SEC Enforcement Actions Against Crypto Exchanges.

While recent dismissals against major exchanges may suggest a shift in SEC enforcement, they do not establish legality or permanently eliminate potential liability. An SEC dismissal resolves the specific allegations in that particular lawsuit, but it does not address the underlying question of whether the underlying activity is permitted under federal securities law. As a result, exchanges and crypto businesses should not assume that they are fully shielded from further enforcement or private litigation based on a single dismissal.

What Does the SEC Mean by “ a commitment to more transparent and consistent policymaking”?

Acting Chair Mark Uyeda’s comment, “This reflects a commitment to more transparent and consistent policymaking,” refers to a shift in how the SEC approaches enforcement in the crypto industry. Rather than relying on ad hoc litigation to clarify the rules, the SEC is now embracing more traditional methods of rulemaking, issuance of interpretive releases, and granting exemptions. This shift acknowledges that investors and crypto businesses need the clarity and predictability that can only come from the agency’s formal rulemaking and interpretive authority.

Why is the SEC Closing Cases Rather Than Pursuing Them through the Courts?

The SEC is closing cases because this approach aligns with the approach championed by Commissioner Atkins, who emphasized that rulemaking and interpretation are the appropriate tools for creating clarity in the digital asset market. He argued that the SEC should rely on these, along with targeted enforcement where warranted, rather than relying on ad hoc litigation to resolve broad policy and regulatory disputes. This strategy aims to provide clearer guidance and a more predictable environment for legitimate innovation and market participation.

When does crypto trading trigger SEC registration requirements?

When are companies offering alternative trading system functionality (i.e., as broker-dealers) required to register? When are they operating as exchanges?

The Howey Test is more of a framework than a formula. What does this mean in the context of the SEC’s crypto enforcement cases? “The Howey analysis will start with the analysis of the particular transaction at issue, including the ‘surrounding economic circumstances’ in which the transaction occurs . .. When these transactions are deemed to involve contracts, and the issue then becomes whether these contracts constitute investment contracts under Howey, the analysis of the investment’s characteristics then guides the inquiry.” SEC v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100 (1946)

How do these concepts apply in crypto?

In most cases, plaintiffs do not allege a violation of Section 15(a), and they do not allege that the exchange or broker involved in the alleged securities transactions also operated as a clearing agency. In this scenario, the primary (or only) concern is whether the platform operator or other entity is operating as an exchange. If so, does the plaintiff need to allege a violation of Section 15(a) or section 21(a)? Or will a violation of Section 5 suffice?

What is the standard for alleging a violation of Section 5?

In its enforcement action against Coinbase, the SEC alleged Coinbase violated Section 5 of the Exchange Act when it failed to register as a national securities exchange while operating as a broker and a clearing agency. The SEC also alleged a violation of Section 15(a) due to Coinbase’s failure to register as a broker and de facto registration obligations as a clearing agency. This underscores the SEC’s position that securities offerings and securities transactions are separate issues that trigger different consequences under the federal securities laws.

It then notes that,

“The Act also created separate registration obligations for (i) exchanges, (ii) brokers, and (iii) clearing agencies. .. Accordingly, a claim for operating as an unregistered national securities exchange requires (i) securities transactions and (ii) registration obligations arising out of the exchange’s role in facilitating the transactions.”

What is the standard for alleging a violation of Section 15(a)?

The SEC also alleged that Coinbase operated an ATS without being registered as a broker-dealer. Under Section 15(a) of the Exchange Act, “no person shall engage in business as a broker or dealer except as a registered broker or dealer.” To resolve this question, it is necessary to determine whether the “person” is operating as a broker. This involves (i) conducting securities transactions for others, (ii) as part of its business, and (iii) in a manner that is not properly exempt.

Why is registration not a safe harbor?

While registration can help an exchange comply with the federal securities laws, it does not necessarily insulate the exchange or the issuance of the asset from liability. After registration, exchanges are subject to strict operational, compliance, and oversight requirements. Registration also does not necessarily protect the exchanges and issuers of cryptocurrencies from liability for securities fraud under Section 17(a) of the Securities Act, Section 10(b) and Rule 10b-5 of the Exchange Act, or other state or federal fraud statutes.

Did the Coinbase and Binance dismissals make exchanges legal?

Coinbase and the SEC jointly dismissed the case on February 27, 2025. On March 27, 2024, however, the Coinbase court had denied Coinbase’s request for dismissal. This denied the motion to dismiss in its entirety (or the majority of the motion), stating Coinbase operated as an unregistered national securities exchange, broker, and clearing agency. Coinbase responded by filing an interlocutory appeal on January 7, 2025.

