their energy, JPM alone is a sixth of the assets in the banking space. The top six,

00:30:15:20 - 00:30:18:12
Corey Frayer
Subs are,

00:30:18:13 - 00:30:35:21
Corey Frayer
Right around like 50, 55% of the market. So you have a pretty concentrated place where you can direct your energy. And that will also say that even though that's the the banking regulators issue, most of those banks have a very large broker dealer, which again, comes back to the SEC to regulate.

00:30:36:22 - 00:30:51:13
Corey Frayer
The appropriation process, even though we're budget neutral, makes it really hard to plan in advance to try and recruit. If you hire too many staff and then you get a budget cut, it's like, well, where are we going to find the money to run? Edgar, you know, how are we going to keep our computer systems running?

00:30:51:13 - 00:30:53:02
Corey Frayer
So like that's one of the constraints.

00:30:53:02 - 00:31:13:06
Corey Frayer
And I would say, with regard to the constraints and, and to folks who think, like, we didn't really put enough energy towards crypto, our, cybersecurity and crypto unit, we we doubled that, to 50 attorneys. That is 3.5% of our enforcement staff.

00:31:13:06 - 00:31:25:21
Corey Frayer
crypto market was under us, sort of at its biggest before the very end of our term, maybe like a $2 trillion market, more than half of which is Bitcoin, which had already been decided, as, you know, not a security.

00:31:25:21 - 00:31:50:11
Corey Frayer
So you're talking about 1% of the market. We're we're deploying 3.5% of our, enforcement, folks. And also like those things tend to to go into litigation. And as you go into litigation, that team is now committed to showing up in court, filing briefings like they're doing. It's harder to get them to do, investigations because they have a lot on their plate in terms of going to the court.

00:31:50:13 - 00:32:15:10
Corey Frayer
And the last thing I'll say about that is when you bring a case like that, there's no sort of like one person who knows all of the securities law. It's too much. And so they work with our rulemaking divisions to to sort of make sure they're really tightening up those arguments. So not only is there limited enforcement staff, but those enforcements are taking up rulemaking time in which you're trying to, you know, get a handle on the rest of the traditional markets.

00:32:15:12 - 00:32:23:22
Corey Frayer
And it also leaves, you know, there are lots of places in traditional markets where probably we would have liked to bring more enforcement actions in that very large space,

00:32:23:22 - 00:32:36:19
Corey Frayer
where people hadn't signed up for, you know, the volatility of the crypto markets and just expect the regular securities laws to protect them perfectly. And you just have to make these really tough decisions about where you deploy those resources.

00:32:36:19 - 00:32:49:20
Bennett Tomlin
A couple of times here, you've referenced, like, the fundamental constraints of the SEC. Can you talk a little bit about what those fundamental constraints are and how that kind of affects what investigations get started and what investigations become enforcement actions.

00:32:49:20 - 00:33:08:07
Corey Frayer
the first and foremost is the limited resources overseeing such a huge market and also the, limited authority, in terms of sort of what we can do proactively. Again, if you're a banking regulator, you can say, you know, it's sort of what we called, a merit regulator.

00:33:08:07 - 00:33:10:10
Corey Frayer
We sort of had to take the position that.

00:33:10:10 - 00:33:10:20
Corey Frayer
We don't.

00:33:10:20 - 00:33:34:16
Corey Frayer
Get to make a judgment about the business you're doing. Our judgment is purely about the disclosure. And then obviously, you know, fraud. So, like, that is having to establish that, and then being resource constrained are two of the, you know, two of the biggest issues. In addition to that, unlike prior securities issues, crypto is able to just print itself.

00:33:34:16 - 00:33:51:06
Corey Frayer
Limitlessly. So you have like having 15,000 nationally available non-compliant securities is not something that has happened in the past. So getting a handle around that is enormous. There's also procedural constraints.

00:33:51:06 - 00:34:04:16
Corey Frayer
The commission itself can slow down enforcement actions by once they get to the formal order stage. Requesting a vote on every subpoena. And you can only get the commission together so many times to vote in a month.

00:34:04:18 - 00:34:11:08
Corey Frayer
And that can, you know, slow those investigations in such a way that it's like pretty frustrating for the enforcement staff. And also just.

00:34:11:08 - 00:34:37:01
Corey Frayer
You have to go to court to fight those things. You have to get all of your depositions and facts seeking in line. You have to do a discovery like slowing that process down is a huge, huge drain on resources. The other thing is, every one of our cases fundamentally starts with proving that there's a security involved. Even if we go after a large platform, we have to demonstrate every time that there's a security here.

00:34:37:03 - 00:34:56:05
Corey Frayer
And so making sure we found cases where that was at least mostly a slam dunk issue was a really important and where we wanted to take on cases where that wasn't the facts. That can be pretty tough. And then again, you know, inheriting the past positions of the SEC, really big problem, really big constraint.

00:34:56:07 - 00:35:20:16
Corey Frayer
And there's also an issue with the CFTC where then when they would establish futures markets in a particular crypto asset, you know, the challenge to us becomes like, we still are ultimately the arbiter of what is and is not a security. That's clear. The SEC job, but going to a judge and trying to explain why to federal regulators fundamentally disagree about the status of a particular asset.

00:35:20:18 - 00:35:27:14
Corey Frayer
Huge challenge. It's not a good look. So yeah, those are there are more constraints, but I think those are kind of the highlights.

00:35:27:14 - 00:35:49:03
Bennett Tomlin
Well. And when you raised their. Feels very relevant right now. Which is that it's possible for the commissioners to raise the additional barriers. And in so doing, slow down a lot of this action. And there was some reporting recently that now, lower level staff are not even going to be able to open investigations without approval of the commissioners that came from Reuters.

00:35:49:05 - 00:35:56:23
Bennett Tomlin
So it seems based on what you said, that is going to be a massive barrier for investigations and enforcement going forward.

00:35:56:23 - 00:36:23:04
Corey Frayer
That's one of the things that I would describe as generally kind of political interference, coupled with another, you know, really terrible, developments that have happened at the agency with the new leadership. But, yeah, to that end, obviously the chair would come in and establish some enforcement priorities. And if we, you know, we saw something that, like, looked especially bad, we would we would say to enforcement staff, hey, you like, you need to devote some resources to looking at this.

