2023, according to the expectations of institutions and many analysts, should be a year of active market regulation. And while Hong Kong or the UAE creates favorable conditions for the development of cryptocurrencies, and the EU is trying to develop unified rules, the repressive mechanism of the SEC led by Gary Gensler, based on the selective and inconsistent application of securities legislation, has begun to actively develop in the United States.
In this article, we will consider which crypto companies are currently at war with the SEC, who has already lost it and what consequences it may have for the industry in the United States.
Note: below we will consider only cases caused by regulatory uncertainty and the lack of clear rules for regulating the crypto market. The list did not include lawsuits against bankrupt companies or obvious Ponzi scammers/schemes.
Relationship between the U.S. SEC and the crypto market
In the past few months, the U.S. Securities Commission (SEC) has regularly appeared in news publications and cryptomedia. The main news stories are lawsuits against crypto projects or loud statements by Gary Gensler, such as this. However, this was not always the case.
In 2018-2021, the SEC paid attention only to large ICOs like TON or KIK and the regulator's attention was more of an exception than a rule in the U.S.-wide free crypto market. However, in April 2021, the crypto-friend of the Chairman of the Commission, Jay Clayton, replaced Gary Gensler, which marked the beginning of a new SEC doctrine, which the head of Coinbase later called a "crusade against the crypto market."
The first alarm bell was Gainsler's statement in September 2021 about the need to regulate the crypto market. At that time, it sounded like a friendly offer to companies suffering from regulatory uncertainty, but since the beginning of 2022, the SEC began to consistently make alarming statements about cryptocurrencies:
The SEC can regulate DeFi sites even if they are decentralized.
All PoS tokens have securities.
It is worth determining the jurisdiction of the blockchain based on the location of the validators.
Cryptocurrency projects are defined as a priority direction of inspections by the SEC.
The situation aggravated after the collapse of FTX, which revealed shortcomings of existing rules and low investor protection. In 2023, the statements became more radical:
No special legislation is needed to regulate cryptocurrencies.
All cryptocurrencies except BTC are securities.
Crypto markets do not meet regulatory requirements.
The SEC plans to focus on the DeFi sector.
The U.S. does not need more digital assets.
Of course, there were also more opinions loyal to the critical, for example, about the inadmissibility of using the Howie test for cryptocurrencies, but in general the policy direction and the position of the SEC were defined as unfriendly to the crypto industry.
In 2023, the regulator opened the hunting season for cryptocurrency companies: Kraken and Nexo were fined, Justin Sun received a subpoena, Paxos stopped producing BUSD stablecoins. And that's only in Q1. Now we are witnessing a new round of confrontation between the American regulator and the market, which is marked by clashes with the largest U.S. cryptocurrency exchanges - Coinbase and Binance.
Note: with such a strict policy of the SEC, there is still no regulatory regulation of the cryptocurrency market in the United States. The SEC's approach is to "pull" existing norms on cryptocurrencies, ignoring the technical and conceptual differences between crypto and traditional markets.
Key SEC litigation with crypto companies
In 2022-23, the SEC was extremely active in relation to cryptocurrency projects, applicting coercive measures and initiating litigation with dozens of companies. Some cases relate to real cases of fraud and bankruptcy (such as FTX), others are related to gaps in regulation and the lack of criteria for classifying tokens and cryptocurrencies. The most resonant and important things in the history of the crypto market were:
SEC против TON
The SEC vs TON case was one of the first high-profile cryptocurrency cases in the United States and essentially set a precedent for classifying tokens sold through ICO as securities and regulating them in court.
In 2018, Pavel Durov raised about $1.7 billion through an ICO for the Telegram Open Network (TON) blockchain project and the associated GRAM token. It was assumed that these tokens would be used for payments on the TON platform.
This is the largest ICO in the history of the cryptocurrency market. Among the investors were a number of Russian, American and European billionaires, and in case of a successful launch, GRAM claimed the title of top altcoin.
In October 2019, the SEC filed a lawsuit against Telegram, claiming that the ICO is actually an unregistered offer of securities, and GRAM tokens are securities. In March 2020, the court ruled in favor of the SEC, banning the issuance of GRAM tokens.
