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Custodia Bank Files Appeal Stating Fed’s Law Violation & Dual Banking System

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Custodia Bank has filed an opening brief in the 10th Circuit Court of Appeals. They are challenging a Wyoming judge’s decision that granted the Federal ReserveFederal Reserve the power to deny it a master account. Moreover, the brief urges the appeals court to instruct the Wyoming district court to revoke its denial and grant Custodia a master account.

Custodia Bank Files Opening Brief In 10th Circuit

Custodia Bank CEO Caitlin Long has hired two veteran Supreme Court attorneys for the lawsuit against Fed. Their arguments are focused on several key points, including violation of the dual banking system. Custodia Bank’s lawyers argue that the Fed’s authority to deny master accounts to state-chartered banks undermines the dual banking system.

This system allows banks to choose between a state charter or a federal charter. Hence, they referenced the case Cantero v. Bank of America. The 10th circuit brief stated, “The United States maintains a dual system of banking, made up of parallel federal and state banking systems.”

In addition, Custodia’s lawyers also argue that the Fed’s power to discriminate against state-chartered banks may violate the Monetary Control Act (MCA). The MCA ensures fair access for state-chartered banks to the Fed’s services. In addition, they pointed to Congress’s mention of the word “shall” in the MCA, which states that “all Federal Reserve bank services…shall be available to non-member depository institutions.”

Furthermore, Custodia’s brief asserts that there is no basis for the Fed’s actions to be immune from judicial review. They argue that mandamus relief is available against the Federal Reserve Bank of Kansas City (FRBKC). Moreover, they state that the Administrative Procedure Act provides a remedy against the Board when it defies a congressional command.

In addition, the brief explains the historical significance of the dual banking system. It highlights that this system has survived for over 150 years and continues to be durable and responsive to the economy. Hence, the dual banking system respects distinct and equal state and federal roles.

Also Read: Custodia Bank CEO Predicts “Rip Roaring” Bitcoin Bull Market, Slams Warren Wing

Other Arguments Against Fed

Wyoming enacted a statute in 2019 to allow qualified applicants to obtain a Special Purpose Depository Institution (SPDI) charter, Custodia’s brief highlights. SPDIs take deposits, facilitate U.S. dollar payments, and provide digital asset custody services.

Moreover, they do not lend and must comply with all applicable federal laws. This is central to the Custodia Bank case because the Fed’s refusal to grant a master account to an eligible SPDI like Custodia is discriminatory.

Furthermore, the brief explains that the MCA was enacted to address payment access and unequal treatment of member and non-member banks. The MCA required the Fed to provide all depository institutions direct access to its payment system services on the same terms as member banks.

In addition, Custodia’s lawyers argue that Section 248a(c)(2) of the MCA sets forth a fee schedule for Fed services and requires these services to be available to nonmember depository institutions. The brief states, “All Federal Reserve bank services covered by the fee schedule shall be available to nonmember depository institutions.”

Also Read: Ripple Vs SEC News: Ripple President Clears the Air on Lawsuit and XRP ETF

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Gary Gensler To Step Down As US SEC Chair In January

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In a recent development, the US Securities and Exchange Commission (SEC) announced that Gary Gensler will step down from his position next year. This follows calls for Gensler to resign since Donald Trump won the US presidential elections.

Gary Gensler To Step Down As US SEC Chair

The US SEC announced in a press release that Gary Gensler will depart the Agency on January 20, 2025. The US SEC Chair also confirmed this development in an X post. Interestingly, this comes on the same day that Donald Trump will be inaugurated as the 47th president of the United States.

Following the announcement, Gensler also used the opportunity to reflect on his time at the Commission. He remarked that it has been an “honor of a lifetime” to serve alongside those at the SEC. He also thanked President Biden for the opportunity to serve in the position. Gensler has been the US SEC Chair since April 2021. During his time, he has spearheaded several litigations against the crypto industry.

This includes the long-running legal battle with Ripple, which Gensler took over from his predecessor Jay Clayton, which bordered on whether XRP was a security. Up till now, the Agency continues to reiterate this ‘digital asset securities’ claim.

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BitClave Investors Get $4.6M Back In US SEC Settlement Distribution

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BitClave investors have started receiving $4.6 million in repayments from the U.S. Securities and Exchange Commission (SEC), following a settlement reached in 2020. The SEC announced on Nov. 20 that payments from the BitClave Fair Fund had been disbursed to eligible investors harmed during the company’s 2017 initial coin offering (ICO).

