Courtesy Nano Banana

 

Regulatory clarity meets litigation reality. This week, the crypto industry saw a utility token no-action letter olive branch from the SEC, but the courts were far less forgiving. A landmark ruling in the S.D.N.Y has opened the door for AI chat logs to be discoverable, while a federal judge in Nevada just dealt a significant blow to the “federal preemption” defense for prediction markets.

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SEC Policy & Token Regulation

• SEC Grants Rare “No-Action” Relief for Utility Token The SEC’s Division of Corporation Finance issued a no-action letter to Fuse Crypto Limited, declining enforcement regarding its $ENERGY token. The token rewards participants in sustainability programs (EV charging, solar). The relief hinges on the token qualifying as a “consumptive reward” under Howey, lacking profit expectations derived from the efforts of others. This provides a narrow but viable path for utility tokens that function purely as rewards rather than investment vehicles. [SEC No Action Statement] [Incoming Letter from Latham & Watkins]
• EU Proposes “Digital Omnibus” (GDPR & AI) The European Commission’s draft package proposes sweeping amendments to the GDPR and the AI Act. Key changes include recognizing AI training as a “legitimate interest” under GDPR, broadening cookie exceptions via automated user signals, and narrowing sensitive personal data protections. [Gibson Dunn]
• Stand With Crypto Vets 2026 Candidates Backed by Coinbase, Stand With Crypto has launched a questionnaire to evaluate federal and state candidates ahead of the 2026 midterms. They are grading politicians on crypto innovation, de-banking, and mining regulations. [CoinTelegraph]

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AI Discovery & Litigation Risks

• 🚨 Landmark Ruling: OpenAI Ordered to Produce ChatGPT Logs U.S. Magistrate Judge Ona Wang (S.D.N.Y) ordered OpenAI to produce 20 million anonymized conversation logs, dismissing privacy and proportionality objections. This precedent underscores that AI interactions are not a black box; they are discoverable data. Firms must update document retention policies and implement privacy safeguards immediately to mitigate e-discovery risks in unrelated lawsuits. [National Law Review]
• Attorney Sanctioned Despite Using Six AI Verification Tools. A California federal court sanctioned attorney Winston Liaw after he relied on AI to generate case law that turned out to be hallucinated. Notably, Liaw used six different AI tools to cross-verify, but still erred. The court emphasized counsel’s duty under Federal Rule of Civil Procedure 11 to ensure filing accuracy, highlighting the need for robust human oversight of AI outputs. [Law360]
• Judge Alsup Orders Class Website Redesign to Protect Opt-Out Rights. U.S. District Judge William Alsup ordered the immediate disabling of the class website in Bartz v. Anthropic, ruling that its design violated due process by steering members toward claims filing while obscuring opt-out options. The court mandated equal prominence for opt-out mechanisms and all four settlement options before directing users to any action, underscoring judicial vigilance on fair notice in tech-related class actions and the need to rigorously audit settlement websites for compliance. [Edward Lee and ChatGPT Is Eating The World]
• Suno & Warner Music Settle. In a pivot from litigation to partnership, Suno AI and Warner Music Group have settled their copyright lawsuit. WMG is licensing its catalog to Suno, allowing the AI startup to launch “licensed models” in 2026. WMG artists can “opt-in” to having their likeness/voice used. This is a major domino to fall in the “Music Labels vs. AI” war, signaling that the industry’s future model is monetization, not eradication (perhaps a lesson learned from Napster and Spotify?). [WSJ Gift Link]

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Enforcement, Markets & Compliance

• Kalshi’s Mixed Week: Sneakers vs. The State of Nevada: Kalshi launched event contracts allowing users to bet on the future prices of sneakers and Labubu collectibles. This signals the CFTC’s growing tolerance for innovative market structures on non-traditional assets. [Bloomberg]
• Kalshi Nevada Injunction. U.S. District Judge Andrew Gordon (Nevada) dissolved a preliminary injunction that had protected Kalshi from state regulators. The court ruled that Kalshi’s event contracts effectively constitute sports betting under state law, rejecting the argument that CFTC registration preempts state gaming oversight. [Event Horizon from Dustin Gouker] [District Court Order]
• Binance Faces Hamas Terrorist Financing Lawsuit. A civil lawsuit filed in North Dakota accuses Binance and former CEO CZ of knowingly facilitating transactions for Hamas and other designated terrorist organizations, totaling hundreds of millions of dollars. [The Block] [Complaint]
• Berachain’s Secret $25M Refund Right Raises SEC Concerns. Documents reveal that Berachain granted Brevan Howard Digital’s Nova Digital fund an unprecedented post-token generation event refund right on its $25 million Series B investment, allowing full cash repayment up to one year after the February 2025 TGE (which terms were not disclosed to other investors). [Unchained has the receipts]
• Fenwick & West Must Defend FTX Collapse Claims. The law firm must face allegations regarding their role in the FTX collapse after a judge denied their motion to dismiss amended claims in the multidistrict litigation. [Law360] [Order]
• Cryptology Election Fail. The International Association of Cryptologic Research had to invalidate their election because a trustee lost one of the decryption keys. A stark reminder that even the experts struggle with the inherent risks of private key management. [New York Times]

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That’s the docket for this week. Happy Thanksgiving!