00:36:23:04 - 00:36:47:21
Corey Frayer
That said, most enforcement attorneys, have access. Not they all have access to what are called TCRs tips, complaints and referrals. That's a reform we put in post Madoff to make sure there was a centralized repository of that kind of incoming information. So it wasn't, you know, it wasn't just like one staffer. If they didn't do a good job chasing something down, no one else would have insight, into that kind of complaint.

00:36:47:23 - 00:37:19:05
Corey Frayer
We had about 45,000 of those a year. So typically what enforcement attorney would do would sort of be looking at the market, looking at the news, looking at those tcrs and individually deciding, here's what I'm going to start an informal investigation on. And then they had to have the, the ability with the cooperation of, you know, the head of the Division of Enforcement to, to do a formal order where you can actually start issuing subpoenas, taking depositions, really, you know, get enforceable powers to collect facts.

00:37:19:07 - 00:37:42:21
Corey Frayer
And, and then only after you had done that would you present the facts to the commission for the ability to bring that complaint into the courts. In this change now, where, essentially, you can't really spend resources on an informal part of the, the investigation. You got to ask yourself, like, how are they going to go out and identify the problems in the marketplace?

00:37:42:23 - 00:37:59:09
Corey Frayer
And then like, what is the amount of time the commissioners are willing to spend to authorize these? I mean, if they were, if they wanted to do that at all to authorize these investigations that, you know, 1400 individual attorneys used to sort of suss out for themselves

00:37:59:09 - 00:38:08:09
Corey Frayer
the other horrible politicization that is going on is, and I can't express enough how amazing career civil servants are.

00:38:08:11 - 00:38:19:13
Corey Frayer
And it's getting a little bit of attention right now because we're seeing the interference. But there's typically thought of as sort of like lazy, bureaucratic couldn't compete in the private market. So they end up here. The SEC staff.

00:38:19:13 - 00:38:20:12
Corey Frayer
Are.

00:38:20:14 - 00:38:29:16
Corey Frayer
Some of the most expert and amazing people I've ever worked with. Almost every one of them could go to Wall Street and triple or quadruple their salary.

00:38:29:16 - 00:38:30:14
Cas Piancey
They often do.

00:38:31:23 - 00:38:35:14
Corey Frayer
You know, fair enough. But they're a lot don't a lot don't.

00:38:35:16 - 00:38:37:02
Corey Frayer
But like, I mean, fair enough.

00:38:37:02 - 00:38:38:14
Corey Frayer
But, you know.

00:38:38:16 - 00:38:56:20
Corey Frayer
A lot of them do that job purely out of, like, a belief in justice. A belief in the mandate in the job is really apolitical. I wouldn't have want to come into that building and had a bunch of staff being like, we disagree with where you're going with this, so we're not going to execute your decisions like when you go in there.

00:38:56:23 - 00:39:17:14
Corey Frayer
Congress has said you get to be in charge of this agency. You get to direct where it's going within the bounds of the law. And like the staff's job is to execute the instructions they're given. And I'm certain like they did that with Clayton before us. We changed a lot of direction we were going in. They faithfully changed direction when we asked them to, and they would have done the same for the new leadership.

00:39:17:16 - 00:39:27:10
Corey Frayer
So going after people for taking on unpopular things with leadership is going to have an enormous, enormous impact going forward on the efficacy of these agencies.

00:39:27:10 - 00:39:50:03
Cas Piancey
we've kind of gone over a lot of your, like, the mandate of the SEC and how you are constrained by that. But I do want to talk about something else, which is how close to you guys work with the Department of Justice and other other agencies in the FBI. You know, whoever might be involved, like ATF, I don't know who.

00:39:50:03 - 00:39:54:21
Cas Piancey
I don't know which, branches of the government you guys are working with on a daily basis.

00:39:54:21 - 00:40:10:13
Cas Piancey
But I think it's important for people to understand that, like, I, I know we've kind of stated this already, but, like, you guys can't do criminal charges against against these people, like, you are a civil agency. You these are civil charges that you are bringing against these folks.

00:40:10:15 - 00:40:29:03
Cas Piancey
So like, for instance, when Bernie Madoff finally got taken down, you guys didn't throw him in jail. The DOJ convicted him of 11 felonies. Like, you know, it has nothing to do with you guys. But like, it does have a lot to do with you guys still, right? Because you guys are talking to them. You are passing this information along.

00:40:29:05 - 00:40:46:15
Cas Piancey
I'm curious if there's times where you've handed them, you know, a booklet about a cryptocurrency or something like, well, here's some obvious criminality happening and then just nothing happens. Or the opposite, like times where you've handed them something and then immediately they do something about it.

00:40:46:15 - 00:41:01:13
Corey Frayer
you're absolutely right. Where the SEC is a purely, civil enforcer. But they do a lot of work with DOJ. When you're going through these investigations, you're uncovering facts that look like they may be criminal. Absolutely. You refer that to the DOJ. You asked them to investigate.

00:41:01:13 - 00:41:06:17
Corey Frayer
I couldn't tell you what the percentage of DOJ moving forward or not moving forward is.

00:41:06:18 - 00:41:12:11
Corey Frayer
I would say that, with those attorneys and like state AGS in general,

00:41:12:11 - 00:41:29:19
Corey Frayer
the rest what we call the resting foot, right? The sort of natural response is I would like to take on big cases. I would like to raise my profile. So my general sense would be that when we worked with the crims is that good cases generally move forward.

00:41:29:19 - 00:41:40:08
Corey Frayer
I don't have like a particular insight or number into anything that didn't happen or did happen. And even if I did, I couldn't talk about cases that, you know, never came to the public space.

00:41:40:08 - 00:41:44:03
Corey Frayer
But like, I think generally speaking, that was a really good relationship.

00:41:44:03 - 00:42:16:22
Bennett Tomlin
A little bit unrelated, but you talked a bit about the CFTC regulating futures markets and how that sometimes put the SEC in a challenging position. One of the cases I saw over this last administration that seemed to come up was and the approval of the, ETFs and exchange traded products, where eventually the issuers were able to point towards these regulated markets of size, these futures markets, and use that to convince the SEC was no longer worth, fighting the approval of those ETFs.

