US state securities regulators and crypto markets.  Cymru team internet tracking tool.  The SEC claims jurisdiction over Ethereum transactions.

US state securities regulators and crypto markets. Cymru team internet tracking tool. The SEC claims jurisdiction over Ethereum transactions.

In one look.

  • US state securities regulators are cracking down on crypto markets.
  • The US military discovered that they were using the Team Cymru internet tracking tool.
  • Could the SEC have jurisdiction over all Ethereum transactions?

US state securities regulators are cracking down on crypto markets.

The Washington Post describes how Joe Borg, director of the Alabama Securities Commission, and other state regulators have made strides in monitoring the ever-expanding cryptocurrency market, succeeding where the Federal regulators have apparently failed. As Alabama’s top financial watchdog, Borg worked with his counterparts in states like Kentucky and Texas to issue cease-and-desist orders against the Celsius and Voyager crypto banks this summer, leading banks to declare bankruptcy. And this is not the first time; in 2021, state regulators filed a cease and desist order against BlockFi, which resulted in the crypto bank paying a $100 million settlement. The U.S. Securities and Exchange Commission (SEC) only intervened after the case was largely settled.

Speaking about the Celsius/Voyager case, Texas State Securities Board Director of Enforcement Joe Rotunda said, “I didn’t expect us to end up in the driver’s seat. There’s a lot of money on the table, these are very complex cases, and that would be the job of the national regulator. I don’t know why the SEC isn’t present in these areas right now. Rotunda isn’t alone in wondering why the SEC isn’t at the forefront of these operations. John Reed Stark, a cryptography critic who previously headed the SEC’s Office for Internet Enforcement, said, “States were on very solid ground, acting with courage and speed, and the SEC would have really had to follow these tracks as fast as she could. SEC Chairman Gary Gensler insists the Commission is doing its part, saying, “We have worked well with the states. I think the companies could have done a lot more to protect the public. I think companies could do a lot more to protect the public. And that’s why I keep saying, come in, work with us, find a way to registration, obey the laws.

The US military discovered that they were using the Team Cymru internet tracking tool.

According to documents reviewed by Motherboard investigators, as well as a whistleblower who recently contacted the US Senate, several branches of the US military have purchased access to Augury, an internet monitoring tool that claims to track 93 % of global Internet traffic. Vice explains that with this technology, the military could access data from email accounts, browsing history and other Internet activities of individuals. Augury is developed by cybersecurity firm Team Cymru, and according to a description found in its marketing materials, “Network data includes data from more than 550 collection points globally, to include collection points in Europe, in the Middle East, North/South America, Africa and Asia, and is updated with at least 100 billion new records every day.This includes packet capture data (PCAP), very details of network activity related to email, remote desktop, and file sharing protocols that one cybersecurity expert described as “everything that can be captured on a user’s data” .

The whistleblower submitted a letter to Senator Ron Wyden claiming that the Navy’s civilian law enforcement service, called the Naval Criminal Investigative Service, or NCIS, is buying data from Team Cymru that includes both “netflow records and certain communications content” without a warrant. While using platforms like Augury isn’t illegal, NCIS obtaining the data could be a violation of the Fourth Amendment. Asked about the allegations, Charles E. Spirtos of the Office of Navy Information said that NCIS “specifically conducts investigations and operations in accordance with all applicable laws and regulations. Use of net flow data by NCIS does not require a warrant. Still, Senator Wyden has asked the watchdog branches of the Departments of Homeland Security, Justice, and Defense “to investigate the warrantless purchase and use of Americans’ Internet browsing records by agencies under your jurisdiction”.

Could the SEC have jurisdiction over all Ethereum transactions?

On Monday, the SEC filed a federal lawsuit against Ian Balina, a crypto influencer who failed to register a cryptocurrency as security before launching an initial coin offering (ICO) in 2018. The SEC has already filed lawsuits for this guy, but what defines that? Aside, the SEC says it is suing Balina not just because he transacted in the United States, but because, in their eyes, the US government has jurisdiction over the entire Ethereum network. The regulator’s reasoning is that all Ethereum transactions technically took place in the United States because they were “validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. “. In other words, all Ethereum transactions, regardless of where in the world they take place, should be considered US-originated.

Brian Fyre, a law professor at the University of Kentucky, told Decrypt: “To say that it allows [the SEC] to characterize doing business on the Ethereum blockchain, like doing business on an American stock exchange. Which, from their regulatory perspective, is convenient. Historically, Ethereum fell into a gray area, as SEC leadership under the previous administration suggested that Ethereum was “decentralized enough” and therefore could not be defined as a “security”. And, as Fyre explains, the language used in the SEC lawsuit technically carries no legal weight, because the court is unlikely to intervene in this specific case. Yet, if the SEC is successful in changing the way the courts view US jurisdiction, it would give the regulator unprecedented power in the Ethereum market, where the vast majority of NFT and DeFi activity takes place.

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