In 2023, the Department of Justice (DOJ) assumed a prominent role in delineating the boundaries of the cryptocurrency industry through impactful criminal prosecutions. While the Securities and Exchange Commission (SEC) pursued civil lawsuits against significant players in the sector, it was the DOJ that garnered attention with its swift resolutions.
In the span of a year, the DOJ successfully secured the conviction of FTX’s Sam Bankman-Fried and unseated Changpeng Zhao, the former head of Binance. These high-profile criminal prosecutions brought a palpable sense of reality to the cryptocurrency industry and underscored the pivotal role played by the DOJ in shaping its regulatory landscape.
Former federal prosecutors and legal experts have acknowledged the Department of Justice’s (DOJ) proactive stance in defining the crypto industry. Widge Devaney, a former federal prosecutor, noted, “It is a lot more real than whether something is a security or not,” highlighting the DOJ’s impactful role in comparison to the ongoing battles of the Securities and Exchange Commission (SEC) in court.
However, some view this as a missed opportunity for the SEC to assert its authority in shaping the regulatory landscape of the cryptocurrency industry. Despite this, many of the DOJ’s high-profile crypto indictments have been accompanied by parallel complaints from the SEC. Both agencies have brought cases against prominent figures in the crypto world, including individuals such as Alex Mashinsky and Do Kwon. The collaborative efforts of the DOJ and SEC reflect the multi-faceted approach taken by regulatory bodies in addressing legal challenges within the cryptocurrency space.
As the SEC grapples with legal challenges and uncertainty over jurisdiction, the Department of Justice’s (DOJ) criminal prosecutions have experienced notable success.
Ongoing SEC cases against Binance and Coinbase have encountered opposition from the defendants, resulting in a series of pre-trial motions. Interestingly, the SEC opted not to join a settlement between the DOJ and Binance, signaling its commitment to persist in the classification battle over tokens traded on the exchange as securities.
The ultimate resolution of this matter is anticipated to be subject to further legal proceedings and is likely to be appealed to higher courts, reflecting the complexities and ongoing legal debates surrounding the regulatory status of certain cryptocurrency assets.
SEC’s Main Enforcement Actions Remain Unsolved
While the SEC has successfully reached settlements with several defendants, including cryptocurrency exchanges Kraken and Bittrex, as well as celebrities involved in digital assets, some of its flagship enforcement actions are still ensnared in legal complexities. Competing rulings by judges in the same New York federal court have created uncertainty over the classification of various crypto assets as securities.
SEC Chair Gary Gensler has maintained a tough stance against the crypto sector since assuming office in 2021. The SEC’s legal actions span a wide range, including allegations of fraud, failure to register as an exchange, and non-disclosure of payments received for promoting crypto. The regulatory landscape for cryptocurrencies remains dynamic, with ongoing legal battles shaping the industry’s future trajectory.
SEC Chair Gary Gensler holds the view that existing securities laws are sufficiently clear to regulate digital assets and that creating new rules specifically tailored to crypto is unnecessary. However, the SEC is currently grappling with challenges in its enforcement actions, as recent court decisions have leaned in favor of crypto companies.
A significant ruling determined that XRP, offered by Ripple, was not classified as a security when sold to retail investors but became subject to SEC registration requirements when bought by institutional investors. Additionally, the SEC’s attempt to hinder the launch of a US-listed spot-bitcoin fund by Grayscale faced rejection by an appeals court, which deemed the SEC’s action “arbitrary and capricious.” These developments underscore the evolving legal landscape and the complexities surrounding the regulatory treatment of various crypto assets.
