To ensure that we have the strongest possible team of legal minds supporting our application to convert Grayscale Bitcoin Trust (Symbol: GBTC) to an ETF*, we retained former Solicitor General of the United States, Donald Verrilli Jr., as a senior legal strategist, working alongside our existing internal and external legal counsel. He is one of the nation’s most experienced attorneys, and has a deep understanding of legal theory, administrative procedure, and the practical matters of working with the judiciary branch.
Oral arguments are scheduled for March 7, 2023 in Washington D.C. One week prior, Verrilli sat down with a group of reporters to share his perspectives on the legal issues at play, the arguments he plans to deliver, and what this case means for the future of bitcoin and the crypto industry. Here’s a recording, as well as a lightly edited transcript, of the conversation:
Transcript (lightly edited for clarity)
Interviewer: Well welcome, everyone, and welcome, Don. As you all know, Don is one of the nation’s premiere Supreme Court and appellate advocates. He served as Solicitor General of the United States from June 2011 to June 2016. During his time as solicitor general, he argued more than 50 cases before the Supreme Court, including landmark decisions upholding the Affordable Care Act and recognizing marriage equality. He’s currently a partner at the Washington, D.C., office of Munger, Tolles and Olson, and a lecturer at Columbia University Law School, his alma mater. Don now serves as lead counsel in Grayscale’s appeal of the SEC’s decision to deny its application to convert the Grayscale Bitcoin Trust into a spot Bitcoin ETF.
He will be presenting Grayscale’s case to the D.C. Circuit Court during oral arguments on March 7th. Don, we’re super excited to have you here today. As you all can see, we have two cameras in the room that will be recording the event to make it available to some reporters and investors to start. I’ll ask Don a few questions regarding the ongoing litigation, key arguments in the case, and what we should all expect from the oral arguments as they approach on March 7th. Then we’ll open it up to your questions.
So, with that, Don, what drew you to the case and how would you describe your role?
Don Verrilli: Yeah, so this has been a great experience for me. I came on board, I guess, a little more than a year ago, and became part of the legal team as sort of trying to help the legal team think strategically about the best way to position this, to try to maximize the chance of coming out on top when all is said and done in the legal fight.
And it’s been a really great thing for me because – to say I knew nothing about cryptocurrency before I started this case would be an understatement. It’s an entirely new area for me. And that’s part of what I love about what I do: I get to come into a new area, learn it as best I can, work with people who are experts to try to master it to the extent necessary to litigate the case effectively, and then try to take that expertise and translate it into common sense terms that lay people who aren’t that deeply into the industry or fintech can understand. And it’s been an extraordinarily gratifying experience to do that in this case.
Interviewer: That’s great. And so as you talk about simplifying the arguments, what would you say are Grayscale’s key arguments in the case and how has that been received by the SEC so far?
Don Verrilli: Yeah. So, you know, I really think that there’s a fundamental premise at stake here, a fundamental principle at stake, and it’s really not that complicated. There’s a basic norm that governs the actions of administrative agencies, and the SEC is an administrative agency, and that set of norms is set forth in the Administrative Procedure Act. And the most basic norm of all is that when agencies take actions, like their consideration of the application for approval of the trust, they have got to conduct themselves in a manner that is not arbitrary and capricious, and they’ve got to engage in reasoned decision making and courts recognize that the agencies have expertise, but they don’t have a blank check. And here really the most fundamental of those principles of administrative law is at stake: the idea that the agencies have to engage in reasoned decision making and not act in an arbitrary and capricious manner.
And the most basic way in which an agency can act in an arbitrary and capricious manner is to take like cases, like situations, and treat them differently. And, essentially, that’s what we have here.
You have a situation in which the SEC has decided to give approval to Bitcoin futures ETFs, and came to the conclusion that the various mechanisms in place to detect fraud and manipulation were strong enough that this was an ETF that could get approval. And then they turned around, and despite the existence of those exact same protections with respect to spot market ETFs, they disapprove the spot market ETF. And it’s just a classic case of taking like cases and treating them differently. And it really comes through when you lay it side by side. The order that the SEC issued approving a Bitcoin futures ETF, and the order in our case disapproving our spot ETF… they just contradict each other. And that’s the essence of our case. Although we’re in a very technical area, that lay people don’t really have a deep understanding of, that basic principle is quite straightforward. I think anybody can understand it.
