SEC’s Withdrawal from Crypto Litigation: Key Cases Still Active
The U.S. Securities and Exchange Commission (SEC) is pulling back from many major crypto lawsuits initiated under former Chair Gary Gensler, yet several significant cases remain active.
At least four lawsuits against crypto entities — Ripple, Kraken, Cumberland DRW, and Pulsechain — are ongoing, and investigations into another three firms — Unicoin, Crypto.com, and Immutable — are yet to be concluded. Following this report, Kraken announced that the SEC would be dropping its lawsuit against the exchange, pending commissioner approval.
SEC Commissioner Hester Peirce, who leads the agency’s new Crypto Task Force, has commenced her commitment to “disentangle” the SEC from various crypto-related litigation. In agreement with the SEC’s stance, cases against Coinbase and ConsenSys will be withdrawn, pending commissioner approval, while lawsuits against Binance and Tron are currently on hold as all parties explore a potential resolution.
The SEC’s recent actions illustrate the unprecedented nature of the past four years in crypto regulation, according to Paul Grewal, Chief Legal Officer at Coinbase.
As the agency reassesses its approach to crypto litigation, many firms previously issued Wells notices have received closure, avoiding enforcement charges altogether. Notable companies included are Robinhood Crypto, Uniswap, and the non-fungible token (NFT) marketplace OpenSea.
The Active Lawsuits
Although the SEC has retreated from its accusations towards Coinbase, similar charges against Kraken remain unresolved. The SEC sued Kraken in November 2023 for allegedly mixing customer and corporate funds while functioning as an unregistered securities broker. Meanwhile, Cumberland DRW also faced allegations of operating without proper registration.
Prior to these events, the SEC took action against Ripple in 2020, which ended poorly for the agency in 2023 when a New York judge ruled that XRP, when sold to retail investors, was not considered a security. Despite the agency’s appeal, Ripple has yet to hear any updated information on the matter.
Rebecca Fike, a partner at law firm Vinson & Elkins and a former SEC enforcement attorney, anticipates that the SEC will dismiss pending cases based on the Howey test, particularly where no findings of fraud exist.
Recent interests from various firms such as Richard Heart, involved with Pulsechain and Hex, have triggered allegations of fraud and registration, though many legal proceedings are still underway. As the SEC embraces this shift, there’s increased optimism that regulatory clarity will emerge in the crypto landscape.
This evolution in approach signals a move towards regulation through policy and future rule-making rather than strict case-by-case enforcement actions, as highlighted by Fike’s observations.
