Over the last eight years—through the first Trump administration and the Biden administration—the Securities and Exchange Commission (SEC) has taken numerous actions against the crypto industry to protect investors, markets and capital formation, which it is required to do by law. The SEC has won almost 100% of those cases because in most cases the crypto industry is knowingly and intentionally breaking the securities laws, which it claims do not apply to it. However, virtually every independent Article III federal judge across the country has ruled against the crypto industry, often in lengthy and detailed decisions that make it clear that crypto’s positions simply lack a valid legal basis.
Put differently, the SEC has not been engaged in an aggressive campaign to stretch the law in bringing investor protection actions against the crypto industry. Those actions have been to enforce longstanding, clear, black letter law to an industry that brazenly refuses to follow the law that is applicable to everyone else in the securities industry in the U.S.
This disproves the complaints of the crypto industry and its allies that the SEC has been waging a baseless legal war against it. The facts show that it is the industry that has gone to war against the SEC. (Moreover, while crypto gets a disproportionate amount of attention, crypto cases have never been more than about 10% of the SEC’s enforcement activities.)
Yes, some of those cases have been resolved by settlements where the crypto company agrees to terms consistent with the SEC’s legal position. However, they didn’t settle because they thought they could win; they settled because they knew they could not – and would not – win. And they certainly didn’t give up because they didn’t have the resources to fight the SEC: the crypto industry has spared no expense in its war against the SEC, with its members spending almost half a billion dollars fighting the SEC in court.
As court losses piled up, and as the crypto industry had to know it ultimately wasn’t going to win in the court of law, it appears that the industry was hoping to be saved by its $200+ million campaign to buy enough political influence to get the cases stopped. Remarkably, that money wasn’t spent on campaign ads singing the praises of crypto or crypto-supporting candidates. In fact, those ads did not mention crypto, presumably because the industry knows that the American people are overwhelmingly against crypto – perfectly reasonable given the bankruptcies, frauds, ransomware extortion, rip offs, and illegal and criminal conduct that have filled the headlines for years.
None of that matters to President Trump and his administration, who, after receiving campaign contributions from crypto, have vowed to unleash the industry. While that has happened to varying degrees across the administration, the SEC has been in the lead in surrendering to the industry, even at the cost of its reputation and integrity.
In light of its virtually unanimous win record, the SEC’s recent actions are shocking and unprecedented. It has dismissed, agreed to dismiss, or paused cases that it had brought to force crypto firms to comply with the law, from stopping fraud to providing investors with adequate information and requiring firms to register with the agency. The SEC has also closed investigations into other crypto firms after previously considering charges for registration and potentially other violations. Registration would provide investors with the disclosures that they need to navigate an industry rife with frauds, scams, and abuses, and would prevent the commingling of functions and conflicts of interest that the securities laws prohibit in the rest of the securities industry.
Below, we highlight the cases the SEC has dropped or paused. In none of the cases did a court find that the SEC’s case lacked merit. Nonetheless, the SEC has decided not to pursue them.
In addition to dropping enforcement actions and investigations, the SEC recently has taken other actions to benefit the crypto industry. Two days after the inauguration, the SEC rescinded accounting guidance designed to address the unique risks crypto poses and ensure that investor assets are protected. The SEC then dismantled the crypto unit in its Division of Enforcement, reassigning and demoting key personnel in the unit. And the SEC has now issued guidance declaring that most meme coins, a type of crypto, are not securities but rather “collectibles” even though they generally appear to fall comfortably within the historic definition.
William O. Douglas, the SEC’s third chair and a future Supreme Court justice, declared that the SEC would serve as “the investor’s advocate.” Unfortunately, it appears that is no longer the case. Instead, the SEC appears to have a new role: the crypto industry’s advocate.