00:42:17:04 - 00:42:24:08
Bennett Tomlin
Is there any additional insight or color in that years long ETF dispute that you can, provide us with?

00:42:24:08 - 00:42:48:21
Corey Frayer
The first thing I would say is that, under Clayton, in order that's so that's called the 1919 before rule change, which is essentially an exchange comes in and says we would like to list this product. And there's an evaluation under the Securities laws wherein the exchange is responsible for monitoring and preventing fraud, in their marketplace.

00:42:48:23 - 00:43:14:14
Corey Frayer
And so what the staff had to do there was to figure out a way that, these futures products. I'm sorry, these, the 33 act products, the commodity pool products, could be compatible with the securities laws. And what ended up happening was called the Winklevoss test, and that was, you needed to have a surveillance sharing agreement with a market of significant size.

00:43:14:16 - 00:43:36:18
Corey Frayer
And what that means is, is, there needs to be an agreement with you and, in a large marketplace, in the future, space where if the underlying market was being manipulated, you would see that in the future space, and that would give you sort of the information you needed to track whether or not, there was fraud happening.

00:43:36:18 - 00:43:42:16
Corey Frayer
And therefore, you could demonstrate your ability to monitor, and prevent, that kind of manipulation.

00:43:42:16 - 00:43:53:13
Bennett Tomlin
so sorry, just to interject quickly. The Winklevoss test come after the settlement with Gemini, where two related party billionaires were, like, manipulating one of their markets by wash trading or something.

00:43:53:13 - 00:44:12:05
Corey Frayer
I believe it came after the disapproval of, an application to list and ETP that initially came from Gemini. Again, that's that fight kind of started before we got there, and, you know, we got handed it. I will say this. We litigated that case like,

00:44:12:05 - 00:44:16:09
Corey Frayer
you know, like when they sued us, we could have just thrown up our hands and been like, this is too hard to do.

00:44:16:15 - 00:44:39:22
Corey Frayer
We'll just approve it and move on. We litigated that case. And the courts came down with a decision that was fundamentally about economic analysis that they just got wrong. And sort of the facts against us were really challenging because, at the SEC, you distinguish between an ETF and an ETP, an exchange traded fund, an exchange traded product,

00:44:39:22 - 00:44:49:22
Corey Frayer
the ETF, process, is essentially automatic because of a rule called 6011 that got installed, you know, again, years before we were there.

00:44:50:00 - 00:45:17:01
Corey Frayer
And essentially, if you put together a 40 act product, which is an investment company act, it is, you know, mostly, the underlying product is securities. And so you'd have these to get a futures product together, you have to have a bunch of treasuries and other securities in that product. And so they, they came in under the 6011, the ETF rule, and those there's not a way to kind of stop that, with, without meeting an extremely high bar.

00:45:17:03 - 00:45:34:16
Corey Frayer
So you have these futures products coming into the market. And then when you try to prevent the ETP products, it's like, well, you have these like fairly similar things that already that are already 40 act products like demonstrate why you can't have a 33 act product. Now, there are reasons they're distinct from each other. There are different economics.

00:45:34:16 - 00:45:39:10
Corey Frayer
There are lots of good fights. But judges are not typically experts in economics.

00:45:39:10 - 00:45:52:18
Corey Frayer
And once you get a bad decision, the question is like, how many more resources do I want to dump into fighting this and appealing this versus taking the L and moving on, and trying to go after things you might win.

00:45:52:18 - 00:46:11:03
Bennett Tomlin
Yeah. And I especially, I think that comes in here when you, like, look at it from a consumer investor protection standpoint. And like the investors in the 40 Yak product drove very paying like the contango because their futures based. And so like you can construct an argument that the spot based ones would end up being better for the investors and yeah.

00:46:11:03 - 00:46:28:23
Cas Piancey
This also I. For me, this brings up a broader kind of vaguer aspect of of something that I would be interested in discussing a bit. I don't know if we don't know if I don't know how to phrase this properly, but I guess my my question for you is there we talked about this with toffee a bit.

00:46:29:03 - 00:46:38:11
Cas Piancey
the cases oftentimes that you guys were able to settle. And I guess essentially when, seem to be these kind of

00:46:38:11 - 00:46:44:12
Cas Piancey
smaller scale frauds or abuses, for instance,

00:46:44:12 - 00:47:01:17
Cas Piancey
Soulja Boy or, the Stoner Cats one. Right where, where these weren't like multibillion dollar frauds. These were, like Soulja Boy. I don't even know how many securities violations Soulja Boy has probably done in his lifetime.

00:47:01:17 - 00:47:12:14
Cas Piancey
It's it's got to be upwards of, like, ten. So, you know, one, it kind of, I think and this is coming from I feel like both sides of the

00:47:12:14 - 00:47:22:14
Cas Piancey
cryptocurrency sphere where you've got the supporters and you've got the, the people who hate it, and both of them are kind of like, okay, we want to clean up the industry.

00:47:22:14 - 00:47:44:21
Cas Piancey
And on one side, it's like, that means get rid of everything. And on the other side that means there's obvious bad actors who need to be dealt with. Right? There's people like Justin Sun, who I think nobody in cryptocurrency trusts. That man. Like they they genuinely don't like him. Or tether, who for years kind of lied and abused their way to being the number one stablecoin forever.

00:47:44:21 - 00:47:46:20
Cas Piancey
And, and the question is like,

00:47:46:20 - 00:48:02:00
Cas Piancey
is it just too resource intensive to go after those larger scale frauds or is it that the case isn't a slam dunk, or is it that, like, what is keeping you guys like, okay, let's just go after Soulja Boy and just get him to plead guilty?

00:48:02:00 - 00:48:22:17
Corey Frayer
So I think, I would want to talk about sort of three types of cases that I think I've heard. Either you are guest sort of put in that bucket of, like, small fry cases. So first of all, you've got touting, right, which is a celebrity that, doesn't, disclose their conflicts of interest and essentially tries to, to sell a crypto asset into the market.

00:48:22:19 - 00:48:27:08
Corey Frayer
And that is important because you want to you don't want that to proliferate.

00:48:27:08 - 00:48:41:22
Corey Frayer
You don't want celebrities bringing people into the marketplace. And it's also, one of those things where you're always trying to, through your cases, move the market, not just win one, but tell people, look, don't do this because we'll come for you.