Interviewer: What are your thoughts on the briefs that have been filed by the SEC so far?
Don Verrilli: Yeah. So, you got to take this with a grain of salt because I’m an advocate here, right? But I feel like we laid out a very strong case along the lines I just described, and my sense of the government’s argument so far is that they’re just not dealing with it – they’re just not dealing with the reality that these two orders contradict each other. They just don’t want to talk about that. So, their brief, I think, went to great lengths to try to talk about other things without ever really coming to terms with that fundamental contradiction.
Interviewer: And, in terms of oral arguments, what should we expect?
Don Verrilli: So, we know our panel of three judges: it’s Chief Judge Srinivasan, and Judge Edwards, who has been on the D.C. Circuit a very long time, and Judge Rao, who’s a relatively recent appointee, been on there a few years. They are all brilliant jurists. They all work really hard. They dig into the details, and they focus on the specifics. And, I think what we’ll see in oral argument next week is that they will ask a lot of probing questions, and they will get deep into the specifics.
And the way an oral argument works is that the judges test both sides… So, we’ll get hard questions and the SEC will get hard questions, and we have 15 minutes per side allotted. It’s not at all unusual in the D.C. Circuit for arguments to run way over that allotment of time. And with these judges in particular and their…the intensity of their focus and preparation, it wouldn’t surprise me at all if this argument goes on beyond 15 minutes per side.
We’ll get hard questions. The SEC will get hard questions. But the questions can be quite revealing. We’ll see: what is it that the judges are focused on? What are they thinking about? And where have the arguments in the briefs taken their minds? You know, where are they going to center their analysis? So, you can learn a lot from oral argument. And it’s an important opportunity to get that sense of what the judges care about and what they’re thinking about, and to have that opportunity to follow up on what we’ve said in the briefs and address more specifically whatever concerns they might raise.
Interviewer: And in terms of the outcome of the case, how do you see the outcome and its implications on the future of the crypto industry?
Don Verrilli: So you know, one of the things about this whole effort is that what we’re trying to do is bring this fund, the Trust, the spot ETF into the regulatory environment. We are looking to fully embrace the prospect that we ought to be in a regulated environment. And Grayscale has taken a number of steps already to do that, as everybody knows.
But this is an unusual case in that most of the times when private industry is going up against a government agency invoking the Administrative Procedure Act, they’re trying to push the regulation away. They’re trying to say, “No, no, don’t. Regulators don’t touch on anything to do with us.” We’re approaching this from the opposite perspective. And we think that it’s really important to do so because, as I think everybody understands and as we pointed out in our brief, as a result of the fact that the Trust hasn’t yet gotten approval as an ETF, the shares trade at a discount to the value of the assets that the Trust holds, and that’s worth billions of dollars to the almost a million investors in the Trust.
And, you know what? One thing approval will do is unlock that value and give it to investors. And you’d think that that’s something the SEC would want to accomplish. And that’s, it seems, as a public policy matter, a very strong argument on the side of the scale that favors granting approval here. And when you pair that with the fact that you’ve got a spot market ETF as compared to a futures ETF – well, futures are, you know, derivatives – holding a derivative is inherently more risky than holding the underlying asset. And they’ve approved the derivatives. And, so you’d think, again, that they’d understand that this would actually give investors a more secure option. So, when you put all that together, it seems to me that what we’re really asking here is to move regulatory policy in a pro-investor direction. You know, not just pro-investor choice, but also pro-investor protection – trying to do both things here. And we’re hoping that the D.C. Circuit will understand that.
*We use the generic term “ETF” to cover exchange-traded investment vehicles that are required to register under the Investment Company Act of 1940, as amended (the “‘40 Act”), also commonly referred to as “exchange-traded funds” or “ETFs”. The term “ETF” also encompasses “exchange-traded products” or “ETPs”, like GBTC would be, that are not subject to the registration requirements of the ‘40 Act. ETFs trade in line with NAV as a result of the simultaneous creation and redemption mechanism available.