The SEC has dismissed or paused cases it was winning in court or before a court ruled
Coinbase
The SEC’s capitulation is exemplified by its actions in its case against Coinbase. The SEC sued Coinbase in June 2023, alleging that it operated as an unregistered securities exchange, broker, and clearing agency. In doing so, according to the SEC, Coinbase commingled functions that are separated in other parts of the securities markets and deprived investors of critical protections, such as anti-fraud and anti-manipulation rules, proper disclosure, safeguards against conflicts of interest, and SEC inspections to root out misconduct before it harms investors.
In March 2024, after Coinbase sought to have the SEC’s case dismissed on the grounds that the federal securities laws did not apply to it, a federal district court ruled that the SEC’s case had merit. In an 84-page ruling, the judge rejected nearly all of Coinbase’s arguments that the federal securities laws didn’t apply to it. First, she held that there did not need to be a formal written contract between the crypto token issuer and the investor for an investment contract security to exist. Instead, if a purchaser of a crypto asset had the expectation of profits based on a token issuer’s use of the proceeds from a sale to develop the token’s ecosystem, the federal securities laws apply. The opinion also noted that crypto assets were unlike commodities or collectibles, which could be independently consumed, because a crypto asset was necessarily intermingled with its digital network—without which no token could exist. The judge also rejected Coinbase’s arguments that the SEC violated its right to due process, rejecting the notion that the company didn’t have “fair notice” that the securities could apply. Finally, the opinion rejected Coinbase’s contention that the “major questions doctrine” applied, noting that the SEC was not overstepping with a transformative application of its authority outside of what Congress intended. Instead, the agency was merely engaged in the “latest chapter in a long history of giving meaning to the securities laws through iterative application to new situations.”
Despite this victory, the SEC recently determined to dismiss the suit against Coinbase.
Binance
The day before the SEC sued Coinbase, it sued Binance. Again, it alleged that Binance operated unregistered securities exchanges, brokers, and clearing agencies, and it also alleged that Binance misrepresented that U.S. customers were restricted from transacting on its platform and commingled customer assets. The SEC described Binance’s conduct as an extensive web of deception that left investors susceptible to conflicts of interest and a lack of disclosure.
Again, a federal district court rejected Binance’s claims that the securities laws did not apply and found that most of the SEC’s claims had merit. In an 89-page order, the judge said that a contractual arrangement did not need to exist for there to be an investment contract. Instead, the SEC had shown how most of the products and transactions at issue met the characteristics of an investment contract and therefore a security. Because Binance planned to use proceeds of the sales of its token to build a strong exchange, and it linked the value of the coins to the future success of the exchange as it touted the expertise of its team, it appeared to be engaged in an unregistered securities offering. The court also noted that Binance may have defrauded users and investors by misrepresenting its trading volumes by permitting wash trading on its platform.
Nonetheless, the SEC recently asked for a 60-day stay in the case.
Kraken
In November 2023, the SEC sued Kraken, again alleging that Kraken’s trading platform was an unregistered securities exchange, broker, dealer, and clearing agency. The SEC alleged that Kraken intertwined the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions as required by law. This failure deprived investors of protections such as SEC inspections, recordkeeping requirements, and safeguards against conflicts of interest. The SEC alleged further that Kraken commingled its customers’ money with its own and paid operational expenses directly from accounts that held customer cash. Kraken also allegedly commingled its customers’ crypto assets with its own.
As in the Coinbase and Binance cases, a federal district court rejected Kraken’s motion to dismiss the case on the ground that the securities laws did not apply. The court found that the SEC plausibly alleged that at least some of the crypto transactions that Kraken facilitates on its network constitute investment contracts, and therefore securities. In response to that decision, an SEC spokesperson said at the time that it was necessary for crypto trading platforms to register and ensure they have safeguards against fraud and manipulation, the commingling of customer assets, and conflicts of interest. Otherwise, the SEC spokesperson said, “investors will continue to get hurt.” Nonetheless, the SEC recently agreed to drop its lawsuit against Kraken.
