4 days Ago By By Troy Wolverton | Examiner staff writer |
Five local cryptocurrency companies have seen federal investigations or cases against them go away or be put on hold amid President Donald Trump’s broader retreat from investigating alleged corporate misconduct. When he took office in January, Trump inherited from President Joe Biden’s administration at least 21 cryptocurrency-related investigations or cases, most of them led by the Securities and Exchange Commission, according to data from Public Citizen, a public-advocacy group. The Trump administration has since moved to dismiss or pause at least 18 of those, including the cases involving the local companies — Ripple, Kraken, Coinbase, Robinhood and the Tron Foundation.
The SEC, which spearheaded all the enforcement actions against the local cryptocurrency businesses, has couched its moves to back away from such cases as an attempt to revamp the way it regulates the sector. On Jan. 21, the day after Trump’s second inauguration, the agency’s acting chairman announced the formation of a task force to study new rules for the industry.
The previous approach of using enforcement to police the sector left companies confused about what was legal and engendered “an environment hostile to innovation and conducive to fraud,” the agency said in a press statement. “The SEC can do better.” The local companies have all praised or applauded the pause or end of the actions against them.
Coinbase was particularly emphatic in its reaction, saying the SEC’s decision in February to dismiss the suit the agency had filed against it was an example of “ righting a major wrong .” “We’ve always maintained that we were right on the facts and the law, and today’s announcement confirms that this case should never have been filed in the first place,” the company said in a press release. This is a victory not just for Coinbase, but for our customers, the United States, and individual freedom.
But consumer advocates and some who closely follow the industry say the moves by the SEC and the Trump administration more broadly to shut down enforcement actions in the sector should be viewed with a lot of skepticism. The regulatory retreat comes after industry companies and executives donated hundreds of millions to back pro-crypto politicians in last year’s election, including Trump. And it comes as the president and his family have profited off and invested in crypto-related projects, including selling trading cards of Trump as non-fungible tokens ; launching so-called meme coins for the president and his wife, Melania; creating a bitcoin mining operation ; debuting a cryptocurrency project called World Liberty Financial that has since raised $590 million by selling its own tokens and on Monday launched its own stablecoin , a virtual currency whose worth is supposed to be pegged to the dollar.
“This is so conflict-infected, it’s hard to get beyond that,” said Jack Graves, a professor at Syracuse University’s College of Law who focuses on the cryptocurrency industry. “There’s plenty of money used to influence these outcomes,” he said. “No question.
” SEC officials and representatives of the Tron Foundation did not respond to requests for comment. A Kraken representative declined to respond to a request for comment about the tie critics such as Graves and Public Citizen have made to the dismissal of the cases and political contributions to Trump. Coinbase and Robinhood representatives declined to comment on the record about that allegation.
“This investigation never should have been opened,” Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer said in an emailed statement. “Robinhood Crypto always has and will always respect federal securities laws ..
. As we explained to the SEC, any case against Robinhood Crypto would have failed.” The agency lost a portion of its case against Ripple at the district court level.
After appealing, It was on track to lose again before Trump’s SEC agreed to drop the case, said Stu Alderoty, Ripple’s chief legal officer, in an emailed statement. “The real question isn’t why the appeal was dropped: it’s why was the case brought in the first place?” Alderoty said. Meanwhile, by pausing or dismissing the cryptocurrency cases — many of them in exchange for nothing at all from the companies themselves — the SEC is ending an effort to apply longstanding and well-understood regulations to the sector, critics say.
The result is to return the industry to the regulatory vacuum that Gary Gensler, who chaired the agency under Biden, tried to address, they say. And that’s bad for consumers and investors, they argue. “We’re back to Gensler’s Wild West, for better or worse,” Graves said.
I’m not a fan of that ...
“You look historically at this industry, it’d be hard to find one where there was more fraud.” Efforts to regulate the cryptocurrency industry date back to President Barack Obama’s administration . During Trump’s first term, the SEC took numerous enforcement actions against individual cryptocurrency projects.
But that came to be viewed by many as a game-a-mole , as The Wall Street Journal described it. When Gensler took over as the agency’s chair, he refocused the SEC on the cryptocurrency exchanges like Coinbase. Since most people bought and sold virtual currencies through such exchanges, Gensler saw them as a key way to regulate the industry, The Journal reported.
