The DOJ’s Impact on the Crypto Industry
In 2023, the Department of Justice (DOJ) played a significant role in shaping the boundaries of the cryptocurrency industry through criminal prosecutions. While the Securities and Exchange Commission (SEC) filed civil lawsuits, it was the DOJ that made headlines with its swift resolutions. Within a year, the DOJ convicted Sam Bankman-Fried from FTX and removed Changpeng Zhao as the head of Binance. These high-profile cases brought a sense of reality to the industry and emphasized the DOJ’s influence.
Former federal prosecutors and legal experts recognize the proactive stance taken by the DOJ in defining the crypto industry. According to Widge Devaney, a former federal prosecutor, the DOJ’s impact surpasses that of ongoing battles in court involving the SEC.
A Missed Opportunity for the SEC
However, some view this as a missed opportunity for the SEC to assert its authority. Many of the DOJ’s crypto indictments were accompanied by parallel complaints from the SEC. Both agencies targeted prominent figures in the industry, such as Alex Mashinsky and Do Kwon. While the SEC faced challenges and jurisdictional uncertainties, the DOJ’s criminal prosecutions achieved notable success.
The SEC’s ongoing cases against Binance and Coinbase encountered opposition from defendants, leading to pre-trial motions. The SEC opted out of a settlement between the DOJ and Binance, indicating its intention to continue fighting for tokens traded on the exchange to be classified as securities. The final verdict is likely to be appealed to higher courts.
Unresolved Enforcement Actions by the SEC
Despite reaching settlements with several defendants and celebrities involved in digital assets, some of the SEC’s flagship enforcement actions remain entangled in legal complexities. Competing rulings by judges have created uncertainty over how various crypto assets are classified as securities.
Since assuming office in 2021, SEC Chair Gary Gensler has taken a tough stance against the crypto sector. The SEC has brought numerous cases, alleging fraud, failure to register as an exchange, and non-disclosure of promotional payments in crypto. Gensler believes existing securities laws are sufficient to regulate digital assets, dismissing the need for specific crypto-focused rules.
However, the SEC now faces challenges in its enforcement actions, with recent court decisions favoring crypto companies. A judge ruled that XRP, offered by Ripple, was not a security when sold to retail investors but subject to SEC registration requirements when bought by institutional investors. Additionally, an appeals court rejected the SEC’s attempt to prevent the launch of a US-listed spot-bitcoin fund by Grayscale, deeming the SEC’s action “arbitrary and capricious.”
Hot Take: The DOJ’s Impact on the Crypto Industry
The Department of Justice (DOJ) played a significant role in defining the boundaries of the cryptocurrency industry in 2023 through its criminal prosecutions. While the Securities and Exchange Commission (SEC) also took legal action, it was the DOJ that garnered attention with its rapid resolutions. This proactive stance by the DOJ brought a sense of reality to the industry and highlighted its influence in shaping its boundaries. However, some view this as a missed opportunity for the SEC to assert its authority. Despite ongoing legal complexities surrounding some of its enforcement actions, the SEC remains committed to regulating digital assets within existing securities laws. Recent court decisions have posed challenges for the SEC, favoring crypto companies and questioning the necessity of additional regulations specifically focused on crypto.
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