Securities Industry Commentator by Bill Singer Esq

January 24, 2023

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[G]oogle monopolizes key digital advertising technologies, collectively referred to as the “ad tech stack,” that website publishers depend on to sell ads and that advertisers rely on to buy ads and reach potential customers. Website publishers use ad tech tools to generate advertising revenue that supports the creation and maintenance of a vibrant open web, providing the public with unprecedented access to ideas, artistic expression, information, goods, and services. Through this monopolization lawsuit, the Justice Department and state Attorneys General seek to restore competition in these important markets and obtain equitable and monetary relief on behalf of the American public.

As alleged in the complaint, over the past 15 years, Google has engaged in a course of anticompetitive and exclusionary conduct that consisted of neutralizing or eliminating ad tech competitors through acquisitions; wielding its dominance across digital advertising markets to force more publishers and advertisers to use its products; and thwarting the ability to use competing products. In doing so, Google cemented its dominance in tools relied on by website publishers and online advertisers, as well as the digital advertising exchange that runs ad auctions. 

Former CEO Of Email Security Company Sentenced To Five Years In Prison (DOJ Release)
In the United States District Court for the Southern District of New York, Robert Bernardi, 68, former Chief Executive Officer of the Virginia-based email security company GigaMedia Access Corporation, d/b/a GigaTrust pled guilty to conspiracy to commit securities fraud, bank fraud, and wire fraud; and he was sentenced to five years in prison plus three years of supervised release and ordered to forfeit $3,442,264 and to pay restitution to his victims. Previously, Nihat Cardak pled guilty to one count of conspiracy to commit securities fraud. As alleged in part in the DOJ Release:

From in or about 2016 through at least in or about 2019, GigaTrust was a private company headquartered in Virginia that purported to be a market-leading provider of cloud-based content security solutions.  BERNARDI founded GigaTrust and served as its CEO.  BERNARDI, along with two co-defendants, NIHAT CARDAK and SUNIL CHANDRA, devised a scheme to defraud investors and lenders by (i) fabricating and disseminating false and misleading bank account statements that overstated GigaTrust’s cash deposits; (ii) fabricating and disseminating false and misleading audit materials that purported to have been issued by GigaTrust’s auditors and overstated GigaTrust’s performance; (iii) forging and disseminating a false and misleading letter purporting to be from GigaTrust’s New York-based counsel; and (iv) impersonating or causing others to impersonate a purported customer and auditor of GigaTrust on telephone calls with a prospective lender. 

Specifically, BERNARDI sent fabricated audit materials to a New York-based investment firm, and BERNARDI and CARDAK used fabricated bank statements to obtain multiple rounds of loans and investments for GigaTrust worth millions of dollars.  After a New York-based bank (“Bank-1”), which had loaned GigaTrust $25 million, declared that GigaTrust had defaulted on the terms of its loan agreement, BERNARDI and CARDAK induced additional investments in GigaTrust through, among other things, forging a letter purporting to be from GigaTrust’s New-York based counsel.  Shortly thereafter, while negotiating another $25 million deal with a lender (“Lender-1”), BERNARDI and CARDAK devised a scheme to impersonate a GigaTrust customer and auditor on requested diligence calls, which induced Lender-1 to make a $25 million loan to GigaTrust.  BERNARDI recruited CHANDRA to pose as one of GigaTrust’s alleged customers on a call with Lender-1.  BERNARDI and CARDAK also fabricated bank statements and sent them to Lender-1 right before closing the $25 million deal. 

GigaTrust filed for Chapter 7 bankruptcy protection in the District of Delaware on or about November 27, 2019.

Former Miami-Dade County Resident Sentenced to Prison for Running Ponzi Scheme (DOJ Release)
In the United States District Court for the Southern District of Florida, Judith Dianne Paris-Pinder, 49, pled guiltyto fraud; and she was sentenced to 48 months in prison plus three years of supervised release, 200 hours of community service, and she must pay $2.4 million in restitution. As alleged in part in the DOJ Release:

[P]aris-Pinder was president of Pinder Associates Inc. and from November 2019 to August 2021 she obtained money from investors by lying to them. She told them she worked with or for lawyers who represented litigation plaintiffs. She told investors these plaintiffs had settled claims and were just awaiting payouts from insurance companies.

Paris-Pinder told investors she was looking for “hard money lenders” to finance payments to the attorneys’ clients. Investor funds would be used to loan plaintiffs a portion of their settlement amounts and in exchange the plaintiffs would provide their full settlement money to Paris-Pinder. Then, once the settlement checks were received from the insurance companies, Paris-Pinder supposedly would distribute to investors their initial contributions plus any returns–which could be as high as 50 percent. 

According to her plea, the entire investment was a scam. Paris-Pinder did not work for or with lawyers with litigation clients and there were no settlement agreements. It is alleged that Paris-Pinder kept the Ponzi scheme going by using money from new investors to pay existing investors and that she raised approximately $4.6 million causing $2.4 million in investor losses. 

Former Energy Company Executive Sentenced for $15 Million Investment Fraud (DOJ Release)
In the United States District Court for the Northern District of California, Joey Stanton Dodson, 58, pled guilty to one count of wire fraud; and he was sentenced to five years in prison. As alleged in part in the DOJ Release:

[B]etween November 2012 and May 2015, Dodson engaged in a scheme to defraud investors while serving as the executive chairman and managing partner of Citadel Energy (Citadel), which purported to provide fluid-management services to oil and gas companies. In his role, Dodson was responsible for raising funds, controlling the bank accounts, and disseminating financial information to investors for three limited partnerships affiliated with Citadel. As part of the scheme, Dodson made materially false and misleading representations and omissions to prospective and existing investors about the intended use of investor funds, the status of a potential acquisition by a private-equity firm, and Dodson’s own compensation. 

After inducing victims to invest, Dodson pooled the funds from the limited partnerships and conducted multiple transfers between Citadel-related accounts in order to divert investor funds for his own benefit and to conceal his actions. In total, Dodson fraudulently raised over $15.6 million from more than 50 investors and misappropriated $1.3 million in investor funds, which he used to pay for his personal expenses and to repay earlier investors in unrelated entities known collectively as Duke Equity. After Dodson’s misappropriation was discovered, the limited partnerships were placed into bankruptcy and the investors suffered a total loss of their investments.       

Vitaly Borker Pleads Guilty To Defrauding Customers Of His Eyewear Websites For The Third Time (DOJ Release)
In the United States District Court for the Southern District of New York,Vitaly Borker pled guilty to one count of wire fraud. As alleged in part in the DOJ Release:

Beginning in at least June 2020, after being released from federal custody and entering a Residential Reentry Center, VITALY BORKER operated an eyewear sales and repair services website called claimed, among other things, that it sold “brand new and 100% authentic designer eyeglasses and sunglasses” and that it had “thousands of pairs of glasses in stock. . . rady for shipping as early as TODAY.”  In truth, however, the eyewear sold to customers of was often used or counterfeit.  Rather than carrying a large inventory of “brand new and 100% authentic eyewear,” filled its customers’ orders by purchasing comparable items on a third-party online marketplace (the “Marketplace”).  The eyewear purchased by from the Marketplace was often used or counterfeit, but passed off the glasses as new and authentic.  In addition, while claimed to be a “leader in the repair of sunglasses and eyeglasses” and able to “fit any eyeglasses or sunglasses with your custom prescriptions,” customers who sent eyewear to either did not have their eyewear repaired at all or otherwise received unsatisfactory work.

In order to conceal his role in operating, BORKER – who has twice previously been convicted in this District of crimes relating to his operation of eyewear websites – used the identities of other individuals in connection with the operation of

SEC Charges Investment Club Manager for Misappropriating Investor Funds (SEC Release)
In the United States District Court for the Central District of California, the SEC filed a Complaint chargting Austin D. Ellison-Meade with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Parallel criminal charges were filed charging Meade with seven counts of criminal wire fraud and identity theft.
As alleged in part in the SEC Release:

[F]rom at least 2019 through 2021, Meade raised at least $2.8 million for from approximately 31 individual investors based on representations that he would use the funds to engage in algorithmic securities trading and that the funds would be readily available upon request. The SEC complaint further alleges that Meade never used investor funds to trade securities, but rather misappropriated money from to pay for personal expenses like luxury automobiles and make Ponzi-like payments. According to the complaint, Meade distributed fake account statements to cover up his fraud and to persuade investors to remain invested in In addition, the complaint alleges that, contrary to Meade's representations, most investors were unable to withdraw their money upon request, with Meade offering a variety of excuses to explain why he was unable to access the funds. According to the SEC complaint, Meade charged investors a 2% fee upfront based on the amount of capital they invested and a 20% quarterly fee on any profits he generated for them.