Before the SEC brought that suit, Kraken had entered into a settlement with the SEC under which it agreed to cease offering its “staking” product. Staking is a product by which investors agree to lock-up their tokens with Kraken for a period of time in exchange for Kraken pooling investors’ assets, providing technological services and promising a return on their investment. Shortly after the new leadership took over at the SEC, Kraken announced it would bring back staking.
Consensys and Cumberland
In June 2024, the SEC sued Consensys, which operates the crypto wallet MetaMask, alleging that it had offered and sold tens of thousands of unregistered securities in the form of liquid staking tokens and had acted as an unregistered broker with respect to these transactions. According to the SEC, Consensys’s conduct allowed it to collect hundreds of millions of dollars in fees while depriving investors of the protections of the federal securities laws. Less than a year later, with no court order casting doubt on its claims, the SEC has agreed to drop the case.
In October 2024, the SEC sued Cumberland DRW, a liquidity provider in crypto assets, alleging that it operated as an unregistered dealer in more than $2 billion worth of crypto assets offered and sold as securities. The SEC alleged that Cumberland acted as an unregistered dealer by buying and selling crypto assets offered and sold as securities for its own accounts as part of its regular business. As a result, according to the SEC, Cumberland profited from its dealer activity in these assets without providing investors and the market with the important protections afforded by registration. Despite these allegations, the SEC has agreed to dismiss this case too.
Justin Sun
In March 2023, the SEC charged crypto entrepreneur Justin Sun and three of his companies with fraud and other violations. The SEC alleged that Sun and his companies fraudulently manipulated the secondary market for crypto asset security Tronix (TRX) through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership. The SEC also alleged that Sun and his companies engaged in the unregistered offer and sale of TRX and crypto asset security BitTorrent (BTT). The SEC alleged further that Sun and his companies orchestrated a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.
The case remained pending in November 2024, when Sun bought $30 million worth of tokens issued by World Liberty Financial, President Trump’s crypto project. Sun subsequently increased his investment to $75 million. In February, the SEC asked the federal judge overseeing Sun’s case to put the case on hold, citing the interests of both sides and “‘the public’s interest.’”
Sun’s case is especially noteworthy for two reasons. The first reason is self-evident. Unlike many of the other crypto cases that the SEC has dismissed or paused, Sun’s case involves alleged fraud. The SEC’s new leadership has said repeatedly that it does not want crypto to be a haven for fraudsters and that its efforts to combat fraud involving securities, including crypto assets that are securities, continue unabated. Yet Sun’s case, which the SEC agreed to put on hold, involved allegations that Sun directed his employees to engage in more than 600,000 wash trades of TRX, with between 4.5 million and 7.4 million TRX wash traded daily.
The second reason Sun’s case is noteworthy is that it shows the importance of the non-fraud cases that the SEC has now dismissed or paused. Crypto trading platforms like Coinbase, Binance, and Kraken allow crypto assets that are part of fraudulent schemes to be distributed to retail investors. For example, Binance and Kraken traded TRX, the crypto asset that was the subject of the SEC’s allegations of rampant wash trading in the case against Sun. Coinbase made available to retail investors fraudster Do Kwon’s token known as TerraUSD. Kwon’s “algorithmic stablecoin” scheme destroyed $40 billion in market value, and Kwon subsequently settled fraud charges with the SEC following a unanimous jury verdict. Before the scam collapsed, Coinbase’s venture capital arm had invested in Kwon’s crypto projects.
This is why it is so important for crypto trading platforms such as Coinbase, Binance, and Kraken to abide by the registration provisions of the federal securities laws. Registration ensures that investors receive necessary disclosures, which prevent fraud, and that exchanges do not commingle functions, which create conflicts of interest. So the SEC’s failure to pursue cases designed to force crypto platforms to register with the agency will harm investors.
