DOL rejects the cryptocurrency suit

After being sued for releasing its cryptocurrency compliance assistance release from cryptocurrency registration platform provider ForUsAll, the Department of Labor is dismissing it.

In all fairness, ForUsAll describes itself a little differently, as a “modern” 401 (k) provider that also offers cryptocurrency services. But their interest in this litigation is, according to the lawsuit they filed contesting the aforementioned release of compliance assistance in June, for what he later called an “arbitrary and whimsical attempt to limit the use of cryptocurrency in contribution-based pension plans. defined … “.

That said, the Department of Labor motion to dismiss the lawsuit, filed with the United States District Court for the District of Columbia earlier this week, dismissed ForUsAll’s claims on several fronts. The Department of Labor says the release itself “does not have the force of law or make new laws. Instead, it reminds trustees of their duties under the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. n. 93-406, 88 Stat. 829, as amended, 29 USC § 1001 et seq., As expressed in the statute and recent decision of the Supreme Court in Hughes v. Northwestern University, 142 S. Ct. 737 (2022). ”

Action “Inform”.

The motion (ForUsAll Inc. v United States Department of Labor et al., case number 1: 22-cv-01551in the United States District Court for the District of Columbia) continues noting that the release “informs trustees that the Department has concerns about retirement plans that offer investments in cryptocurrency, a new and volatile asset class, and provides advance notice. that the Department expects it will initiate an investigative program regarding unspecified cryptocurrency investment options plan offers to schedule participants, “but” does not preclude any plan from offering cryptocurrency investment options or interprets the duty of caution to prohibit such actions “.

Not only does the Department of Labor say the ForUsAll plaintiff misdefined the nature of the release, but that he did not claim an injury that would have provided them with legitimacy / motivation to sue.

The response begins by noting the loss of business opportunities reported by ForUsAll in response to the press release. Noting that the complaint “does not state that the communiqué itself precludes ForUsAll from undertaking any commercial transaction or otherwise directly regulates the company”, but rather that the loss of business is the result of “third party decisions”, which it claimed “are the the result of unspecified “executive threats” from defendants, not even necessarily release, the position the Labor Department says is “too speculative and understated” to support a basis for standing.

The Department of Labor goes on to note that in such cases “a plaintiff must ‘adduce facts showing that such choices have been or will be made in such a way as to produce causality,'” – or, to put it another way, that you must actually prove a connection between the action and the alleged reaction, with a higher probative burden for “uncertain” or “speculative” links. They blame the alleged “causal connection” here on two fronts; that ForUsAll acknowledges that “other plans” have, in fact, chosen to use their platform after release and that “ForUsAll has not put forward any basis for concluding that the release was a substantial motivating factor in the actions of the third party plans giving rise to to a causal link sufficient to establish legal standing. “The Department of Labor notes that the lawsuit attributes a decision to prevent implementation due to alleged” enforcement threats “, rather than the role or roles” plan interpretation of the release by the trustees, their consideration of their duties after release, other departmental statements identified in the complaint, the risk tolerance of the plans, or something else, played into the change of course of these plans.

ERISA standard

The Department of Labor also warns that “the release does not purport to have legal effects per se or seeks to change the duty of prudence enshrined in ERISA”, continuing noting that “the release may have brought the Department’s concerns to attention. of the plan’s trustees and that some plans as a result of their own internal fiduciary review or risk tolerance have decided not to include ForUsAll’s cryptocurrency options in the plan’s menus, does not make the release a substantial factor in ForUsAll’s alleged injury. Indeed, he notes that the standards of care and prudence, as found in ERISA, were created by Congress and that “nothing in a Department guidance document reminding trustees of such standards changes them.”

And, if all of that wasn’t enough, the Department of Labor notes that even if the court were to grant ForUsAll the relief it seeks, there has been no alleged evidence that would solve the problems ForUsAll has at its feet. “… there is no suggestion, nor could there be a valid one, that somehow planning the actions of the trustees with respect to cryptocurrency are not covered by the duty of prudence or that the Department is prohibited from investigating or initiating enforcement actions against trustees who violate the their duties in relation to cryptocurrency investment options. ERISA itself gives the Department the authority to act, and if the release were vacated, or never existed in the first place, that would remain unchanged, as well as plan the participants’ authority to bring civil action based on violations. of the duty of prudence. ”

APA ‘Plectic?’

Setting aside, the ForUsAll plaintiffs argued that the Department of Labor’s action violated the terms of the Administrative Procedures Act (APA), essentially creating a new law without the notice, review and comment periods required by law. But here the Department of Labor reiterates that “the Release does not constitute the final act of the agency, because it does not represent the consummation of the Department’s decision-making process nor does it create direct and immediate legal consequences for regulated entities” – and also, “interpretative rules and agency general political statements are exempt from this requirement.

Noting that “… the release represents an interim first step in the Department’s actions regarding offering cryptocurrency investment options on the 401 (k) plans investment options menu,” the Department of Labor explained that, ” On its own terms, the release provides for further action on the matter by the Department. For example, while the communiqué expresses that “the Department has serious concerns about the prudence of a trustee’s decision to expose participants to a 401 (k) plan to direct investments in cryptocurrencies or other products whose value is linked to cryptocurrencies “, does not determine under what conditions the duty would be violated”.

He continues noting that “although the release indicates that the Department ‘expects the trustees’ to take appropriate action to protect the interests of plan participants and beneficiaries,’ it only states that ‘EBSA expects to conduct an investigative program’, it does not which ruled that trustees must not offer cryptocurrency investment options under any or all circumstances or that any trustee who decides to offer cryptocurrency options under any circumstances will be investigated. ”

“Additionally, the release carries some of the hallmarks of a final agency decision. It was not issued in the name of the Secretary nor published in Federal register. “Although the Department engaged with a variety of stakeholders after the release of the release, including ForUsAll, the release was not released after a formal fact-finding process in any particular plan offer. Indeed, the release does not even purport to make a decision on the scope of the statute, on particular industry practices, or on factual disputes. The Communiqué simply expresses the Department’s concerns, which must necessarily be addressed in the context of specific facts and circumstances before the agency’s decision-making process is consummated. ”

Stay tuned.

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