The SEC’s Shift in Crypto Enforcement
The U.S. Securities and Exchange Commission (SEC) is embarking on a significant shift away from many of the high-profile crypto litigations initiated during former Chair Gary Gensler’s tenure. However, not all companies are escaping scrutiny. Currently, at least four lawsuits against various crypto firms — Ripple, Kraken, Cumberland DRW, and Pulsechain — are still active, while investigations into three additional companies — Unicoin, Crypto.com, and Immutable — remain open.
SEC Commissioner Hester Peirce, who heads the agency’s newly established Crypto Task Force, has already begun to follow through on her commitment to “disentangle” the SEC from numerous crypto-related legal actions. The agency has decided to drop its cases against Coinbase and ConsenSys, pending approval from the commissioners, and has temporarily paused its cases against Binance and Tron as discussions around a potential resolution are ongoing.
This unprecedented level of activity at the SEC, as it retreats from previous crypto actions, highlights the extraordinary nature of the regulatory landscape over the past four years. Paul Grewal, Chief Legal Officer of Coinbase, remarked in an interview with CoinDesk, “What we are witnessing is truly unprecedented, but it is certainly a step in the right direction.”
In recent weeks, several companies that had previously received Wells notices — essentially warnings from the regulator indicating an intention to file enforcement charges — were informed by the SEC that their investigations had concluded without any charges being filed. This group includes notable entities such as Robinhood Crypto, the decentralized protocol Uniswap, the non-fungible token (NFT) marketplace OpenSea, and the crypto exchange Gemini.
The Open Suits
Despite the SEC stepping back from its claims that Coinbase operated as an unregistered securities broker and exchange, similar allegations against Kraken remain unresolved. The SEC filed a lawsuit against Kraken in November 2023, accusing the firm of improperly mixing customer and company funds while functioning as an unregistered securities broker, clearing agency, and dealer. A representative from Kraken did not respond to CoinDesk’s request for comment.
In a similar vein, the SEC took legal action against Cumberland DRW — the crypto trading division of the Chicago-based trading firm DRW — last year, alleging it operated unlawfully as an unregistered securities dealer. Don Wilson, the founder of DRW, vowed to contest the lawsuit at that time. A spokesperson for DRW declined to provide any updates, stating that the firm currently has no new information to share.
In 2020, the SEC filed a lawsuit against Ripple, which saw a significant judicial loss in 2023 when a New York judge ruled that XRP, when sold to retail investors, does not qualify as a security. Following that ruling, the SEC appealed the decision. While Ripple executives and external analysts have speculated that the agency may drop the appeal, no official statements have been made regarding the case. A representative for Ripple indicated to CoinDesk that the company has no updates to share at this time.
Rebecca Fike, a partner at the law firm Vinson & Elkins based in Dallas and a former SEC enforcement attorney, expressed her expectation that the SEC will likely withdraw any pending cases that rely on the Howey test to accuse a company of offering unregistered securities, particularly in the absence of fraud or related investor protection issues. “The order in which cases are dropped may depend on internal timelines or court schedules that prioritize certain cases,” Fike noted. “There is also a possibility that some crypto-related cases that clearly fit the Howey framework—especially those involving fraud, where a promoter or CEO misleads investors—could persist under traditional fraud statutes.”
The SEC has also leveled fraud and registration allegations against Richard Schueler, known as Richard Heart, alongside his ventures Pulsechain, PulseX, and Hex, in July 2023. A hearing regarding the defendants’ motion to dismiss took place last October, and the presiding judge dismissed the case last Friday, granting the SEC 20 days to amend its complaint.
The Open Probes
In addition to the ongoing lawsuits, several SEC probes — investigations that have yet to result in formal charges — into various crypto companies are still active. Crypto.com took legal action against the SEC last October after receiving a Wells notice. However, the firm voluntarily withdrew its lawsuit two months later, following a meeting between CEO Kris Marzalek and then-President Elect Donald Trump. Crypto.com has not responded to CoinDesk’s request for comment on the matter.
Immutable, an Australian blockchain gaming and NFT company, also received a Wells notice last year related to the sale of its IMX token in 2021, and it has pledged to contest any forthcoming enforcement actions. Neither Immutable nor the SEC has publicly addressed the current status of the investigation.
Similarly, Unicoin received a Wells notice last year indicating that the SEC intended to bring charges alleging violations related to fraud, deceptive practices, and the offer and sale of unregistered securities. Unicoin has not responded to CoinDesk’s request for comment.
Looking Forward
The SEC’s retreat from aggressive enforcement actions, along with a reduction in the size of its crypto enforcement team, suggests a shift away from the “regulation by enforcement” strategy adopted under former Chair Gensler. Fike commented, “The SEC appears to be signaling that its approach to crypto regulation will evolve, moving towards rulemaking and clear guidance rather than relying on case-by-case enforcement actions.” She expressed hope that this pivot, paired with a broader evaluation of the crypto landscape under Commissioner Peirce’s new task force, will lead to more clarity in crypto regulation.
As the SEC navigates these changes, reactions from the industry vary. Cameron Winkelvoss, president and co-founder of Gemini, recently voiced his frustrations on social media, calling for accountability for the time and resources his crypto exchange expended in defending itself against the SEC’s investigation. He suggested that the SEC should reimburse Gemini threefold for its legal expenses and publicly dismiss all personnel involved in the probe.
Fike pointed out that such demands are unlikely to gain traction. “I find it hard to believe that the SEC would ever entertain such requests. Establishing a precedent of reimbursement could complicate matters for them and other regulatory bodies attempting to oversee emerging markets,” she noted. “It is crucial to recognize that new financial products can often be breeding grounds for fraud, potentially putting investors at risk. The SEC has sought to be proactive in a rapidly evolving market filled with investors who may fear missing out but lack the expertise to differentiate between genuine opportunities and potential scams.”
Fike concluded, “While opinions on their approach may differ — and it’s clear that Commissioners Peirce and Uyeda hold contrasting views — the SEC is also benefiting from a maturation process within the crypto sector. It’s a positive development that the SEC is stepping back to reevaluate and establish a more coherent regulatory framework for crypto and digital assets; however, I don’t believe their previous efforts were ill-intentioned or warrant punishment.”
