US state securities regulators and crypto markets. Team Cymru internet tracking tool. SEC asserts jurisdiction over Ethereum transactions.

At a glance.

  • US government securities regulators are cracking down on crypto markets.
  • The US military was found to be using the Team Cymru internet tracking tool.
  • Could the SEC be in charge of all Ethereum transactions?

US government securities regulators are cracking down on crypto markets.

The Washington Post details how Joe Borg, director of the Alabama Securities Commission, and other state regulators have made strides in overseeing the ever-expanding cryptocurrency market, succeeding where federal regulators seemed to have failed. As Alabama’s top financial watchdog, Borg worked with his peers in states like Kentucky and Texas to issue cease and desist orders against crypto banks Celsius and Voyager this summer, leading to the banks filing for bankruptcy. And it’s not the first time; In 2021, state regulators filed a cease-and-desist order against BlockFi, resulting in the cryptobank paying $100 million in severance pay. The US Securities and Exchange Commission (SEC) only got involved after the case had been largely resolved.

Speaking of the Celsius/Voyager case, Texas State Securities Board director Joe Rotunda said, “I didn’t expect that we would end up in the driver’s seat. There is 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 out there in those areas right now.” Rotunda isn’t the only one wondering why the SEC isn’t at the forefront of these operations. John Reed Stark, a crypto critic who used to head the SEC’s Office of Internet Enforcement, observed, “States were on very solid ground, acting boldly and swiftly, and the SEC really should have followed in those footsteps as soon as possible.” SEC Chairman Gary Gensler insists the commission does its part, stating: “We have worked well with 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 so I keep saying come in, work with us, find a way to register, obey the law.”

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The US military was found to be using the Team Cymru internet tracking tool.

According to documents reviewed by Motherboard’s investigators, as well as a whistleblower who recently contacted the US Senate, several branches of the US military have gained access to Augury, an internet monitoring tool that claims to track 93% of global internet traffic. Vice explains that this technology could give the military access to the data in individuals’ email accounts, browsing history and other Internet activities. Augury is developed by cybersecurity firm Team Cymru and according to a description in their marketing materials: “The network data includes data from over 550 collection points worldwide, including collection points in Europe, the Middle East, North/South America and Africa and Asia and is updated every day with at least Updated 100 billion new records.” This includes packet capture data (PCAP), highly detailed information about network activity related to email, remote desktop, and file-sharing logs, which one cybersecurity expert described as “anything” that can be captured about a user’s data.

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The whistleblower submitted a letter to Senator Ron Wyden alleging that the Navy’s civilian law enforcement arm called the Naval Criminal Investigative Service (NCIS) is purchasing data from Team Cymru that includes both “netflow records and some communications content” without a warrant. While platforms like Augury are not illegal to use, NCIS’s acquisition of the data could constitute a Fourth Amendment violation. When asked about the allegations, Charles E. Spirtos of the Navy Office of Information said that NCIS “conducts investigations and operations in accordance with all applicable laws and regulations. NCIS’s use of net flow data does not imply a warranty.” Still, Senator Wyden has asked the oversight departments of the Departments of Homeland Security, Justice and Defense to “authorize the illegal purchase and use of Internet browsing records of Americans by agencies under your jurisdiction investigate”.

Could the SEC be in charge of all Ethereum transactions?

On Monday, the SEC filed a federal lawsuit against Ian Balina, a crypto influencer who failed to register a cryptocurrency as a security before launching an Initial Coin Offering (ICO) in 2018. The SEC has filed lawsuits of this nature before, but what sets them apart, the SEC says they are suing Balina not only because he conducted transactions in the US, but because they believe the US government is responsible for all Ethereum trading network is responsible. The regulator’s reasoning is that all Ethereum transactions technically took place in the US because they were “validated by a network of nodes on the Ethereum blockchain that are more densely clustered 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 American in origin.

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University of Kentucky law professor Brian Fyre told Decrypt, “Saying that makes it possible [the SEC] Characterize trades on the Ethereum blockchain as trades on a US securities exchange. Which is handy from a regulatory perspective.” Historically, Ethereum has fallen into a gray area, with SEC leadership under the previous government implying that Ethereum was “sufficiently decentralized” and therefore could not be defined as “security.” And, as Fyre explains, the language in the SEC’s lawsuit technically has no legal weight, as the court is unlikely to consider this particular case. Should the SEC nevertheless manage to change the way the courts view US jurisdiction, it would give the regulator unprecedented power over the Ethereum market, which hosts the vast majority of NFT and DeFi activity.

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