00:48:41:22 - 00:48:52:11
Corey Frayer
And so those are cases where, it was helpful to keep people from getting sort of tricked into this volatile, and non-compliant space.

00:48:52:11 - 00:49:16:06
Corey Frayer
And generally, yes, requires fewer resources than taking on, like, a big exchange case. But still, important to do that. Stoner cats, wasn't just about touting, but also demonstrating that NFTs could be securities. So it's like a precedent setting, reason to go after that. And again, it tells the marketplace, like, watch yourself. These can be issued a securities and need to be careful.

00:49:16:08 - 00:49:38:17
Corey Frayer
And the last thing I would say is early on, we went after BlockFi one of the lenders, which is sort of seen as smaller. That was part of our strategy, first of all, to hit the intermediaries and focus on where this activity was happening. Second of all, that was a really good case for us because we didn't have to demonstrate anything about the underlying crypto assets.

00:49:38:19 - 00:49:40:15
Corey Frayer
That arrangement is a pretty

00:49:40:15 - 00:49:43:07
Corey Frayer
bog standard arrangement. Called a note,

00:49:43:07 - 00:50:03:07
Corey Frayer
them out, and then paying an interest rate on that account. It doesn't matter what the asset inside the account is. You have created a note. It's an easy case to win. And that was another place where people are being lured into the market by saying, like, why keep your cash in a bank when you can put it in this account and get like 86% returns?

00:50:03:10 - 00:50:09:00
Bennett Tomlin
It might even falsely claim on its website. It's FDIC insured. If you're talking about Voyager.

00:50:09:02 - 00:50:09:12
Corey Frayer
Yeah.

00:50:09:17 - 00:50:32:08
Corey Frayer
It's like that was a channel where we were concerned it would bring lots of people into a dangerous marketplace, where there was like a very good argument for us, with regard to the securities laws and also where a whole lot of leverage was being created, like when you lend out those assets and then use other crypto assets as collateral, collateral and run that up the chain, everybody down the chain off each other.

00:50:32:08 - 00:50:39:02
Corey Frayer
And as soon as the top guy can't pay his obligation, everything underneath him collapses. I mean, like, that's what you saw in crypto winter.

00:50:39:02 - 00:50:40:17
Bennett Tomlin
Su Zhu and Kyle Davies.

00:50:40:17 - 00:50:52:19
Corey Frayer
yeah, that's like a standard financial regulation thing. And so the leverage, the sort of slam dunk nature of the case and that it aligned with our intermediary idea was

00:50:52:19 - 00:50:53:10
Corey Frayer
why we went there.

00:50:53:23 - 00:51:00:12
Cas Piancey
BlockFi is one that I forgot. Like that. I wish you guys had. Yeah. Like that. Like that is a great case. That's a great example. And it is one

00:51:00:12 - 00:51:10:21
Corey Frayer
And we changed the market. We famously got in a spat with Brian Armstrong when we told him, hey, like, you're creating a securities arrangement and Coinbase didn't offer their loan product.

00:51:10:21 - 00:51:16:19
Corey Frayer
So like, imagine a world in which all of that stuff had been allowed to happen. Coinbase being one of the biggest and most influential on the market.

00:51:16:21 - 00:51:19:07
Corey Frayer
That would have made the crisis a lot worse.

00:51:19:07 - 00:51:35:18
Cas Piancey
Yeah. For sure. No, I, I agree with you on that I think so, yeah. Again we've entered into a realm that I can, push back on. So, so so stoner cats, you said, like, essentially set a precedent that, oh, NFTs can be securities.

00:51:35:18 - 00:51:38:06
Cas Piancey
Considering that our

00:51:38:06 - 00:51:50:21
Cas Piancey
I don't know if you want to even call him the president, the guy who works for Elon Musk, has done a, you know, in NFTs, a whole NFT product, and has also done his own coin.

00:51:50:21 - 00:51:57:22
Cas Piancey
Now, in your personal opinion, one are those are either of those possibly securities and two,

00:51:57:22 - 00:52:05:20
Cas Piancey
is it over like in terms of, oh, well, now, if the president is doing it like you might have set that precedent with stoner cats, but Saylor fucking V, you know what I mean?

00:52:05:20 - 00:52:14:16
Corey Frayer
Absolutely. Again, failing to regulate is a deregulatory action that is really hard to overcome in the future. So. Yes. Absolutely.

00:52:14:16 - 00:52:20:09
Corey Frayer
With regard to meme coins, and I'm not saying it's a meme coin. I'm just sort of like laying out this category.

00:52:20:09 - 00:52:24:06
Corey Frayer
for the Howey Test, have to identify a promoter who said you're going to get a profit off of this.

00:52:24:06 - 00:52:44:19
Corey Frayer
So, like, if you look at Dogecoin, I'm not saying it's impossible to make the argument it's a security, but the guy who issue it said, this is a joke. Don't invest in it. It's like, please don't. And so it is hard to make the case that people, a reasonable investor would have expected profits from, a token that was put out as a joke.

00:52:44:19 - 00:52:45:06
Corey Frayer
So.

00:52:45:08 - 00:53:02:21
Corey Frayer
Like the meme coin thing can be a little bit challenging. It doesn't mean it's not in sort of if I were going to try and I should say, and I should have said at the beginning of this, I'm not a lawyer. But if I were going to try and create the colorable case around the Trump coin, it would be, look, he's got this whole like, he's got the truth social thing.

00:53:02:23 - 00:53:20:12
Corey Frayer
He has all of these business interests, that are profit making. A reasonable investor might believe that sort of becoming part of that ecosystem by buying into the Trump meme coin suggests the ability to get profit from, like, that larger ecosystem of things that the Trump businesses are doing.

00:53:20:12 - 00:53:24:02
Corey Frayer
not a slam dunk case. I think that would probably be pretty novel.

00:53:24:05 - 00:53:24:22
Corey Frayer
But like

00:53:24:22 - 00:53:52:08
Corey Frayer
if you're trying to establish precedent, it's not exactly the thing I would first go after. I think the other thing that's really scary about this is that, to the extent that these would be securities or regulated by another regulator, like this is a guy who has the power to choose who's in charge, and you're going to be gutting the laws that you may have broken, potentially, and also gutting the enforcement arm that would have been able to hold you accountable.