Under him, the SEC viewed most cryptocurrencies and tokens as securities, essentially the same as stocks, bonds and other such assets that people invested in expecting a return. As such, the agency and its chair argued that investors deserved the same kinds of disclosures they would get from companies who sold their shares on public markets. They also argued cryptocurrency exchanges should be required to register with the agency and be held to similar rules as stock exchanges, such as a bar on executing trades on behalf of investors at the same time they operate a marketplace for the buying and selling of stocks — or in this case, virtual currencies.
Starting soon after he joined the SEC, Gensler warned exchanges they needed to come into compliance with such regulations. The cryptocurrency companies generally and Coinbase specifically took a defiant stance , arguing that the virtual currencies were not securities and so they didn’t have to comply with securities rules. In the wake of the meltdown of FTX , the major cryptocurrency exchange run by Sam Bankman-Fried, who was later convicted of defrauding investors , the SEC stepped up its cryptocurrency enforcement campaign , filing suits against two of the largest remaining exchanges, Coinbase and Binance.
The agency also launched investigations into numerous others, including Robinhood . Many in the crypto industry reacted with shock and outrage to the enforcement actions. But given that Gensler had been telegraphing the move for years, that reaction seemed a little disingenuous, said Molly White, who follows the crypto industry closely as the author of the “Citation Needed” newsletter and the “Web3 is Going Just Great” blog.
“The communication was fairly clear out of the SEC, but because the crypto industry didn’t agree with it and then didn’t like it, they basically claimed it was unclear or impossible to comply with, or pick your argument,” White said. There was some legitimate uncertainty about the application of existing securities laws to the cryptocurrency industry. Regulators generally agreed that bitcoin shouldn’t be treated as a security, because it was decentralized and used more like a currency than something that represented a stake in a particular project or company.
However, for Gensler, at least, it was reportedly an open question for a while whether ether should be considered a security . Additionally, a court ruling in 2023 in the case the SEC brought against Ripple brought more nuance to the question. In that case, which was originally brought under the first Trump administration, the judge ruled that sales Ripple and its executives made of its XRP token directly to institutional investors qualified as securities and should have been registered with the SEC .
But the judge also ruled that anonymous sales of XRP Ripple made to the broader public didn’t qualify as securities, because those buyers didn’t know who the seller was and thus couldn’t have reasonably expected the seller to work toward increasing the value of XRP. Other cases, such as those against Coinbase and Binance, hadn’t reached a judgment yet. Critics of the enforcement effort argue it didn’t do a good job of protecting consumers or combating fraud and could be counterproductive.
A study by Rutgers law professor Yuliya Guseva indicated that enforcement actions taken by the SEC encouraged cryptocurrency issuers to comply with the agency’s rules by using less regulated and less transparent means of selling their coins . “Enforcement is generally not an ideal way to regulate dynamic and innovative markets,” said Guseva, who is also the director of Rutgers Law School’s Blockchain and Fintech Program. The SEC under Trump is now stepping away from such enforcement actions.
As far as the local companies go, in addition to dismissing its case against Coinbase, it closed its investigation into Menlo Park-based Robinhood without filing charges and it agreed to dismiss its suit against Kraken, which is based in Cheyenne, Wyoming, but, like the now remote-only Coinbase, was founded in San Francisco. In addition to dropping its appeal of the Ripple decision , it agreed to reduce the fine against the company to $50 million from $125 million. And it has asked a court to put on hold its case against Chinese crypto entrepreneur Justin Sun and his companies , the Tron Foundation, BitTorrent and San Francisco-based Rainberry .
Whatever the arguments against those cases, the moves come after Trump benefited from each of those companies. Coinbase and Kraken each gave $1 million to Trump’s inauguration fund ; Robinhood donated $2 million. Ripple committed $5 million worth of XRP to the event.
Meanwhile, Sun invested $75 million in World Liberty Financial by buying the project’s tokens. Per the terms of the token sale, 75% of the proceeds go to a limited-liability company controlled by Trump and his family . Bloomberg estimated Trump’s family made $56 million off Sun’s purchases alone .
Such transactions put the SEC’s regulatory retreat in crypto in a dim light, consumer advocates and industry critics say. “It strikes me as a pretty clear quid pro quo,” White said. {p class=”p1”} If you have a tip about tech, startups or the venture industry, contact Troy Wolverton at twolverton@sfexaminer.
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