America’s securities regulator may have given up holding crypto crooks to account, but the nation’s law enforcement agencies haven’t given up this fight… yet.

On February 27, the Securities and Exchange Commission (SEC) and the Coinbase (NASDAQ: COIN) digital asset exchange submitted a joint application to the U.S. District Court for the Southern District of New York. The application asks that the SEC’s civil complaint against Coinbase be “dismissed with prejudice as to the conduct alleged in the Complaint through the date of the filing of this Stipulation, and without costs or fees to either party.”

This development was not unexpected. Late last week, Coinbase announced that the SEC was preparing to dismiss the complaint it filed against the exchange in June 2023. The SEC had accused Coinbase of operating as an unregistered securities exchange, broker, and clearing agency. But that was then, and the SEC’s new regime has a very different definition of what constitutes illegality.

Coinbase’s official ‘X’ account was quick to gloat over the development, while the exchange’s chief legal officer, Paul Grewal, responded simply: “Goodbye. And good riddance.” Grewal thanked the SEC’s new leadership and claimed that “common sense once again is not so uncommon.”

Besides Coinbase, the SEC has spent the past two weeks kneecapping nearly all its pending crypto litigation, pausing or dropping suits against Binance, OpenSea, Robinhood (NASDAQ: HOOD) and Uniswap. Scuttlebutt has it that the SEC’s suit against XRP-issuer Ripple Labs could be similarly junked before the week is through.

Some of these suits appeared rooted firmly in fact, but the new-look SEC seems downright desperate to rid itself of any lingering taint left behind by former chair Gary Gensler since he stepped down last month.

Gemini’s Winklevii can’t just take the W

On February 26, Cameron Winklevoss—who, along with his brother Tyler, runs the Gemini digital asset platform—tweeted 
that the SEC had concluded its investigation into their Gemini Trust Company and that the regulator did not “intend to recommend an enforcement action” against Gemini.

The SEC filed a civil complaint against Gemini two years ago based on its view that the Gemini Earn token-lending program was flogging unregistered securities to the public. The complaint included similar charges against Digital Currency Group’s 
now-defunct Genesis Global Capital lending platform, to which Gemini Earn had foolishly transferred its customers’ digital assets to earn a higher rate of return.

While Cameron celebrated the SEC’s retreat, he couldn’t help but complain that “it does little to make up for the damage this agency has done to us, our industry, and America.” Cameron also complained that the SEC suit had cost Gemini “tens of millions of dollars in legal bills alone and hundreds of millions in lost productivity, creativity, and innovation.”

Cameron declared it “wholly unacceptable for an agency like the SEC to bully, harass, and attack a lawful industry and then decide one day to simply say we’re good and walk away. Unless there is a cost and price to be paid for this behavior, it will happen again.”

Cameron suggested that federal agencies should be forced to reimburse 3x of the legal costs of any entity targeted by an investigation or enforcement action if the agency in question failed to offer sufficient ‘regulatory clarity’ ahead of said investigation/enforcement.

Cameron also thinks “everyone involved in these actions should be fired immediately and in a public way,” suggesting the SEC put their scarlet-lettered names on its website.

All this must be taken with an entire shaker of salt, as the Winklevii are nearly as renowned for their self-pitying protestations as they are for their truly awful musical skills. And it’s worth noting that the SEC letter to Gemini insisted that the fact that it’s dropping its charges “must in no way be construed as indicating that the party has been exonerated.”

Recall that last June, the New York Attorney General’s office forced Gemini to cough up $50 million for defrauding Gemini Earn investors. As NYAG Letitia James put it at the time, “Gemini marketed its Earn program as a way for investors to grow their money, but actually lied and locked investors out of their accounts.”

Last month, Gemini reached a $5 million settlement with the Commodity Futures Trading Commission (CFTC) for “making false or misleading statements to the CFTC in connection with a derivatives product certification.” That issue arose after two unidentified Gemini staffers—hmmm—loaned thousands of BTC tokens to market-makers to make it appear that Gemini’s underperforming derivatives product had sufficient volume to clear CFTC benchmarks.

Consensys beats the rap

On February 27, Joe Lubin, co-founder of Ethereum and blockchain software outfit Consensys, tweeted the news that Consensys and the SEC “have agreed in principle that the securities enforcement case concerning MetaMask should be dismissed.”

The SEC sued Consensys last July, accusing it of failing to register its MetaMask Swaps service—a digital asset exchange in all but name—as a securities broker and for offering unregistered securities to an unsuspecting public.

Consensys won’t likely face any financial penalties other than the legal costs it has borne to date (including those related to its pre-emptive suit against the SEC that was dismissed last September).

A triumphant Lubin said that Consensys had been “committed to fighting this suit until the bitter end but welcome this outcome.” Lubin also praised “the SEC’s new leadership and the pro-innovation, pro-investor path they are taking.”

Justin dodges yet another bullet

On February 26, the SEC and Justin Sun—founder of the Tron blockchain—jointly asked a federal judge “to stay this case to allow the Parties to explore a potential resolution.” The suit dates back to March 2023, when the SEC accused Sun of manipulating markets—via blatant wash trading that artificially inflated the value of Tron’s native TRX token—and paying celebrities/influencers to promote the token online.

The case against Sun appeared ironclad, but the new-look SEC doesn’t appear to care. It’s perhaps worth mentioning that Sun purchased $75 million worth of WLFI—the ‘governance’ token for U.S. President Donald Trump’s decentralized finance project World Liberty Financial (WLF)—at a time when nobody appeared interested in buying into the so-far dormant WLF. Sun has since been named an ‘adviser’ to WLF, while WLF has since purchased over $9 million worth of TRX. Synergy.