00:53:52:10 - 00:53:56:06
Corey Frayer
So it's a very scary thing to have a president with these conflicting business interests.

00:53:56:06 - 00:54:05:09
Cas Piancey
you talked about how if you basically say, like it's a Ponzi scheme, then then, the SEC might be hamstrung. It doesn't doesn't mean that the.

00:54:05:09 - 00:54:08:01
Corey Frayer
clear, a little bit of, an exaggeration and hyperbole, but

00:54:08:01 - 00:54:32:17
Cas Piancey
sure, sure. But I guess I'm I'm on the Get Trump memes.com website right now. And it says Trump memes are intended to function as an expression of support for and engagement with the ideals and beliefs embodied by the symbol dollar sign, Trump and the associated artwork, and are not intended to be or to be subject of an investment opportunity, investment contract or security of any type.

00:54:32:20 - 00:54:33:20
Cas Piancey
So I guess, like.

00:54:33:20 - 00:54:36:15
Bennett Tomlin
Well, I mean, as long as you put those words on the page, I guess you're safe.

00:54:36:18 - 00:54:39:18
Cas Piancey
I guess like you said, you know, like there there you have it.

00:54:39:18 - 00:54:42:16
Corey Frayer
Saying it's not a security doesn't save you.

00:54:42:17 - 00:54:43:20
Corey Frayer
Just.

00:54:43:20 - 00:54:44:04
Cas Piancey
Not

00:54:44:04 - 00:54:50:12
Bennett Tomlin
So? So some people who have lost cases tried that tactic. I've covered some of those cases.

00:54:50:12 - 00:55:07:18
Bennett Tomlin
Kind of on the topic of future regulation, Tim Scott and French Hill and Bozeman and Thompson all are very confident that they can get basically fit 21 2.0 passed, signed out of both the House and the Senate within 100 days.

00:55:07:20 - 00:55:26:22
Bennett Tomlin
I think they're wrong. I don't think they have the majorities. I don't think they're going to get as many Democrat defectors as they thought a week ago. But, fit 21, largely punts, a lot of cryptocurrency speculation to the CFTC and includes a, a very broad definition of decentralized. In order to do that.

00:55:26:22 - 00:55:28:08
Bennett Tomlin
Ignoring the rest of the context.

00:55:28:08 - 00:55:34:11
Bennett Tomlin
Right now, I'm looking just at that piece of legislation. We can get to the rest of the context immediately after that. That bill alone.

00:55:34:11 - 00:55:40:12
Bennett Tomlin
What do you think of punting such a large portion of crypto regulation to the CFTC?

00:55:40:12 - 00:56:00:15
Corey Frayer
Yeah. So? So, like I said, I did 15 years in Congress before coming to the SEC. The legislative process is hard. And so a couple of observations about that legislation and legislation in general is that, first and foremost, it was easy to unite the crypto industry against the demon of Gary Gensler and what we were doing.

00:56:00:17 - 00:56:19:08
Corey Frayer
It is much harder to unite an industry around the particulars of a bill. There are a lot of competing interests. There are a lot of people who like one thing and another thing, or a maxis in one space, that will make that hard to construct, something that they actually want and actually has, you know, the possibility of passing.

00:56:19:10 - 00:56:49:04
Corey Frayer
So that's sort of like issue number one. The second thing is that so we want legislation gambit was not about actually wanting the CFTC to regulate. It was about we don't want the SEC to regulate us. When you're going to be in a situation where the SEC is not serious about enforcing its territory, ideally what you want is to not have the CFTC or any other federal regulator looking at you at all, so that the because that was a Dodge in the first place.

00:56:49:06 - 00:57:13:21
Corey Frayer
I, I don't think, I don't think they're going to be nearly as excited about pushing members to get legislation to cross the line because they don't need protection from the SEC anymore. And the last thing you already kind of mentioned this. If you get the definition of blockchain or crypto asset or everything, if you get that wrong or you get the, the way you're doing in the Howey Test, wrong, first of all, like calamitous effects for the rest of the marketplace.

00:57:13:23 - 00:57:18:21
Corey Frayer
And then second of all, everyone is going to run, like, try and get into that loophole

00:57:18:21 - 00:57:35:22
Corey Frayer
this. Always happens where people say like it's a tiny market. If we do a little bit of deregulation, it's not going to be a big deal. But when you have deregulation, like water flows and everything is going to take that path to get access to the less regulated market, and again, going to be disastrous and beyond just the securities markets.

00:57:35:22 - 00:57:50:16
Corey Frayer
But the faith in our markets in general. And whether or not you agree that, like, we should be the financial center of the world, and I certainly think that, too much of our economy is finance, it's probably not healthy. But losing that status has a lot of consequences.

00:57:50:16 - 00:58:09:12
Bennett Tomlin
Yeah. And I'm glad you brought up that. We talked about this with Sean when he was on a couple weeks ago, but, like, the crypto industry was using legislation as kind of a, way just to avoid being regulated, period. Don't regulate us yet. Pass this bill. But don't pass that bill yet. We got to get the definitions right and don't focus too long in those definitions.

00:58:09:12 - 00:58:18:06
Bennett Tomlin
There's bigger things going along. The SEC missed FDX. How are you going to put more things under their control? And so it was all meant as kind of a delaying thing.

00:58:18:06 - 00:58:34:07
Bennett Tomlin
Is it even worth talking about like legislation like this, considering the current broader context in which many of these regulators are being very quickly disempowered and like they're trying to eliminate broadly, their ability to regulate.

00:58:34:09 - 00:58:36:15
Bennett Tomlin
Is this kind of missing the forest for the trees?

00:58:36:15 - 00:58:53:19
Corey Frayer
Yeah. Like, I think the other headwind here is that when you're in the House and Senate, you have a limited amount of floor time. If you have a constrained amount of time to get all the things you want done. As much as Trump made a big deal about crypto, I don't think that's like a high priority for them.

00:58:53:21 - 00:59:10:05
Corey Frayer
And so even if it's a high priority in the individual committees, having your leadership sacrificed floor time to getting that done is a high bar. And so like that is also going to be a challenge to get something like this done. So I think it's I think that's exactly right.

