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[1]Today the Commission moved the Court to dismiss its enforcement action against Coinbase, a crypto trading platform. This reverse-course midstream – coupled with recent high-profile stays of other litigations – is not only unprecedented, it ignores 80 years of well-established law. We say we are dismissing the action because of future recommendations that may be made by the “crypto task force dedicated to helping the Commission develop the regulatory framework for crypto assets.”[2] But, whatever the law may be tomorrow, market participants should not be able to avoid the law as it stands today.
The Commission has brought numerous actions to enforce the securities laws with respect to crypto assets since their advent, during both Republican and Democratic administrations.[3] And, court after court has upheld the Commission’s jurisdiction in this space.[4] In fact, in the Coinbase matter the Commission moved to dismiss today, the court had found that the Commission adequately pleaded violations of the securities laws. The court explained that: “[t]he SEC has a long history of proceeding through [enforcement] actions to regulate emerging technologies and financial instruments within the ambit of its authority as defined by cases like Howey[.] Using enforcement actions to address crypto-assets is simply the latest chapter in the long history of giving meaning to the securities laws through iterative application to new situations.”[5] The court also held that “the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”[6] The Commission’s action today blithely tosses aside that body of precedent.
I have heard many say that the industry craves legal clarity. Today’s action results in less clarity. I have and will continue to work with participants who seek to operate within the securities laws. Or, should the Commission enact new regulations or Congress change the law, we can progress down a different path. But until that time, we have a framework in place and that framework should be applied and enforced equally as to all participants.
Far from clarity, today’s action creates more uncertainty. What exactly is the law as it applies to crypto assets? How can we pursue fraudulent conduct in this space while casting doubt on our regulatory jurisdiction? Are we eroding our ability to police fraudulent Ponzi[7] schemes? Are we poised to give special treatment to crypto assets over traditional assets, or even other emerging assets? What effects will this have on our traditional markets and financial instruments? The newly created crypto task force may intend to make recommendations to answer some of these questions, but we do not have any legally enforceable answers yet. In fact, the most salient change to date has been this retreat from enforcement of the securities laws with respect to crypto.[8] Or, “regulation by non-enforcement.”
It may well be that “environments in which the law is unclear are havens for bad actors,”[9] but wholesale failure to enforce the law seems worse. There are well known risks in this industry ̶ fraud and manipulation, money laundering, national security concerns, volatility, and retail investor losses ̶ just to name a few.[10]
Lastly, today’s action undermines the credibility of our Division of Enforcement. It creates the specter that the agency will deploy its enforcement resources in conjunction with election cycles or in favor of those with means. This invites criticism that our agency is politicized and sows distrust in government. Our agency’s job is to do what is right for investors, issuers, and capital markets. This is not it.
[1] The views that I express are my own as a Commissioner and not necessarily those of the SEC or staff (and are decidedly not those of my current fellow Commissioners).
[2] See Joint Stipulation to Dismiss, and Releases at 1, SEC v. Coinbase, No. 23-cv-4738 (S.D.N.Y. Feb. 27, 2025), ECF Doc. 176. See also Press Release, SEC Announces Dismissal of Civil Enforcement Action Against Coinbase (Feb. 27, 2025).
[3] See U.S. Securities and Exchange Commission, Securities Topics: Crypto Assets (listing “Crypto Assets and Cyber Enforcement Actions” filed between Feb. 19, 2014 and Oct. 10, 2024) (last visited Feb. 27, 2025). See also SEC Announces Enforcement Results (press releases for fiscal year 2021 to fiscal year 2024) and U.S. Securities and Exchange Commission, Division of Enforcement Annual Reports (reports for fiscal year 2017 through fiscal year 2021) (both websites last visited Feb. 27, 2025).
