2023 has been a landmark legal development period in the cryptocurrency and digital asset sectors. This report delves into the most significant legal cases and settlements over the past year, shedding light on the industry’s evolving landscape of regulatory enforcement and compliance. These cases underscore the increasing scrutiny by regulatory bodies such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and other financial authorities.
1. CoinDeal Fraud and SEC Charges
- Date: January 4, 2023,
- Outcome: CoinDeal ceased operations; legal proceedings concluded.
January 4, 2023, The Securities and Exchange Commission charged Neil Chandran, Garry Davidson, Michael Glaspie, Amy Mossel, Linda Knott, AEO Publishing Inc., Banner Co-Op, Inc., and BannersGo, LLC, for their involvement in a fraudulent investment scheme named CoinDeal that raised more than $45 million from sales of unregistered securities to tens of thousands of investors worldwide.
The scheme promises investors that it will generate returns of up to 12% per year by trading cryptocurrencies on an alleged proprietary trading platform called CoinDeal.
CoinDeal shut down on 19 February and urged customers to withdraw all their customer funds.
2. Coinbase and NYDFS Settlement
- Date: January 4, 2023
- Outcome: $50 million penalty; $50 million compliance enhancement.
New York’s financial regulator, the NYDFS, charged cryptocurrency exchange Coinbase $50 million for compliance violations related to anti-money laundering (AML) requirements. Coinbase also invested $50 million to improve its compliance program.
In the Q2, 2023 report shared by Coinbase, its trading volume fell by 58% YoY to $92bn, contributing to a 17% decline in net revenues to $663m. It seems increasing scrutiny from the US Securities and Exchange Commission (SEC), has weighed on the company’s results.
On January 4, 2023, New York’s top financial regulator agreed to a $100 million settlement with Coinbase in January 2023. The settlement followed a complete investigation that uncovered significant and longstanding flaws in Coinbase’s anti-money laundering program, particularly regarding KYC/CDD, transaction monitoring, and suspicious activity reporting. The regulator charged a $50 million penalty and ordered Coinbase to invest an additional $50 million in bolstering its compliance program.
3. BlackRock-SEC Lawsuit
- Date: January 5, 2023
- Outcome: $250,000 settlement penalty.
BlackRock, an American Multinational Investment giant known as the world’s largest asset manager, was hit by an SEC lawsuit this year. According to public Bitcoin data, the anonymous address, which is assumed to be Blackrock, is already the third largest Bitcoin holder.
January 5, 2023, The Securities and Exchange Commission charged Randy Robertson, a former BlackRock Advisors, LLC portfolio manager, for failing to reveal a conflict of interest arising from his relationship with a film distribution company in which the fund he managed for BlackRock invested millions of dollars. Mr Robertson agreed to the settlement with a $250,000 penalty over his relationship with the film distribution company in which the trust he co-managed invested millions of dollars.
4. SEC vs. Genesis and Gemini
- Date: January 12, 2023
- Outcome: Court-approved $175 million settlement.
On January 12, 2023, The Securities and Exchange Commission sued Genesis Global Capital, LLC and Gemini Trust Company, LLC for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. SEC claimed that through these unregistered offerings, Genesis and Gemini raised billions of dollars worth of crypto assets from hundreds of thousands of investors.
On April 25, 2023, DCG said new creditor demands disrupted Genesis settlement, but on October 12, 2023, the court showed the green light and approved a $175 million settlement.
Genesis Global Capital filed for Chapter 11 bankruptcy protection in New York after being hit by two of 2022’s most significant industry collapses—Genesis Global Holdco, LLC and its subsidiaries Genesis Asia Pacific Pte.
5. Nexo-SEC Settlement
- Date: January 19, 2023
- Outcome: $45 million in penalties.
On January 19, 2023, the Securities and Exchange Commission charged Nexo Capital Inc. with failing to register the offer and sale of its retail crypto asset lending product, the Earn Interest Product (EIP).
During the lawsuit, Nexo was going through massive drops due to regulatory pressure and investors’ concerns over comparison with Celsius.
Later, Nexo and the SEC came to a decision where Nexo agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to U.S. investors. In parallel actions, Nexo agreed to pay an additional $22.5 million in fines to settle similar charges by state regulatory authorities.