00:59:10:05 - 00:59:31:00
Bennett Tomlin
broadly white collar crime enforcement and financial regulations are being actively gutted. The Cfpb, they're attempting to, like, fully eliminate. They've talked about eliminating the FDIC. They want to cut the budgets and the funding to everything for the individuals, the constituents, the investors, the consumers.

00:59:31:04 - 00:59:36:09
Bennett Tomlin
What is the appropriate way to view this and like the way to react to this kind of behavior?

00:59:36:09 - 00:59:46:09
Corey Frayer
Well, the way to to view it is to view it as only scary. It's like that. There's just no way around that. In terms of what you can do.

00:59:46:11 - 00:59:46:19
Corey Frayer
I think, like.

00:59:46:19 - 01:00:11:21
Corey Frayer
Narrowly on crypto. If the SEC does actually do regulation, there's always a notice and comment process. And there are two things about that that are to some degree powerful, that I think not a lot of non-financial actors know. And so the APA is pretty strong. If you don't follow the process, you make your rule vulnerable on just a process file.

01:00:11:23 - 01:00:37:01
Corey Frayer
And every issue that's raised in a comment letter has to be addressed in a final rulemaking. And when you make someone say something about why like to justify why they're doing it, you have created for them a litigation risk. So it is actually valuable to write in comments about regulation. Personalized email like form emails don't shift Congress at all.

01:00:37:03 - 01:00:55:17
Corey Frayer
Personalized emails actually do. There are legislative correspondents who tally up how many genuine inquiries they got on the issue and at least on a weekly basis, say, like, here's what people are yelling at us about. Here's what should be at the top of our priority list. Here's like, what we should be politically concerned about. So it does matter.

01:00:55:19 - 01:01:03:18
Corey Frayer
But again, it needs to be personalized. It doesn't have to be a lot. It could be, you know, just a paragraph. But it's got to be your own words.

01:01:03:18 - 01:01:16:09
Corey Frayer
Like, the other thing you know, here is like, you need to support good journalism. And a lot of that is independent journalism, like, you know, you guys products, you know, Molly White, ProPublica.

01:01:16:11 - 01:01:21:22
Corey Frayer
You know, there's like, there's a lot of good, work being out there in the, independent journalism space.

01:01:21:22 - 01:01:36:23
Corey Frayer
And then the other thing I would say, like somewhat self-serving is like, there are a lot of good nonprofit organizations that do this work that collect, sort of, and represent the broad set of interest from consumers, and fight on these issues and educate on these issues.

01:01:37:01 - 01:02:01:00
Corey Frayer
Obviously, Consumer Federation of America would love if you supported us. There are tons of groups, Americans for Financial Reform, the National Consumer Law Center, the coalition for Sensible Safeguards. They do this work and, you know, are worthy of your support. They are effective organizations. And then I think sort of the broader political issues, I mean, for one direct action showing up in the streets, it matters.

01:02:01:00 - 01:02:06:15
Corey Frayer
It brings attention to issues. And like, it's kind of like the last refuge of protecting democracy.

01:02:06:15 - 01:02:29:10
Corey Frayer
Make them like the don't give up. Make them fight for every inch of territory. Cynicism is deadly. You can affect things. It it seems slow, it seems ineffectual. But it does matter. And you can slow this process by just being every bit of a barrier you can be, and like you're going to get run over.

01:02:29:12 - 01:02:30:09
Corey Frayer
But it's harder.

01:02:30:09 - 01:02:51:14
Corey Frayer
And I think the other thing is, like there in addition to like, consumer advocacy organizations, there are really expert executive overreach. And, government investigatory nonprofits. One of those is Protect Democracy, who do a lot of amazing work. One of those is, Pogo the project on government oversight. They've been around forever.

01:02:51:14 - 01:03:00:07
Corey Frayer
They have a lot of expertise in the space. They bring cases. And it's it's, like, really worth it to, again, support those kinds of organizations that are that are out there doing the work.

01:03:00:07 - 01:03:13:12
Cas Piancey
totally agree with that. And and I hate to do this to our audience because I'm sure some of them were like, okay, well, that's the end of the episode now, but I, I actually want to want to show you, like, just push one more question to you. Because you and I talked about it and I actually found it fascinating.

01:03:13:14 - 01:03:21:22
Cas Piancey
And I think a lot of our listeners don't understand this and, and will find this fascinating as well. So if anyone hasn't shut the podcast off yet.

01:03:21:22 - 01:03:38:01
Cas Piancey
The president of the United States, Elon Musk, is is is, in my personal opinion, the biggest fraud in the history of the world. And I think he's done a great job of getting away with it.

01:03:38:03 - 01:03:56:20
Cas Piancey
He is manipulative and he is gross, and he knows how to play people against each other and stuff. One of the things we talked about was I said, one of the things that really bothered me was after that, like, whatever it was, I don't know if it's the it was the taking, taking it private at 420 or whatever the, whatever the hell he said.

01:03:56:22 - 01:04:15:15
Cas Piancey
And the SEC said, okay, you have to have a Twitter sitter, like your days of tweeting whatever you want and having no repercussions. Those days are over. And then a few months later, he was just tweeting whatever the fuck you wanted again. And I asked you. I was like, why isn't the SEC

01:04:15:15 - 01:04:24:04
Cas Piancey
doing something? Like, every time this man tweets, they should be fining him every like, this man should have $1 billion bill, like sent to his door.

01:04:24:04 - 01:04:45:08
Cas Piancey
Like, okay, here's all the illegal tweets you did. You're tweeting 200 times a day. You. Oh, that's a lot of money. And you said, here's the problem. We would have to open up an investigation for every single one of those tweets. But my push back on you again was. So why would you set that rule up then, if you can't enforce the rule?

01:04:45:10 - 01:04:48:22
Cas Piancey
So I like, I guess I'm, I'm pushing this just because I'm like,

01:04:48:22 - 01:05:07:15
Cas Piancey
there has to be a better way. Like there has to be a better way. Not just for for the American public to have faith in regulators. Effectuating change against people like Elon Musk, but also for you guys, so that you don't have to open an investigation to find this dude every single time that he tweets, you know.

