Supreme Court Opens Door to Administrative Challenge, Intermediaries Keep Web3 Banked, and Offshore Derivatives Launch
Supreme Court Weighs In on ALJs
The U.S. Supreme Court recently resolved a circuit split by ruling that district courts have jurisdiction to adjudicate certain constitutional challenges to the Securities and Exchange Commission’s (SEC) and Federal Trade Commission’s (FTC) administrative adjudication process without having to wait for the administrative process to conclude before having these constitutional claims heard by an Article III judge.
The majority opinion written by Justice Kagan ruled that district courts have jurisdiction to hear constitutional challenges to the SEC and FTC administrative adjudication processes without having to wait for the administrative process to conclude. The Court held that the respondents had a right to have their constitutional claims heard by an Article III judge before being subjected to an administrative proceeding that they argued was inherently unconstitutional, reasoning that the respondents' constitutional claims were "wholly collateral" to the merits of the administrative proceedings and thus fell outside the statutory schemes governing appeals from those proceedings.
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In other words, the Court found that the respondents were not seeking to challenge the specific determinations made by the ALJs, but rather the constitutionality of the adjudicative process itself. Consequently, the Court held that the respondents could bring their claims in federal district court under 28 U.S.C. § 1331, which grants district courts jurisdiction over "civil actions arising under the Constitution, laws, or treaties of the United States."
The Court's decision in these cases has several important implications:
More constitutional challenges in federal district court: The decision is likely to result in an increased number of constitutional challenges to administrative adjudication processes, as parties will now be able to seek judicial review of their claims in federal district court before the conclusion of the administrative process.
Potential delays in administrative proceedings: The ruling may cause delays in administrative proceedings, as parties may now seek to enjoin the proceedings in federal district court based on constitutional challenges. This could lead to increased costs and uncertainty for both agencies and regulated entities.
Broader impact on agency adjudication processes: The decision could have broader implications for other agencies that use administrative adjudication processes, as similar challenges may be brought against the constitutionality of their processes. This may prompt agencies to reevaluate the structure of their administrative processes to ensure compliance with constitutional requirements.
Greater scrutiny of administrative law judges: The ruling may also lead to increased scrutiny of the qualifications, independence, and accountability of administrative law judges who preside over agency adjudications.
The decision in Axon Enterprise, Inc. v. FTC and SEC v. Cochran represents a significant shift in the landscape of administrative law. By allowing parties to bring constitutional challenges to administrative adjudication processes in federal district court before the conclusion of the administrative process, the Court has opened the door to increased litigation, delays, and potential changes to agency adjudication processes. Only time will tell the full impact of this decision on the future of administrative adjudication.
Crypto Derivatives Exchanges Launch in Bermuda
Coinbase Global has launched a crypto derivatives exchange in Bermuda called Coinbase International Exchange after obtaining a regulatory license to operate in the country. The platform will initially list bitcoin and ether perpetual futures, which are a type of crypto derivative that allows traders to place leveraged bets on crypto price movements without expiration dates. Coinbase International Exchange will only be available to non-U.S., institutional clients, and all trading will be settled in USD Coin, a stablecoin pegged to the U.S. dollar.
Gemini has also launched a derivatives platform for customers outside the U.S. called Gemini Foundation. The platform will begin by offering bitcoin perpetual contracts denominated in Gemini Dollar, a stablecoin created by the exchange. However, Gemini's platform will not be available to customers in the United Kingdom or the European Union.
Coinbase's expansion in Bermuda follows the company's recent expansion efforts in Singapore, Brazil, and Canada, where they have launched new products, services, and hired personnel. Shares of Coinbase are up 42% this year, with the company set to report first-quarter earnings soon.
Intermediary Firms Keeping Crypto Industry Banked
Due to regulators' warnings and a series of bank failures, some banks have stepped away from crypto clients. This has led to a handful of middlemen companies providing banking services to the nascent industry by storing cash on behalf of their clients in their own bank accounts or coordinating with banking partners to get accounts in clients' names. The importance of indirect banking has become more pronounced as the number of banks willing to work with digital-asset firms decreases.
Companies like FV Bank, Prime Trust, and BCB Group are helping to bridge the gap in banking services for crypto companies. As the crypto industry continues to rely on access to dollars and other hard currencies, the role of intermediary firms has become even more critical.
Recent events like the collapse of Signature Bank, FTX, and rising interest rates from the Federal Reserve have caused some crypto-friendly banks to fail. As a result, these intermediary firms are expected to play an increasingly important role in providing banking services to the crypto industry.
What kind of lawyer would I be without a disclaimer?
Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email (dlopezkurtz@crokefairchild.com or david@bsl.group), telegram (@davidlopezkurtz), twitter (@lopezkurtz), and on LinkedIn here.