The day after this pause was requested, Sun tweeted a video in which he celebrated “some of our victories in legal compliance.” After discussing a Chinese defamation suit that resulted in the media outlet apologizing to Sun, he talked briefly about having been contacted by the SEC “to work on a better solution.”

Sun didn’t offer further details but declared that the entire blockchain sector was “making great breakthroughs” and predicted that “there will be more good news” coming down the pike.

We don’t doubt it. At this rate, we expect the SEC to not only drop its fraud charges against HEX founder Richard Heart, but we expect him to be appointed as a new SEC commissioner. At this point, what’s one more fox in the chicken coop, huh?

Forget regulatory capture; this is regulatory surrender

Not satisfied yet? The SEC’s Division of Corporation Finance issued a ‘staff statement’ on February 27 declaring that memecoins aren’t securities, and thus memecoin issuers aren’t required to register with the SEC.

The statement acknowledges that memecoins “have limited or no use or functionality,” but since they’re typically “purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation,” you crazy kids just have fun, okay?

That’s perhaps unfair, given that the SEC insists that “fraudulent conduct related to the offer and sale of meme coins may be subject to enforcement action or prosecution by other federal or state agencies.” But with stats showing that 60% of memecoins are malicious in nature and 86% of memecoins lose 90% of their value within three months of their launch, you’d think somebody would want to throw up some spike strips in the path of memecoin rug-pullers.

OKX. AML. FAFO.

Fortunately, not every branch of the federal government appears to have thrown in the crypto towel. On February 24, Matthew Podolsky, the acting U.S. Attorney for the Southern District of New York, announced a $504 million settlement 
with the OKX exchange’s parent company, Aux Cayes Fintech Co. Ltd., for operating an unlicensed money-transmitting business.

Podolsky said starting from “at least” 2017, OKX “knowingly violated anti-money laundering laws and avoided implementing required policies to prevent criminals from abusing our financial system. As a result, OKX was used to facilitate over five billion dollars’ worth of suspicious transactions and criminal proceeds.”

The Department of Justice (DoJ) pursued OKX with the help of the Federal Bureau of Investigation (FBI), whose assistant director in charge, James Dennehy, said OKX “flagrantly violated U.S. law, actively seeking customers in the United States … even going so far as to advise individuals to provide false information to circumvent requisite procedures.”

Despite OKX’s official policy barring U.S.-based customers, the exchange “was fully aware that individuals in the United States could, and did, easily create and use OKX trading accounts.” The DoJ notes that an OKX staffer told one U.S.-based customer, “I know you’re in the US, but you could just put a random country and [account approval] should go through.”

Until early 2024, OKX also “allowed customers to place trades on the exchange through third-party entities known as ‘non-disclosure brokers’ without the third-party entity disclosing any identifying information to OKX about the customers on whose behalf the trades were placed.”

OKX agreed to forfeit $420.3 million in ill-gotten gains—representing fees earned from U.S. customers during the period in question—and pay a fine of $84.4 million. Despite its seven years of lawless behavior, OKX got a 25% reduction in the fine amount “for its cooperation with the investigation and timely engaging in remedial measures.”

OKX’s official ‘X’ account tweeted that it was only “a small percentage of customers who were able to use our international services due to historical compliance gaps.” OKX further claimed that its compliance controls are now “among the leading in the industry” and insisted that “this matter is now behind us” along with half a billion bucks.

Block’s lawyers earning their keep

Sticking with the theme of regulatory shortcomings, the latest 10-K filing of Jack Dorsey’s crypto-friendly payment processing company Block (NASDAQ: SQ) revealed that Block had reached a deal with “various state money transmission license regulators … related to aspects of its Bank Secrecy Act/anti-money laundering program.” The deal will cost Block $80 million in administrative penalties and costs.

Block also said it had entered into a consent order with the (soon to be defunct) Consumer Financial Protection Bureau (CFPB) based on “among other things, [retail-facing] Cash App’s handling of customer complaints and disputes.” That deal will cost Block $55 million in civil monetary penalties and $75-$120 million in restitution to Cash App customers.

But we’re not done yet. Block said it’s in “continuing negotiations” with the New York State Department of Financial Services (NYDFS) “related to, among other things, aspects of [Block’s] Bank Secrecy Act/anti-money laundering and bitcoin programs.”

New York apparently wasn’t satisfied with the terms of that multi-state settlement and is looking to squeeze Dorsey a little harder. The NYDFS has reportedly told Block that it wants to close this file, and Block says it’s still trying “to determine whether this matter can be settled on acceptable terms.”

Last May, NBC News reported that Block was under investigation by SDNY prosecutors for “widespread and years-long compliance lapses” at Cash App and Block’s merchant-facing Square division. Cash App, which allows users to buy BTC, has long been criticized for its slapdash approach to KYC.

Block’s 10-K says it’s still cooperating with this SDNY probe, but the company is “unable to predict the likely outcome of these matters and cannot provide any assurance that the SEC or DOJ will not ultimately take legal action against the Company.” At this point, it’s safe to say that the SEC has basically memory-holed the matter, but the DoJ might prove a little more dogged in its pursuit of justice.

Back in Block’s home state of California, San Francisco’s tax collector has audited Block’s tax return for the years covering 2020-2022 and concluded that “incremental taxes are owed on a portion of the receipts generated by the Company related to sales of Bitcoin.”

Block “strongly disagrees” with this assessment but nonetheless paid the $71.4 million the taxman claimed was outstanding and “plans to file a claim for a refund.” For once, we feel a crypto bro’s pain.

Watch: Regulation leads to good uptick for Web3 operators

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