GM, Joanna here.

Crypto firms are playing offence in the legal battle against the Securities and Exchange Commission.

At stake: the very survival of their businesses.

They’re doing this by filing cases in Texas or Louisiana.

Their endgame is to get their cases all the way to the Supreme Court, observers say.

Crypto.com and Bitnomial sued the regulator last week. MetaMask developer Consensys, apparel company Beba — backed by the DeFi Education Fund — and artists Brian Frye and Jonathan Mann have all brought their own suits in recent months. 

These suits are preemptive strikes against the regulator, which had the industry on the back foot as it filed lawsuit after lawsuit against crypto firms.

These industry suits were filed in the two southern states, in contrast to the SEC, which chooses to file its cases in New York or Washington.

So what?

Well, these two states fall under the Fifth Circuit of Appeals. 

Of the US’s 13 appeals circuits, the Fifth Circuit has always been among the most conservative, but veered hard right after Donald Trump appointed six judges to the court during his presidency.

The court has upheld restrictions on abortion, expanded gun rights — and is known as the go-to court if you want to resist the Biden administration and the power of regulators. 

Every industry in the US is trying to get its appeals heard in the Fifth Circuit, academic Todd Phillips told me. Crypto is no different.

“Everyone paying attention knows that the industry is forum-shopping” — choosing to file cases in sympathetic courts, Phillips, who is an assistant professor of Law at Georgia State University, said.

That’s not to say every company on this list is forum-shopping. One could argue, for instance, that Frye and Mann filed in Louisiana because that’s where Frye lives. 

Still, the outcome is that their cases will be heard in the Fifth Circuit if they get that far. 

That’s not the industry’s endgame, however.

Phillips said the industry hopes to manufacture a “circuit split” — a situation where two appeals courts make contradictory decisions — over whether crypto assets are securities.

When a circuit split occurs, the Supreme Court is more likely to hear a case so that it can decide the issue once and for all.

The SEC might reasonably hope for an appeals court win in New York or DC, as judges there have shown early sympathy for the SEC’s arguments. 

The industry's major court win was in Ripple, where Judge Analisa Torres ruled that crypto transactions were not securities when they happened on exchanges. 

That case is going to the Second Circuit of Appeals, which is fairly likely to overturn Torres’s ruling, Phillips said.

So to create that circuit split, the industry needs a Ripple-style win in another, more sympathetic appeals court. And it’s most likely to get that in Texas. 

Reach out to me at [email protected]. 

ICYMI

• The SEC sued Cumberland DRW, alleging the Chicago-based trading firm operated as an unregistered broker.

• Donald Trump’s crypto venture, World Liberty Financial, will begin selling its WLFI tokens on Tuesday, three weeks before the US presidential election.

• The South African tax authority warned crypto holders and traders to declare crypto assets on tax returns.

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Comment of the Week

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