Nearly every day as of late, scary headlines herald the demise of cryptocurrencies while federal governments and regulators all over the world crackdown on the enigmatic digital assets. ‘SEC Working Overtime to Take Control of Crypto Markets’, ‘People’s Bank of China Rules All Crypto-Related Trading Illegal’, ‘Russia’s Central Bank Wants to Slow Down Cryptocurrency Payments’, ‘Indian Authorities Consider Taxing Cryptocurrency Trades’, to name a few. Indeed, it’s no secret that there is no love lost between the Powers That Be and the crypto world, as decentralized blockchain technology has opened up a realm where the establishment can neither track nor regulate its citizens’ financial activities. It’s precisely this loss of control that drives governments crazy, and also what makes cryptocurrencies so attractive to average people.
Mainstream media outlets aid and abet the authorities’ efforts to discredit digital assets by creating and feeding into negative hype with loud gloom-and-doom headlines that make the crypto world look shady and unreliable. A piece recently appearing in The New Yorker entitled Pumpers, Dumpers, and Shills: The Skycoin Saga does just that. On its surface, the article appears to be a hit piece on a specific crypto project and its founder, but, on reading between the lines, it becomes apparent that it is really an attack on cryptocurrencies in general.
Cryptocurrencies and the SEC
The real intent becomes clear about halfway through the 30-page feature, when its author, Morgen Peck, takes a detour from her assault on Skycoin and its founder, Brandon Smietana, to call into question the very legality of the crypto industry as a whole:
“US law generally requires projects to register with the SEC, forcing them to make financial disclosures that investors could then inspect before buying. Almost none do, giving convoluted rationales that John Reed Stark, the founder of the SEC’s Internet-enforcement office, told me are ‘poppycock,’” she asserts.
Peck goes on to note that: “Not registering can facilitate further rule-breaking, as when, say, influencers promote coins without disclosing their investment, or projects pump coins with fraudulent claims. Stark said, of ICOs, ‘Every single one I ever saw was unlawful on multiple levels.’”
Peck implies that Skycoin was operating illegally because it was not registered with the SEC and, by extension, infers that any cryptocurrency that is not registered with the SEC is a fraud.
The problem is that these suppositions are, at a minimum, highly misleading, and possibly venture into the territory of full-blown lies.
While US law does require that securities be registered with the SEC, commodities and property, including digital property, are excluded unless they entail ownership in a company or are an interest-producing investment asset. NFTs, property, and currencies are not regulated by the SEC – only bonds and equity. It is the legal opinion of most lawyers that crypto assets that do not represent an ownership stake in a business enterprise and which are not income or interest-bearing are not financial instruments and, therefore, do not require SEC registration.
Moreover, the US Congress has never passed an act explicitly granting the SEC regulatory jurisdiction over the crypto industry. In fact, the Commodities Futures Trading Commission (CFTC) and SEC are currently publicly fighting over regulatory jurisdiction over crypto. At present, it’s a matter of contention even within the SEC itself whether cryptocurrency falls under their mandate. This becomes quickly apparent when looking at the SEC’s web page concerning initial coin offerings, or ICOs:
“ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws,” according to the SEC’s site, which goes on to say, “ICOs that are securities most likely need to be registered with the SEC or fall under an exemption to registration.”
So, ICOs that meet “specific” criteria “may be” considered securities, and those that are deemed to be securities “most likely” need to be registered – this is hardly a legal mandate.
For a cryptocurrency to fall under the regulatory authority of the SEC, it must pass the Howey Test, which includes three criteria that the Supreme Court determined are necessary for a financial instrument to be considered a security. They include (1) an investment of money (2) in a common enterprise (3) with a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others. If an asset does not meet these three requirements, it is not an investment contract and not a security.
It is important to note that the SEC has stated that neither Bitcoin nor Ether satisfy the Howey test, and thus do not fall under its purview, specifying that: “whether a particular digital asset at the time of its offer or sale satisfies the Howey test depends on the specific facts and circumstances.”
Peck’s assertion that “US law generally requires projects to register with the SEC” appears to be blatantly false, as, according to the SEC’s own statement, only tokens deemed to be securities “based on specific facts, maybe” required to do so.
Her implication that cryptocurrencies not registered with the SEC are somehow fraudulent appears even more absurd in light of the fact that US cryptocurrency exchanges will not allow trading of any asset that is registered with the SEC because that would mean the exchange itself would fall under SEC regulation. Crypto projects are required to get letters stating that they are not an investment instrument and not subject to SEC regulation before being listed on US cryptocurrency exchanges, as no US exchange will list any crypto-asset which requires SEC registration.
So, to follow the journalist’s logic, nearly all cryptocurrency projects are operating illegally because they are not registered with the SEC, but if their tokens were registered with the SEC, they would be impossible to exchange, as no cryptocurrency exchange would list them. But, if this were true, it would completely negate the whole basis of the cryptocurrency industry, because why would anyone want to create or own a digital asset that could not be exchanged? Morgen Peck seems to be implying that the entire cryptocurrency market, which was worth $1.49 billion in 2020 with a global market cap of $1.9 trillion, is a giant illegal enterprise.
In fact, the first SEC-registered offering of a digital token ever took place only in May of 2021, when blockchain-based trading platform operator INX Ltd. became the first to hold one. This was six to eight years after nearly all of the cryptocurrencies exchanged today were launched.
Skycoin, the subject of The New Yorker article, held its ICO in 2016, which was a year before the SEC even issued its investor bulletin on ICOs, which warned that cryptocurrencies could be considered securities under certain circumstances.
Moreover, prior to its ICO, Skycoin had received legal opinions from two separate US lawyers stating that its token was not an investment instrument and did not fall under SEC regulation or require SEC registration – a fact that Morgen Peck was informed of, but failed to include in her article. And this wasn’t the only fact she conveniently neglected to mention.
