On this day in legal history the Securities and Exchange Commission was established.
During the 1920s, the United States experienced a period of economic growth known as the "Roaring 20s," characterized by prosperity, consumerism, and increased debt. Many people invested in the stock market, taking huge risks without federal oversight. However, on October 29, 1929, known as "Black Tuesday," the stock market crashed, causing widespread losses and a loss of public confidence. This crash led to the closure of thousands of banks, bankruptcies, high unemployment rates, wage cuts, and homelessness, ultimately triggering the Great Depression.
In response to the stock market crash and to prevent future crises, the U.S. Senate Banking Committee conducted hearings in 1932, known as the Pecora hearings. These hearings revealed widespread misconduct in the financial industry, including misleading investors, irresponsible behavior, and insider trading. As a result, the Securities Act of 1933 was passed, requiring registration of most securities sales and aiming to prevent fraud by ensuring investors received truthful financial information.
The Glass-Steagall Act, also a response to the Pecora hearings, was passed in 1933. It separated investment banking from commercial banking and established the Federal Deposit Insurance Corporation (FDIC) to oversee banks, protect consumers' deposits, and handle consumer complaints.
To further regulate the securities industry, President Franklin D. Roosevelt signed the Securities Exchange Act in 1934, on this day in fact, creating the Securities and Exchange Commission (SEC). The SEC was granted extensive powers to regulate the securities industry, including the New York Stock Exchange, and had the authority to bring civil charges against violators of securities laws. Joseph P. Kennedy, a Wall Street investor and businessman, was appointed as the first chairman of the SEC by President Roosevelt.
It is also obviously the anniversary of the Normandy landings – while not explicitly a day in legal history, it is safe to say the second half of the 20th century in American jurisprudence might have transpired differently had the invasion gone differently.
The SEC is busy on its birthday. Today, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase Inc, the largest cryptocurrency asset trading platform in the United States. The SEC accused Coinbase of operating illegally without registering with the regulatory agency. According to the complaint, Coinbase has been functioning as an unregistered broker since at least 2019, conducting cryptocurrency transactions and evading disclosure requirements designed to protect investors. The SEC further stated that Coinbase Prime, a service that directs orders to Coinbase's platform and other platforms, as well as Coinbase Wallet, which enables investors to access liquidity outside of Coinbase's platform, also operated as unregistered brokers. Gary Gensler, the Chair of the SEC, expressed via Twitter that Coinbase's alleged failures deprived investors of crucial protections against fraud, manipulation, conflicts of interest, and routine inspection.
Coinbase's stock experienced a 15.9% decline in premarket trading following the filing of the lawsuit, and the company did not immediately respond to requests for comment. This SEC lawsuit against Coinbase came just one day after the regulator had filed a separate lawsuit against Binance, the world's largest cryptocurrency exchange, and its founder, Changpeng Zhao. The lawsuit against Coinbase was submitted in Manhattan federal court. This development adds to the regulatory scrutiny faced by major cryptocurrency platforms, highlighting concerns over compliance and investor protection.
By way of additional background on the aforementioned Binance suit, the SEC alleges that Binance and Zhao engaged in deceptive practices, conflicts of interest, lack of disclosure, and evasion of the law. They are accused of secretly allowing high-value U.S. customers to trade on the Binance.com platform while publicly claiming to restrict them. Additionally, the SEC claims that Binance.US, which was presented as an independent platform for U.S. investors, was actually controlled by Zhao and Binance behind the scenes.
The SEC also alleges that Zhao and Binance had control over customer assets, permitting commingling and diversion of funds, including to an entity owned by Zhao called Sigma Chain. Furthermore, the SEC asserts that Binance and BAM Trading operated as unregistered national securities exchanges, broker-dealers, and clearing agencies. They are charged with offering and selling their own crypto assets, including BNB and BUSD, without proper registration. Zhao is held responsible as a control person for these violations.