01:05:07:15 - 01:05:28:01
Corey Frayer
You actually, you kind of brought up something in that question that we we didn't talk about. It's a little bit lengthy, but I would love to talk about it. But to your to your first point, with regard to Elon Musk, look like they brought the case in the first place and there is ongoing litigation. But, you are spending a lot of resources taking on the richest man in the world.

01:05:28:06 - 01:05:32:06
Corey Frayer
There is a cost to rulemaking. There's a cost to all of the other reforms around the market. Now

01:05:32:06 - 01:05:47:11
Corey Frayer
you have to go after that power when they're breaking the securities laws. So, you know, so it's not a free for all. But I mean, I it it costs you a lot and the, the, the fundamental, unsatisfying part of that case is a bigger problem than the SEC.

01:05:47:11 - 01:05:49:19
Corey Frayer
It's like it's a problem of democracy.

01:05:49:21 - 01:05:51:07
Corey Frayer
Where, like.

01:05:51:09 - 01:06:04:04
Corey Frayer
The richest man in the world has a lot of resources, has a lot of political influence. How did we get here in the first place? Like, that's not an sec. Like, that's a dodge. But like that fundamental part of

01:06:04:04 - 01:06:12:14
Corey Frayer
rich people get better representation. They can make it a lot harder on you to enforce the law. Like the SEC is not the only thing he has escaped.

01:06:12:16 - 01:06:18:11
Corey Frayer
Like, that's a that's a bigger problem than disclosure in in securities fraud.

01:06:19:11 - 01:06:47:10
Corey Frayer
You also mentioned like sort of the, the idea of faith in these regulatory bodies. So the first thing I would say is that to the extent I'm sympathetic with the crypto markets, our, our traditional markets and market regulators have not clothed themselves in glory. There is a lot of genuine, unfairness in justice problems with that marketplace.

01:06:47:12 - 01:07:04:09
Corey Frayer
So it's not entirely unreasonable for me to see investors saying like, well, that system doesn't work. There are some people getting rich over here. Like, I might as well try my luck in this other place. It's not a completely unreasonable position. Now, that doesn't excuse the people making the money.

01:07:04:09 - 01:07:09:04
Corey Frayer
And it doesn't excuse the fraud, and it doesn't excuse all the, the, like, activity that's going on in that space.

01:07:09:06 - 01:07:10:08
Corey Frayer
But it is.

01:07:10:10 - 01:07:28:19
Corey Frayer
It is understandable how this other thing developed. And a lot of that comes from the, the 2008 crisis and just the abject failure to demonstrate the, the way that institutions are supposed to work for regular working Americans.

01:07:28:19 - 01:07:51:13
Corey Frayer
We bailed out the largest institutions. And then a foreclosure crisis raged on, not just a 2010, not just to 2013 through 2016, people were losing their homes have like, having the, the very basics of their lives upset, having to move their kids to new schools, having to leave their pets behind like there.

01:07:51:13 - 01:07:52:03
Corey Frayer
Is.

01:07:52:04 - 01:08:16:04
Corey Frayer
Correct righteous anger against institutions that did not show up, for these people. And I would blame a lot of the current political position where in on like, look, the Tea Party has existed, existed much prior to the crisis. But being able to say to a lot of people like, look, you're getting taxed, we pay all the stuff and we have to bail out the banks.

01:08:16:09 - 01:08:37:07
Corey Frayer
That's fundamentally unfair, is a very good recruiting tool in the face of a political and leadership vacuum from, you know, people with progressive economic views. And I think you can draw the line from that straight through, to the Trump administration, the first Trump administration, and the legacy that we've, you know, acquired now.

01:08:37:07 - 01:08:37:18
Cas Piancey
great answer.

01:08:37:18 - 01:08:39:09
Cas Piancey
Yeah, I appreciate it. Thank you. Corey,

01:08:39:09 - 01:08:42:02
Cas Piancey
is there anything else you wanted to address,

01:08:42:02 - 01:08:57:13
Corey Frayer
No, there are two big issues that I think might be worth talking about. One is the claim of, regulation by enforcement and not doing any regulations. And a couple things I would say about that, answer to the accusation. We didn't meet with market participants. We met with everyone who would who would come in the door.

01:08:57:13 - 01:09:15:13
Corey Frayer
It was a lot of people. The vast majority of them wanted those meetings to be confidential, which is something that we all we respect. And again, like nothing came from those, but we were genuine about like come in if we need to make some small tweaks because you can show us what doesn't work, we'll get you registered.

01:09:15:13 - 01:09:36:06
Corey Frayer
We will do this project. So I think, you know, the idea that, you know, we didn't do enough outreach and we looked kind of bad for doing that. I think that's unfair. Another issue is, inherently, how do you go to the courts and say the rules already apply and then put out regulations changing those rules at the same time?

01:09:36:12 - 01:10:03:16
Corey Frayer
Get judges look very askance at, well, if the rules apply, why are you doing the rules? That doesn't make any sense. So like that's another challenge. Again, we offered some guidance. We tried to be helpful. But there's a fundamental tension between enforcing the rules that are already in place and, you know, doing something new. And the last thing is, there's like criticism about sort of what you might call like, Gary's demeanor or bedside manner.

01:10:03:18 - 01:10:16:02
Corey Frayer
And a couple things about that or this, like, first of all, when there's a million or even $100,000 on the line, like being nice to the industry doesn't get you $100,000, doesn't get you $1 million like.

01:10:16:02 - 01:10:16:21
Corey Frayer
It just

01:10:16:21 - 01:10:17:10
Corey Frayer
there's not a.

01:10:17:10 - 01:10:25:07
Corey Frayer
Good reason to sort of like we didn't lose anything by being confrontational with industry. The second thing is.

01:10:25:09 - 01:10:26:12
Corey Frayer
Like to go.

01:10:26:12 - 01:10:55:00
Corey Frayer
Up against this industry, you have to be like, if you want good regulators, they're going to have to be contentious. They're going to have to be confrontational. Like, that's what it takes to fight a very, very large financial interest. And there's also just sort of like there's an inherent arrogance. And this is not just true of Gary, but like of, of me, myself to say of the 330 million Americans, like, I'm the one that should say how this $125 trillion market works.

01:10:55:02 - 01:10:56:03
Corey Frayer
Like.