SEC Obtains Asset Freeze and Other Relief, Charges Miami Investment Advisers for Fraudulent Scheme Using Fabricated Audit Reports and Attorney Letters (SEC Release)
In the United States District Court for the Southern District of Florida, the filed a Complaint charging Jack C. Ridall and Guss Capital, LLC
with violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) and Rule 10b-5 of the Securities Exchange Act, and Sections 206(1), (2), and (4) and Rule 206(4)-8 of the Investment Advisers Act of 1940. Named as a Relief Defendant is Ridall's wife, Shannon A. Sharp. As alleged in part in the SEC Release:

[F]rom at least December 2020, Ridall and Guss Capital represented themselves as successful money managers and raised approximately $750,000 from at least four investors by representing that they would invest their money in a private fund. The defendants allegedly deceived investors by never investing their money as promised, using fabricated audit reports appearing to be from the global accounting firm KPMG LLP claiming Ridall managed $101 million in assets, and sending fake attorney letters purportedly from the international law firm of K&L Gates LLP lying about investors' profits. The SEC's complaint alleges that the defendants misappropriated more than 75% of investor funds for personal expenses such as luxury vehicles, fine dining, and jewelry and shopping sprees in Miami Beach.

SEC Charges Wisconsin Investment Adviser with Defrauding Senior Clients (SEC Release)
In the United States District Court for the Western District of Wisconsin, the SEC filed a Complaint charging Anthony B.. Liddle
with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. As alleged in part in the SEC Release:

[L]iddle, while acting as an investment adviser, fabricated documents and made misrepresentations to clients, many of whom were seniors. As alleged, Liddle misrepresented that these clients' portfolios had become too risky and needed to be replaced with less risky securities. However, these "less risky" securities were often rated as high risk and were also unavailable. The complaint alleges that Liddle had advisory clients send money directly to his investment advisory company, where Liddle misappropriated client funds and never invested the money on his clients' behalf. The complaint alleges that Liddle then fabricated statements and made purported investment payments that were in fact coming from defrauded client funds, to advisory clients in order to continue his fraudulent scheme. 

SEC Awards $28 Million Whistleblower Award to Joint Claimants
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-96739; Whistleblower Award Proc. File No. 2023-31)
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award totalling of over $28 million to Joint Claimants. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnotes omitted]:
[A]ll four of the Joint Claimants submitted a supplemental Form TCR providing significant new information and analyses that significantly contributed to the success of the Covered Action. In determining that the Joint Claimants should receive a ***% award, the Commission considered the factors under Exchange Act Rule 21F-6.6 The record reflects that (1) the Joint Claimants provided significant information based on both “independent knowledge” and “independent analysis”;7 (2) Joint Claimants met with Commission staff on several occasions and provided substantial ongoing assistance throughout the investigation; (3) Joint Claimants’ information and assistance was critical to staff’s ability to identify and investigate the unlawful securities violations and resulting Covered Action and there is a close nexus between their information and the Commission’s charges; and (4) the information provided by Joint Claimants resulted in the return of millions of dollars to harmed investors.   

Statement on In the Matter of Bloomberg Finance, L.P. by SEC Commissioner Hester M. Peirce and SEC Commissioner Mark T. Uyeda

The Commission’s settled enforcement action finds that Bloomberg Finance, L.P. (“Bloomberg”) violated Section 17(a)(2) of the Securities Act of 1933, which prohibits the use of materially false statements to obtain money or property in the offer or sale of securities.[1] Because we do not believe that the particular statements at issue were made in the offer or sale of securities, we do not support bringing this action.

Bloomberg operates an independent pricing service (“BVAL”), through which it provides to customers prices, on a daily basis, for more than 2.5 million securities across multiple asset classes, including thinly-traded and hard-to-price fixed income securities. Along with the price, Bloomberg provides a BVAL score, on a scale of 1-10 (lowest to highest), to convey the amount and consistency of the market data underlying the price. In describing to customers how it arrived at prices for fixed income securities, Bloomberg disclosed that it used one of two algorithms—the direct observation algorithm or the observed comparable algorithm. According to Bloomberg’s disclosures, the direct observation algorithm used market data about the target security. The observed comparable algorithm, used when market data about the target security either was unavailable or could not be corroborated, priced the target security using market data regarding comparable securities.

As part of the pricing process, Bloomberg’s evaluators could use an Evaluator Input Tool (“EIT”) to incorporate single data points that were not automatically captured by the algorithms. On some occasions, the EIT was used to add data to the observed comparable algorithm. In some instances, the EIT’s use could have produced a price for “certain illiquid, thinly traded securities for which little observable market data exists” that, for at least short periods of time, was based on the single data point. The Order is notably vague about the frequency of this occurrence, stating only that it occurred “for a very small fraction of the total reported valuations” of “certain fixed income securities.” The Order further notes that the single-data-point prices had correspondingly low BVAL scores to reflect the “limited amount and consistency of [the] market data” underlying the price. Nevertheless, the Order finds that Bloomberg made a materially misleading omission to its customers when it failed to disclose that the use of EIT in its algorithm could produce—in a “very small fraction” of instances—a price that temporarily reflected a single data point. The Order states that this materially misleading description violated Section 17(a)(2) because it “impacted offers and sales of certain securities.”

Pricing services such as Bloomberg’s BVAL are important, and a wide range of market participants—mutual funds, money managers, and hedge funds to name a few—use pricing services for multiple purposes. Specifically, the Order notes that BVAL prices are potentially useful for “evaluating whether to hold or sell securities or to purchase different securities, determining fund share prices and fund valuations, reporting prices of securities on investor account statements and in corporate books and records, complying with generally accepted accounting principles or other applicable obligations with respect to valuations, computing the value of securities and portfolios, and calculating advisory and asset management fees.” The information provided by pricing services like BVAL can be useful and important to securities transactions and market participants.

Section 17(a), however, does not prohibit material misstatements related to any information that is important and useful to securities transactions, or even misstatements that “impact” offers or sales of securities; it prohibits material misstatements “in the offer or sale of any securities.” Congress defined “offer” and “sale” to include “every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.”[2] The key question is whether Bloomberg’s statements to its customers describing its BVAL pricing methodologies are fairly categorized as being made “in the offer or sale” of securities. We do not believe they are.

Importantly, the Order does not claim that Bloomberg provided materially misleading prices; rather, the Order finds that Bloomberg’s description to its customers of its pricing methodologies was materially misleading.[3] Bloomberg was not offering or selling, or attempting to offer or dispose of, the securities being priced. It was offering and selling its services—the providing of price information that, among many possible uses, might be useful to Bloomberg’s customers (or the customer’s customers) in a subsequent offer or sale of securities. Indeed, Bloomberg’s statements to customers purchasing its pricing services in no way resemble the misrepresentations before the Supreme Court when it explained that “in the offer or sale” was “expansive enough to encompass the entire selling process.”[4] Even if the “in” of Section 17(a)(2) is not narrower than the “in connection with” of Section 10(b),[5] Section 17(a)(2) is not broad enough to include statements that have nothing to do with the selling process. Here, Bloomberg’s statements to its customers describing how it created the BVAL prices are far removed from any offers or sales of securities.

It could be that, in light of the importance of their services, the Commission should consider whether and how providers of pricing services should be subject to oversight. Indeed, last year the Commission issued a request for comment about whether pricing services’ activities implicate the Investment Advisers Act of 1940.[6] A one-off enforcement action that rests on a strained reading of Securities Act Section 17(a)(2) is not the right way to make regulatory policy.

[1] In the Matter of Bloomberg Finance, L.P., Rel. No. 33-11150 (Jan. 23, 2023), available at

[2] Securities Act Section 2(a)(3).

[3] At best, one might argue that Bloomberg aided and abetted the violations by others who engaged in offers and sales. However, the Order does not find any material misstatements or omissions by others that Bloomberg could have aided and abetted.

[4] United States v. Naftalin, 441 U.S. 768, 772-73 (1979) (noting it was undisputed that “by falsely representing that he owned the stock he sold, [Naftalin] defrauded the brokers that executed his sales”).

[5] Exchange Act Section 10(b) makes it unlawful “to use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance” in contravention to Commission rules. Securities Act Section 17(a)(2) makes it “unlawful for any person in the offer or sale of any securities” to obtain money or property by means of a misstatement of material fact, whether affirmatively or by omission. Whether “in” and “in connection with” have identical reach when it comes to sales of securities is not altogether clear and is a question left open by the Court. See, e.g., Naftalin, 441 U.S. 773 n.4 (“[W]e are not necessarily persuaded that ‘in’ is narrower than ‘in connection with.’ Both Congress and this Court have on occasion used the terms interchangeably. But even if ‘in’ were meant to connote a narrower group of transactions than ‘in connection with,’ there is nothing to indicate that ‘in’ is narrower in the sense insisted upon by Naftalin.” (citations omitted)).

[6] Request for Comment on Certain Information Providers Acting as Investment Advisers, 87 Fed. Reg. 37254, Rel. No. IA-6050 (June 22, 2022) (available at

FINRA Announces Departure of Enforcement Head Jessica Hopper
After 18 years at FINRA, Jessica Hopper, Head of Enforcement, will be leaving the self-regulatory-organization. Christopher Kelly, Senior Vice President and Deputy Head of Enforcement, will be the Acting Head of Enforcement.  

