The U.S. Securities and Exchange Commission (SEC) is undergoing a significant transformation, initiating a retreat from much of the major crypto litigation that was ramped up during the tenure of former Chair Gary Gensler. However, not all crypto companies are off the hook, with several lawsuits and investigations still ongoing.
As it stands, at least four lawsuits against prominent crypto firms — Ripple, Kraken, Cumberland DRW, and Pulsechain — remain active. In addition, probes into another three firms, including Unicoin, Crypto.com, and Immutable, have yet to be closed.
In a proactive move, SEC Commissioner Hester Peirce, the head of the agency’s newly-formed Crypto Task Force, has begun to make good on her commitment to disentangle the agency from various crypto-related litigations. The SEC has announced it will drop its cases against Coinbase and ConsenSys, pending commissioner approval, and has paused cases against Binance and Tron as they explore potential resolutions.
This remarkable shift in strategy at the SEC, characterized by a retreat from aggressive enforcement, serves as an indication of the agency’s acknowledgment of its prior overreach. As Coinbase’s Chief Legal Officer Paul Grewal noted in an interview with CoinDesk, “just how beyond the pale the last four years were” has never been seen before in regulatory practice, and this change in approach is well warranted.
Over the past two weeks, various companies that received Wells notices — a precursor to potential enforcement actions — have been informed that the SEC is closing their investigations, with no charges expected. This list includes high-profile entities like Robinhood Crypto, decentralized protocol Uniswap, NFT marketplace OpenSea, and crypto exchange Gemini.
The Open Suits
Despite the SEC dropping some lawsuits, significant cases remain open. Notably, although the agency retreated from accusations that Coinbase was operating as an unregistered securities broker and exchange, charges against Kraken are still on the table. The SEC sued Kraken in November 2023, alleging it commingled customer and corporate funds while acting as an unregistered securities broker, clearing agency, and dealer. Kraken has thus far refrained from commenting.
Similarly, the SEC’s litigation against Cumberland DRW persists, having sued the firm last year for allegedly operating as an unregistered securities dealer. Don Wilson, the firm’s founder, has expressed intentions to vigorously contest the SEC claims. Meanwhile, another key case involves Ripple, where a New York judge ruled in 2023 that XRP, when sold to retail investors, was not classified as a security, prompting the SEC to appeal that ruling.
Rebecca Fike, a partner at law firm Vinson & Elkins and an ex-SEC enforcement attorney, anticipates that the SEC may drop many of its pending cases rooted in the Howey test for securities registration, especially when no fraudulent activity has been identified. She pointed out that the timing of these decisions could depend on court schedules and internal agency priorities.
One of the more prominent cases involves Richard Schueler, known as Richard Heart, with the SEC alleging unregistered securities fraud related to Pulsechain and other projects. A recent court ruling allowed the SEC a 20-day period to amend the complaint.
The Open Probes
In addition to ongoing lawsuits, several investigations into crypto firms remain open. For example, Crypto.com has been under scrutiny after receiving a Wells notice but opted to withdraw a lawsuit against the SEC, a decision made after its CEO met with then-President Elect Donald Trump. Both Immutable and Unicoin also face ongoing probes, with neither company providing updates on their respective statuses.
Looking Forward
The SEC’s latest actions indicate a pivot away from the “regulation by enforcement” strategy that characterized Gensler’s leadership. Fike notes that the current agency leadership is signaling a preference for clear regulations over case-specific enforcement actions, suggesting a shift towards structured regulatory frameworks for the crypto industry.
Although the SEC is attempting to reconstitute its approach to crypto, reactions within the industry vary. Gemini’s co-founder Cameron Winkelvoss recently voiced frustrations over the resources expended during the SEC investigation, calling for recompense for costs incurred.
Fike, however, believes that seeking restitution is unlikely, pointing out the challenges and precedents such an action would establish for future regulatory conduct in emerging markets. She emphasizes that while the SEC’s previous enforcement may have faced criticism, it was motivated by the need to protect investors from fraud in a complex and rapidly evolving landscape.
As the regulatory environment continues to evolve, the hope is that this current transition will pave the way for a more coherent regulatory framework for cryptocurrencies and digital assets, fostering clarity and stability in the sector.