In May 2020, Telegram announced the termination of work on TON on a planned scale, and in June 2020, the company concluded an agreement with the SEC under the terms of which it paid a fine of $18.5 million and returned $1.2 billion to investors.
Note: There are many conspirators' theories associated with the TON case. One of them was that the United States was not ready to launch such a massive alternative payment system, and Telegram at that time had several hundred million users. That's why the TON case is often compared to the Libra case.
SEC против Ripple
The SEC case against Ripple was the next major case. In February 2020, the commission filed a lawsuit against Ripple, as well as Chris Larsen and Bradley Garlinghaus for conducting an unregistered securities offer (XRP) and personal token sales. According to the prosecution, Ripple has raised funds for operating activities through the sale of XRP since 2013.
However, Ripple, unlike TON, did not concede and instead of an agreement chose a long way of litigation, spending $200 million on lawyers. At the moment, the case has not yet been closed, although Ripple CEO is waiting for a final decision in the near future.
Interestingly, Ripple's case is tied to the position of former director of corporate finance at the SEC, who argued that ETH and BTC are not securities because of their decentralized nature. The SEC demanded the closure of Hinman's documents, but the court rejected the petition, which significantly increases Ripple's chances of winning.
Note: the Ripple case is now considered fundamental to the U.S. crypto market, as it can clarify the principles of classifying cryptocurrencies as securities. If Ripple manages to win, lawsuits against Binance, Coinbase and a number of other projects may be completely or partially deprived of legal grounds.
SEC против Binance
This case already refers to the last "wave of repression" by the SEC. The lawsuit against CZ and Binance was filed on June 5, 2023 and, judging by the text of the statement, the Commission has been investigating against the crypto exchange since 2020.
Binance is accused of trading unregistered securities, but there are also a number of more serious accusations: submitting false information to the regulator, deceiving investors, managing an unlicensed site, as well as mixing corporate and client funds. A total of 13 points.
The company has allocated $1 billion for legal protection and is ready for a protracted trial. In fact, the first hearing has not yet been held, but:
The court granted the SEC's demand to freeze Binance US assets.
CZ received a subpoena.
It is also important that several dozen cryptocurrencies with a total capitalization of more than $100 billion are classified by the Commission as securities in the application.
Some sites, including Binance, have already begun delisting coins with a "black mark".
How this case will end is still difficult to predict, but Binance is already in a lawsuit with CTFC and has faced accusations from journalists and U.S. public figures.
Note: the Binance case concerns not so much the status of cryptocurrencies as the platform itself. The essence of the accusation is that the activities of the exchange and CZ violate the requirements and in many aspects are illegal. It seems that the regulator is trying to detect everything in Binance that caused the FTX to crash in due time.
SEC vs Coinbase
The Commission filed a lawsuit against Coinbase the day after the publication of the charges against Binance, although threats of possible enforcement measures by the SEC appeared back in 2021. In the case of SEC vs Coinbase, two main charges were brought against the exchange:
Sale of unregistered securities through a native staking program. The Coinabase staking investigation began in August 2022, and the exchange itself refused to curtail staking programs even after coercive measures against Kraken.
Work as an unregistered digital asset trading platform.
Filing a lawsuit, an investigation against Coinbase staking programs began by regulators in 11 states, which may complicate the work of the exchange in the domestic market. The case becomes even more interesting, given that in 2021 it was the SEC that approved the entry of Coinbase to the IPO.
In response to the lawsuit, Coinbase stated that it was ready for trials, and Brian Armstrong is proud that his company will represent the entire U.S. crypto market in court.
In parallel, Coinbase is conducting another legal dispute with the regulator - the crypto exchange demanded through the court to oblige the SEC to give a clear explanation of the regulatory regulation of cryptocurrencies in the United States and achieved success. Twice. Now the regulator should give an answer as soon as possible.