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Calling All Unreasonable Wall Street Professionals ( Blog)
Maybe this year, finally, someone launches a trade group for the industry's hundreds of thousands of professionals. Yeah, I know, wishful thinking. But there are rumblings. I hear them. I feel them. The industry's grunts are getting fed up. They aspire to more than the glorified role of a teleservice operator working out of a soul-crushing call center masquerading as a branch office. The Covid pandemic showed them that they could work from home, work remote. The purported support services provided by the erstwhile wirehouses have been revealed as illusory -  and not worth the hit to gross commissions or fees. In 2023, if pressed, many Wall Street professionals would admit that they now realize that they can deliver better customer service if they weren't shackled to a large industry employer by anti-consumer laws and rules enforced by co-opted industry regulators.

Corfu Woman Sentenced For Her Role In Fraudulent African Orphanage Scheme (DOJ Release)
In the United States District Court for the Western District of New York, Julie Keller, 57,  was " was convicted of wire fraud, was sentenced to serve one year probation, and pay restitution totaling $162,853.59 . . . " As alleged in part in the DOJ Release:

[I]n December 2014, Keller began communicating online with someone who identified themself as “Eric Holder,” who claimed to be raising money to build an orphanage in Africa. Between July 2015 and September 2020, Keller received money from numerous individuals (victims) who allegedly were contributing financially to the orphanage project. Keller deposited the money in bank accounts at First Niagara Bank, M&T Bank, KeyBank, and Bank of America that she owned and controlled, before dispersing the funds to other bank accounts located outside of the United States. During the course of the scheme, each of the banks closed Keller’s accounts, advising her that the accounts were closed due to suspicious and fraudulent activity. However, Keller became aware during the course of the scheme that the orphanage project was fraudulent and the individuals sending her money were doing so under false pretenses, or she strongly suspected that the scheme was fraudulent but consciously avoided learning the truth, and continued to deposit funds into her accounts from victims. The total loss amount to victims was $182,730.76.

Bill Singer's Comment: Okay, sure, she was "convicted" of wire but was that after a trial or was that pursuant to a plea? Seems to me that at the very least, a DOJ Release should provide that basic information when announcing sentencing of a Defendant. 

Bloomberg to Pay $5 Million for Misleading Disclosures About Its Valuation Methodologies for Fixed Income Securities (SEC Release)
The SEC’s order finds that Bloomberg violated section 17(a)(2) of the Securities Act. Without admitting or denying the findings in an SEC Order, Bloomberg Finance L.P. agreed to cease and desist from future violations and to pay a $5 million penalty. The SEC’s Order notes that Bloomberg voluntarily engaged in remedial efforts to make improvements to its BVAL paid subscription service, which provided daqily price valuations for fixed-income securities. As alleged in part in the SEC Release:

[F]rom at least 2016 through October 2022, Bloomberg failed to disclose to its BVAL customers that the valuations for certain fixed-income securities could be based on a single data input, such as a broker quote, which did not adhere to methodologies it had previously disclosed. The order finds that Bloomberg was aware that its customers, including mutual funds, may utilize BVAL prices to determine fund asset valuations, including for valuing fund investments in government, supranational, agency, and corporate bonds, municipal bonds and securitized products, and that BVAL prices, therefore, can have an impact on the price at which securities are offered or traded. 

SEC Obtains Over $5 Million Final Judgment Against Individual in Multi-Million Dollar Microcap Pump and Dump Scheme (SEC Release)
In the United States District Court for the Eastern District of New York, without admitting or denying the allegations in an SEC Complaint, Charlie Abujudeh consented to the entry of a final judgment permanently enjoining him from violating the registration provisions of Section 5 and the antifraud provisions of Section 17(a) of the Securities Act, and the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Abujudeh consented to the imposition of a five-year penny stock bar, a five-year officer-and-director bar, disgorgement of $5,423,045 and prejudgment interest of $115,993, and a $414,366 civil penalty. As alleged in part in the SEC Release:.

[F]rom August 2019 to at least September 2020, Abujudeh worked with others to fraudulently sell several microcap companies' stock to investors by making misleading statements during high pressure sales calls and/or email promotions. The SEC alleges that, as part of the scheme, Abujudeh and his associates convinced investors to invest in the stock of Odyssey Group International, Inc., as well as other microcap companies, including Scepter Holdings, Inc., and CannaPharmaRx, Inc. Abujudeh paid stock promoters to tout Odyssey stock over the phone to unsuspecting retail investors who were recruited through false and misleading representations. Abujudeh also allegedly paid for email promotional campaigns and schemed to hide his control over and simultaneous sale of Odyssey, Scepter, and CannaPharmaRx stock into the increased demand that the promotions he paid for had generated. The SEC's complaint alleges that Abujudeh funneled hundreds of thousands of dollars of the illegal Odyssey stock sale proceeds to an Odyssey insider with whom he had been coordinating.

Outdated Remarks before the Digital Assets at Duke Conference by SEC Commissioner Hester M. Peirce

Thank you, Jimmie [Lenz] and Lee [Reiners] for putting together this conference and for inviting me to be part of it. I must begin with my standard disclaimer: the views I represent are my own and do not necessarily represent the views of the Securities and Exchange Commission (“SEC”) or my fellow Commissioners.

I was particularly drawn to this conference because it embodies what a university discussion should be—people with different perspectives coming together to listen to and challenge one another. Our cohosts set the tone for this viewpoint diversity. Professor Lenz actively experiments with blockchain technology,”[1] while Professor Reiners is a self-proclaimed “long-time crypto skeptic,” albeit one who acknowledges “that the broader digital asset industry is not going away.”[2]

Had this conference happened a couple of years ago, to capture the crypto mood, I could simply have lit my speech on fire, watched it burn while someone videoed the blaze, and then created an NFT.[3] Now, however, much of the crypto world is burning, so you will have to endure hearing the speech. The fires that bad and careless actors lit in the crypto world last year offer lessons for the new year, some of which I will discuss this evening. People within the crypto industry and those of us who regulate it could stand to learn something from the terrible, horrible, no good, very bad year[4] of 2022. Underlying these lessons is the truth that technology takes time to develop and often must combine with innovative developments in other fields to realize its full potential. In the interim, it can appear, particularly to outsiders looking in, awkward, useless, or downright harmful.

Over the holidays, I watched an episode of an old TV series, “That Girl,” in which Marlo Thomas plays an aspiring actress trying to make her way in New York City. The episode, which ran originally in the mid-1960s, was about CompuDate, a computer dating service that was “the coming thing in human relations.”[5] I was surprised to see that computer matching had already begun more than half a century ago, but the show seems to have drawn on reality. Around that time, two sets of students—one at Stanford and another at Harvard—developed operational computer dating projects.[6] Given the limitations of computer technology in the 1960s, it was not, of course, exactly the internet dating that has become so prevalent today. As an experiment, the Marlo Thomas character called up CompuDate, which fed her wish list into its computer on old-timey punch cards. The computer spat out the perfect match, and Marlo Thomas’s character went to the CompuDate office to pick up a photo of the guy who showed up at her door a few hours later. Spoiler alert: In the end, the Marlo Thomas character decided the boyfriend she had picked for herself was better than the guy the computer picked, but not by much.

Computer dating at the time the show was filmed was still very much a work in progress, but, as one character on the show explained, it had “splendid possibilities.”[7] These possibilities would not fully manifest until technology, including personal computers, the internet, artificial intelligence, and smartphones, unleashed it.[8] While this TV episode presciently explored the cutting edge of computer dating at the time, even the best fiction writers could not have predicted how technological developments have helped dating both evolve . . . and admittedly also devolve.[9]

On the show, CompuDate, a centralized intermediary, was still very involved in selecting your date. You still had to go down to the CompuDate office. You had to trust the people running the computer to enter your dating criteria accurately and not to override its results with their own judgments about who might be your perfect date. You could not chat with potential dates online before meeting them; they got your name, address, and photo and showed up at your door. Arguably, the involvement of a computer did not add much to the process. Why not simply hire a human matchmaker?[10] Now, however, online dating is the norm; one in four married couples met that way.[11] Computer matching is more workable on a large scale because the technology has developed to support it.

This silly example should not be mistaken for a prophecy that crypto will sweep society off its feet as online dating has, but prophets of crypto’s demise do not know the future either. Crypto’s value proposition depends primarily on the builders of this technology, not on regulators like me, who lack technical expertise and stand on the periphery looking in. Maybe that means you also ought to take the lessons for the industry that I will offer with a grain of salt, but here goes:

The first and most important lesson of the evening for people who believe in crypto’s future is that they should not wait for regulators to fix the problems that bubbled to the surface in 2022. They can act themselves to root out harmful practices and encourage good behavior. Regulatory solutions, which tend to be inflexible, should be a last resort, not a first resort. People working together voluntarily are much better at fixing things than regulators using their inherently coercive power to impose mandatory solutions. Privately designed and voluntarily implemented solutions can be both more effective and more tailored because the people driving them better understand the technology and what they are trying to achieve with it. Iterating and experimenting with private solutions is easier than it is with regulatory ones. Moreover, private solutions avoid the systemic risk that comes from an industry homogenizing because everyone has to fit into the same regulatory parameters.

