In the US Bit industry, the SEC remains the public enemy #1 even in 2024. The regulator imposed record fines on Bit companies this year.
Amid the possibility of a shift in the SEC's regulatory stance under the next administration of Donald Trump, we look back at how the agency investigated Bit companies this year.
Highest-ever Fines... SEC's Bit Stance
This year marked a turning point in the regulator's approach. Enforcement actions decreased, but fines increased significantly. In 2024, the SEC imposed $8.2 billion in fines on 583 Bit companies.
This figure is larger than the total fines levied over the past 12 years. Remarkably, this sharp increase stemmed from 11 incidents, each involving substantial financial misconduct.
One of the most significant cases involved Terra Labs. Founder Do Kwon was accused of orchestrating one of the largest securities frauds in US history. After a jury trial in Manhattan, Terra Labs settled with the SEC for $4.5 billion.
"Terra Labs PTE, Ltd. and Do Kwon have agreed to pay over $4.5 billion for their years-long fraud involving Bit assets. This resulted in massive losses for investors." - The SEC posted in June.
Terra, which filed for bankruptcy in January, will prioritize compensating Bit investors during the liquidation process.
The company estimates that eligible stakeholders could recover between $184.5 million and $422 million, with the majority of the settlement amount remaining unpaid.
Fraud Cases, SEC Enforcement Actions Dominate
The SEC tracked several fraud cases, with Voyager Digital and founder Eron Tong being the most prominent. Voyager Digital promised investors over $100 million for a safe, high-yield Bit mining project and debt recovery business.
However, the SEC alleged that the funds were misused and diverted to unrelated businesses for personal gain.
According to the complaint, the company's Bit mining operations differed from the marketed claims of reliability and profitability due to fluctuating energy costs and equipment issues. Therefore, the SEC is seeking a permanent injunction, civil penalties, and a bar on Tong from serving as an officer or director of any company.
Another notable development involves the Blockchain startup Bittclave, which was accused of violating securities laws during its 2017 ICO. The SEC distributed $4.6 million to investors from the Bittclave Fair Fund.
This fund compensated those affected by the collapse of the company's Consumer Activity Tokens (CAT) offering.
Bit Firms Push Back Against SEC Lawsuits
Some of the SEC's lawsuits have helped catch fraudsters and prevent scams. However, Bit industry leaders dislike the lack of clarity and the regulatory approach through enforcement. For example, the SEC has taken legal action against various Bit exchanges, classifying Bit trading as securities.
The SEC's lawsuits and enforcement actions have sparked significant resistance from key players in the Bit industry. Crypto.com preemptively sued the agency in October after receiving a Wells notice.
The company's CEO, Chris Marszalek, criticized the regulator's stance, arguing that most Bit trading is unfairly classified as securities. This is a persistent trend under the leadership of Gary Gensler.
However, Crypto.com withdrew this lawsuit in early December after Marszalek met with President-elect Donald Trump. The industry seems hopeful that the SEC's Bit stance may change under the new leadership of Paul Atkins.
"Despite the upcoming administration change, the SEC is still sending Wells notices. However, Crypto.com is confident that the new administration will neuter the SEC, and they withdrew their lawsuit against the agency on the same day their CEO met with Trump." - Bit researcher Molly White posted on X (formerly Twitter).
Meanwhile, Binance and former CEO Changpeng Zhao have challenged the SEC's enforcement approach. Their legal team submitted a motion to dismiss the amended complaint, arguing that the SEC has failed to provide clear criteria for when Bit trading is considered a security.
The defense cited previous rulings, including the high-profile SEC v. Ripple case, which concluded that XRP is not a security in all scenarios.
Similarly, Kraken has contested the SEC's claims, arguing that certain digital assets like ADA and SOL do not fit the definition of a security. Kraken cited the Howey test, asserting that these assets do not constitute investment contracts. The exchange accused the SEC of overstepping its regulatory authority.
"Gensler's policies were extreme, but the remaining question is whether we will swing to the other extreme. I think the SEC has already made progress in pursuing a more neutral stance and promoting regulation/adoption." - Sander Gortjes, co-founder of Hello Labs
Legal and Financial Impact of DeFi Protocols
The SEC has also targeted decentralized finance (DeFi) protocols. Lary Capital was accused of misleading investors and operating an unregistered investment product.
At its peak, Lary managed over $1 billion in crypto assets. It promised optimal returns through automated rebalancing.
However, the SEC argued that such processes often require manual intervention, contradicting the company's claims.
The SEC's efforts have also extended to individual promoters. Bi Pham was charged for illegally selling unregistered securities through the promotion of the Saitama Inu token. Pham allegedly misled investors with exaggerated claims about the token's value and potential returns, profiting at their expense.
In addition to enforcement actions, the SEC has been embroiled in legal disputes with cryptocurrency companies. Bitnomial, a Chicago-based derivatives exchange, sued the SEC, arguing that its XRP futures contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
Coinbase Scores Significant Victory
Earlier this year, the SEC secured a ruling that it can proceed with a lawsuit against Coinbase. The case centers on allegations that the exchange was involved in the sale of unregistered securities.
U.S. District Judge Katherine Polk Failla ruled that the transactions in question fall within the legal framework used to identify securities for decades. This strengthened the SEC's authority over cryptocurrency platforms.
The outcome of this trial could have broad implications for the industry as it tests the limits of the SEC's regulatory powers and the legal classification of digital assets.
The SEC's actions in 2024 reflect an intensified crackdown on the cryptocurrency industry. However, under a new pro-crypto government, industry and community members expect the agency's stance to shift significantly.
"Gary Gensler is not the origin of the SEC's cryptocurrency enforcement. But he has expanded enforcement actions more than his predecessors. Paul Atkins, a pro-crypto SEC chair, is expected to lead differently, demonstrating cooperation with the cryptocurrency and broader financial ecosystem." - Maxim Sakharov, co-founder of Wefay
Major cryptocurrencies like XRP have already rebounded based on this optimism. However, the true scope of these changes is expected to materialize in the coming months.