It’s a mistake to assume that the initial denial was a judgment establishing Coinbase’s liability. At this stage, it was preliminary in nature, only providing an overview of the parties’ initial arguments and evidence. Discovery was stayed in Coinbase pending a decision on the interlocutory appeal, effectively leaving the case in limbo until Coinbase and the SEC jointly agreed to dismiss.

Does the Coinbase case create binding precedent for other crypto companies?

Coinbase’s voluntary dismissal did not create binding precedent on whether its tokens and tokens on its exchange are securities.

As the court noted:

“ The parties have requested the dismissal of the action without prejudice. In this voluntary dismissal, neither party is seeking to resolve a question in the lawsuit by the Supreme Court in an advisory capacity. Accordingly, there is no need for a judgment on the merits.”

Generally speaking, a voluntary dismissal does not establish that the allegations presented in the original complaint were false. A voluntary dismissal is simply the parties coming together to end claims without a determination of any issue on the merits.

Where is Coinbase’s SEC case filed?

The SEC filed the lawsuit against Coinbase in the United States District Court for the Southern District of New York on June 6, 2023. This is the same court that the SEC filed its lawsuit against Binance.

When did the SEC file its enforcement action against Binance?

The SEC filed its enforcement action against Binance and Changpeng Zhao in June 2023. It sued Binance for several violations of the federal securities laws, including violations of Section 15(a) and Section 5 of the Exchange Act. As a result of these allegations, the SEC sought to ban Binance and Zhao from operating as an exchange and the registration of the various Binance tokens and other assets on Binance as securities.

If any of this describes your situation, it is worth talking it through with counsel. Spodek Law Group can be reached at 212-300-5196.

How much protection does new SEC crypto guidance provide?

How much protection does the SEC staff’s statement on crypto staking protect with respect to offering staking and the use of crypto asset yields?

The SEC staff addressed certain protocol staking activities in its staking statement issued on May 29, 2025. However, the statement covered specified activities, and it specifically did not cover every staking arrangement. So while the staking statement was an important first step, it did not necessarily make all staking arrangements legal.

How much protection does the SEC staff’s statement on stablecoins provide for offering dollar-backed stablecoins?

The SEC staff addressed certain dollar-backed stablecoins in its statement on April 4, 2025. Like the staking statement, that stablecoin statement also covered specific circumstances rather than providing a blanket exemption. As a result, not every stablecoin structure or platform can assume that its stablecoin activity does not involve the offer and sale of securities.

How much protection does the SEC staff’s statement on memecoins provide for operating as a crypto issuer?

The SEC staff’s statement on memecoins addresses concerns about “pump-and-dump schemes” and related fraudulent actions. While investors can continue to trade memecoins without fear of enforcement action based on the assets’ identity, the statement does not immunize fraudulent promotions or other related schemes.

Do the SEC’s statements on securities status and the various exemptions carry any binding legal force?

These statements were issued by the SEC staff rather than the SEC’s commissioners. As such, they provide important clues as to the staff’s views, but they are not binding like properly adopted SEC rules. The SEC staff’s statements represent a view on how existing statutes and regulations apply to the crypto industry, and they are subject to change depending on the agency’s enforcement efforts and future policymaking.

Do the SEC’s new policy and rulemaking efforts protect crypto companies from civil lawsuits?

The SEC’s new policy and rulemaking efforts do not protect crypto companies from civil lawsuits. As a rule, agency policy announcements do not bind courts that are charged with interpreting federal securities statutes and regulations, and cryptocurrency-focused civil lawsuits (such as those brought under federal securities law) are civil litigation, not enforcement actions.

What happens during an SEC crypto exchange investigation?

When and why are SEC subpoenas issued?

The SEC generally needs a formal order of investigation in order to issue subpoenas and subpoenas issued by the SEC’s enforcement division are subject to the Securities Exchange Act. In most cases, the SEC will subpoena an exchange or crypto business in order to obtain information regarding its activity. This may involve requests for emails, internal records, correspondence with customers, and other financial documentation.

What is a Wells notice?

A Wells notice is the end of the enforcement division’s initial investigation. When the division’s counsel is prepared to make an enforcement recommendation to the Commission, the division may (and it usually does) issue a Wells notice stating the nature of the anticipated enforcement recommendations. The Wells notice gives the company the opportunity to respond, providing arguments or information in hopes of persuading the division’s counsel to rescind its recommendation.

How can an enforcement proceeding end in a settlement?