Second, remember the point of crypto. It is not driving up crypto prices so that you can dump your tokens on someone else. Digital assets need to trade, so centralized venues or decentralized exchange protocols are necessary, but trading markets are not the ultimate point. Nor is the point of crypto to lend your crypto assets so that other people can trade them, although lending markets, in which everyone is aware of the risks, are not inherently problematic. Rather, at its core, crypto is about solving a trust problem: how can you interact and transact safely with people you do not know. Traditionally, people have looked to centralized intermediaries or government to solve this problem, but technology like cryptography, blockchain, and zero-knowledge proofs offer new solutions. Out of these technologies flows a multitude of potential uses, including smart contracts, payments, provenance, identity, recordkeeping, data storage, prediction markets, tokenization of assets, and borderless human collaboration. The technology is not an end in itself, but useful only if it can “tackle the hard, messy, human problems . . . and serve real people.”[12] If it creates more problems than it solves, then critics are right to dismiss it.

Third, each crypto asset, blockchain, and project needs to be assessed on its own merits. Talking about crypto as if it is a monolith obscures important differences and makes it easier for scammers to hide in the crowd.

Fourth, problems in the design of a protocol or at a centralized infrastructure provider can have sweeping, disastrous consequences. Testing protocols and careful analysis of the incentives you are building into infrastructure can prevent problems from arising after the protocol or infrastructure has been widely adopted.

Fifth, although crypto enables reduced reliance on centralized intermediaries, as long as companies are actively involved in crypto, people should take the same precautions as they would when dealing with any other company. Unthinking trust in centralized intermediaries is antithetical to crypto. As you assess a company’s products and services, consider the associated risks. For example, if a company plans to take your assets and lend them to someone else, who is that person, and what happens if that person cannot return the assets or if the company goes bankrupt? Regulation is not a silver bullet, but understanding whether, by whom, and how the company is regulated can help you calibrate your own due diligence. For their part, crypto companies should take the steps necessary to earn and keep their customers’ and counterparties’ trust. Proofs of reserve, audits of assets and liabilities, internal control audits, and other mechanisms for ensuring that the company is sound and customers’ assets are safe are key.[13]

Sixth, in addition to the importance of recognizing and protecting against counterparty risk, many other lessons from traditional finance are equally applicable in crypto. To highlight several:

  • Risks matter. Higher returns come with higher risks.
  • Counterparties matter. Choose your counterparties and the amount of exposure to each of them wisely.
  • Your counterparties’ counterparties matter. There is no such thing as pure bilateral risk. An entity’s financial problems can quickly become its customers’ and counterparties’ financial problems and their counterparties’ problems, and then the whole industry’s problems.
  • Collateral matters. If you make an unsecured loan, you will be at the back of the line in bankruptcy. A secured loan affords you more protection, but only if the collateral is good.
  • Leverage matters. Leverage magnifies losses in the same way that it can magnify gains.
  • Conflicts of interest matter. Before buying based on someone else’s recommendation, understand, among other things, whether her interests match yours. If she is telling you to buy while she is selling, you might want to ignore her advice.
  • Motives for buying matter. Fear of missing out is an inadequate reason to buy any asset, including a crypto asset.
  • Risk controls matter. Effective risk controls are necessary to prevent traders from doing what traders too often try to do: try to make up for losses with more trading.
  • Concentration matters. If a few large, interconnected companies or corporate groups dominate the crypto industry, it will struggle to be nimble and innovative. A multitude of smaller, independent projects fosters dynamism and, when fraud or failure happens, the repercussions are likely to be more contained. Distributed systems are generally more resilient than centralized systems, in part because they have multiple nodes so failure of one does not cause the failure of all.

Perhaps the most important message to the crypto industry is to listen to your critics inside or outside the industry. Critics’ voices are sometimes shrill, and their messages sometimes melodramatic or nonsensical. However, thoughtful people raise more nuanced critiques of crypto assets and blockchain technology. John Reed Stark, an alumnus of Duke and of the SEC, is in this camp. He champions a “healthy mix of skepticism, distrust, cynicism, and scorn” for “all things crypto, DeFi, NFT, and other Web3 nonsense.”[14] An open letter signed by 1500 “software engineers and technologists with deep expertise in our fields” “dispute[d] the claims made in recent years about the novelty and potential of blockchain technology” and argued, among other things, that “Financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions; blockchain permits neither.”[15] Some crypto fans have been equally harsh.[16] Thoughtful critiques merit serious consideration.[17] For example, critics have raised concerns about how customers would be treated in bankruptcy,[18] warned of conflicts of interest arising from exchanges performing multiple functions,[19] called out scams, and warned of interconnections between the traditional financial system and crypto.[20]

Last year was as much a teachable moment for regulators as it was for the crypto industry. Regulation should foster an environment where good things flourish, and bad things perish, not the other way around. Assessing regulatory successes and failures in light of recent events can help us determine how we can ensure regulation plays a constructive role. What we should not learn from the events of 2022 is that the failures of centralized entities are failures of decentralized protocols. Many of the 2022 failures involved crypto market participants doing the same foolish and fraudulent things that participants in other markets have been doing for centuries.

Pursuing fraudsters, no matter their chosen medium, is important. Hot areas attract scammers: in addition to dating apps,[21] think the 4 Cs: crypto, climate, COVID, and cannabis. The SEC has brought many cases alleging people have engaged in fraud involving actual or fictional crypto.[22] In judging the SEC’s success at stamping out fraud in crypto, remember that our jurisdiction is limited. Congress did not empower the SEC with general anti-fraud authority and instead limited it to investigating and addressing fraud occurring in connection with securities transactions with a nexus to the United States. And although some might suggest otherwise, everything, everywhere is not securities fraud.[23] Additionally, the SEC’s routine examination authority, which is a key way we identify securities violations, extends only to entities that register with the SEC.

Working with entities is also important as it tells the industry that, while we do not compromise on our statutory mandate, we can be flexible in how we achieve it. For example, recently an on chain money market fund that uses “blockchain to process transactions and record share ownership” negotiated its way through the SEC’s registration process.[24] While the process reportedly took longer than normal, the step is encouraging.[25] The SEC also has worked with sponsors of closed-end funds that wanted to hold bitcoin. Putting these efforts in the success column is a bit of a stretch, given that staff’s direction to such funds seems to flirt with merit regulation, even though we lack the legal authority to do so.[26]

As I will discuss later, the SEC should conduct some form of notice and comment process to resolve the thorniest crypto-related policy issues. Our governing statutes allow us, however, to waive or modify legal obligations when we have a good reason for doing so. Using this authority, the SEC has provided bespoke relief through exemptive orders or no-action letters, which pledge that staff will not recommend enforcement if certain conditions are met. You can think of these regulatory tools as the SEC’s version of innovation sandboxing.[27]

The SEC has given some of this type of relief. I discount the value of several no-action letters that were the regulatory equivalent of promising not to recommend speeding tickets for drivers conscientiously adhering to the speed limit.[28] Several others have been more promising. In 2019, the SEC’s Division of Trading and Markets staff issued a no-action letter granting time-limited relief to permit a company to test its ability to settle transactions on a private, permissioned distributed ledger.[29] In 2019, Trading and Markets staff also issued a no-action letter to facilitate a three-step settlement process for broker-dealers that operate a non-custodial ATS that trades digital asset securities.[30]

Perhaps additional sandboxing is coming. Chair Gensler has “asked staff to sort through how we might best allow investors to trade crypto security tokens versus or alongside crypto non-security tokens,”[31] which is an area in which experimentation through no-action letters and exemptions would be possible. Chair Gensler also has acknowledged that “[g]iven the nature of crypto investments . . . it may be appropriate to be flexible in applying existing disclosure requirements.”[32] While the proof of the pudding will be in the eating, I strongly agree with the sentiment.

One effort I had hoped would be successful fell flat. In December 2020, the Commission provided time-limited relief that was intended to facilitate the custodying of digital asset securities by special purpose broker-dealers.[33] No firm has taken advantage of this relief because it was too limited in scope: a key restriction is that securities could not be traded in the same entity as digital asset securities. This restriction is unworkable for multiple reasons, including the difficulty of determining which digital assets are securities.[34] And that brings us to our first area in which the SEC needs to do better.

The SEC needs to conduct better, more precise, and more transparent legal analysis. The SEC’s approach to regulating crypto looks somewhat like a decidedly unromantic version of CompuDate from the old TV show: we tell people to come down to the office to talk to us about their projects, plug the information they give us into our proprietary security-identifying algorithms, and then send the people home with a court date. Hardly a reasonable way forward, and one that results in what one lawyer has dubbed “regulation by anxiety.”[35] Operating in such an opaque environment is very stressful for law-abiding people.

Invoking the Howey Supreme Court case,[36] which fleshed out the investment contract subcategory of securities, we repeat the mantra that all, or virtually all, tokens are securities.[37] As one commenter has argued, functionally the “most important” factor of the Howey test is an SEC-invented “fifth shadow factor”: whether the SEC wants to regulate the asset.[38] The SEC wants to regulate crypto assets.

