The U.S. Securities and Exchange Commission (SEC) is significantly reducing its involvement in major cryptocurrency litigation initiated during the tenure of former Chair Gary Gensler. However, several crypto firms are still facing legal challenges.
Ongoing Legal Battles
Despite the SEC’s retreat, four notable lawsuits remain active against various crypto companies: Ripple, Kraken, Cumberland DRW, and Pulsechain. Additionally, investigations into three more firms—Unicoin, Crypto.com, and Immutable—are still open and unresolved.
SEC Commissioner Hester Peirce, who leads the agency’s newly established Crypto Task Force, has begun to fulfill her commitment to “disentangle” the SEC from numerous cryptocurrency-related lawsuits. Recent developments include the SEC’s decision to drop cases against Coinbase and ConsenSys, pending approval from commissioners. Furthermore, the agency has temporarily paused its actions against Binance and Tron as the parties explore potential resolutions.
A Shift in Regulatory Approach
The SEC’s retreat marks a significant shift in its regulatory approach, as noted by Coinbase Chief Legal Officer Paul Grewal. In an interview with CoinDesk, Grewal emphasized that the heightened activity at the SEC reflects the unprecedented nature of the past four years. He expressed optimism about the agency’s decision to revise its stance on crypto regulation.
In the past two weeks, several companies that previously received Wells notices—notifications indicating impending enforcement actions—have been informed that their investigations are now closed, and no charges will be filed. This list includes prominent players such as Robinhood Crypto, the decentralized protocol Uniswap, the NFT marketplace OpenSea, and the crypto exchange Gemini.
The Active Lawsuits
While the SEC has withdrawn accusations against Coinbase regarding its operations as an unregistered securities broker and exchange, similar allegations against Kraken remain unresolved. The SEC filed suit against Kraken in November 2023, accusing the company of improperly mixing customer and corporate funds while operating as an unregistered securities broker, clearing agency, and dealer. A spokesperson for Kraken did not respond to inquiries from CoinDesk.
In addition, the SEC initiated legal action against Cumberland DRW, the crypto trading division of Chicago-based DRW, last year, alleging that it operated as an unregistered securities dealer. Don Wilson, the founder of DRW, has committed to contesting the lawsuit. A representative for DRW declined to comment, indicating that there are no updates to share at this time.
The SEC sued Ripple in 2020, and in a significant ruling earlier this year, a New York judge determined that XRP, when sold to retail investors, does not qualify as a security. The SEC has since appealed this ruling, but speculation persists that the agency may drop the appeal without making a formal announcement. A Ripple representative informed CoinDesk that there are currently no updates on the case.
Rebecca Fike, a partner at the law firm Vinson & Elkins and a former SEC enforcement attorney, predicts that the SEC will likely dismiss pending cases based on the Howey test for unregistered securities, particularly where no fraud or investor protection issues are evident. She noted that the prioritization of which cases to drop may depend on internal timelines or court schedules.
Recent allegations of fraud and registration violations were made against Richard Schueler, also known as Richard Heart, related to Pulsechain, PulseX, and Hex in July 2023. A hearing on 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 allegations.
Ongoing Investigations
Aside from the active lawsuits, several SEC investigations into crypto companies remain open but have yet to result in formal charges.
Crypto.com, which received a Wells notice last October, filed a lawsuit against the SEC but withdrew it two months later following a meeting between CEO Kris Marzalek and then-President Elect Donald Trump. The company has not commented on the current status of its investigation.
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. The firm has expressed its intention to contest any forthcoming enforcement actions, but neither Immutable nor the SEC has provided updates on the investigation.
Unicoin similarly received a Wells notice last year, indicating that the SEC intended to bring charges related to fraud and the sale of unregistered securities. Unicoin has not responded to requests for comment on the matter.
Looking Ahead
The SEC’s recent retreat and the downsizing of its crypto enforcement team suggest a departure from the “regulation by enforcement” approach adopted under Gensler’s leadership.
Rebecca Fike believes that the SEC is signaling a shift towards establishing clearer guidelines for cryptocurrency regulation through statements and potential rulemaking instead of relying on individual enforcement actions. She hopes that this change, coupled with the efforts of Commissioner Peirce’s task force, will bring much-needed clarity to the regulatory landscape for cryptocurrencies.
While many welcome the SEC’s evolving strategy, not all industry players are satisfied. Gemini’s president and co-founder Cameron Winkelvoss recently called for the SEC to reimburse the exchange for its legal expenses incurred during the investigation, suggesting that the agency should repay Gemini threefold and dismiss all involved staff.
Fike argues that such demands are unlikely to gain traction. “I can’t imagine the SEC would ever do that. It seems like it would set a difficult precedent for the agency and others regulating emerging markets,” she stated. She emphasized that new financial products can pose risks of fraud, and regulatory oversight is crucial to protect investors.
Fike concluded by highlighting the importance of the SEC’s current reevaluation of its regulatory approach toward cryptocurrencies and digital assets, noting that it does not imply that past actions were malicious or deserving of punishment. The maturation of the crypto landscape may provide an opportunity for more effective regulatory frameworks moving forward.
