blockworks.co
2023 has been a tumultuous year following the late 2022 collapse of FTX and the slew of bankruptcies that happened after the UST depeg.
It’s also been a year with a lot of legal action, and we mean a lot. From bankruptcies to regulatory lawsuits to class action suits, there’s been a boat load of back and forth.
But, when looking at the most notable cases this year, only a few come to mind.
Let’s start with the most obvious ones: the Securities and Exchange Commission’s cases against Binance and Coinbase.
The suits shocked the crypto world this summer after being filed back to back. While the companies face some of the same charges, the lawsuits are inherently different.
SEC v. Binance
The regulator accused Binance of not only offering unregistered securities, but also of commingling customer funds.
The lawsuit, filed back in June, also named Binance CEO Changpeng Zhao, BAM Trading and BAM Management — the latter two entities run Binance US.
The unregistered securities claims by the SEC target BNB, Binance’s native token, and BAM Trading’s staking program.
Binance filed a motion to dismiss back in September, but the SEC pushed back against the filing earlier this month.
The defendants made the argument that the commission had failed to “plausibly” allege securities violations and that the SEC was overstepping its regulatory reach.
The SEC, in its response, said that the invocation of the major questions doctrine — a Supreme Court ruling that seeks for agencies to prove “clear congressional authorization’ for the authority it claims.”
The case, however, is ongoing.
Now, keep the overreach argument in mind for Coinbase.
SEC v. Coinbase
A mere day after the SEC targeted Binance, it unveiled another lawsuit. This time, the regulatory agency targeted Coinbase.
While some of the accusations in the Binance suit may have come as a shock, the Coinbase suit wasn’t too surprising. The US-based exchange had already received a Wells notice, which is the SEC’s warning before action is taken, earlier this year.
In fact, Coinbase had actually served the SEC with a suit prior to the SEC serving Coinbase. What goes around… it seems.
On June 6, the SEC announced that it was targeting Coinbase for alleged securities violations and accused it of operating as an unregistered exchange.
“But while paying lip service to its desire to comply with applicable laws, Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey test and well-established principles of the federal securities laws,” the SEC claimed in June.
One lawyer told Blockworks at the time that while there were similarities between the Coinbase and Binance suits, there’s a “fundamental difference” between them. That difference? Coinbase is being accused in a “straight registration violations case.”
But let’s talk about a similarity the two have, which brings us right back to the major questions doctrine.
Coinbase has also used major questions in its attempt to dismiss the suit. It’s also claimed that the regulator can’t “seize power” in regulating crypto, and therefore doesn’t have the authority it claims to bring a case against the exchange.
In its case against the SEC (not the SEC’s case against Coinbase, don’t get them confused!) Coinbase tried to push the SEC for clarity on crypto regulation. However, the SEC pushed back against it.
Similarly to the suit against Binance, this case is ongoing.
Legal woes of Celsius
Unlike the rest of the cases, Celsius didn’t face just one suit. Are you ready for some alphabet soup?
The Federal Trade Commission, SEC, Commodities and Futures Trading Commission all filed suits against Celsius, with a few naming ex-CEO Alex Mashinsky.
On the same day, the Department of Justice unsealed an indictment against Mashinsky as well.
The SEC accused both the bankrupt lender and its former CEO of unregistered and “fraudulent” crypto asset sales.
The FTC accused Celsius of duping customers into depositing crypto by claiming that deposits were safe. Spoiler alert: They weren’t.
It also announced a $4.7 billion settlement with Celsius — but not Mashinsky.
The CFTC accused Celsius of acting as an “unregistered commodity pool operator of the Celsius Pool by soliciting, accepting, and receiving assets for the purpose of trading commodity interests” and for defrauding investors.
The DOJ specifically targeted Mashinsky, and it was later revealed that they also froze his assets.
The Justice Department claims that Mashinsky “orchestrated a scheme to defraud customers of Celsius Network” alongside the former Chief Revenue Officer Roni Cohen-Pavon.
Mashinsky filed a motion to dismiss the FTC’s suit against him in September.
New York Attorney General vs. Gemini, Genesis, DCG
Say that five times fast.
Back in October, the NY AG released a “sweeping lawsuit” targeting Digital Currency Group, DCG CEO Barry Silbert, ex-Genesis CEO Michael Moro, Gemini and Genesis.
The suit claims that both Gemini and Genesis conspired to commit two schemes with the Gemini Earn product, leading to investor losses of over $1 billion in November of last year.
Oh, and also that Gemini Earn falls under the definition of an investment contract.
“The Genesis Entities, DCG, Moro, and Silbert falsely assured counterparties and the public that Genesis Capital was ‘well-capitalized’ and that DCG ‘absorbed the losses’ from the Genesis Entities,” the complaint claims.
Through this, Gemini “falsely” claimed to the public that the Genesis Capital loan book was overcollateralized, which was not the case.
Gemini used the suit as a way to show that it — alongside Earn users — were “victims of a massive fraud and systematically ‘lied to’ by these parties about ‘Genesis’s financial condition.’” It also pushed back against being named in the suit, claiming it was just a victim and was also “defrauded.”
Gemini targeted Silbert, Genesis and DCG following the fallout of the Earn program. It filed a lawsuit against Silbert and DCG earlier this year as well.
DCG, on the other hand, claimed it cooperated with the NY AG’s investigation and was “blindsided by the filing of the complaint.”
Yes, this case is also ongoing.
USA v. Sam Bankman-Fried
Alright, this isn’t technically a 2023 court case since the original charges were announced back at the end of 2022, but it’s definitely one of the biggest cases to go to trial this year, so we saved the best for last.
A panel of jurors found Bankman-Fried guilty of all seven counts of fraud as his October trial came to a close.
The trial, which lasted a month, saw former FTX insiders including Bankman-Fried’s ex-girlfriend and former inner circle take the stand and testify that, at Bankman-Fried’s urging, FTX commingled customer assets prior to its November 2022 collapse.
There were also a number of highlights from the trial, from jurors (who would later find Bankman-Fried guilty) falling asleep during testimonies, to Ellison explaining how FTX and Alameda used alleged Thai sex workers in an attempt to bribe Chinese officials.
Bankman-Fried’s courtroom days aren’t over, however, as he still faces a possible 2024 trial centered on his political donations.
At least that indictment was filed in 2023!
Bankman-Fried’s sentence remains unknown, though he has a date set earlier next year with Judge Lewis Kaplan to decide how long Bankman-Fried will remain behind bars.