Even in applying Howey, the SEC’s legal analysis is askew. A recent article by Lewis Cohen and several coauthors conducted an exhaustive study of federal Howey cases.[39] The study found that the SEC’s insistence that “fungible blockchain-based crypto assets are clearly securities under current law” violates “the Supreme Court’s definition of the term ‘investment contract’ as developed by federal appellate courts for nearly a century.”[40] The article explains that under Howey, an investment contract requires “some form of business relationship between the parties”[41] and “a counterparty against which rights can be enforced .”[42] Owning the crypto token itself “without more, does not create any sort of legal relationship between the token owner” and the token creator.[43] Thus, secondary market-based transfers of crypto assets do not create an investment contract unless they sufficiently “convey a bundle of rights and obligations” or the facts and circumstances of the secondary transaction itself are otherwise sufficient to do so.[44] In other words, an initial fundraising transaction involving a crypto token can create an investment contract, but the token itself is not necessarily the security even if it is sold on the secondary market. The SEC, however, often refers to the crypto assets themselves as securities.[45]

Whether or not we buy the article’s framework, we must develop a coherent and consistent legal framework that works across all asset classes. Our imprecise application of the law has created arbitrary and destructive results for crypto projects and purchasers. We have pursued registration violations in a seemingly random fashion, often years after the original offering. We have spent time pursuing and shutting down projects that people were using and have not pursued other projects that raised money in similar ways. We have implied that secondary trading of tokens that were once sold as part of a securities contract is also governed by the securities laws without adequately explaining why that trading constitutes securities transactions. When we insist on applying the securities laws in this manner, secondary purchasers of the token often are left holding a bag of tokens that they cannot trade or use because the SEC requires special handling consistent with the securities laws. Many of these requirements are enforced under a strict liability standard, so clarity is essential.

Why not set forth a coherent legal framework in a rule? After all, if we continued with our regulation-by-enforcement approach at our current pace, we would approach 400 years before we got through the tokens that are allegedly securities.[46] By contrast, an SEC rule would have universal—albeit not retroactive—coverage as soon as it took effect.

Why no rule? If they are all securities, then voila—problem solved! But if we seriously grappled with the legal analysis and our statutory authority, as we would have to do in a rulemaking, we would have to admit that we likely need more, or at least more clearly delineated, statutory authority to regulate certain crypto tokens and to require crypto trading platforms to register with us. And Congress might decide to give that authority to someone else.

Congress can figure out whether and how to fill the regulatory gaps. Given our extensive experience regulating disclosure, if tokens need federal disclosure rules, the SEC could do the job well. Given our extensive experience regulating retail-oriented exchanges, if trading platforms need a federal regulator, the SEC could do the job well.[47] But the SEC must make that case, and our undisciplined approach to crypto regulation thus far is not helping that case.

Whether Congress gives the disclosure task to the SEC or another regulator, several models exist. A few projects have been able to navigate their way through existing registration regimes. Disclosure under current regulations, however, is not well-suited to elicit the most useful and appropriate information for token purchasers because it does “not cover a number of features unique to digital assets that would undoubtedly be considered important when making an investment decision,” as a recent petition to the SEC argued.[48] Instead, traditional disclosures are “designed for traditional corporate entities that typically issue and register equity and debt securities” and “focus on disclosure about companies, their management and their financial results—topics that poorly fit the decentralized and open-source nature of blockchain-based digital asset securities.”[49] Thus, a more tailored crypto disclosure regime would be good for investors and crypto companies.

Several models for bespoke token disclosure already exist. There have been domestic and international legislative proposals, such as European Markets in Crypto-Assets (MiCA) legislation and the recent bills in Congress,[50] my proposed safe harbor, and proposals by academics and lawyers.[51] Potential disclosure elements include source code, token economics matters like an asset’s supply schedule or protocol governance, development team, the network development plan, prior token sales, and listing the trading platforms on which the tokens trade, as laid out in my proposal.[52] Similarly, MiCA’s approach would require crypto companies to produce a white paper with information about the issuer, the crypto asset, and the related project, an explanation of rights and obligations of the asset, various technological information about the asset, and a description of investment risks.[53]

Of course, Congress, which is directly accountable to the American people, should decide whether federal regulation is necessary, and, if it is, which agency should regulate. Congress could conclude that the SEC is not the best choice to regulate some or all crypto. Is the SEC, for example, the best regulator of crypto lending? We have claimed the territory because, among other things, no other federal regulatory scheme exists, but Congress might opt for no federal regulation or decide another regulator is better. Legislative activity to date suggests that the SEC is unlikely to be the regulator of stablecoins.

Some people within crypto would prefer to see regulatory authority over token disclosures and spot markets given to the Commodity Futures Trading Commission (“CFTC”). The CFTC’s retail experience is more limited than the SEC’s. Moreover, if the CFTC were given regulatory authority over crypto spot markets, would there soon be calls for the CFTC to regulate other spot markets, such as wheat, oil, and corn markets? Adding crypto to the CFTC’s remit also would stretch the small agency’s resources. But, again, it is up to Congress to decide whether a federal regulator is necessary and, if so, who it should be.

Attorney Steven Lofchie has argued for a Solomonic solution in which platforms and tokens could pick between the SEC and CFTC.[54] This approach would allow for regulatory competition, which could improve regulatory quality. It would also provide regulatory clarity to market participants who might otherwise incur legal bills to evaluate if their product is a security or a commodity and defend their decision to a skeptical regulator. Then Professor, now CFTC Commissioner, Kristin Johnson argued for something similar in a recent law review article.[55] She pointed out that one benefit of such an approach is that “[t]he process of declaring their preferred regulator is, in part, a disclosure process” that provides greater transparency to regulators about the firms they regulate.[56]

I reiterate that decisions about allocating regulatory authority belong to Congress, but regulators can lay the groundwork for Congress to craft a workable approach. The ideal framework would reduce regulatory anxiety for would-be innovators and increase the difficulty for would-be fraudsters, which would help to separate the wheat from the chaff. A rational framework should facilitate the compliance of good faith crypto actors with our securities laws, which would free the SEC to focus more of its resources on the bad faith actors.

The regulation-by-arbitrary-and-tardy-enforcement-actions approach on which we have relied is the opposite of a rational regulatory framework. Decisions made in the course of prosecuting or settling these cases can have far-reaching effects, and yet there is far too little deliberation before these actions occur. Concerning a recent CFTC case against a Decentralized Autonomous Organization (“DAO”), for example, Commissioner Summer Mersinger took issue with the CFTC’s “approach of determining liability for DAO token holders based on their participation in governance voting,” which “undermines the public interest by disincentivizing good governance in this new crypto environment.”[57] DAOs pose difficult challenges for regulators, but their legal treatment should be the product of deliberation in advance of enforcement actions.

An enforcement-centric approach also precludes broad participation in developing what is or what doubles as a regulatory framework, even though such participation is needed to develop a sensible framework. Enforcement actions are adversarial proceedings with two participants: the defendant and the Commission staff. Both participants are focused on the facts of the particular case, and are concerned with larger legal and policy questions only to the extent they advance or stymie their respective positions in the case. In other words, litigants are focused on winning their case, not on what makes sense as a sensible, long-term regulatory framework. Furthermore, the views of third parties are not welcome, except occasionally in the very limited role of amicus curiae.

In contrast, a notice-and-comment process allows broad public and internal participation in developing a sound regulatory system. These public conversations should include our federal and state regulatory colleagues, people developing and using crypto, consumer protection advocates, and crypto critics to develop a reasonable regulatory approach. That process could include roundtables conducted jointly with the CFTC.[58] The collaborative work done to incorporate digital assets into the Uniform Commercial Code offers an example.[59]

As we develop this framework, we should consider five guiding principles. First, we have to take a nuanced approach that recognizes differences across blockchains, distinctions between Layer 1 blockchains and the chains and applications built on top of them, and differences among crypto assets. The crypto industry encompasses a wide variety of experiments being conducted by many different people, so we must avoid painting them all with the same regulatory brush. A centralized trading venue is a world away from a public, decentralized blockchain, but they all get talked about in one breath in Washington regulatory circles.

Second, and related, the government should be extremely careful when deciding what areas of crypto to regulate on a federal level, along with when and how to do so. As Tyler Cowen recently argued, immediately adopting a comprehensive crypto regulatory model in response to a crisis could stultify crypto because we do not yet know what its principal uses will be:

Crypto regulation is not easy to do well. If crypto institutions are treated like regular depository institutions, requiring heavy layers of capital and lots of legal staffing, crypto innovation is likely to dwindle. Such innovation has been more the province of eccentric geniuses than of mainstream regulated institutions.[60]

Mainstream regulated institutions are experimenting to see whether cryptography and blockchain technology can make existing processes cheaper, faster, safer, and more efficient.[61] But a regulatory model that effectively forces all innovation into regulated entities is not likely to foster the kind of dynamism that will broadly benefit society.

Third, when we do decide to regulate, we should be clear that government regulation is not the same as government endorsement. Professor Reiners points out that “regulation brings the veneer of legitimacy and an invitation for broader adoption on the part of consumers.”[62] However, even if something is regulated, people need to do their own due diligence. A decision to regulate something is not a seal of approval. A regulator who thinks crypto is more innovative than double-entry bookkeeping and another who agrees with crypto’s placement on a top-ten list of “worst technologies of the 21st century”[63] could support the same regulatory framework.