SEC Chair Gary Gensler emphasized the extensive deception and evasion of regulations by Zhao and Binance. He cautioned the public against investing with or on these unlawful platforms. The complaint filed by the SEC seeks accountability for the alleged violations of securities laws and investor protection.
Two former partners of Lewis Brisbois were forced out of the boutique they had started after their former firm released a collection of racist, sexist, and antisemitic emails they had written while employed there. You will remember we previously reported on their spin-off firm, when they were able to convince more than a hundred Lewis Brisbois attorneys to follow them. The remaining leaders of the spin-off boutique, which was formed by John Barber and Jeff Ranen, will establish a new firm. The partners' former firm, Lewis Brisbois, shared a series of emails spanning more than a decade that revealed disparaging remarks made by Barber and Ranen about female associates, clients, and others, as well as their use of racist, antisemitic, and anti-LGBTQ slurs. Following the release of the emails, Barber and Ranen resigned from Barber Ranen, expressing their remorse and apologizing for their words.
The exposure of these emails could negatively impact recruitment efforts for both Lewis Brisbois and the new boutique. It may also result in client losses for the firms. The incident has drawn attention to the need for a more inclusive and respectful culture in the legal profession. The former partners have stated that they will take time away from the legal business to reflect on their actions and explore ways to demonstrate their contrition and commitment to a more inclusive world. The release of these emails has prompted discussions about the need for ethical training and quality control in the legal profession.
Texas has emerged victorious in its antitrust lawsuit against Google as a U.S. judicial panel has ordered the case to be returned to federal court in Texas. Initially, Google had succeeded in moving the lawsuit to a federal court in New York upon its request, where other advertising technology cases were being heard. However, Texas sought to have the case moved back after the U.S. Congress passed the Venue Act in 2022, granting state attorneys general the right to choose the jurisdiction for litigating antitrust lawsuits. The Texas lawsuit accuses Google of violating the law by exerting control over the process used by advertisers to place online ads, resulting in reduced revenues for website publishers. Google has expressed its disagreement with the decision, asserting that the Texas Attorney General's case is flawed in terms of both facts and law. The case will now be heard in the eastern district of Texas, known for its efficiency in handling cases. Google is facing antitrust lawsuits globally, with allegations of abuse of dominance in various areas of its businesses. Apart from the Texas lawsuit, Google is also battling the U.S. federal government in two separate antitrust lawsuits related to search dominance and advertising technology, while states led by Utah have accused the company of violating antitrust laws in its management of the app store.
Hey, looky here – its Column Tuesday again!
This week I wrote about the Texas tax on electric vehicles and its overall wrongheadedness. I tried to give credit where credit was due, Texas has it partially right—the state is just taxing the wrong thing, at the wrong time, with the wrong rate, and for the wrong reasons. Other than that, the EV tax is a great idea.
About that tax: starting from September, Texas will impose a $400 initial registration fee and a $200 annual renewal fee for EV owners. The rationale behind the fee is to offset the portion of the gas tax that goes towards infrastructure and road maintenance, which EVs do not contribute to. However, I argue that the bill is more about protecting the oil and gas industry and winning a culture war than about effective policy. The bill excludes hybrid vehicles and other small electric vehicles from the tax, leading to logical inconsistencies.
An alternative approach I suggest is to implement a tax based on the kilowatt hours used at public chargers. This would more accurately reflect the use of infrastructure by EVs and could fund public charging infrastructure. The tax could also be adjusted based on income to address regressiveness. However, if the goal of the tax is to offset wear and tear on roads and bridges, hybrid vehicles, which have higher fuel efficiency than traditional gasoline-powered cars, should also be subject to such a tax.
The new EV tax in Texas results in EV drivers paying more for road maintenance compared to gas-powered car drivers.
While there may be a need for a tax on EVs in the future when they become more prevalent, it should be implemented with careful consideration and for the right reasons. The current EV tax in Texas is misguided and poorly designed.