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Former Solicitor General Paul Clement Takes on Feds: Files Amicus Brief for Custodia Bank on Behalf of Crypto Industry

Last Updated July 4, 2024 3:25 PM
Teuta Franjkovic
Last Updated July 4, 2024 3:25 PM

Key Takeaways

  • Ex-Solicitor General Paul Clement who helped overturn Chevron’s deference, filed an amicus brief in support of Custodia Bank’s appeal against the Federal Reserve’s decision to deny it a master account.
  • Congressman Emmer asserted that the Supreme Court’s decision to overturn Chevron’s deference significantly limits SEC Chair Gary Gensler’s regulatory authority.
  • This ruling is celebrated as a milestone for the crypto industry, introducing a new era of clearer regulatory expectations.
  • The decision reduced the power of federal agencies to expand their regulatory scope without clear legislative backing.

Former Solicitor General Paul Clement, who represented the Loper Bright fisherman in the recent SCOTUS Chevron case, has filed an amicus brief  on behalf of the crypto industry in Custodia Bank’s appeal against the Federal Reserve.

This development is significant for Custodia, which is seeking judicial intervention to limit the central bank’s power after being denied access to a master account.

Clement Challenges Federal Reserve’s Authority in Custodia Bank Case

Fresh off his victory in overturning Chevron deference, Clement’s brief questions whether the Fed is violating Article 2 of the Constitution by allowing Fed presidents to make official decisions.

He commented :

“The district court’s decision threatens the dual system by granting Federal Reserve Bank officials unreviewable discretion to “effectively crippl[e]” state-chartered banks operating legally.”

In this ongoing legal battle, The Digital Chamber (TDC) and the Global Business Blockchain Council-USA (GBBC-USA) have voiced their strong interest and provided a unique perspective. With extensive experience in the digital assets industry, these organizations argue that denying state-chartered banks a reliable path to national banking participation due to their involvement with digital assets threatens the growth and success of the trillion-dollar blockchain industry.

They contend that upholding the lower court’s decision would grant politically unaccountable federal officials unchecked power to stifle innovation, thereby preventing legitimate businesses from accessing the global financial system.

The District Court stated that the “Federal Reserve Bank of Kansas City (FRBKC) has unreviewable discretion to deny nonmember depository institutions a master account.”

TDC and GBBC argued that, despite adhering to legal boundaries, this court decision sets a dangerous precedent for any industry that might conflict with Fed officials.

Clement said :

“In sum, by affording Federal Reserve Bank presidents significant and largely unconstrained discretionary power, the district court’s decision raises serious constitutional questions under Article II.”

SEC’s Reach Limited by Supreme Court Ruling

The Supreme Court’s recent curbs on Chevron deference nearly crumbled the “regulatory abuses” of SEC Chair Gary Gensler, said  Congressman Tom Emmer.

This news is seen as transformative in the crypto industry and other tech sectors, paving the way to clearer, stabler regulations.

In a post  via social media platform X, Majority Whip Tom Emmer (R-MN) discussed the Supreme Court’s recent decision to end Chevron deference and how this will largely impact SEC Chair Gary Gensler’s regulatory authority.

The decision, released on Friday, represents a significant reset in the battle between regulatory power and judicial review.

Emmer said :

“The Supreme Court’s decision to overturn Chevron deference kneecaps the regulatory abuses of Gary Gensler and every other unchecked, unelected bureaucrat who legislates-by-rulemaking.”

The Chevron deference , established by the landmark Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., required courts to defer to federal agencies’ interpretations of ambiguous statutory language within their jurisdiction.

The recent overturning of this precedent by the Supreme Court strengthens the judiciary’s role in law interpretation and curtails the broad interpretative authority that federal agencies previously held.

Expert: Chevron Ruling to Impact SEC Authority, Crypto Industry Optimism Grows

CCN spoke with Alan Konevsky, Executive Vice President and Chief Legal and Corporate Affairs Officer at tZERO who said that, while the SEC may have historically relied on the Chevron ruling less than other regulators, the decision now issued by the Supreme Court will have an impact, at least in the near term.

He asserted:

“Chevron, at its heart, is about who decides the law — the courts or regulatory agencies.  The courts will now be permitted to use their independent judgment to resolve silent/ambiguous/vague statutes (as many are given the high-level and negotiated nature of the legislative process , esp in a divided government and society).  Agency views will not get automatic deference.
This separation of powers point is very important.  Agencies will have to review their rulemaking and interpretative processes and existing rules in view of the potentially narrower latitude they have.”

Konevsky also mentioned that individuals in the crypto industry, who have long been frustrated with the SEC, might now perceive the courts as less sympathetic to the SEC’s interpretations of the law following the overturning of Chevron. He pointed to the controversy surrounding the SEC’s Staff Accounting Bulletin 121, which relates to the accounting treatment of certain digital assets and has faced criticism, including from Congress, for potentially exceeding the SEC’s scope and authority.

He suggested that this shift might lead to litigation unfolding over the years, though he cautioned that outcomes could vary as courts can be divided. While protracted litigation with disparate outcomes across circuits is not ideal, Konevsky noted that courts might be better equipped than agencies to resolve controversies and ambiguities.

Emmer Challenges SEC’s SAB 121, Citing Overreach and Threat to Digital Asset Market Fairness

The issue in focus, Staff Accounting Bulletin 121 (SAB 121), has come under fire for allegedly exceeding its regulatory scope and harboring a bias against the digital asset ecosystem.

In May, the House passed a vote 228-182 to repeal SEC Staff Accounting Bulletin 121 (SAB 121), although the result did not achieve the two-thirds majority needed to override a potential presidential veto.

Introduced in 2022, SAB 121 has sparked controversy within the cryptocurrency industry because it mandates that firms managing crypto assets record customer holdings as liabilities on their financial statements. Critics of the rule argue that this requirement could discourage banks from handling digital assets.

Congressman Tom Emmer has vocally criticized the rule , labeling it as not only overreaching but also illegal and contrary to the SEC’s statutory mission. He contends that SAB 121 introduces greater concentration risk within the digital asset markets, thereby reducing their fairness and efficiency.

Supreme Court Ruling Signals Shift to More Predictable Regulations

The Digital Chamber hailed the Supreme Court’s ruling as transformative for the cryptocurrency industry.

“Agencies have no special competence in resolving statutory ambiguities,” Coinbase’s Chief Legal Officer Paul Grewal wrote  on X.

Senator Elizabeth Warren furthermore criticized  the Supreme Court’s recent decision as a “power grab” in a post on the social media platform X on Friday. She expressed concerns that the ruling favored corporate interests, accusing extremist judges of shaping rules to the detriment of consumers, workers, safety, and the environment.

Kathryn Haun, founder and CEO of Haun Ventures and former board member of Coinbase, commented  on the significance of the decision.

She noted that the overturning of the decades-old Chevron doctrine, which required courts to defer to agency interpretations of ambiguous statutes, represents the most critical court case for technology policy in the U.S. in recent years.

She said :

“The impact, especially on frontier tech industries like AI, biotech, crypto, clean energy, and beyond, can’t be overstated.”

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