[4] See e.g., SEC v. Binance, Plaintiff Securities and Exchange Commission’s Memorandum of Law in Opposition to Defendants’ Motion to Dismiss the Amended Complaint, 23-cv-01599-ABJ-ZMF, ECF No. 290, at 9-10 (D.D.C. Dec. 4, 2024) (discussing Commission claims “premised solely on secondary market transactions in crypto assets” and that “many courts have allowed a variety of securities laws claims to proceed on such claims,” and citing SEC v. Coinbase,726 F. Supp. 3d 260 (S.D.N.Y. 2024); SEC v. Payward Ventures, Inc., 2024 WL 4511499 (N.D. Cal. Aug. 23, 2024); SEC v. Wahi, 2024 WL 896148 (W.D. Wash. Mar. 1, 2024); Harper v. O’Neal, 2024 WL 3845444, (S.D.Fla. Aug. 16, 2024); Dufoe v. DraftKings Inc., 2024 WL 3278637 (D.Mass. July 2, 2024); In re Ripple Labs Inc., 2024 WL 3074379 (N.D. Cal. Jun. 20, 2024); Patterson v. Jump Trading, 710 F. Supp. 3d 692 (N.D. Cal. 2024); Barron v. Helbiz Inc., 2021 WL 229609 (S.D.N.Y. Jan. 22, 2021), vacated on other grounds, 2021 WL 4519887 (2d Cir. Oct. 4, 2021); Samuels v. Lido DAO, 2024 WL 4815022 (N.D. Cal. Nov. 18, 2024); Hardin v. Tron Found., 2024 WL 4555629 (S.D.N.Y. Oct. 23, 2024); Houghton v. Leshner, 2023 WL 6826814 (N.D. Cal. Sept. 20, 2023); Owen v. Elastos Found., 2021 WL 5868171 (S.D.N.Y. Dec. 9, 2021)). See also Gurbir Grewal, What’s Past is Prologue: Enforcing the Federal Securities Laws in the Age of Crypto (July 2, 2024) (stating “in every case, where federal courts have had to determine whether there were “securities” at issue, the courts have applied the Howey test—looked at the economic realities of the offerings, and, even though the offerings at issue involved supposedly novel technologies, rejected defense arguments that they were not securities” and citing multiple cases in footnotes 26 and 66, including SEC v. LBRY, 639 F. Supp. 3d 211 (D.N.H. 2022); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020); SEC v. Telegram Group Inc., 448 F. Supp. 3d 352 (S.D.N.Y. 2020); SEC v. Blockvest, LLC, 18-CV-2287-GPB(BLM), 2019 WL 625163 (S.D. Cal. Feb. 14, 2019); SEC v. Terraform Labs, No. 23-cv-1346-JSR, 2023 U.S. Dist. LEXIS 230518 (S.D.N.Y. Dec. 28, 2023)).
[5] SEC v. Coinbase, Opinion and Order, 23-cv-4738, ECF No. 105, at p. 34.
[6] Id. at p. 2.
[7] U.S. Securities and Exchange Commission, Investor.gov, Ponzi Scheme (explaining that “[a] Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors… With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.”) (last visited Feb. 27, 2025).
[8] It seems likely that we will continue down this path. See Commissioner Hester M. Peirce, The Journey Begins (Feb. 4, 2025) (launching a “journey” that will result in the Crypto Task Force “determining how to best disentangle all these strands, including ongoing litigation.”).
[9] See Commissioner Hester M. Peirce, Getting Back on Base: Statement of Commissioner Hester M. Peirce on the Dismissal of the Civil Enforcement Action Against Coinbase (Feb. 27, 2025).
[10] In fact, on the same day that Coinbase filed a Form 8-K announcing that it had reached an agreement in principle with Commission staff to dismiss the litigation against it, another crypto exchange announced a hack with losses estimated at nearly $1.5 billion, reportedly the largest in crypto history. See David Yaffe-Bellany, Banner Day For Crypto Takes a Turn, N.Y. Times, Feb. 24, 2025; see also Chainalysis, The 2025 Crypto Crime Report (Feb. 2025) (reporting on the “rising role of cryptocurrency in all forms of crime” and noting that “[a]lthough illicit activity on-chain previously revolved heavily around cybercrime, cryptocurrency is now also being used to fund and facilitate all kinds of threats, ranging from national security to consumer protection. As cryptocurrency has gained greater acceptance, illicit on-chain activity, too, has become more varied. For example, some illicit actors primarily operate off-chain, but move funds on-chain for laundering.”); Federal Bureau of Investigation, 2023 Cryptocurrency Fraud Report Released (Sept. 10, 2024) (reporting that “[l]osses related to cryptocurrency fraud totaled over $5.6 billion in 2023, a 45% increase in losses since 2022” and that “[t]he number of complaints from the public regarding cryptocurrency fraud continues to steadily increase, reaching 69,000 in 2023.”); Gurbir Grewal, What’s Past is Prologue: Enforcing the Federal Securities Laws in the Age of Crypto (July 2, 2024) (describing how investors in crypto are being harmed); SEC Office of Investor Education and Advocacy, 5 Ways Fraudsters May Lure Victims Into Scams Involving Crypto-Asset Securities – Investor Alert (Feb. 29, 2024) (issuing an alert “because fraudsters continue to exploit the popularity of crypto assets to lure retail investors into scams”); U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, Exercise Caution with Crypto Asset Securities: Investor Alert (Mar. 23, 2023) (urging investors to be cautious if investing in crypto asset securities because, among other things, they “can be exceptionally volatile and speculative” and “the risk of loss for individual investors…remains high.”).