Fourth, scaring traditional entities away from crypto is neither realistic nor protective of investors. If regulated entities perceive the regulatory risk or cost of being in the crypto space is too high, they will not participate. Staff Accounting Bulletin 121, for example, drives traditional custodians away from crypto by making custodied crypto take up precious space on banks’ balance sheets. While self-custody is a great option for many people, why not also allow safe third-party custody? Audit firms are stepping away from crypto too. While on-chain transparency is powerful, crypto companies still need good audits.

Fifth, even though driving regulated entities away from crypto is not wise, preserving the core of crypto—decentralization—is lso important. Decentralization can help support the resilience of the financial system. Decentralized finance (“DeFi”), enables people to interact with one another through the intermediation of code rather than relying on a financial intermediary such as a bank. DeFi deserves special consideration because of its unique properties, some of which take the place of functions that regulation otherwise might perform. DeFi is self-executing, open-source code operating on top of public, permissionless, decentralized blockchains. Anyone can participate, but nobody has to, and everyone participates on the same terms, which everyone knows beforehand. The ease with which DeFi protocols can be forked creates pressure on people to improve them constantly.[64] Attacks on DeFi protocols are common, but early auditing, testing, and investigating the incentives that are built into the DeFi code can identify problems.

DeFi admittedly presents challenges to us regulators who are used to regulating companies, which are easy to cajole, monitor, and sue. Regulating people who write code is more difficult from a practical and legal perspective, including because it would impinge on free speech and would raise fairness issues since open-source coders cannot exercise control over how their code is used.[65] Regulating individual DeFi users would be impractical. Requiring the front ends of DeFi protocols—essentially interfaces allowing users to easily interact with the base code—to register under the securities laws also would be problematic.[66] Attempts to force DeFi into a traditional regulatory framework likely would produce a system in which a few large companies operated registered DeFi front-ends. Sounds a lot like centralized finance.

The decisions we make now could have profound consequences not only for the development of the technology, but for human freedom. Technology has empowered people to exert more control over their own lives, but it also has made it easier for the government to watch and control their actions. Government agencies must therefore proceed carefully in developing policies that govern their own use of technology and how the public can use technology. Legitimate law enforcement objectives require the government sometimes to gather information about private activities, but defaulting to government surveillance of all private activities runs counter to fundamental American principles. As technology facilitates greater privacy and autonomy, sometimes we assume government should be placing limits on what people do, but I posit that the more urgent need is for the people to set limits on what government can do.

People sometimes ask me where crypto will be in ten or twenty years. Frankly, who cares what I think? I have ideas about its possibilities and perils, but what the market has to say matters more. The SEC’s job is not to predict innovation or to manage it, but to set out a framework within which people can use their ingenuity to set the course for their and their children’s future.

Last year was so brutal for crypto that some people want to relegate it to the dustbin of failed experiments. Rather than swiping left on crypto, we should remember that new technologies sometimes take a long time to find their footing. What kind of country would we have if regulators prohibited people from experimenting with technologies that other people think are stupid or meaningless or even ones that could cause harm? Our country is built on a presumption that people are best able to choose for themselves. People know their own preferences, limitations, risk tolerances, and circumstances better than the government does. Sure, sometimes people make very bad decisions on behalf of themselves or their families, but handing over the keys to the government does not ensure that decisions will be good. If you think the government should step in when people make stupid decisions, I guess we will be taking over your favorite dating app too. ReguDate anyone?

[1] See, e.g., Jimmie H. Lenz, Beyond the Memes-How One NFT Is Changing the Post-Student Experience,
a2fd7dc1c3a64a49a59df170a4dc9096.pdf (describing how Lenz minted NFTs as proof that students had completed his blockchain course).

[2] Lee Reiners, Now I know the cryptocurrency industry is here to stay, CoinDesk (Jan. 10, 2023),; see also Lee Reiners, Cryptocurrency: The Future of Money or All Hype? Seminars at Steamboat 2022 (Jul. 27, 2022),; Lee Reiners, Cryptocurrency and the State: An Unholy Alliance, Southern California Interdisciplinary Law Journal, Vol. 30, 695-715 (2021),

[3] See, e.g., Riah Pryor, Slash and Burn: Does Artistic Sabotage Always Pay off? The Art Newspaper (Sept. 28, 2021), (“. . . NFTs of artists destroying works continue to attract headlines since the livestreaming of Banksy’s Morons (2006) being burnt by the collective BurntBanksy, in March, giving the $95,000 print a $380,000 price tag in the process.”).

[4] See Judith Viorst, Alexander and the terrible, horrible, no good, very bad day, Atheneum Books for Young Readers (1987).

[5] That Girl - Season 2, Episode 4 - to Each Her Own - Full Episode, (Sept. 28, 1967), at 1:30; see also “That Girl” to Each Her Own, IMDB, /p>

[6] Hayley Matthews, The History of Online Dating—(A Timeline from Paper Ads to Websites), (updated (no pun intended) July 19, 2022),

[7] To Each Her Own, at 18:30.

[8] We have not yet seen the fruit that the marriage between artificial intelligence and online dating will bear. See, e.g., Jordan Parker Erb, I Asked Chatgpt to Reply to My Hinge Matches, No One Responded, Business Insider (Jan. 10, 2023),

[9] See, e.g., Derek Thompson, Why Online Dating Can Feel like Such an Existential Nightmare, The Atlantic (Jul. 22, 2019),

[10] I am envisioning a grudge match between Deep Blue and Sima Taparia from Mumbai. See Indian Matchmaking, Netflix (Jul. 16, 2020), i>

[11] Outdoor Marriage Proposals Skyrocket in 2021, According to The Knot 2021 Jewelry & Engagement Study, The Knot Worldwide (Dec. 2, 2021),; see also Michael J. Rosenfeld et. al., Disintermediating your friends: How online dating in the United States displaces other ways of meeting, Proceedings of the National Academy of Sciences Vol. 116, No. 36, 17753-17758 (Aug. 20, 2019), (“For heterosexual couples in the United States, meeting online has become the most popular way couples meet, eclipsing meeting through friends for the first time around 2013. Moreover, among the couples who meet online, the proportion who have met through the mediation of third persons has declined over time. We find that Internet meeting is displacing the roles that family and friends once played in bringing couples together.”).

[12] Taylor Monahan, The Original Sin by Taylor Monahan | Devcon Bogotá (Oct. 12, 2022), at 14:25, 19:29.

[13] See, e.g., On the Brink, Episode 387, Luuk Strijers (Deribit) on a New Model for Proof of Reserves (Jan. 17, 2023), different assurance mechanisms exchanges and other custodial intermediaries in crypto can use); Nic Carter, The Status of Proof of Reserve as of Year End 2022, Medium (Dec. 29, 2022),; Scott Perry, The Benefits of SOC Examinations for Blockchain, Schellman (Nov. 15, 2022),

[14] John Reed Stark, 12 Crypto-Predictions for 2023, LinkedIn Pulse (Dec. 28, 2022), Incidentally, I like the theme song he picked to go along with his prediction that my “ruthless, irresponsible and ad nauseam preaching of the gospel of crypto should ease up” during 2023. See Fossils and Fuels, Destination (cover of Nickel Creek song) (Mar. 3, 2022), See also David Dayen, Regulators Prevented a Crypto-Fueled Economic Downturn, The American Prospect (Jan. 10, 2023),

[15] Letter in Support of Responsible Fintech Policy (Jun. 1, 2022),

[16] See, e.g., DeFi Watch, (“DeFi Watch is not about stopping people from releasing dangerous, reckless code. It is about making sure that users know that it's dangerous, reckless code before they drop their money into it.”).

[17] See, e.g., Bankless Shows, Why Crypto is ‘like the internet’ according to Marc Andreessen (June 1, 2022), (“[T]he critics make this long list of all of the problems. But you’re getting these genius engineers and entrepreneurs flood into this space, what’s happening right now. What happens is they look at this list of problems as a list of opportunities. They’re like ok like that’s the punch list. . . . Because if I fix these problems it’s going to be really important. It’s going to really matter . . . I can build a real business.”).

[18] See, e.g., Adam Levitin, Not Your Keys, Not Your Coins: Unpriced Credit Risk in Cryptocurrency, Texas Law Review, Vol. 101 (Aug. 26, 2022), (“If a customer does not hold the private key to cryptocurrency, its beneficial interest in a custodially held cryptocurrency could well be characterized as a mere contract right rather than a property right. That means that the customer of a failed exchange [] could well to end up in the unhappy position of being a general unsecured creditor of the exchange, looking at eventually recovering only pennies on the dollar, rather than be deemed the owner of the cryptocurrency. Unfortunately, it might well take a high-profile bankruptcy of a U.S. cryptocurrency exchange for cryptocurrency investors to understand this Article’s basic lesson: “not your keys, not your coins.”).

