US Securities Watchdog Declares All-Out War Against Crypto, Files 130 Lawsuits

By YASHWANT RAJ

WASHINGTON, DC (IANS) – Two significant lawsuits filed by the US Securities and Exchange Commission (SEC) this week have the potential to shape the future of cryptocurrency. The first lawsuit, filed on June 5, targets Binance.com, the world’s largest crypto exchange, its related entities, and founder Changpeng Zhao. The following day, on the SEC’s 89th birthday, the regulator filed a second lawsuit against Coinbase, another prominent exchange.

SEC Chair Gary Gensler emphasized the importance of applying securities laws to the crypto securities markets, stating, “There is nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws.” Gensler pointed out that crypto exchanges and promoters have been aware of the rules regarding trading in cryptocurrencies through SEC orders and enforcement actions, yet they have chosen to disregard or dismiss them, potentially viewing the risk of enforcement as the cost of doing business.

Regarding the lawsuit against Coinbase, Gurbir S. Grewal, head of the SEC’s enforcement division, emphasized that rules cannot be ignored or dismissed simply because they are disliked or alternative preferences exist, as the consequences for the investing public are significant.

While starting from humble beginnings in 2009-10, the crypto industry has now become a trillion-dollar business, mostly operating in a regulatory gray area. Crypto exchanges have argued that their offerings, known as tokens, are not securities, and therefore, their exchanges should not be subject to the same rules as traditional securities exchanges. However, the SEC disagrees and, under Gensler’s leadership, has sought to assert its jurisdiction over crypto exchanges, asserting that their offerings are indeed securities and should be registered with the regulator, along with the exchanges themselves.

The SEC has already initiated around 130 crypto-related lawsuits, resulting in the closure of smaller companies and settlements for those able to afford the high costs of litigation. In the case of Bitcoin and Coinbase, fines or settlements are possible outcomes if judges side with the SEC. Although these are civil suits and do not carry imprisonment penalties, the Department of Justice (DOJ) may intervene at any stage, potentially leading to criminal charges.

One example is Sam Bankman-Fried, founder of the bankrupt FTX crypto exchange, who faced DOJ scrutiny and now faces potential jail time. Bankman-Fried is accused of misappropriating funds from FTX customers for personal expenses, political donations, and risky trading deals.

Such crypto exchange-related misconduct and bankruptcies demonstrate the consequences of defying the rules that apply to securities trading in general. SEC Chair Gensler emphasized the importance of proper disclosure, asset segregation, and investor confidence, stating, “Even when we might not find fraud or such blatant misconduct, investors need… confidence that they are not trading against the house.”

Binance, which has denied the SEC charges and plans to contest them in court, has been accused of various activities, including “wash trading” to artificially inflate trading volumes.