6. Kraken-SEC Settlement
- Date: February 9, 2023
- Outcome: $30 million penalty.
On February 9, 2023, The Securities and Exchange Commission charged Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, with failing to register the offer and sale of their crypto-asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21%.
7. CFTC Sues Binance
- Date: December 19, 2023,
- Outcome: CZ paid $150 million; Binance returned $1.35 billion plus a $1.35 billion fine.
CFTC charged Binance, and the case was filed in Federal court in Chicago. The regulator also accused Binance of not cooperating with investigative subpoenas and obscuring the location of its executive offices, and in return, Binance has rejected many of the allegations.
Key Arguments by CFTC
Tokens labeled as commodities
CZ’s phone was accessed
Terrorist activity accusations
The CFTC alleged Zhao owned and controlled dozens of entities
Ignoring U.S. regulatory requirements
Fines and injunctions
Because of the CFTC lawsuit, Binance lost almost $1.5 billion in crypto withdrawals.
Kaiko reported that due to the CFTC lawsuit, Binance lost 16% of its market shares.
Finally, on December 19, 2023, CFTC and Binance made a settlement. CZ paid $150 million, and Binance returned $1.35 billion plus a $1.35 billion fine.
8. Poloniex OFAC Settlement
- Date: May 1, 2023
- Outcome: $7.6 million settlement.
The OFAC had accused Poloniex of violating multiple sanction programs. Sanctions against Crimea, Cuba, Iran, Sudan, and Syria. Between January 2014 and November 2019. The Poloniex trading platform permitted customers located in sanctioned jurisdictions to engage in online digital asset-related transactions consisting of trades, deposits, and withdrawals with a combined value of $15,335,349, despite having reason to know their location based on both Know Your Customer information and internet protocol address data.
On May 1, 2023, Poloniex agreed to pay $7.6 million and settled charges with US authorities.
9. Insider Trading Charges at Coinbase
- Date: May 30, 2023
- Outcome: Settlements with Ishan and Nikhil Wahi.
The SEC accused Ishan and Nikhil of conspiring to commit wire fraud. Later, Ishan was sentenced to 24 months in prison and ordered to forfeit 10.97 ether and 9,440 ether, and Nikhil was sentenced to 10 months in prison and ordered to forfeit $892,500.
On May 30, 2023, The Securities and Exchange Commission announced that former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi, agreed to settle charges that they engaged in insider trading through a scheme to trade ahead of multiple announcements regarding at least nine crypto asset securities that would be made available for trading on the Coinbase platform.
10. SEC Charges Celsius Network
- Date: July 13, 2023
- Outcome: $4.7 billion fine.
July 13, 2023, The Securities and Exchange Commission charged Celsius Network Limited (Celsius) and its founder and former CEO, Alex Mashinsky, for violating registration and anti-fraud provisions of the federal securities laws, including by failing to register the offers and sales of Celsius’s crypto lending product, the Earn Interest Program.
SEC accused them of making false and misleading statements to investors of the Earn Interest Program and Celsius’s crypto asset security, CEL; and engaging in market manipulation as it relates to CEL. Celsius was one of the initial bankruptcies in the cryptocurrency industry last year as digital asset prices plummeted in response to rising interest rates and persistent inflation.
This was followed by the bankruptcy filings of Singapore-based crypto hedge fund Three Arrows Capital and fellow crypto lender Voyager Digital. On July 14, 2023, Celsius settled charges with FTC with a $4.7 billion fine.
Later on July 22, 2023, Celsius reached a settlement to exit bankruptcy.
11. BlackRock SEC Settlement
- Date: October 24, 2023
- Outcome: $2.5 million penalty.
October 24, 2023, The Securities and Exchange Commission charged BlackRock Advisors, LLC, an investment adviser, for failing to accurately describe investments in the entertainment industry that comprised a significant portion of a publicly traded fund, it advised. BlackRock agreed to pay a $2.5 million penalty to settle the charges.
These cases highlight ongoing regulatory scrutiny and enforcement actions against cryptocurrency companies and individuals for compliance violations and securities law breaches. In summary, 2023 has seen several significant legal cases and settlements in the cryptocurrency industry.
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