01:10:56:05 - 01:11:23:20
Corey Frayer
Just to take that on and think that you're sorry. You have the answers and we need people to do that. But it is like this inherently arrogant place to start from. So like, that's I think the regulation by enforcement arguments were pretty unfair. I think the win record that we had, you know, we had we to the extent that cases, got judgments, which is not entirely within our control, we won a lot.

01:11:24:02 - 01:11:42:22
Corey Frayer
Library, the Terraform cases, kick, kick. Can tokens. Tokens, telegram gram tokens. You know, like, famously, you know, our our folks, court document at that, the New York,

01:11:42:22 - 01:11:44:11
Corey Frayer
like, crypto gathering,

01:11:44:11 - 01:11:57:01
Corey Frayer
Lending, staking as a service, the wahi, issue where, they were giving away information before they closed on Coinbase. We won Dao cases, which were unprecedented, piercing that veil of decentralization,

01:11:57:01 - 01:12:02:16
Cas Piancey
DAOs are like something I haven't thought about again for. For so long.

01:12:02:16 - 01:12:28:17
Corey Frayer
It's going to be an issue. We, handily, won the, the Coinbase motion to dismiss. We brought a lot of cases, that we unfortunately ran out of the time to see through, ripple, like I said, big one. I think that was actually genuinely a big, win for us. But those exchange cases that the really big ones we wanted to do, they take a lot of time to build, they take a lot of time to see through.

01:12:28:22 - 01:12:47:16
Corey Frayer
And just very unfortunately, we didn't got all that all the time we wanted. And look, we're not above criticism. But I really do believe, like we did a we had a good strategy. You can disagree with it, but I think we had an intelligent strategy that is very defensible. I think we all had a lot of wins.

01:12:47:18 - 01:12:56:12
Corey Frayer
And I think, you know, our administration did a really great job on this issue, given the constraints and, and, you know, courts that we were dealing with.

01:12:56:12 - 01:13:18:09
Bennett Tomlin
I think we should note that, like the regulation by enforcement, criticism is very often coming from people who would have been deeply disappointed in almost any regulation that would have been presented. Best case scenario, they were hoping for exemptions from regulations to be written for them. And so that's an important context for their criticisms. They were levying.

01:13:18:09 - 01:13:29:15
Corey Frayer
The fundamental ask was, let us do this business with the conflicts of interest. And that kind of points to because it's an economic argument. It kind of points to like the truth of crypto.

01:13:29:20 - 01:13:30:16
Corey Frayer
Which is

01:13:30:16 - 01:13:34:02
Corey Frayer
the inherent economic.

01:13:34:04 - 01:13:58:19
Corey Frayer
Argument for it is the regulatory arbitrage. And you take away that regulatory arbitrage and all of a sudden, like, there's not something profitable there. And you know, it. The other thing, like, I think we talked a little bit about this, about the the tensions of what it claims to be versus what it is. And, it is now a more centralized, and conflict prone industry than the traditional finance industry, which was like one of the first complaints.

01:13:58:19 - 01:14:30:16
Corey Frayer
There are tons of intermediaries. It was supposed to be peer to peer and without intermediaries. It was supposed to disrupt tradfri, and they bang down the door getting into the traditional financial system. Like they demanded SEC rules for securities while claiming they were not securities. So, like, you go down this line of what it pretended to be and where it is now, and it's like, look, the fact of the matter is, crypto is a machine where fraud and money laundering go in one side and can pay.

01:14:30:16 - 01:14:37:11
Corey Frayer
Donations come out the other side. And that's fundamentally the challenge that is before us now. And,

01:14:37:11 - 01:15:00:05
Corey Frayer
you know, like, it just it, it was never going to live up to its claims. It hasn't everything that was supposed to be the use case of crypto has turned out to be vaporware. But they're now in a position, to sort of fundamentally undermine the securities laws in a way that's going to be really harmful, not just for crypto investors, but for, the broader investing public generally.

01:15:00:05 - 01:15:11:10
Bennett Tomlin
Well, and you could argue that not just undermining financial regulations, but with the types of candidates crypto money supported undermining the constitutional republican democracy to more foundational level.

01:15:11:10 - 01:15:25:16
Corey Frayer
Absolutely true. And that's one of the places where, and don't get me wrong, like, Sean is a great guy. We talked about this. He and he, like knowledge publicly, so much to his credit. And this is not to, it's just like having the audience. I would like to correct the record on one thing.

01:15:25:21 - 01:15:27:21
Corey Frayer
I worked for Sherrod Brown for five years.

01:15:27:21 - 01:15:52:20
Corey Frayer
There was almost. He was as loud and confrontational and challenging to the industry on crypto as anybody else. He, essentially risked his seat. And it's not just crypto is why he lost, but it was certainly influential. I mean, there was a suggestion, sort of like they would have had an easier time if he had remained, the Democratic head of that committee.

01:15:52:22 - 01:16:17:05
Corey Frayer
And I just think like that is absolutely untrue. Yeah. Like it just incredible integrity to continue punishing those guys, given the threat of, you know, dumping hundreds of million dollars in a state that Trump won, like 55, 43. So I just want to make sure folks know that, like, there was almost no one, with as much integrity and as much on the line as Sherrod.

01:16:17:05 - 01:16:27:04
Corey Frayer
And that's one of those places where it is truly unfortunate that, like a progressive lion of the Senate representing Ohio, by the way, is lost now.

01:16:27:04 - 01:16:28:03
Bennett Tomlin
Cass, do you have anything?

01:16:28:03 - 01:16:42:07
Cas Piancey
Yeah. I mean, I guess the last thing I want to say is that, you heard it here first. Cash coin is safe. Like one of the safest investments you could possibly make. Definitely not a security. Everybody should invest immediately. We're golden. So there you go.

Crypto Critics' Corner

Episode 167 – What happened to the SEC? (feat. Corey Frayer)

What happened to the SEC? (Feat. Corey Frayer) – Crypto Critics' Corner

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Episode 167 – What happened to the SEC? (feat. Corey Frayer)

What happened to the SEC? (Feat. Corey Frayer) – Crypto Critics' Corner

Where to find the podcast:

Other episodes mentioned in this episode:

Other resources mentioned in this episode:

Where to find Crypto Critics’ Corner:

English Transcript:

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