Explosive Crypto Lawsuits: A Look at the Leading Crypto Settlements in 2023
The year 2023 has been a pivotal period for legal developments in the cryptocurrency and digital asset sectors. This report explores the most notable legal cases and settlements that have taken place over the past year, providing insights into the evolving landscape of regulatory enforcement and compliance in the industry. These cases underscore the growing scrutiny from 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.
On January 4, 2023, the Securities and Exchange Commission filed charges against 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 known as CoinDeal. This scheme raised over $45 million from the sale of unregistered securities to investors worldwide. CoinDeal promised investors returns of up to 12% per year through cryptocurrency trading on its alleged proprietary platform. CoinDeal shut down on February 19 and advised customers to withdraw their funds.
2. Coinbase and NYDFS Settlement
Date: January 4, 2023
Outcome: $50 million penalty; $50 million for compliance enhancement.
On January 4, 2023, the New York Department of Financial Services (NYDFS) charged cryptocurrency exchange Coinbase with $50 million for compliance violations related to anti-money laundering (AML) requirements. Coinbase also committed to investing $50 million to improve its compliance program. In the second quarter of 2023, Coinbase reported a 58% year-on-year decline in trading volume and a 17% decrease in net revenues, which was attributed to increased regulatory scrutiny from the SEC.
3. BlackRock-SEC Lawsuit
Date: January 5, 2023
Outcome: $250,000 settlement penalty.
BlackRock, the world’s largest asset manager, faced an SEC lawsuit in 2023. The SEC charged Randy Robertson, a former BlackRock Advisors portfolio manager, for failing to disclose a conflict of interest arising from his relationship with a film distribution company. BlackRock had invested millions of dollars in this company through a fund managed by Robertson. He agreed to a settlement with a $250,000 penalty.
4. SEC vs. Genesis and Gemini
Date: January 12, 2023
Outcome: Court-approved $175 million settlement.
The SEC sued Genesis Global Capital and Gemini Trust Company for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. The SEC alleged that Genesis and Gemini raised billions of dollars worth of crypto assets from hundreds of thousands of investors through these unregistered offerings. After facing creditor demands, Genesis Global Capital filed for Chapter 11 bankruptcy protection. However, on October 12, 2023, the court approved a $175 million settlement.
5. Nexo-SEC Settlement
Date: January 19, 2023
Outcome: $45 million in penalties.
The SEC charged Nexo Capital Inc. with failing to register the offer and sale of its retail crypto asset lending product, the Earn Interest Product (EIP). Nexo experienced significant drops in value due to regulatory pressure and investor concerns. Nexo agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to U.S. investors. Additionally, 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.
The SEC charged Payward Ventures, Inc. and Payward Trading Ltd., known as Kraken, with failing to register the offer and sale of their crypto-asset staking-as-a-service program. Kraken offered investors the opportunity to stake their crypto assets in exchange for advertised annual returns of up to 21%. To settle the charges, Kraken agreed to cease offering or selling securities through its staking services and programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties.
7. CFTC Sues Binance
Date: December 19, 2023
Outcome: CZ paid $150 million; Binance returned $1.35 billion plus a $1.35 billion fine.
The Commodity Futures Trading Commission (CFTC) charged Binance and filed a case in a Federal court in Chicago. The CFTC accused Binance of not cooperating with investigative subpoenas and concealing the location of its executive offices. Binance rejected many of the allegations. The CFTC claimed that tokens labeled as commodities were involved, CZ’s phone was accessed, terrorist activity accusations were made, Zhao owned and controlled multiple entities, and U.S. regulatory requirements were ignored. As a result of the lawsuit, Binance lost nearly $1.5 billion in crypto withdrawals. Kaiko reported a 16% decrease in Binance’s market shares due to the lawsuit. Eventually, on December 19, 2023, the CFTC and Binance reached 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 Office of Foreign Assets Control (OFAC) accused Poloniex of violating multiple sanction programs, including those against Crimea, Cuba, Iran, Sudan, and Syria, between January 2014 and November 2019. Poloniex allowed customers from sanctioned jurisdictions to engage in digital asset-related transactions despite having knowledge of their location. On May 1, 2023, Poloniex agreed to pay $7.6 million to settle the charges with U.S. authorities.
9. Insider Trading Charges at Coinbase
Date: May 30, 2023
Outcome: Settlements with Ishan and Nikhil Wahi.
The SEC accused Ishan and Nikhil Wahi of conspiring to commit wire fraud. Ishan was sentenced to 24 months in prison and ordered to forfeit ether, while Nikhil received a 10-month prison sentence and was ordered to forfeit a significant sum of money. The SEC alleged that the Wahi brothers engaged in insider trading by trading ahead of multiple announcements regarding crypto asset securities on the Coinbase platform.
10. SEC Charges Celsius Network
Date: July 13, 2023
Outcome: $4.7 billion fine.
On July 13, 2023, the SEC charged Celsius Network Limited and its founder and former CEO, Alex Mashinsky, for violating registration and anti-fraud provisions of the federal securities laws. Celsius Network failed to register the offers and sales of its crypto lending product, the Earn Interest Program, and made false and misleading statements to investors. Celsius Network faced financial difficulties and filed for bankruptcy, but later reached a settlement on July 22, 2023, to exit bankruptcy.
11. BlackRock SEC Settlement
Date: October 24, 2023
Outcome: $2.5 million penalty.
The SEC charged BlackRock Advisors, LLC for inaccurately describing investments in the entertainment industry that formed 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 the ongoing regulatory scrutiny and enforcement actions against cryptocurrency companies and individuals for compliance violations and securities law breaches. In summary, the cryptocurrency industry has witnessed several significant legal cases and settlements in 2023.