The SEC's crypto crusade: recent Ls and how their record looks to date

The SEC continues to dominate crypto headlines but most recently with a series of step downs after it dropped various investigations and legal actions.

Paxos

On February 13th 2023, stablecoin issuer Paxos received a Wells Notice from the SEC which informed them that BUSD was considered a security and that Paxos should have registered the offering of BUSD under the federal securities laws. On July 11th 2024 the SEC officially investigated its investigation with no further action

Consensus

In March 2024 the SEC started an investigation into Consensus and issued requests for information from the Ethereum Foundations and key Ethereum ecosystem members. In response, Consensus sued the SEC in April 2024 in an attempt to halt the investigation under the grounds that ETH is a commodity and therefore out of the jurisdiction of the SEC. On June 18th 2024, the SEC dropped the investigation.?

Stacks

After a 3 year investigation the SEC quietly dropped its investigation against Bitcoin scaling network Stacks. On July 9th, the firm behind the protocol was informed that the SEC was not intending to recommend enforcement actions. In all these cases, countless hours and dollars would have been spent by these companies on legal proceedings and defending themselves from the SEC attack. Therefore whilst it’s positive to see the SEC drop these investigations, it’s frustrating that these companies had to unnecessarily fight these charges.

There’s also been the following examples where the SEC has lost in their battle to claim securities territory or wrongdoings vs crypto companies:

• After a lengthy 3 year court battle, judge Torres ruled that although Ripple Labs had broken securities laws when they initially ICO’d and sold XRP, the subsequent sales of XRP e,g on exchanges, was NOT a securities offering and therefore the SEC’s assertion that XRP was a security was not correct.?
• In May 2023 the SEC was forced to pay $1.8 to cover D.E.B.T Box’s legal fees after it was found that their case against the crypto firm ws “marred by false statements and misrepresentations”. Two SEC agents resigned and the SEC dismissed the case.?

In these cases too, time, money and energy was spent battling the SEC and their incorrect accusations.

In one such case, the judge branded the SEC’s actions as “...Arbitrary And Capricious…” and it certainly seems like the SEC’s modus operandi is to splatter their Wells Notices and Enforcement actions in the hope of creating a chilling effect across the industry and scooping up some settlement money from amongst those firms who can’t afford the lengthy legal battle or don’t want to take on the fight.

This has been the case with the ~$57m from settlements by Genesis, Stoner Cats, TradeStation, Shapeshift, Nexo Capital and many more who have all settled without admitting the SEC’s charges.?

The SEC’s actions have also led to many firms settling and then exiting the industry as they ran out of funds and fight. In Aug 2023 exchange Bittrex settled after the SEC accused it of not registering as a securities broker but this $24m settlement led to it closing up shop.?

There’s also the following pending actions by the SEC which we await to see the outcome on, but if the SEC’s record is anything to go by and since more crypto firms are deciding to hold firm and fight back, we will hopefully see more L’s for the SEC.

• On 21st November 2023, Kraken was the target of SEC action which levelled that the exchange’s trading platform was an unregistered securities exchange, broker, dealer, and clearing agency.
• On 24th March 2024, the SEC charged Coinbase with acting as a national securities exchange and identified 13 assets that it supported and which the SEC claims are securities and therefore require Coinbase to have registered as such. Coinbase is strongly defending itself against these claims and since Coinbase has been used as as the primary custodian for the BTC and ETH ETFs plus the destination of choice for US gov sales of seized assets, it feels an odd target to try to take down …
• On 6th May 2024, trading app Robinhood received a Wells Notice that the SEC intended to take civil action against it for not registering various tokens that it offers and which the SEC deems to be securities.?
• On 9th April 2024 UniSwap received a Wells Notice that asserted their token UNI to be a security and UniSwap to be an unregistered securities exchange.?

The SEC continues it’s approach of legislation via enforcement, and attempting to scare crypto firms out of business with its Harry Potter initial-Hogwart’s-letter-through-the-postbox Wells Notice approach.?

However for balance; well done to the SEC for their $4.5b settlement from Terraform Labs and Do Kwon, actions against the SafeMoon fraud and a number of ponzi scheme takedowns - if only they spent more time catching the actual bad guys and less time trying to bring down the good players in the space though!

https://www.sec.gov/securities-topics/crypto-assets?