The Year in Crypto: Gary Gone Wild

When the five voting members of the Securities and Exchange Commission sat before lawmakers on Capitol Hill in September, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) Installed The agency chief said there is a perceived lack of regulatory transparency regarding crypto.

“The rules are clear and written by the Supreme Court,” SEC Chairman Gary Gensler began speaking before McHenry interrupted — turning to Gensler's Republican-appointed colleague, SEC Commissioner Hester Perce, again to question the agency's position on crypto regulation.

“We've taken a legally inaccurate position to hide the lack of regulatory transparency,” Pearce replied, Gensler only a few feet away. It's always important to have Congress weigh in, but there are certainly some guidelines in this area that we could have given them that we chose not to.

The exchange lasted minutes, but highlighted years of tension over the SEC's regulatory approach to crypto. It also highlighted differences within the agency over whether it would fall under the broad spectrum of crypto industry wide distribution, which would require digital asset firms to comply with the agency's decades-old securities laws.

Gensler once said thatEverything except Bitcoin” President-elect Donald Trump has sought favors with the crypto industry, but has fallen under the agency's scrutiny, serving as a political lobbyist this year. However, Wall Street's top cop has been caught up in the agency's enforcement blitz, accusing crypto companies of violating the rules by issuing tickets to others.

Gensler, who was appointed by President Biden to lead the SEC, indicated last month that his term is coming to an end. He It is marked. Trump will step down when his second term begins on January 20, 2025.

Trumpet, delivering on one of his crypto-related campaigns He promised.He appointed former SEC Commissioner Paul Atkins to replace Gensler.

“I expect Paul Atkins to have a completely different approach,” said WilmerHale partner Stephanie Avakian, who previously served as director of the SEC's enforcement division. Decrypt. He is experienced and practical and popular.

Crypto advocates may be excited about the prospect of Atkins' leadership, but it remains to be seen where the candidate can take on existing lawsuits against crypto companies like Binance, Coinbase, Ripple Labs.

said Anthony Tu-Sekin, a partner at Seward & Kissel. Decrypt If the SEC moves forward with them and quickly abandons high-profile cases, it can cause reputational damage Extraction of resources.

“The SEC is more like a supertanker than a racing boat,” Tu-Sekin said. Don't expect Atkins to be the chairman and come out in two days and we'll end all these things. The staff worked diligently on these issues, came to a conclusion on the law, and finally convinced senior management that a lawsuit should be filed.

Capitol Hill

When Gensler was tapped to lead the SEC in 2021, industry participants were cautiously optimistic. However, Gensler's experience teaching a class on blockchain at MIT did not produce any clearer “rules of the road.” Some hoped so..

It has emerged as an industry adversary, maintaining that existing laws are sufficient to regulate digital assets. An aggressive string of crypto-related enforcement actions, meanwhile, has raised concerns among advocates that the agency's approach is overzealous.

Reflecting on his tenure as SEC chairman in November, Gensler reiterated the agency's focus on increasing compliance with securities laws in the crypto market. Compare with “Wild West” Earlier, Sheriff touched on the agency's approach to protecting investors.

“This is an area that has been hit hard by investors over the years,” Gensler said he said.. “Furthermore, apart from speculative investment and potential use for illegal activities, most crypto assets have yet to prove sustainable use cases.”

18 states on the same day presented A lawsuit against the SEC found that the regulator's enforcement-based gambit violated the Act. The allegations of regulatory oversight, brought by Republican attorneys general and Diffie's education fund, have underscored the political anger the president-elect has held for months.

“I'm going to fire Gary Gensler on day one,” Trump promised at a Bitcoin conference in July. “On the day I take the oath of office, Joe Biden and Kamala Harris' anti-crypto crusade will end.

Gensler's leadership was scrutinized. time And one more time Among Republican lawmakers on Capitol Hill, however, the feeling that existing laws are sufficient has gained bipartisan momentum this year. As 71 Democrats in the House of Representatives Voted In May, Republicans sided with the crypto market structure bill, which indicated that it would require some form of reform.

Both houses of Congress have passed a repeal bill Interesting 121SEC Guidance for Banks to Recognize Digital Assets as Liabilities on Balance Sheets. After President Biden vetoed the bill, House members failed to override it. However, 21 Democrats He protested. For Biden's veto, so there was bipartisan support there.

The crypto industry Unprecedented political spending In the year Efforts made in 2024 contributed to the implementation of the legislature. Democratic presidential candidate Kamala Harris later recused herself from the SEC filing. A lawyer As the election day approaches for the regulatory framework, but by then, it is too late.