[19] See, e.g., Chair Gary Gensler, Kennedy and Crypto, SEC (Sept. 8, 2022),; Commissioner Christy Goldsmith Romero, Remarks of CFTC Commissioner Christy Goldsmith Romero before the International Swaps and Derivatives Association’s Crypto Forum 2022, New York, CFTC (Oct. 26, 2022),

[20] Molly White, for example, runs a snarkily titled website called “Web3 is Going Just Great . . . and is definitely not an enormous grift that's pouring lighter fluid on our already smoldering planet.” She opposes banning cryptocurrencies altogether or regulating “the software that people can write or execute,” but still cautions against “increasing the exposure of traditional finance to the regular failures of crypto projects.” Molly White, Statement to the Financial Stability Oversight Council: Regulating digital assets (July 22, 2022),

[21] See, e.g., Mike Snider, From Facebook friend to romance scammer: Older Americans increasingly targeted amid COVID pandemic, USA Today (Oct. 23, 2021),

[22] See, e.g., Securities and Exchange Commission v. Mauricio Chavez, et al., No. 4:22-cv-03359 (S.D. Tex. filed September 19, 2022),; Securities and Exchange Commission v. Block Bits Capital, LLC, Block Bits Capital GP I, LLC and Japheth Dillman, Civ. Action, o. 3:22-cv-02563 (N.D. Cal. Filed April 27, 2022),; Securities and Exchange Commission v. David B. Mata, Civ. Action, o. 3:22-cv-02565 (N.D. Cal. Filed April 27, 2022),; In the Matter of GTV Media Group, Inc., Saraca Media Group, Inc., and Voice of Guo Media, Inc., Release No. 10979, Administrative Proceeding File No. 3-20537 (Sept. 13, 2021), /p>

[23] Matt Levine, Everything Everywhere is Securities Fraud, Bloomberg, June 26, 2019, available at Everything Everywhere Is Securities Fraud - Bloomberg (last visited Jan. 18, 2023).

[24] Laura Noonan, Blockchain-powered breakthrough on mutual fund, Financial Times (Dec. 9, 2021),

[25] Id. (noting that, although “the only thing changing was how records were kept and how transactions were done,” the approvals process that took significantly longer than the four to six months that is typical for new products”).

[26]See SEC Div. of Inv. Mgmt. Staff Statement on Funds Registered under the Investment Company Act Investing in the Bitcoin Futures Market, SEC (May 11, 2021), (directing closed-end funds that “seek to invest in the Bitcoin futures market [should] consult with the staff, prior to filing a registration statement, about the fund’s proposed investment, anticipated compliance with the Investment Company Act and its rules, and how the fund would provide for appropriate investor protection”). For further discussion of this issue, see Commissioner Hester Peirce, On the Spot: Remarks at “Regulatory Transparency Project Conference on Regulating the New Crypto Ecosystem: Necessary Regulation or Crippling Future Innovation?” SEC (Jun. 14, 2022),

[27] Of course, as I have previously argued, a regulatory “beach” is even better than a regulatory sandbox. See Commissioner Hester Peirce, Beaches and Bitcoin: Remarks before the Medici Conference, SEC (May 2, 2018), (“The motivating notion behind a regulatory sandbox is that the regulator in a sense sits in the sandbox with the innovator. Not only is she right there to make sure that nobody gets hurt, but she has a front-row seat on the innovative process. She sits at the entrepreneur’s shoulder as he thinks through how to address structural and aesthetic weaknesses in his sandcastle. Talk of sandboxes is welcome, and my fellow regulators’ sandboxes have already yielded great dividends. . . . I would rather talk about beaches. On a beach, the lifeguard watches over what is happening, but she is not sitting with sandcastle builders monitoring their every design decision. From her perch on the lifeguard stand, she can spot dangerous activity and intervene with a blow of the whistle or, if necessary, a direct intervention. She always stands ready to answer questions about the rules of the beach. She puts up the red flag to warn of dangerous riptides or sharks.”).

[28] See Jonathan Ingram, Chief Legal Advisor, FinHub, Division of Corporation Finance, Response of the Division of Corporation Finance Re: TurnKey Jet, Inc.Incoming letter dated April 2, 2019, SEC (Apr. 3, 2019), (relating to tokens to be used for ir charter services); Jonathan A. Ingram, Chief Legal Advisor, FinHub Division of Corporation Finance, Response of the Division of Corporation Finance, July 25, 2019, Re: Pocketful of Quarters, Inc. Incoming letter dated July 25, 2019, SEC (July 25, 2019), (relating to tokens to be used on a gaming platform).

[29] Jeffrey Mooney, Associate Director, SEC, Division of Trading and Markets, Re: Clearing Agency Registration Under Section 17A(b)(1) of the Securities Exchange Act of 1934 (Oct. 28, 2019),

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[30] Elizabeth Baird, Deputy Director, Division of Trading and Markets, Re: ATS Role in the Settlement of Digital Asset Security Trades, SEC (Sept. 20, 2020),

[31] Chair Gary Gensler, Kennedy and Crypto, SEC (Sept. 8, 2022),

[32] Id.

[33] Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Exchange Act Release No. 34-90788 (Dec. 23, 2020), To qualify for the relief, brokers must comply with various requirements, including relating to risk management, safeguarding and control of customer assets, maintaining written procedures to assess the security status of a particular digital asset, and providing customer disclosures about the nature and risks of their services.

[34] See e.g., Letter from Charles De Simone, Securities Industry and Financial Markets Association (May 20, 2021), (“The Statement places a burden on SPBDs to find evidence or arguments for why a digital asset is or is not a security where there is unlikely to be a definitive answer, as the SEC has acknowledged by not itself providing unequivocal guidance as to how determine when a digital asset is a security.”); Letter from Ron Quaranta, The Wall Street Blockchain Alliance (Apr. 27, 2021) (“We encourage the SEC to formally propose rulemaking that would clarify for all participants engaged in digital asset securities, the role of marketing activities in determining whether a product is in fact a security, and which would provide further guidance on the treatment and classification of digital assets.”),; Letter from Benjamin Kaplan, Prometheum (Apr. 26, 2021) (“As a result, we believe clarity is needed for Special Purpose Broker-Dealers, issuers, ATS’[s] and other market Participants . . . to understand the regulatory framework they must comply with. Therefore, we respectfully request that the Commission provide further clarification on the definition of digital asset securities.),

[35] Steven Lofchie, By Whom Should Digital Assets Be Regulated? The Solomonic Solution, Fried Frank Regulatory Intelligence at 5 (Dec. 15, 2022),

[36] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[37] See, e.g., Chair Gary Gensler, Kennedy and Crypto, SEC (Sept. 8, 2022), (“Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities.”) (citing

[38] Bankless Shows, Are NFTs Securities? with Securities Lawyer Brian Frye (Jan. 3, 2023), at 16:56.

[39] Lewis Cohen et. al., The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are not Securities (Nov. 10, 2022),

[40] Id. at 1.

[41] Id. at 53.

[42] Id. at 66.

[43] Id. at 72 (emphasis in original).

[44] Id. at 68-69.

[45] See, e.g., id. at 10 (citing In the Matter of Poloniex, LLC, Exchange Act Release No. 92607 (August 9, 2021), at 1 (“Poloniex operated a digital asset trading platform (the ‘Poloniex Trading Platform’) that meets the definition of an ‘exchange’ under the federal securities laws. The Poloniex Trading Platform displayed a limit order book that matched the orders of multiple buyers and sellers in digital assets, including digital assets that were investment contracts under S.E.C. v. W.J. Howey Co. … and therefore securities …” (citation omitted)).

[46] See Simona Mola, SEC Cryptocurrency Enforcement 2022 Update, Cornerstone Research (Jan. 2023), (reporting 20 crypto cases in 2021 and 30 crypto cases during 2022). I reached the number by dividing 10,000 by the average (25), which is 400 years.

[47] Decentralized exchanges (“DEXs”) offer an alternative to centralized exchanges. Because DEXs are autonomous code, requiring registration would raise a host of problems. A recent Cato working paper suggests that DEXs be allowed, but not required, to voluntarily register with the government. See Jack Solowey and Jennifer J. Schulp, Regulatory Clarity for Crypto Marketplaces (Dec. 15, 2022),

[48] Coinbase, Re: Petition for Rulemaking – Digital Asset Securities Regulation at 6 (Jul. 21, 2022),

[49] Id. at 15.

[50] See, e.g., S. 4356 - Lummis-Gillibrand Responsible Financial Innovation Act (117th Congress),; Lummis, Gillibrand Introduce Landmark Legislation To Create Regulatory Framework For Digital Assets, Senator Gillibrand press release (Jun. 7, 2022),,
changes%20and%20digital%20asset%20lending (explaining that disclosure requirements are designed to “ensure that consumers understand the products they’re purchasing, their rights, as well the associated risks of engaging in digital assets, including source code version changes and digital asset lending”).

[51] See, e.g., LeXpunK-Army, Reg X Proposal: An Exempt Offering Framework for Token Issuances (Apr. 25, 2022),

[52] Commissioner Hester Peirce, Token Safe Harbor Proposal 2.0, SEC (Apr. 13, 2021),

a href="" style="color:blue; text-decoration:underline">

[53] Azad Ali and Pietro Piazzi, EU’s Proposed Legislation Regulating Cryptoassets, MiCA, Heralds New Era of Regulatory Scrutiny, Skadden, Arps, Slate, Meagher & Flom LLP (Nov. 23, 2022),

[54] By Whom Should Digital Assets Be Regulated? The Solomonic Solution at 21.

