Eyes on the SEC: Retaliations, a crypto caveat emptor, and revolving doors
"Now the house is falling down. The things that you thought would always be there are crumbling."
“The business lobby has, for all of these years, operated on a false assumption. They believed that they could slowly strip away the foundations of the House of Democracy for a quick buck, without the house ever falling down. Wrong. Wrong, mighty business geniuses! Now the house is falling down. The things that you thought would always be there are crumbling. And you are going to be homeless, with all the rest of us. And we are going to eat you. And we are going to laugh and laugh. All your tax cuts have bought you this. I hope it was worth it.” How Things Work, Hamilton Nolan
On November 6, 2024, the day after the U.S. Presidential election, Bruce Carton hosted the Washington DC version of his perennial Securities Enforcement Forum. I wrote up several of the panels, which were mostly focused on what will happen next at the SEC, given the election of Donald Trump to a non-sequential second term beginning January 20, 2025.
At the time of the November conference, no one knew who Trump would propose to be the next SEC Chair. When that was announced, I wrote about another case that was brought up frequently on Nov. 6 and about Trump's SEC choice, Paul Atkins.
As has been reported in many places, it did not take long after Trump was sworn in on Jan. 20 for the tsunami of executive orders and appointments to have their desired chaos effect, including at the SEC. Paul Atkins has not yet received Senate confirmation — the hearing has not even been scheduled yet — but the SEC joint is jumping in anticipation.
Dave Michaels at the WSJ wrote on Feb. 5:
SEC Ousts Top Litigator Who Battled With Crypto Giants
The agency reassigned its head of litigation to a job in its IT office
WASHINGTON—The Securities and Exchange Commission is so eager to bury its conflict with the crypto market that it moved its top litigator to an office that maintains the agency’s computer systems.
The agency last week transferred Jorge Tenreiro, who had overseen a half-dozen lawsuits against crypto exchanges and other platforms that were critical for deciding the reach of the SEC’s authority over the volatile market. The commission also reassigned a lawyer who was involved in writing controversial accounting guidance that made it hard for banks to safeguard crypto for clients.
An SEC spokeswoman declined to comment on the reassignments.
The commission is looking to make peace with crypto firms after some of the biggest exchanges poured millions into super political-action committees that helped elect lawmakers friendlier to the industry. President Trump is a major backer of crypto and last month sold his own digital token that has a market value of about $3.5 billion.
Trump embraced crypto during his most recent run for the White House and many crypto executives backed his election. Trump issued an executive order on Jan. 23 that called for a new regulatory framework for crypto.
Jobs such as the one Tenreiro held aren’t political appointments and don’t tend to turn over when a new administration takes office. The commission, now under Republican control, moved him to a role in the agency’s office of information technology, people familiar with the matter said.
Tenreiro was the key man for a litigation strategy that was hatched under former Chair Gary Gensler. The SEC wagered that courts would find many crypto assets were sold illegally because they didn’t comply with investor-protection laws...Tenreiro’s work on crypto dates to the first Trump administration, when the agency cracked down on a boom in public sales of cryptocurrencies, many of which involved fraud. Trump’s SEC chairman at the time, Jay Clayton, said most coin offerings qualified as securities and criticized the market for neglecting to follow investor-protection rules.
Under Gensler, who succeeded Clayton, Tenreiro rose to run the agency’s special crypto-enforcement unit. A top enforcement official promoted him in December to be the agency’s head of litigation.
Eight days after the inauguration, on January 28, 2025, Bruce Carton hosted an inaugural New York edition of the Securities Enforcement Forum. I was invited to cover it and did so virtually.
Jorge Tenreiro was a panelist for the segment entitled, "Digital Assets and Cryptocurrency: Key Developments in Regulation, Enforcement and Litigation," held right after lunch. Tenreiro gave the usual SEC disclaimer as an active government employee, then provided a detailed update and status on the cases he had worked on most recently.
So yeah, we've been busy for the last several years. It's certainly been an exciting and interesting time, as you mentioned, Jennifer, for the reasons you outlined.
I think the agency put out or the division put out some sort of press release about how many cases they did or we did in the first quarter of 2025, year 25. And that was true in the crypto space as well. In December right before what was gonna be a potential government shutdown — does everyone remember that one? — we announced a settlement with an entity known as Jump Crypto or Jump Trading I mean, it's the parent company, where they agreed to pay $123 million to the SEC in connection with the Terraform collapse, which was discussed at some length earlier.
So there was that, and essentially you, you know, you can read the order, but we allege that, Jump essentially was involved and the scheme to sort of prop up the stablecoin and other allegations.
So, another large crypto settlement. This month, a couple weeks ago before the turnover in administration, there was a settlement I'd like to consider something called crypto-adjacent to crypto firm, known as DCG. DCG was charged by the Commission with a negligence based fraudulent scheme, with respect to the collapse of the Genesis earn program. I say crypto adjacent because at issue that particular case was not any token or whatever, which generates typically more interest or maybe more controversy.
Those are the settled cases. Yeah, there's been a lot of activity.
Tenreiro also discussed the Ripple case and the Coinbase cases. Later in the panel he discussed the new Crypto Task Force led by Commissioner Hester Peirce. Based on his tone, it seems like he thought he would be involved.
Sure. Yeah. So after a flurry of press releases that I was referencing earlier to close out the Gensler years, there's been, if you go on our website right now, there's been three press releases issued by the SEC. One announcing the naming of acting chairman Uyeda. The last one where he named some of the senior staff for Enforcement, others areas.
And the only other one is on the task force. <laugh> So that goes to show, I think, where maybe the priorities are, right? So, the task force was announced either that Monday or maybe Tuesday. Yeah, I have it here.