Pro-XRP lawyer and online commentator “MetaLawMan” criticized the SEC’s stance on digital assets, stating on social media, “Here we go again with ‘digital asset securities.’ Unbelievable.” The lawyer’s statement reflects ongoing industry frustrations over the SEC’s regulatory approach to cryptocurrencies.

BitClave Investors Get $4.6M Back in US SEC Settlement

The US SEC assured the public that $4.6 million was returned to investors who filed the claims and were eligible for the refunds. These funds were agreed upon in 2020 after the SEC accused BitClave of conducting an unregistered ICO.

The company’s initial coin offering (ICO) in 2017 brought in $25.5 million in only 32 seconds and distributed its Consumer Activity Token (CAT) to thousands of buyers. The SEC therefore claimed that the ICO was an unregistered securities transaction because potential investors were induced to invest in the CAT token with an expectation of appreciation of its value. 

Under the settlement, BitClave will have to refund the money it raised and also pay $4 million in fines and interest. In between these settlements, John Deaton has accused the regulator of using laws that were set in 1933.

The Fair Fund was therefore created to ensure that the funds are returned to the affected investors. The claims submission period closed in August 2023, and the eligible investors received the information on the claims in March 2024. The Securities and Exchange Commission posted on its social media accounts that the payment has been made, and “the checks are in the mail.”

BitClave Settlement Included Penalties and Token Destruction

In the settlement, BitClave did not accept or reject the accusations made by the SEC but agreed to cough up $29 million. This total consisted of the $25.5 million that was generated in the ICO and the additional $4 million in fines.

Concurrently, the company also committed to burning 1 billion of the catalyst tokens that have not been distributed and to ask exchanges to delist the token.

The Securities and Exchange Commission therefore pointed out that by February 2023, BitClave had only remitted $12m to the Fair Fund, thus leaving questions on the balance of $7.4m. Neither the SEC nor the fund administrator gave further details on the matter, and it is still uncertain as to how the outstanding payment will be collected.

US SEC Maintains Strict Regulatory Stance on Crypto

The US SEC has continued to enforce regulations on crypto companies under the Biden administration, with over 100 enforcement actions taken against the industry. BitClave’s settlement, subsequently, is one of many cases where the regulator has targeted unregistered ICOs and other alleged securities violations.

BitClave’s case, handled under former SEC Chairman Jay Clayton, emphasized the agency’s view that many digital assets fall under securities laws. The CAT white paper described potential value increases, which the regulator argued encouraged speculative investment in an unregistered security.

As the US SEC faces criticism, President-elect Donald Trump has expressed plans to reshape crypto oversight. Trump has promised to remove current SEC Chair Gary Gensler and is reportedly considering creating a new White House position dedicated to cryptocurrency policy. 

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US SEC Pushes Timeline For Franklin Templeton Crypto Index ETF

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US SEC Extends Review Period for Franklin Templeton Crypto Index ETF

Therefore, the

The proposal was first published in the Federal Register on October 8, to kick start a thirty-five (35) days review period. As a result, the review was to end on November 22, 2024. Consequently, the review was to expire on November 22, 2024. However, the SEC’s decision to delay indicates a thorough approach to reviewing the fund’s compliance with crypto regulations.

Meanwhile, no public comments on the proposed rule change have been submitted, leaving the US SEC to focus on internal assessments. This delay concurs with the commission’s conservative approach to the products that are connected with cryptocurrencies. The extra time will allow more detailed research of fund’s organization and market risks.

Franklin Templeton Expands Push Into Cryptocurrency ETFs

Franklin Templeton is broadening its efforts in the cryptocurrency space with its proposed Bitcoin and Ethereum index ETF. The asset manager, which oversees $1.5 trillion in assets, has previously launched a spot Bitcoin ETF and a spot Ethereum ETF. 

If approved, the latest ETF would add to Franklin Templeton’s portfolio of crypto-focused investment products, further diversifying options for institutional.

In addition, Franklin Templeton has taken a major step in its tokenization efforts, announcing the expansion of its Benji tokenization platform to the Ethereum network. This marks the fifth blockchain integration for the platform this year, following launches on Aptos, Avalanche, Arbitrum, and Coinbase’s Base.

Despite the US SEC overall crypto ETF delays, other market players are moving further with their strategies . Last week, Bitwise submitted a registration statement to transform the Bitwise 10 Crypto Index Fund which now manages $1.3 billion into an ETP. It investments in Bitcoin represent 75% of the fund and Ethereum is 16% of the fund; these two assets sum up to 91%.

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