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SEC Crackdown on Cryptocurrencies: Every Company Investigated
Almost every week lately, there seems to be a new announcement that the U.S. Securities and Exchange Commission (SEC) has prosecuted another cryptocurrency company for alleged securities violations. And the repression doesn’t seem to be easing anytime soon.
Here’s a handy running list to keep track of all the cryptocurrency-related actions taken by the SEC as of late, including confirmed Wells notices informing companies of impending enforcement actions, reported information requests, and a summary of some of the biggest legal cases still ongoing.
Application imminent
Ethereum Foundation
Last week, previously redacted portions of a lawsuit filed by Ethereum software company Consensys against SEC revealed a bomb: The agency has been secretly considering ETH a security for over a year.
According to the lawsuit, the SEC is actively investigating a number of American companies for their involvement in the buying and selling of ETH; It is also reportedly investigating links between those companies and the Ethereum Foundation, the Swiss nonprofit that supports the Ethereum Foundation.
In February it was the Ethereum Foundation itself sued by an unnamed “state authority”. Fortune reported that it was indeed the SEC, but the agency has not confirmed this.
To be clear, the SEC has not filed charges against any entity arising from its investigation into “Ethereum 2.0.” This is one of the reasons why Consensys submitted an application for authorization preventive action against the agency in April: force the SEC’s hand and address the issue of ETH’s legal status once and for all from an offensive position.
Robin Hood
On Monday, Robinhood’s digital asset division, Robinhood Crypto, announced that he received a Wells Notice from the SEC: in effect, a notification that the company will soon be sued for alleged securities violations.
The company said the subpoenas it previously received from the SEC focused on the app’s cryptocurrency listings, as well as its custodial practices. The Wells notice reportedly indicates that Robinhood Crypto will be sued for failing to register as an exchange and clearing agency.
Specifically, Robinhood deleted three crypto tokens: Cardano (ADA), Polygon (MATIC) and Solana (SOL)—after the SEC claimed the tokens were securities in previous lawsuits against Coinbase and Binance. Robinhood is generally much more conservative than other industry players regarding the crypto tokens it chooses to list in the United States. In New York, for example, the app currently only allows the exchange of 15 crypto tokens.
Consents
While the SEC has not yet subpoenaed Consensys over the company’s relationship with Ethereum, the regulator issued the company a Wells Notice in the matter in April MetaMask, an Ethereum wallet created by the software giant. According to a countersuit filed by Consensys weeks later, the SEC plans to sue Consensys over two features of MetaMask: the wallet’s cryptocurrency trading feature and its cryptocurrency staking services.
Uniswap Labs
On April 10, the SEC sent a Wells Notice to Uniswap Labs, the New York-based company behind the decentralized exchange Uniswap (DEX), informing the company soon to face a lawsuit over alleged securities violations.
Unlike previous lawsuits against cryptocurrency exchanges, the SEC’s upcoming lawsuit against Uniswap will clearly argue that DEX– which run on automated code and self-executing smart contracts – constitute stock exchanges with large intermediaries, such as Nasdaq or the New York Stock Exchange.
Important cases in progress
Coinbase
In one of the most high-profile lawsuits underway at the SEC, the regulator has been fighting San Francisco-based cryptocurrency exchange Coinbase tooth and nail since it filed a lawsuit against the company last June. The SEC accused Coinbase of operating as an unregistered securities exchange, broker-dealer, and clearinghouse; also sued the company over its crypto staking services.
In March, Coinbase found success convinced a federal judge rejected part of the lawsuit claiming that the company carries out intermediation activities through the Coinbase Wallet. Coinbase, however, failed to dismiss the remainder of the lawsuit, which will now proceed to discovery. Crucially, the March ruling established that cryptocurrency exchanges like Coinbase fall within the purview of the SEC and that many tokenized assets plausibly constitute securities schemes.
Binance
The SEC’s lawsuit against Binance ran largely in parallel with the one against Coinbase, as both massive cryptocurrency exchanges were sued within a day of each other last June. Like Coinbase, Binance has been accused of operating as an unregistered stock exchange, broker-dealer, and clearinghouse; the exchange was also accused of failing to adequately restrict the access of US customers, intended to use Binance.us, to Binance.com, the company’s global cryptocurrency exchange.
The lawsuit also personally involved Binance founder Changpeng Zhao, who was condemned last week to four months in prison in the United States for money laundering violations, to which Zhao pleaded guilty.
While Binance paid a historic one $4.3 billion fine To overcome its criminal money laundering problems, the company reacted furiously to the SEC lawsuit. In December the lawyers for the exchange pushed close the case and, failing that, obtain a guarantee that the evidence relating to the money laundering crimes admitted by the company will be excluded from the trial.
Ripple
Perhaps the most intense legal battle fought by a cryptocurrency company against the SEC thus far was waged by Ripple Labs, the company associated with crypto tokens XRP. Since 2020, the SEC has alleged that Ripple’s sale of XRP constituted an illegally unregistered securities offering.
In one of the cryptocurrency industry’s most high-profile legal victories to date, a federal judge has ruled repeatedly last year that Ripple’s sale of XRP directly to consumers did not violate securities laws. Shortly thereafter, the SEC charges dismissed against the CEO and executive chairman of Ripple.
The judge who oversaw the case ultimately found, however, that Ripple’s XRP bids institutional investors qualified as an unregistered securities scheme. The final judgment on the case will be decided soon; searched the SEC $2 billion fines from Ripple.
Kraken
Nine months after the Kraken cryptocurrency exchange agreed to pay the SEC $30 million to stop its cryptocurrency staking programs in the United States, the company was hit another SEC lawsuit in November: This, like the lawsuits against Coinbase and Binance, alleges that Kraken is operating as an illegally unregistered securities exchange, broker-dealer, and clearing house.
Kraken has aggressively fought this second SEC lawsuit, attempting, like other American cryptocurrency exchanges, to prevail fired.