SEC turns a new leaf with flurry of crypto probe endings

The ending of multiple Securities and Exchange Commission (SEC) investigations into cryptocurrency firms is sending a strong signal that the agency’s approach to enforcement is quickly changing under the Trump administration.

The turning of the tide comes after a major push from the cryptocurrency industry to put more crypto-friendly leaders back in Washington, following four years of hard-line policies from the Biden administration.

The crypto sector, which poured nearly $250 million into various 2024 races up and down the ballot, is largely not surprised to see the fast action at the SEC under President Trump, who has promised to prioritize U.S. leadership in the digital currencies space.

“We in the crypto space felt it was very deceptive the way they [the Biden administration] went about dealing with crypto firms. They told crypto firms to come in and register, to come in and engage with them,” said Nic Carter, a founding partner at crypto investment firm Castle Island Ventures. “There was no meaningful way to do that.”

Over the past three weeks, the SEC closed or paused a series of investigations into crypto firms, starting with a request for a legal pause in its suit against Binance, the world’s largest cryptocurrency exchange.

In a court filing, the regulatory agency said a new crypto task force, launched by acting Chair Mark Uyeda, “may impact and facilitate the potential resolution” of the Binance case, which originally accused the exchange of engaging in a “web of deception.”

And over the past week alone, the agency closed separate investigations or lawsuits against the crypto arm of Robinhood, decentralized finance firm UniSwap Labs and blockchain software group Consensus

Last Thursday, the SEC officially dismissed its lawsuit against Coinbase, the largest cryptocurrency platform in the U.S.

Companies quickly lauded the decisions. Blockchain Association CEO Kristen Smith remarked the “era of regulation by enforcement — and intimidation — is coming to an end,” citing the “fresh perspective” at the SEC.

While changes are unfolding at the SEC, those in the sector say the agency is still in the reset phase of undoing the policies from former SEC Chair Gary Gensler, and it may be too soon to tell exactly how enforcement will look in the future.

The crypto industry has long advocated for clearer regulations and guidelines, but the reset is needed before the SEC can tackle these questions, observers say.

“This is a very reasonable course correction that we’re seeing now,” Carter said, calling the past month an “interregnum” period.

Smith, speaking with The Hill earlier this month, said many of the actions so far have been about getting to a “neutral position.”

“Step one is sort of undoing that damage,” Smith said, noting the White House’s creation of an artificial intelligence (AI) and crypto czar position, as filled by David Sacks, is “mind-blowing.”

Sacks is one of several crypto advocates Trump selected for his administration. Others include SEC chair nominee Paul Atkins and Commerce Secretary Howard Lutnick, a crypto enthusiast.

While these moves reinforce a tone of scaled-back enforcement, observers emphasized this is not to be confused with no accountability for an industry that saw its reputation roiled in recent years by various scandals.

“There’s still laws and I think many crypto people will actually be surprised for markets to function in an orderly manner, they [SEC] have to be referees, and so I expect to see many enforcement actions and especially regarding insider trading, things like that,” Carter said.

There are other subtle signs of changing sentiment, including last month’s launch of the SEC's Cyber and Emerging Technologies Unit (CETU), aimed at fighting cyber-related misconduct and protecting retail investors.

Over the past three years, the group was called “Cyber Unit,” then it went by “Crypto Assets and Cyber Unit” before taking the new name of “Cyber and Emerging Technologies Unit,” with no mention of crypto in the title.

“The message will be, if you’re operating within the framework of the Trump administration and what the senior leadership advising Donald Trump is saying about crypto, then you will not have the SEC knocking at your door,” said Eric Schiffer, CEO of the private investment firm Patriarch Equity. “Alternatively, if you are going to perpetrate gross scams against the public, don’t necessarily sleep soundly.”

Still, some skeptics are interpreting the moves as an all-out ditching of prosecution, especially in the wake of the industry’s massive campaign spending last cycle.

The SEC’s dismissal of the Coinbase case faced particular backlash.

The lawsuit, filed by the SEC in June 2023, accuses Coinbase of acting as an unregistered broker. The SEC claimed Coinbase made billions without giving investors lawful protections.

Coinbase was one of the leading corporate donors in the 2024 election cycle, throwing its support and cash behind candidates it deemed strong proponents of crypto.

The exchange donated $70.5 million to super PAC Fairshake in the 2023-2024 cycle. Crypto firm Ripple and venture capital firm Andreessen Horowitz also dished out cash to different spending groups to boost crypto-oriented candidates.

Now, critics are putting the industry’s ramped-up campaign involvement last cycle under a microscope.

Molly White, a cryptocurrency researcher and prominent crypto skeptic, argued the SEC’s changes in direction were the “goal of a lot of the election spending over the last couple of years.”

“I think that the political contributions were quite directly related to both the changing regulatory environment in terms of, you know, broad policy direction, but also in terms of dropping the enforcement action,” White told The Hill.

Public Citizen, a nonprofit consumer advocacy organization, slammed Coinbase and the SEC last week, arguing the industry’s campaign spending “paid off.”

“The SEC decision is also an important marker in the Trump administration’s rush to abandon prosecution and enforcement actions against corporate criminals and wrongdoers,” Public Citizen co-President Robert Weissman wrote. “This is not just an abandonment of those already wronged by corporate wrongdoers, it is an invitation to a corporate crime spree and epidemic of corporate wrongdoing.”

Carter pushed back, arguing Fairshake’s involvement was largely in congressional races, rather than the executive branch.

“So, it wasn’t just the industry throwing out a Hail Mary to get Trump in office so he could change the executive,” he said. “The Fairshake strategy was actually legislative.”

Coinbase, along with other figures in the crypto world, fiercely rejected the criticism, pointing out opposition to Gensler’s probes was brewing for years. This included long before Trump publicly reversed his stance on crypto to back the industry in late 2023.

“I find those comments misinformed at best, if I’m being generous, and defamatory at worst,” Paul Grewal, chief legal officer at Coinbase, told The Hill of the backlash.

Some criticism, Grewal argued, fails to consider Trump was once a critic of crypto and at one point called it a “scam.”

Grewal pointed out how Congress moved major legislation in 2023 on market structure, an issue that was met with bipartisan support. The Financial Innovation and Technology for the 21st Century Act in 2023 received support from 71 Democrats in the House.

“The fact of the matter is that President Trump did evolve and transform in his view on crypto, really starting in December 2023,” Grewal said. “In January 2024, we first started to engage with him and his team, but it was against a much more nuanced, complicated and complete history that I think a lot of the critics just don’t want to engage in.”

Dan Gallagher, Robinhood's chief legal affairs compliance and corporate affairs officer, echoed this sentiment, saying the probe into his company “should have never been brought.”

The SEC, in a statement on Coinbase’s dismissal, maintained the decision does not reflect its position on other cases.

The regulator added the new Cyber and Emerging Technologies Unit will “root out those seeking to misuse innovation to harm investors, including fraud involving blockchain technology and crypto assets.”

Still, not all of the SEC is on board with the new direction. SEC Commissioner Caroline Crenshaw, a Democrat, called the Coinbase dismissal "regulatory whiplash," arguing it will lead to more confusion in a lengthy statement.

"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," she wrote. "I have heard many say that the industry craves legal clarity. Today’s action results in less clarity.

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