As Vice President Harris rose to the top of the Democratic ticket, Rep. Willie Nickell (D-NC) said earlier. Decrypt The presidential candidateA balanced approach” to crypto. Mark Cuban threw his hat in the ring as a possible successor to Gensler, but the billionaire ultimately lost interest in running the agency.

“Not good for entrepreneurs.”

Although the SEC has faced many obstacles in court, the commission has had a banner year in terms of the amount of money brought in by enforcement actions. Meanwhile, the agency has pushed for high-profile charges, dealing with the political heat Genzler has faced.

In the 2024 fiscal year, the SEC secured 8.2 billion dollars Penalties on 583 enforcement actions affecting the capital markets of the United States. Of that amount, $4.5 billion came from a lawsuit against Terraform Labs and its founder, Do Kwon. They were. He was found responsible Indictment for civil fraud related to 40 billion dollars fall out of UST and LUNA in 2022.

As decided by a federal judge, the suit marked a major victory for the SEC. Kwon and Terraform Labs offered LUNA and UST as securities to investors. However, the SEC suffered a major setback in the Southern District of New York, where the case was filed.

Later to find XRP, a token run by Ripple Labs, is “not necessarily a security on its face,” a federal judge ordered Ripple to pay. 125 million dollars With penalties for XRP transactions that break the law. After the SEC He appealed The ruling, however, sought $2 billion in civil penalties after Gensler filed the case in 2020, before he took over the agency.

“Charity, the SEC got a bloody nose,” Tu-Sekin said.

Still, the SEC managed to hold charges against Binance and Coinbase. Last year, the regulator found that both companies had breached its rules by operating as unregistered exchanges, broker-dealers, and clearing agencies. Other charges.

In March, a federal judge found Arguments that Coinbase offers investors unregistered securities were persuasive, leading to the rejection of most of the company's motion to dismiss. In June, a federal judge said the SEC case could also be against Binance go onFees associated with major crypto exchange's Simple Earn product and certain token sales have been waived.

Those charges, with one They are running on the crypto exchange Kraken. Legal costs related to crypto-related enforcement actions are on the rise, with advocacy group The Blockchain Association estimating the number at at least $400 million, using self-reported data from its member companies.

“This creates more work for lawyers, but it's not good for entrepreneurs,” said CEO Christine Smith. Decrypt. “If their projects are to comply with US securities laws, they should read between the various court opinions and briefs the SEC files.”

Some lawsuits launched last year have come back to bite the SEC, namely the commission's case against DBT Box, a crypto mining firm. In August 2023, SEC attorneys a ex parte Denying an injunction against the company, freezing DEBT Box's assets before it can otherwise litigate.

In May, a federal judge ordered the SEC to pay DEBT Box $1.8 million in legal fees and the case was dismissed. The supervisor made “false and misleading statements” to obtain the restraining order, Utah District Court Judge Robert Shelby found. A week later, SEC closed The regional office brought the case, calling it a “big mistake”.

Threats of execution

Minutes after Gensler announced his resignation in November, a federal judge in Texas dealt another blow to the agency. as if Expanding the meaning The “distributor” SEC used to require decentralized finance projects to register as securities exchanges and brokerages. But the court ordered the SEC to violate the amendments in question and found the action illegal.

While the SEC has focused on crypto exchanges and digital asset providers under Gensler's leadership, the commission's scope has expanded this year in light of enforcement concerns. Taking out Notes of WalesThe SEC has warned companies that lawsuits may come in previously unexplored areas, such as decentralized finance.Uniswap Labs), NFTs (OpenSea) and game (Immutable).

The Commission has also issued an enforcement warning to companies such as Robinhood Business App. Investigate After the company tried to test its cryptocurrency offerings “Sign up” service with the agency, which Gensler urged digital asset firms to pursue early.

“This is not how Americans expect our government to work,” said Robinhood's chief legal officer and former SEC commissioner, Dan Gallagher, who later testified before Congress. “Instead of issuing regulations for the regulatory certainty the industry longs for, the SEC has instead targeted individual companies, including Robinhoon, with regulatory enforcement.”

Ultimately, Gensler's leadership “cast a chilling chill” on the crypto industry, according to Kathryn Snow, general counsel of Thesis, a venture capital firm. Decrypt. Forcing companies to drop projects or go overseas, the U.S. must pick up the pace to compete with regulatory advances on crypto globally, she said.

However, Snow noticed one significant flaw in Gensler's planned departure. Over the past several years, legal minds in the field have united in combating what is perceived as an existential threat.

“Everyone was really able to support each other because we had this common enemy,” Snow said. It will be interesting to see what the various trade associations' approaches are in the coming months and years as we approach the new SEC.

Edited by Sebastian Sinclair