The U.S. Securities and Exchange Commission (SEC), led by its Chair, Gary Gensler, has maintained a tough stance on crypto regulation. As per cryptocurrency regulation, stakeholders often disagree with Gensler’s approach and stance.
Over the years, this has led to legal battles to seek clarity on asset categorization. One such case involves Rivetz, the mobile crypto wallet. In a recent update, U.S. District Judge Mark Mastroianni favored the regulatory body.
SEC Scores Significant Victory Over Rivetz
The SEC filed legal action against the now-defunct Rivetz in 2021. The SEC said the firm sold unregistered securities in 2017, violating the Securities Act.
Specifically, the regulator cited Sections 5(a) and 5(c) of the Securities Act 1933. Rivetz had, in 2017, conducted an Initial Coin Offering (ICO) of $18 million to raise money for the crypto project.
The Gensler-led SEC maintained in its filing that Rivetz’s CEO personally promoted the $18 million ICO. It stated that CEO Steven Sprague’s promotion of the ICO in the United States without a prior registration statement breached the Securities Act.
In a notable ruling, Judge Mastroianni approved the SEC’s motion for summary judgment. That is, the court ruled based on evidence without trial.
Based on the judge’s ruling, Sprague has until Cot. 22 to file a proposed judgment for ‘injunctive and monetary relief.’ Judge Mastroianni also ruled that Sprague may file objections to the judgment no later than Nov. 5, 2024.
Besides offering unregistered securities, the ICO proceeds were also reportedly misused. According to the allegations, the founder received $1 million as a bonus. He also got an additional $2.5 million loan to purchase property in the Cayman Islands.
Rivetz, a blockchain security company, provided advanced cybersecurity solutions for mobile devices with cryptocurrency wallets. The company’s model involved integrating advanced hardware-level security mechanisms to secure mobile wallets. Despite this unique feature, it struggled to gain traction in the crypto market.
US SEC’s Broader Legal Battles in the Crypto Space
The ruling by Judge Mastroianni, which favored the SEC, is among the many legal battles the regulatory body has faced against crypto entities. For instance, the SEC has been in a four-year legal battle against Ripple. The SEC sought a $2 billion fine from Ripple for violating federal securities laws.
The regulatory body claimed that Ripple sold XRP directly to institutional clients. However, in a significant ruling, Federal Judge Analisa Torres decided that Ripple should only pay $125 million in fines with an injunction against future violations.
Although the fine is more than 12 times the amount ($10 million) Ripple argued for, it is hugely insignificant to the SEC’s $2 billion proposal. Many consider this a major win for Ripple against the SEC.
Crypto exchanges Binance and Coinbase also have battles with the SEC. In 2023, the SEC sued Binance Holdings Limited and its founder, Changpeng ‘CZ’ Zhao, for operating as an unlicensed securities exchange in the U.S.
The regulatory body also brought an enforcement action against Coinbase, alleging the firm acted as an unregistered broker. In its defense, the exchange argues that the SEC was inconsistent and lacked transparency in cryptocurrency-related actions.
Political Pressure and the Future of Crypto Regulation
As the race to the White House intensifies, both the Republican and Democratic parties have tried to woo voters from the crypto community. Political analysts believe cryptocurrency may be pivotal in the November election.
It is not surprising that lawmakers have recently grilled SEC Chair Gary Gensler in Congress. Wyoming Senator Cynthia Lummis, a long-time advocate for digital assets, has also openly criticized and called out Gensler. Lummis claimed the SEC stifled innovation and did not provide clear, proactive guidance in its regulatory oversight of the crypto space.
Industry experts say the intense focus on Gary Gensler may cause the SEC to soften its stance not to ruffle more feathers in the crypto ecosystem. It remains to be seen how pending cases between the SEC and different crypto entities will turn out.