The SEC has also closed investigations into crypto firms without enforcement action
In addition to dismissing or pausing cases it had already instituted, the SEC has now closed investigations into numerous crypto firms after previously considering filing charges. For example, in May 2024, the SEC warned Robinhood that it was considering charging it with operating its crypto business as an unregistered broker-dealer and clearing agency. But last month, the SEC notified Robinhood that it would not be moving forward with an enforcement action. The case would have been another attempt to prevent crypto companies from “skirting longstanding investor protection rules by not registering with the agency.”
[Instead], with Trump’s election, the SEC is already moving away from enforcement and toward crafting crypto-tailored rules.
Similarly, in April 2024, the SEC notified Uniswap Labs, a decentralized crypto exchange, that it faced a potential lawsuit. According to Uniswap, the SEC planned to allege that the company operated as an unregistered broker and exchange and issued an unregistered security. But last month, the SEC closed its investigation with no enforcement action. The SEC last month also closed its investigation without recommending any enforcement action into crypto exchange Gemini Trust Co. Gemini’s founders both donated bitcoin in the maximum allowed amount to President Trump’s campaign.
The SEC’s recent pattern of closing investigations into crypto companies has also extended to nonfungible tokens (NFTs). NFTs are another type of digital asset. In August 2024, the SEC warned OpenSea, an NFT marketplace, that it was considering charging it with selling unregistered securities. But last month, the SEC closed its investigation. The SEC also closed its investigation into Yuga Labs, creators of the “Bored Ape” NFT.
The SEC has taken other actions that benefit the crypto industry
The dismissal of cases and closing of investigations are not the only actions the SEC has taken that benefit the crypto industry. In addition to retreating in specific cases, the SEC has dismantled the crypto unit in the Division of Enforcement. Shortly after the inauguration, the SEC reassigned some of the lawyers in the unit to different departments. Subsequently, the SEC disbanded the crypto unit entirely and replaced it with a “Cyber and Emerging Technologies Unit.” At the same time, the SEC has created a Crypto Task Force to set the agency on a new path. That path involves developing rules for the crypto sector “alongside industry advisers.”
The SEC created the Crypto Task Force the day after the inauguration. Two days later, the SEC rescinded Staff Accounting Bulletin (SAB) 121. The SEC originally issued SAB 121 in March 2022 to better protect investors from the risks of crypto. SAB 121 provided that companies holding crypto assets for customers face unique risks and should therefore reflect those assets as liabilities on their balance sheets. As a result, under SAB 121, banks would have had to have capital to protect against the risks posed by crypto assets, thereby avoiding crashes, contagion, and bailouts. SAB 121 also protected investors in the event of bankruptcies. Nonetheless, SAB 121 drew the ire of the crypto industry, which considered its rescission a huge win.
Although the rescission of SAB 121 was not surprising given the crypto industry’s longstanding antipathy to the guidance, a more surprising win for the crypto industry came when the SEC recently declared that meme coins are generally not securities. Meme coins are a highly speculative form of crypto based on internet memes, viral moments, or celebrity promoters. Investors often suffer harm when meme coins are the subject of what are known as rug pulls.
While the tokens have no value as currency, their price can soar upon release, as speculators jump on the new offering. That allows insiders who held the coins before their public debut to turn a quick profit, with some top tokens achieving multibillion-dollar valuations in a matter of minutes. But the coins are also likely to crash just as quickly, leaving latecomers with steep losses.
So meme coin rug pulls are akin to pump and dumps with traditional stocks. Meme coins trade on crypto exchanges, and investors have lost their life savings trading in meme coins. Nonetheless, the SEC said meme coins are generally not securities but instead are collectibles, such that purchasers are not protected by the securities laws. This means that the SEC’s guidance, which was long sought by the crypto industry and cheered as the “clarity that the digital asset space has been demanding for years,” leaves investors to fend for themselves. There is no better example of the SEC’s transformation from the investor’s advocate to the crypto industry’s advocate.
