SEC enforcement pivot: from litigation to regulatory clarity

The SEC issued a Wells Notice to Coinbase on March 22, 2023, regarding potential violations related to its staking service. This action followed the February 9, 2023, charge against Kraken, which paid $30 million in disgorgement and civil penalties for its staking program. While Gary Gensler maintained that most crypto assets remain securities, the July 13, 2023, Ripple ruling changed the legal landscape. Judge Analisa Torres found that XRP itself does not constitute a security, though she ruled that institutional sales involving XRP did meet the Howey Test requirements. This decision distinguished programmatic sales from institutional ones because programmatic buyers lacked direct profit expectations from Ripple’s efforts. After the court imposed a $125 million penalty on Ripple in August 2024, it denied the SEC’s request for disgorgement. The SEC appealed this decision in October 2024 to challenge the ruling on programmatic sales, as the lawsuit against Ripple focused on whether historical sales of XRP were unregistered securities offerings totaling $1.3 billion. This legal battle unfolded as Coinbase faced a June 2023 lawsuit from the SEC for acting as an unregistered broker. Coinbase also faces a class action lawsuit regarding misrepresentations about regulatory risks during its 2021 direct listing. I find the agency’s previous approach to be an aggressive attempt to regulate through litigation rather than through clear rules.

The regulatory environment shifted when the second Trump administration took office in January 2025. Paul Atkins, the current Chair, prioritizes regulatory clarity through his Spring 2025 agenda, which includes proposed rules for the offer and sale of crypto assets. The agency withdrew several enforcement items from the previous administration and dismissed its lawsuit against Coinbase on February 27, 2025. Acting Chair Mark Uyeda, who led the agency from January to April 2025, stated that these withdrawals served to protect the agency’s credibility as it prepared for a 180-degree change in rulemaking.

The shift follows significant political influence, as the crypto sector spent $250 million in the 2024 election cycle. Reports from The New York Times show the SEC paused or dropped approximately 60% of crypto cases since the new administration began. On January 23, 2025, the SEC issued Staff Accounting Bulletin 122 to rescind SAB 121, which previously required firms to list crypto custody obligations as liabilities. On February 19, 2025, the SEC also filed to voluntarily dismiss its appeal of a court decision that vacated its expanded definitions of dealer and government securities dealer. The industry’s political involvement included contributions from Ripple and venture capital firm Andreessen Horowitz to boost crypto-oriented candidates. You should recognize that the regulatory pendulum swings heavily between enforcement and clarity.

The agency issued an interpretive rule in 2026 that establishes a taxonomy for digital assets. This rule divides assets into five categories: digital commodities, digital collectibles, digital tools, stablecoins, and tokenized securities. Because this rule is interpretive, it lacks the force of law and does not require the notice-and-comment process used for legislative rules. This distinction allows the agency to explain its understanding of existing statutory provisions without binding itself to permanent mandates. The new approach gives the industry clarity over the next 30 months, though the CLARITY Act remains a matter of legislative debate. The SEC and CFTC recently released a joint statement opening the door to spot crypto on U.S.-regulated exchanges. This follows the launch of Project Crypto by Paul Atkins to modernize securities rules. The agency’s taxonomy aims to provide certainty after years of legal battles over whether staking assets constitutes a security. Coinbase donated $70.5 million to the Fairshake super PAC during the 2023-2024 cycle to support pro-crypto candidates. If the agency continues to drop high-profile litigation, will it eventually lose its ability to police the market against fraud?