Once an enforcement recommendation is made, the Commission may authorize litigation. In some cases, a settlement will happen during the enforcement process. This may occur before a formal complaint is filed, with the SEC and the defendant agreeing to a settlement agreement. Alternatively, it can occur after the formal complaint is filed.

What are the consequences of an SEC crypto enforcement action?

As the SEC argues in its caption, there are three potential enforcement actions the SEC can bring (which are different from three forms of relief). For companies and crypto-focused financial institutions, the only options are an enforcement action in federal court or an enforcement action in a private administrative proceeding.

Under the Exchange Act, there are several forms of civil relief the SEC can seek. These include, but are not limited to:

• Injunctions
• Civil penalties
• Disgorgement

An injunction, such as a “bar on future conduct of securities offerings,” “cease and desist order,” or “denial of registration,” can have severe financial consequences. As a result, defense counsel must fight for an injunction in civil court, and fighting for an injunction in civil court requires demonstrating that the defendant’s alleged violations do not warrant relief of this sort.

The federal court that has jurisdiction to adjudicate violations of the Exchange Act has authority to impose civil penalties as well. Congress expressly authorized disgorgement in Section 21(d)(7) of the Exchange Act.

The SEC has authority to seek disgorgement, though the Supreme Court in Liu v. SEC limited the SEC’s authority to seek disgorgement. The Court’s holding established two requirements for disgorgement in SEC cases. First, the disgorgement amount must not exceed the net profit acquired through the illegal act. Second, the disgorgement must be used to reimburse victims of the conduct.

When does the SEC file an administrative proceeding?

What are the consequences of an SEC administrative proceeding?

Administrative proceedings are less formal than litigation in federal court and have different implications. In administrative proceedings, the SEC has authority to issue “associational bars.” As noted by Judge Marc Carney and former SEC Director of Enforcement, the SEC can “deny, suspend, revoke or censor registration of any person, company, brokerage or other investment adviser.” In other words, a cryptocurrency-focused professional can face an associational bar during an administrative proceeding.

Who can still bring claims after an SEC dismissal?

Are criminal charges still possible?

The SEC’s enforcement efforts are civil in nature. If the federal government intends to pursue criminal charges and seek imprisonment, a criminal prosecution is necessary. This prosecution is initiated by the Department of Justice (DOJ), and it may run parallel to a civil enforcement action. The DOJ can and does pursue criminal charges targeting the same conduct that triggers SEC liability, including the offer and sale of unregistered securities and securities fraud.

Which regulators can bring claims if the SEC has no grounds to do so?

As a result of the SEC’s recent dismissals, the SEC is not currently leading the charge to pursue exchanges. However, as previously noted, many other regulators have oversight in the cryptocurrency space. These include:

• Commodity Futures Trading Commission (CFTC)
• Financial Crimes Enforcement Network (FinCEN)
• Office of Foreign Assets Control (OFAC)
• State Attorneys General
• Department of Justice (DOJ)

If the SEC dismisses its claims, can the state bring claims under state securities laws?

An SEC dismissal is not a release from liability under state securities laws. State and federal securities laws differ, and the dismissal of SEC’s enforcement action based on federal law does not shield a company from state enforcement. For example, California’s state securities laws include provisions that could support an enforcement action.

If the federal government dismisses its claims, can investors bring claims in federal court?

The federal government’s decision not to pursue claims in federal court does not insulate exchanges from eligible investors filing civil lawsuits. Investors may still have grounds for civil litigation based on the same or related circumstances, which a dismissal of an SEC or DOJ enforcement action would not prevent.

With the DOJ’s reported focus on “avoiding double-exposure,” is there still a risk of criminal prosecution?

The DOJ’s updated policy does not eliminate the risk of criminal prosecution for violations of the U.S. federal laws. This policy still includes prosecutions involving fraud, sanctions, money laundering, terrorism, and related offenses. For examples, the DOJ’s recent prosecution of the founders of Binance, as well as prosecutions related to the fraudulent actions at FTX, occurred within the framework of this policy.

If my company has its headquarters outside the United States, can the federal government bring claims for domestic transactions?

The federal government can bring claims in the United States regardless of where the company is headquartered if a federal statute expressly allows for it or if the claims involve a “domestic transaction.” This principle was adopted by the Supreme Court in Morrison v. National Australia Bank (2010), and it applies both to the Exchange Act and the Securities Act. As a result, even if headquartered overseas, an exchange that targets customers in the U.S. or facilitates transactions in the U.S. can face litigation.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 212-300-5196.