So, as the, as the name sort of suggests — I mean, they call it SEC Crypto 2.0, right — it's a, I guess the idea is sort of like a resetter and "let's see what are we gonna do now?" I don't wanna stray too far from the document because it's new, understandable. But, you know, it sort of suggests that the SEC's gonna take a look — it named some staff — and then it suggests that the SEC's gonna take a look at, you know, helping draw a clearer regulatory line. Providing paths to registration.
And, I guess the part that affects my life the most, deploy enforcement resources judiciously, right? So, maybe a rethinking of enforcement. I've heard folks on this panel speculate as to what might that look like. The task force announcement itself doesn't get into any of that.
Yeah, Jorge, you know, the devil is in the details.
You can listen for yourself here.
Speaking of SEC Commissioner Hester Peirce...
On Feb. 4 she issued a statement entitled, "The Journey Begins."
The purpose of the statement seems to be to outline the goals and objectives of the new crypto task force, but she can't help slamming her previous colleagues but then hinting that the road ahead may be littered with giant potholes:
The crypto road trip on which the newly announced Crypto Task Force[1] has embarked likewise should be more enjoyable and less risky than the crypto road trip the Commission has taken the industry on for the last decade. On that last trip, the Commission refused to use regulatory tools at its disposal and incessantly slammed on the enforcement brakes as it lurched along a meandering route with a destination not discernible to anyone.
But just as modern technology does not eliminate the risks of taking to the open road, this new journey toward regulatory clarity still presents dangers, and both the Commission and the public need to stay alert and aware of the risks and opportunities that may lie ahead.
She also nods to her "Crypto Mom" moniker and provides a solid reminder of her Libertarian philosophy:
Sixth, the new commitment to a better regulatory environment should not be viewed as an endorsement of any crypto coin or token. Regardless of whether those tokens or coins fall within our jurisdiction, the Commission never endorses any product or service; there is no such thing as an SEC seal of approval.
Spinning up coins and tokens is easy. If people want to buy a token or product that lacks a clear long-term value proposition, they should feel free to but should not be surprised if someday the price drops. In this country, people generally have a right to make decisions for themselves, but the counterpart to that wonderful American liberty is the equally wonderful American expectation that people must decide for themselves, not look to Mama Government to tell them what to do or not to do, nor to bail them out when they do something that turns out badly.
This abdication of responsibility for opening the gates when the cows have been clamoring to get out, despite the fact that what most often lies on the other side of the fence is a slaughterhouse, starkly contrasts to what we recently heard from the father of modern monetary theory, Nobel Prize winner Gene Fama, who also considers himself a Libertarian.
Bethany McLean: If you ran the world, what would you advise the government to do about crypto? You could argue, let it become whatever it wants. Government, get out of the way. Is that the right approach from a free-market theory? Let it crash and burn on its own, or let it do whatever it’s going to do and just step back from any kind of attempt to regulate it?
Eugene F. Fama: Sure. But if it does blow up, you can predict the people who invested in it are going to go running to the government.
Bethany: Yeah.
Eugene F. Fama: Are they going to ask to be bailed out for that? But you know they’re going to go run to the government, and then the government’s going to impose all kinds of rules. I predict that’s what’s going to happen at some point, but we’ll see.
Bethany: I would, too, and I’d predict that they go running asking for a bailout. Does that mean that the government should put rules on it in advance, given that the likelihood that this . . . I don’t know what the likelihood of it crashing is, but the likelihood of people—
Eugene F. Fama: That’s a good question. If you’re a libertarian, though, the way I am, you say the government should never do anything, but if the government’s going to do something after the fact, then you have to solve it backwards and decide what you’re going to do before the fact to minimize the cost of doing that.
I don’t know what that is at this point. Does that mean, instead of imposing rules on Bitcoin and how it’s traded, that the people who run these exchanges have to show up front what they’re doing? Maybe that’s the direction you’ll have to go with.
Fama also predicts Bitcoin is going to zero in the next ten years but, in a case of "IBGYBG", he says he won't be around to know if his prediction is correct.
Bethany McLean: I think right now Bitcoin has a $2 trillion market cap. It’s the seventh most valuable asset in the world. Would you be willing to call it a bubble?
Eugene F. Fama: I can’t predict when it will bust. I’m hoping it will bust, but I can’t predict it. I’m hoping it will bust because if it doesn’t, we have to start all over with monetary theory. It’s gone. It might be gone already, but you have to start all over.
Luigi Zingales: I know that our colleagues actually took a bunch of bets a couple of years ago about the long term. Let’s make a long-term bet. What probability would you attribute that within 10 years, the value of Bitcoin will go to zero?
Eugene F. Fama: I would say it’s close to one. I still believe in monetary theory, though. I may be wrong.
Luigi: I understand. My next question is, what degree of confidence do you have in that prediction?
Eugene F. Fama: That’s a different question entirely.
Luigi: I know.
Eugene F. Fama: The distribution has a long tail. It’s very flat.
Bethany: Is there something that would make you say: “OK, the moment has come. We have to scrap all of monetary theory and start again”?
Eugene F. Fama: Luigi made me put a term limit on it. I’d take 10 years because I’m 86 years old. The likelihood that I’m going to have to pay up on this one is pretty low.
You can watch/listen to the whole thing here.
After the jump, I get into some detail about another panel at the New York edition of the Securities Enforcement Forum, one where I heard some really frank things that are usually spoken about only behind closed doors, between confidants, not openly in a forum covered by media.
Also, I tell you about one of SEC enforcement lawyers’ favorite words.