Despite the simultaneous filing, the claims against Binance and Coinbase are different. Coinbase is accused only of working without registration, and the main claims are aimed at the staking program, while the charges against Binance are more extensive and relate to the internal structure of the company, as well as the conduct of business. Therefore, Coinbase is probably more likely to win. However, both lawsuits provoked a large-scale outflow of funds from the sites in the last week:
Of the above cases, only the TON case was completed and it showed that at that time the world was not yet ready to implement such a large-scale blockchain platform. The rest of the proceedings have just begun or are under consideration, which means that the market is still waiting for fundamental precedents. We are monitoring the development of the situation.
Other crypto projects affected by the SEC
In addition to the high-profile cases listed above, there are a large number of companies affected by the SEC coercive measures. Some of these cases have not yet been completed, some have ended with an amicable agreement, others simply did not cause a resonance in the community:
SEC vs Justin Sun: In March 2023, the Commission accused Justin Sun and related companies Tron Foundation, BitTorrent Foundation and BitTorrent of selling unregistered $TRX and $BTT securities and market manipulation. Also, charges were brought against 8 celebrities who promoted these tokens.
At the moment, the case is under consideration and even no interim results yet.
SEC vs LBRY: the case against LBRY, which developed a platform for tokenization of video viewings, began in March 2021, when the SEC filed a lawsuit against the company for an unregistered sale of securities in the form of a native LBC token.
In November 2022, the court satisfied the requirements of the SEC and imposed a $22 million fine on LBRY, which was then reduced to $111 thousand. However, after the loss, LBRY curtailed its activities.
SEC vs Nexo: Nexo's case is notable for the fact that the company faced not only the SEC, but also local regulators in 8 States because of its Earn Interest Product. This service was qualified as an investment instrument, the sale of which requires registration.
In December 2022, Nexo left the American market, and in January 2023 agreed to pay a $45 million fine to settle the dispute with regulators.
SEC vs Kraken: On January 9, 2023, there was news that the SEC was investigating against the Kraken exchange due to suspicion of securities trading. The next day, a statement was published in which the regulator accuses the site of trading unregistered securities through its staking service.
Kraken decided not to bring the case to court, so she paid a fine of $30 million and closed the staking for users from the United States.
SEC vs Gemini | Genesis: the Gemini cryptocurrency exchange sold passive earnings service on the Genesis lending platform through its Earn program. Genesis liquidity problems and delays in payments to Earn investors led to the closure of the program and attracted the attention of regulators.
In January 2023, immediately after the closure of Earn, the SEC filed a lawsuit against both companies over the sale of unregistered securities. The case has not yet been completed, but it seems that Gemini no longer considers the United States as a future place of activity.
Note: a similar accusation was encountered by the BlockFi platform a year earlier. However, then the company paid a $100 million fine and undertook to register its crypto lending service.
SEC vs Paxos: an ambiguous case that has not yet been developed. In February 2023, the New York Department of Financial Services ordered Paxos to stop the BUSD issue, and the SEC sent a notification to Wells of the possible use of coercive measures due to BUSD's classification as a security.
Paxos declared its readiness to sue, but there was no official lawsuit from the regulator. However, it is possible that the Binance case will affect the position of Paxos. And this is an incomplete list. This does not include fines and lawsuits against celebrities advertising cryptocurrency projects, as well as coercive measures applied to lesser-known projects. The full list of SEC actions in relation to cryptocurrencies can be found on the official website of the regulator.
Conclusion
The policy of regulating the crypto market in the United States over the past 5 years has completely changed its vector and is formed mainly by the SEC. The position of this regulator began to change in 2021, after Gary Gensler took the place of head of the SEC and reached its peak in 2023 with lawsuits against the largest crypto exchanges in the United States. Brian Armstrong calls it a "cross campaign against cryptocurrencies."
Cases of 2020-2022 demonstrate that it is easier for crypto companies to pay a fine or abandon their intentions than to enter into a full-scale war with the SEC. However, this time everything is different: companies are bigger and stronger, claims are more radical, and the attitude of other countries to the crypt is more friendly. Both Binance and Coinbase decided to fight, and Ripple has a great chance of winning, and it is these cases that can largely determine the legal field for the crypto industry in the United States.
While there is no regulatory framework for the crypto market in the United States, the main regulator of this direction remains the SEC, and the main guidelines for investors are Gensler's statements and lawsuits.
