The US Federal Court has rejected the appeal of Tornado Cash, a decentralized privacy protocol, to lift the sanctions imposed by the Securities and Exchange Commission (SEC) for violating the securities laws. The court ruled that Tornado Cash failed to demonstrate that the sanctions were arbitrary, capricious, or an abuse of discretion.
Tornado Cash is a protocol that allows users to send and receive Ethereum transactions anonymously, using zero-knowledge proofs and smart contracts. The SEC alleged that Tornado Cash sold unregistered securities in the form of governance tokens (TORN) to US investors, without complying with the disclosure and registration requirements. The SEC also claimed that Tornado Cash misled investors about the risks and rewards of using the protocol, and that it operated as an unlicensed money transmitter.
In response, Tornado Cash filed an appeal to the Federal Court, arguing that the SEC had no jurisdiction over its activities, that TORN tokens were not securities, and that the sanctions were excessive and unjustified. Tornado Cash also claimed that the SEC violated its due process rights by freezing its assets and preventing it from accessing its legal counsel.
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However, the Federal Court dismissed these arguments, finding that the SEC had sufficient evidence to support its allegations, and that Tornado Cash did not show any error or abuse of discretion in the SEC’s decision. The court also noted that Tornado Cash did not cooperate with the SEC’s investigation, and that it continued to operate its protocol despite the sanctions.
The court’s ruling is a setback for Tornado Cash and its supporters, who hoped to challenge the SEC’s authority over decentralized protocols. It also signals that the SEC is determined to enforce its regulations on the emerging crypto industry, regardless of its claims of decentralization and privacy.
In a similar twist, the Securities and Exchange Commission (SEC) has filed a complaint against Titan Global Capital Management LLC, a hedge fund manager based in New York, and its principals, alleging that they engaged in a fraudulent scheme to inflate the value of their funds and mislead investors.
According to the SEC, Titan and its principals misrepresented the performance and assets of their funds, which invested in distressed debt and private equity. The SEC claims that Titan used fake documents, sham transactions, and inflated valuations to create the illusion of high returns and attract new investors.
The SEC also alleges that Titan misappropriated investor funds for personal expenses, such as luxury cars, jewelry, and vacations. The SEC further alleges that Titan failed to disclose material conflicts of interest, such as Smith’s ownership of a company that received fees from Titan’s funds.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Titan and its principals with violating the antifraud provisions of the federal securities laws. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains, civil penalties, and other relief. The SEC’s investigation was conducted by the New York Regional Office and the Asset Management Unit.
The SEC’s order [PDF] states:
Titan did not disclose in the advertisements that the 2,700 percent annualized return was based on a purely hypothetical account in which no actual trading had occurred, that this annualized return had been extrapolated from a period of only three weeks (from August 10, 2021 to August 31, 2021), that the hypothetical return for this three-week period was calculated at 21 percent, that the projected 2,700 percent annualized return was based on the assumption that the Titan Crypto strategy would continuously generate a 21 percent return every three weeks for an entire year, or Titan’s views as to the likelihood that this assumption would bear out.