[55] Kristin N. Johnson, Decentralized Finance: Regulating Cryptocurrency Exchanges, 6 William and Mary L. Rev. 1911 (2020-21).

[56] Id. at 1994-95.

[57] Commissioner Summer Mersinger, Dissenting Statement of Commissioner Summer K. Mersinger Regarding Enforcement Actions Against: 1) bZeroX, LLC, Tom Bean, and Kyle Kistner; and 2) Ooki DAO, CFTC (Sept. 22, 2022),

[58]Caroline Pham and Hester Peirce, Making progress on decentralized regulation — It’s time to talk about crypto, together, The Hill (May 26, 2022),

[59] Law of Code Podcast, Episode 75, UCC Article 12 Amendments with Drew Hinkes and Andrea Tosato (Dec. 13, 2022) (discussing process by which amendments for digital asset transfers were added to the Uniform Commercial Code).

[60] Tyler Cowen, Beware the Dangers of Crypto Regulation, Bloomberg Opinion (Jan. 3, 2023),; see also Bankless Shows, Why Crypto is Underrated with Tyler Cowen (Jan. 16, 2023),

[61] See, e.g., The Defiant - DeFi Podcast, Onyx's Tyrone Lobban Takes Us Behind the Scenes of JP Morgan's First DeFi Trade (Nov. 18, 2022) (describing JP Morgan’s Singapore FX on blockchain experiment); BNY Mellon Launches New Digital Asset Custody Platform, BNY Mellon (Oct. 11, 2022), (announcing that BNY Mellon will allow “select clients to hold and transfer bitcoin and ether”); DTCC to Launch Platform to Digitalize and Modernize Private Markets, DTCC (Nov. 9, 2021) (announcing the creation of a DTCC platform that will “enable tokenization of securities”); Laurie McAughtry, Goldman Sachs launches new digital assets platform, The Trade (Nov. 30, 2022), (announcing Goldman Sachs platform that will “facilitate the issuance, registration, settlement and custody of digital assets”); Camila Russo, Yorke Rhodes Explains How Microsoft Is Leveraging Blockchain, in The Defiant - DeFi Podcast (Jan. 12, 2023),

[62] Lee Reiners, Cryptocurrency and the State: An Unholy Alliance at 713.

[63] The 10 Worst Technologies of the 21st Century, MIT Technology Review (Feb. 27, 2019), (placing cryptocurrency on the top ten list of worst technologies, but leaving hope for blockchain).

[64] See, e.g., What Does It Mean to “Fork” a DeFi Protocol? DeFi Education Fund,
449882e2b06326aa8661.pdf (“Forking creates an incredibly low barrier to entry in DeFi. All someone needs to do to launch their own DeFi protocol is copy existing code. The knowledge that anyone could fork your code at any time creates a strong incentive for DeFi protocols to maximize user experience and reduce user costs. If the users think that the protocol is compensating the token holder[s] too highly or passing costs of running the protocol onto the users, they can simply fork the source code and run their own protocol without the governance policies they disagree with.”).

[65] What’s the Difference Between a Front End and a DeFi Protocol? DeFi Education Fund,

“Anyone is then able to build a front end that can make calls to the protocol and execute transactions using its smart contracts. The operator of the front end does not need to ask anyone’s permission to interact with the network; they just need to know how to build a website that can interact with the protocol.”).

[66] As one commentator noted, requiring front-ends to be licensed is essentially the same as requiring the code to be licensed: “the technical [user] could still legally engage directly with a smart contract via command prompt (or would command prompt software be considered an interface?), but for 99% of people, defi would become tradfi.” Erik Vorhees, A Response to SBF and Principled Crypto Regulation, Money & State (Oct. 20, 2022),

FINRA Fines and Suspends Rep for Falsifying Rep Code
In the Matter of Altin Tirana, Respondent (FINRA AWC 2020067608101)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Altin Tirana submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Altin Tirana was first registered in 2004, and by 2009 he was registered with Morgan Stanley. In accordance with the terms of the AWC, FINRA imposed upon Tirana a $5,000 and a three-month suspension from associating with any FINRA member in all capacities. As alleged in part in the "Overview" of the  AWC:

From December 2014 through March 2018, Tirana falsified the ss representative code for 400 trades in Morgan Stanley's order entry system causing the firm's trade confirmations to show an inaccurate representative code. As a result, Tirana violated FlNRA Rule 2010, and he separately violated FINRA Rules 4511 and 2010 by causing Morgan Stanley to maintain inaccurate books and records. 

FINRA Bars NRF For Unauthorized Access to Customer Checking Account
In the Matter of Imani Bailey, Respondent (FINRA AWC 2022074689201)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Imani Bailey submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Imani Bailey was a Non-Registered Fingerprint person with Merrill Lynch, Pierce, Fenner & Smith, Inc. from April 2019 to April 2022. In accordance with the terms of the AWC, FINRA imposed upon Bailey a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

On January 3, 2022, Bailey obtained unauthorized access to the checking account of a customer of the firm’s bank affiliate by by passing the bank’s account authentication process. On January 22, 2022 and January 24, 2022, she converted the customer funds by successfully transferring $1,384.25 in total from the customer’s bank account to hers. The customer neither knew about, nor authorized, these transfers. The funds were eventually returned by the bank to the banking customer.

By converting the customer’s funds, Bailey violated FINRA Rule 2010.  

FINRA Fines and Suspends Rep For Customer Impersonation and Reg S-P
In the Matter of Jay W. Eng, Respondent (FINRA AWC 2020068038501)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jay W. Eng submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Jay W. Eng was first registered in 1992 and by 2004, he was registered with LPL Financial LLC and by 2006, also with Kinecta Financial & Insurance Services. In accordance with the terms of the AWC, FINRA imposed upon Eng a $10,000 fine and a 20-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In April 2020, a prospective customer contacted Eng to start the process to transfer his variable annuity to LPL. After receiving paperwork from the customer for the account transfer, Eng called the annuity company impersonating the prospective customer to obtain information about surrender tenns for the annuity. Eng used the prospective customer's social security number, date of birth, and policy number to convince the annuity company that he was the prospective customer. Eng obtained information during the call regarding the annuity's sunender timetable and charges. Although the prospective customer had requested that Eng transfer the annuity, the prospective customer was not aware that Eng contacted the annuity company and did not authorize Eng to impersonate him.

Therefore, Eng violated FINRA Rule 2010. 

. . .

After his resignation from LPL and Kinecta, Eng improperly retained customers' nonpublic personal information without LPL, Kinecta, or the  customers' knowledge or consent. Specifically, on the evening of August 31, 2020, the night before Eng resigned from LPL and Kinecta, Eng printed customer records including customer names, social security numbers, account numbers, and account values. After becoming associated with his current member firm , Eng pre-filled customer information, including social security numbers and LPL account numbers, on customer account transfer forms which were transmitted electronically to customers for execution. The forms were used to effectuate account transfers to Eng's new firm.

Therefore, Eng violated FINRA Rule 2010. 

FINRA Fines and Suspends Rep For Non-Profit OBA
In the Matter of William A. Massarweh, Respondent (FINRA AWC 2021070414101)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, William A. Massarweh submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that William A. Massarweh was first registered in 1999 and by 2004, he was registered with FSC Securities Corporation ("FSC"). In accordance with the terms of the AWC, FINRA imposed upon Massarweh a $10,000 fine and a one-year suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In August 2019, the Foundation was established as a non-profit organization. From the Foundation's inception until the end of Massarweh's association with FSC in February 2021, Massarweh served as the Chief Financial Officer of the Foundation. Massarweh's duties included bookkeeping and tracking the Foundation's expenses. In addition, Massarweh completed, signed, and filed documentation establishing the Foundation as a non-profit organization in the State of California. These activities fell outside the scope of Massarweh's relationship with FSC. 

Massarweh failed to provide prior written notice to FSC of his activities with the Foundation. He did not disclose his involvement with the Foundation to FSC until December 2020, after FSC inquired about his role with the Foundation. Massarweh never provided written notice in the form specified by the firm, and FSC never approved Massarweh's activities with the Foundation. 
Therefore, Massarweh violated FINRA Rules 3270 and 2010. 

. . .

In September 2019, the Foundation opened an advisory account at FSC, with Massarweh as the advisor of record. In 2020, a client of Massarweh's with a trust (the Trust) passed away. The Trust held a brokerage account with Massarweh at FSC. In late November 2020, the trustee of the Trust (the "Trustee") instructed Massarweh to transfer $600,000 to the Foundation.

Rather than transferring the funds as directed by the Trust, in December 2020, Massarweh initiated a request to transfer $600,000 from the Trust's FSC brokerage account to an advisory account held in Massarweh's name at FSC. Although Massarweh believed the account was a related account of the Foundation's, it was not and was solely in Massarweh's name. FSC reversed the transfer of funds, and the Trust's funds were never transferred to Massarweh. The Foundation and the Trustee remain customers of Massarweh.

Therefore, Massarweh violated FINRA Rules 2150(a) and 2010