Top Crypto SEC Settlements: Lawsuits & Enforcements
The Securities and Exchange Commission (SEC) is a US regulatory agency that is tasked with protecting consumers from dangerous financial products and investments.
In recent years, the SEC has taken a particular interest in crypto products.
What Is A Crypto SEC Settlement?
Whenever the SEC finds a crypto company in violation of financial regulations, they can take the offenders to court and sue them for violating the law. Over the last few years, there have been several notable crypto SEC cases that have ended in settlements — which is where the company agrees to pay a certain amount in order to dismiss the litigation. In many of these cases, the companies neither admit nor deny that they were in the wrong.
The SEC, headed by chairman Gary Gensler, most often goes after the unregistered sale of “securities,” — which is a financial instrument that must be registered and properly regulated before it’s sold. To determine what products are securities, the SEC uses the “Howey” test, which is a set of criteria that must be met in order for a product to be considered a security.
Below we take a look at the most high-profile SEC settlements.
Crypto SEC Settlements
| Company | Type of Company | Offense | Settlement Date | Settlement Amount |
|---|---|---|---|---|
| Ripple | Cryptocurrency | Direct sale of crypto tokens as an unregistered security | Lawsuit is ongoing | Undetermined |
| Kraken | Crypto exchange | Staking as an unregistered security | February 2023 | $30 million |
| Nexo | Crypto lender | Lending as an unregistered security | January 2023 | $45 million |
| BlockFi | Crypto lender | Lending as an unregistered security | February 2023 | $100 million |
1. Ripple: Ongoing
One of the largest cryptocurrency projects, Ripple, is currently in a dragged-out battle with the SEC over its offering of the XRP cryptocurrency tokens. The SEC alleges that the offering, which was a $1.3 billion direct sale of tokens to retail investors, constituted as an unregistered security. The suit was started in 2020 and is still ongoing in 2023, making it one of the most high-profile lawsuits in the crypto space.
2. Kraken: February 2023
In February of 2023, the SEC went after the popular cryptocurrency exchange Kraken for its staking product. ”Staking” is the process of locking up your cryptocurrencies in order to help secure and validate a blockchain. Normally, staking offers more tokens as a reward — and it was precisely this feature that the SEC took aim at. According to the agency, staking is an investment contract similar to earning yield from lending, and that is considered a security. Kraken settled without admitting wrongdoing and paid a $30 million fine. As a result of the settlement, the exchange no longer offers staking in the US.
3. Nexo: January 2023
Nexo is a popular crypto exchange whose “Earn Interest” product caught the eye of SEC regulators in 2023. The program allowed Nexo users to — unsurprisingly — earn interest by lending their crypto to others (think of it like a peer-to-peer bank). The SEC charged Nexo with selling unregistered securities for the company’s failure to register its lending product through the proper channels. Nexo settled for $45 million and also stopped offering its services to U.S. residents, though it wasn’t happy about the decision, saying “the U.S. refuses to provide a path forward for enabling blockchain businesses.”
4. BlockFi: February 2022
In February of 2022, the popular crypto borrowing and lending service “BlockFi” was charged by the SEC for offering unregistered securities. The BlockFi platform allowed users to lend out their crypto funds and earn interest on them through its “BlockFi Interest Accounts.” The suit was a landmark ruling as it represented the first time that the SEC went after crypto lending platforms and required them to comply with US securities law. BlockFi settled for $100 million without admitting wrongdoing. In November of 2022, BlockFi filed for bankruptcy in the wake of the collapse of the major crypto exchange FTX.
Celebrity Crypto Lawsuits
Celebrities make money doing famous-people things, like singing and playing football. Sometimes, they also make a few bucks pitching crypto companies or projects, and that’s where this starts. As far back as 2017, the SEC issued a warning statement about celebrity-backed ICOs (Initial Coin Offerings). Since then, a number of well-known personalities have found themselves in hot water for promoting crypto projects to their millions of fans and followers.
- Kim Kardashian: In 2022, KimK reportedly settled with the SEC for $1.26 million over charges that she did not disclose she was being paid to promote EthereumMax in Instagram posts.
- Floyd Mayweather, Jr.: In a similar failure-to-disclose crypto incident, undefeated boxing champ Floyd Mayweather, Jr. took a hit from the SEC for allegedly promoting ICOs for three different cryptos on social media. The total settlement paid to the SEC was over $600,000.
- Steven Seagal: There’s a theme here with failure to disclose payments for promotion, but the Steven Seagal crypto calamity had a nefarious twist. The ICO, in this case, Bitcoiin2Gen, was later labeled a scam by the SEC. Seagal settled with the SEC for more than $300,000 over charges of promoting the ICO on social media.
- DJ Khaled: Music producer DJ Khaled settled charges with SEC in 2018 over social media posts promoting the ICO for Centra Tech Inc., one of the ICOs that landed Floyd Mayweather Jr. in hot water. In the end, DJ Khaled paid the SEC over $160,000.
- Tom Brady: Seven-time Super Bowl winner Tom Brady hasn’t been changed by the SEC (although that could change), but a 2022 class action lawsuit names Brady, his former wife Gisele Bündchen, and others for their role in promoting the failed FTX exchange in now-deleted Twitter posts.
- Jimmy Fallon: It’s not just ICOs, and it’s not just the SEC that celebrities need to worry about. Another class action lawsuit names Jimmy Fallon, Justin Bieber, Serena Willams, Madonna, Gwyneth Paltrow, Kevin Hart, Snoop Dogg, and others in a crypto-related mess. The 95-page lawsuit filed in 2022 also names Yuga Labs, the company behind the Bored Ape Yacht Club NFT collection. The lawsuit alleges the stars didn’t disclose their investments before championing the monkey-themed NFTs.
Learn more about US Crypto Legislation
To Sum It Up
Cryptocurrencies are still very new, and many companies take risks when offering new products.
Sometimes, these products end up drawing the attention of US regulators like the SEC. Over time, however, guidelines are becoming clearer, and more and more companies are becoming compliant with regulations.
Frequently Asked Questions
The SEC does not have a cut-and-dry list of what you can and cannot do when selling cryptocurrencies.
In general, any financial offering that passes the Howey test may be considered a security. Not all offerings that pass this test, however, are automatically brought to court by the SEC. Alternatively, the SEC may sometimes take action without outlining exact guidelines — as was the case with the SEC going after Kraken’s staking service in an unprecedented move.
There is no official SEC-approved crypto list. In general, as long as cryptocurrencies do not have ongoing litigation by the SEC, they are considered to be in compliance with the law.
There have been concerning comments from the chairman of the SEC, Gary Gensler, however, that may point to a looming regulatory crackdown on most crypto tokens. In September of 2022, chairman Gensler noted that Ethereum’s move to proof-of-stake (a new way of running the blockchain) made the cryptocurrency a security. In fact, since then, Gensler has stated that every cryptocurrency except Bitcoin may potentially be considered a security.
The SEC is definitely keeping a close watch on crypto.
Since the collapse of the crypto exchange FTX, the SEC has been cracking down on crypto exchanges and projects. Gary Gensler, the chairman of the SEC, has hinted that every cryptocurrency besides Bitcoin may be a cryptocurrency.
