Powerledger, an Obscure Perth Company, Could Shape the Future of Crypto

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The crypto industry vowed to fight new rules but suffered a significant loss on Tuesday when the European Union introduced the world’s first comprehensive regulation on crypto trading. In Britain, a parliamentary committee said investing in crypto should be regulated like gambling because highly volatile assets have no intrinsic value.

Contracts or tokens?

POWR has been cited in two SEC lawsuits that attempt to settle an issue that lawyers and regulators couldn’t agree on: Are corporate-issued cryptocurrencies just a new form of property ?

Last July, the SEC filed an insider trading complaint in federal court in Seattle against an employee of the Coinbase trading platform and two of his associates. The three men allegedly made $1.1 million by abusing employees’ insider knowledge of upcoming token listings on Coinbase.

The SEC argues that the POWR token and eight other cryptocurrencies that were the subject of the whistleblowers are subject to insider trading laws because they are investment contracts.

The SEC is using the POWR token offering, and others, as evidence against the Coinbase defendants.

The SEC cites Powerledgers’ explanation to investors in 2017: token holders create a network that gives value to the platform, and in return they receive ownership of the network. Users will acquire a unique asset token and receive a portion of the revenue.

The right to a share of the profits is the basic definition of a share. The SEC asserts that POWR investors participate in a common enterprise and have a reasonable expectation of profit based on the efforts of others, which are attributes of a pooled investment.

Two defendants asked the court to dismiss the SEC case and are backed by Coinbase, which said: The SEC is wrong. Coinbase does not list any securities on its platform. And equally misguided is the SEC’s pursuit of this case while simultaneously refusing to enact rules for the crypto industry.

Powerledger is not a defendant and has not been contacted by the SEC, according to a company executive’s attorney.

In 2017, Powerledger expressly excluded US resident retail buyers from participating in the ICO, so regardless of how the SEC seeks to classify POWR now, they were not offered in the US to buyers in the retail by Powerledger during the ICO, the attorney said, referring to an initial coin offering.

In the other case, the SEC sued an exchange known as Bittrex and its former chief executive, Bill Shihara, for allowing clients to trade POWR and other tokens. The lawsuit, which alleged they were operating an illegal exchange, triggered Bittrex’s bankruptcy on May 8.

The lawsuit cited Powerledgers’ original token sale, which was the subject of a successful defamation lawsuit against The Australian Financial Review in 2021. The SEC revealed that Bittrex staff had raised concerns about the legal status of the newly issued tokens.

In an email to the committee on or around October 11, 2017, a Bittrex employee told Shihara that there were controversial statements for [the POWR] offering, including asset sprouting events described in the Electricity Issuers White Paper, which defines such events as: the sale or crowdfunding of a stand-alone renewable energy asset that allocates ownership and distribution revenues. says the SEC lawsuit.

Shihara acknowledged but ignored the controversial issuer statements, and Bittrex subsequently made the crypto asset security POWR available for trading on the Bittrex platform.

The attorney for Powerledger executives said the Bittrex employee misread the document that set out the POWR’s structure and goals. It should be noted that Bitterex [sic] The platform was a platform for trading hundreds of different crypto assets, he said.

If ASIC doesn’t know…

In Australia, even the Australian Securities and Investments Commission, which closely follows the affairs of the SEC, does not know whether the country’s most important cryptocurrency is a stock, a managed investment program or something else. .

ASIC is unable to comment definitively on the status of POWRs, a spokesperson said. Determining whether a crypto asset is a financial product under Australian law is often not straightforward and can be disputed.

The company executive’s attorney said: Powerledger agrees with the statement made by ASIC.

Financial Services Minister Stephen Jones has crypto regulation on his to-do list. When or if he will act is unclear. A spokeswoman did not respond to a request for comment.

Meanwhile, the industry is exposed to legal uncertainty. If regulators don’t know, how are industry players supposed to know? said John Bassilios, partner at Hall & Wilcox and director of Blockchain Australia.

Powerledger, its lawyers say, is a software development company and publishers should be wary of speculation about what might happen in the United States.

I understand that this is a complex legal subject which I would expect to be beyond the scope of an Australian journalist without US legal qualifications, so he should not pretend to do or provide its assessment of what POWR is or is not under US law until a final decision is made, he said.

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