Omissions, Fabrications, and Spin
The New Yorker article, which often reads more like a spy thriller than a work of investigative journalism, begins by introducing Skycoin’s founder, Brandon Smietana, as a hipstery geek “destined for greatness” in the crypto world. However, as the story unfolds, Smietana is gradually revealed to be more of an erratic mad professor out to bilk participants in his project for a quick buck. The salacious account includes more than its fair share of yachts, VIP parties, and prostitutes to grab readers’ attention. Skycoin is portrayed as a scam company with no real accounting or HR departments that are flooded with cash and pushing new technology that doesn’t really exist. However, given that Skycoin was launched in 2013 and is still actively working to this day, just why Peck’s ‘Skycoin Saga’ is told almost exclusively through the eyes of a disgruntled former contractor, Bradford Stephens, who worked for the company for a mere six weeks more than two years before her article was published, remains an open question.
Stephens, whose company, Smolder LLC, was briefly contracted to do marketing work for Skycoin in 2018, left the project under pressure after it was discovered that his business partners had questionable pasts. One of his partners, Harrison Gevirtz, aka Harro, is widely considered to be the king of the blackhat marketing criminal underworld, while Smolder’s other partners, Ryan Eagle and Adam Young, were operators in Eagle Web Assets, a company named in a US Government FTC action (FTC v. Eagle Web Assets) for fraudulent marketing practices in 2014 and 2016. Peck fails to note that the main source of her article resigned under pressure, nor does she mention why, even though she had been made fully aware of the circumstances.
This omission is especially concerning given that Peck appears to have taken Stephens at his word without ever verifying his claims for herself. For example, Peck writes: “The employment structure at Skycoin was loose, and Stephens joined without a contract. ‘Here I was, a guy used to wrangling hundred-page venture-capital contracts, and I’m joining a company with no last names and barely any first names,’ Stephens said.”
In fact, Skycoin has a COO, an accounting department, and six full-time employees doing administrative work in a downtown Shanghai office, where the company is based. However, in the course of doing research for the article, neither Peck nor anyone else from The New Yorker actually went to China, where 80% of Skycoin’s employees are located. They never bothered to visit the company to meet its administrative and accounting staff in order to find out if Stephens’ allegations were actually true. Apparently, for the purposes of her story, Peck decided it was going to be more interesting for her audience to read about high-priced escorts partying in a Las Vegas suite than recent college graduates sitting in an office doing spreadsheets all day long.
Another claim that Peck seems to have taken at face value is that Skycoin’s whole network was running on a single masternode computer. “Skycoin’s payments were fast, but only because transactions were processed on a single server, rather than on a decentralized network of computers,” she wrote. However, according to Smietana, there are 9,000 nodes online just for Skywire, Skycoin’s flagship product. “Every server in the network passes every transaction peer to peer. Every server in the network passes every block peer to peer. Every server in the network independently validates the transactions,” he says.
In researching the article, Peck seemed to be more interested in collecting information to disparage Skycoin and Smietana than in really getting to the truth of what was going on with the company. She is on record for calling/contacting dozens of Skycoin employees, including Smietana’s former personal assistant, and asking them “Are you disgruntled?” If the employee didn’t seem to have a personal grudge with Skycoin or Smietana, she would immediately terminate the phone interview.
Blockchain thought leader and media veteran, Michael Terpin, who was interviewed for the article and is also one of its subjects, stated after reading it, “Why did they need to hire a fact-checker if they were just going to lie? I told her [Peck] I didn’t find Bradford to be credible and I reinforced that with the fact-checker [Anna Boots].” Terpin reiterated to Peck and Boots multiple times that Stephens was not credible, yet this didn’t sway the authors from including his allegations.
‘Sudo’, a former marketing contractor who was also interviewed by Peck, stated in a public Telegram channel called Euclid’s Coin Window that: “She [Morgen Peck] had a personal vendetta out for Brandon. So I can see why she went through with it. I just can’t imagine the New Yorker paying for this garbage, well I can buy you know what I mean when I say that.” Sudo implied in numerous Telegram channels that Bradford and Morgen worked on this article for over two years to destroy Skycoin, speculating that Morgan Peck was ‘bought’.
Shilling for The Establishment
In the end, it would appear that Peck concealed facts that she was aware of, but which did not align with the narrative she was trying to sell, published fabricated claims without ever verifying their veracity, and cherry-picked and slanted the information in her article so as to produce the desired effect – to make Skycoin, and, by extension, the entire crypto industry, look like an unregulated Wild Wild West peopled by “Pumpers, Dumpers, and Shills.”
Peck’s approach to Skycoin comes as little surprise considering her other works, which demonstrate a clearly discernible disdain for cryptocurrencies. In a 2018 article entitled Let’s Destroy Bitcoin, Peck opines that the world’s first cryptocurrency is destined to be either (1) taken over by central banks, (2) eclipsed by tokens offered by big social media companies like Facebook, or (3) diluted out of existence by a plethora of competitors. Of course, given that Bitcoin traded for about $6,500 at the time of the article’s publication two years ago, and can be exchanged for over six times that amount today, investors who may have been warned off of Bitcoin by Peck’s article may be feeling a little disappointed.
While bias and hit pieces in the media are nothing new, the glaring question regarding this particular piece is: How was an article so rife with omissions and fabrications allowed to pass through The New Yorker’s editorial process without even basic verification? However, seeing how liberal mainstream media outlets often serve as mouthpieces for The Powers That Be, which clearly disapprove of cryptocurrencies because decentralized blockchains lie outside of the establishment’s control, it’s not hard to guess.