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Announcement in SEC v. Coinbase Litigation
What happened?
Coinbase announced that it reached an agreement with the Securities and Exchange Commission (SEC) to dismiss the enforcement action brought against it during the Gary Gensler-led SEC. If approved by a Commission vote, this action would mean a full voluntary dismissal of the SEC’s claims against Coinbase under the securities laws, with prejudice, which means the same claims could not be brought again.
Back in June 2023, the SEC brought an enforcement action against Coinbase, alleging that it operates as an unregistered securities exchange, broker, and clearing agency through its products and software. The case was purely a registration-based case as there were no allegations of fraud or wrongdoing.
In March 2024, District Judge Katherine Polk Failla in the Southern District of New York denied Coinbase’s motion for judgment on the pleadings in part, allowing the SEC’s claims to move forward as they related to the exchange, clearing agency, and offer and sale of unregistered securities claims. Judge Failla did, however, grant Coinbase’s motion to dismiss the allegation that it operated an unregistered broker through Coinbase Wallet.
What does this mean?
The SEC’s agreement to dismiss the charges against Coinbase could be a massive win for the crypto industry once approved by a Commission vote. The SEC’s case against Coinbase represented the apex of the SEC’s regulation by enforcement approach to digital assets - the SEC took aim at one of the largest industry players purely for supposed registration violations even though it had not previously released guidance on who in the industry should register as what (and even in spite of Coinbase petitioning for rulemaking).
Of note, DEF’s amicus brief in SEC v. Coinbase was cited by Judge Failla in dismissing the SEC’s false allegations that Coinbase Wallet, a noncustodial software tool, acted as a broker under the securities statutes.
The SEC Voluntarily Dismisses Appeal of Dealer Rule Lawsuit
What happened?
On February 19, the SEC filed a voluntary motion to dismiss its appeal of a district court’s decision vacating the SEC’s “Dealer Rule.” The lawsuit, originally brought by the Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT), challenged the Dealer Rule under the Administrative Procedure Act (APA).
The Dealer Rule radically expanded the definition of a “dealer” under federal securities laws, which previously only covered those who engaged in the purchase and sale of securities to customers. The vacated dealer rule, finalized last year, changed the definition to encompass anyone that “provides liquidity” to the market, inappropriately capturing various market participants as dealers, including DeFi industry participants.
In November 2024, the U.S. District Court for the Northern District of Texas held that such a drastic change to the concept of a dealer under federal law exceeded the SEC’s statutory authority, vacating the rule in full.
The SEC filed its notice of appeal on January 17, 2025. However, under the new leadership of Acting-Chairman Mark Uyeda, the SEC filed a motion to voluntarily dismiss its appeal on February 19, 2025. This means the SEC will not challenge the district court’s vacatur of the rule and ultimately marks the end of the Dealer Rule saga.
What does this mean?
The vacated rule’s broad expansion of the definition of the term “dealer” would have subjected many proprietary traders, including potentially those operating in crypto and DeFi markets, to extensive registration and compliance burdens. By voluntarily dismissing its appeal, the SEC has reaffirmed its agreement with the statutory limits on the Commission’s power. This development marks a significant victory against regulatory uncertainty, and reinforces the importance of challenging agency actions that exceed statutory limits.
Roman Storm Motion for Reconsideration Denied
What happened?
On February 19, District Judge Katherine Polk Failla of the Southern District of New York denied Roman Storm’s motion for reconsideration of his motion to dismiss the charges in the DOJ’s criminal indictment against him. Despite Storm’s argument that the Fifth Circuit’s recent ruling in Van Loon v. Treasury undercuts the government’s allegations with regard to the immutability and control of smart contracts, Judge Failla denied his motion.
In Van Loon, the Fifth Circuit held that Tornado Cash’s “immutable smart contracts … are not property because they are not capable of being owned,” and therefore OFAC exceeded its authority by sanctioning the smart contracts. A key aspect of the Fifth Circuit’s ruling was that “Tornado Cash has no control over the immutable smart contracts.”
In his motion for reconsideration, Storm argued that with regard to Counts One (conspiracy to commit money laundering), Two (conspiracy to operate an unlicensed money transmitting business), and Three (conspiracy to violate the International Emergency Economic Powers Act (IEEPA)), the Van Loon ruling should inform the court’s evaluation of the level of control that Storm had over the Tornado Cash smart contracts, and therefore its ultimate evaluation of Storm’s criminal liability under the charges. However, Judge Failla disagreed and ruled that Van Loon does not bear on the sufficiency of the government’s allegations.
With respect to Count Three specifically, the Court wrote that, “[a]t trial, the Government will bear the burden to prove that Defendant conspired with others to violate IEEPA by means of the features over which they had control. The jury, and not the Court, will decide whether the Government has met its burden.”
What does this mean?
United States v. Roman Storm will now proceed to trial. As the stakes are high for Roman Storm and DeFi developers across the country, DEF will continue to advocate for the protection of DeFi software developers and users.
UK Crypto Industry Pens Letter on DeFi Tax Rules
What happened?
On February 5, members of the United Kingdom’s crypto industry penned a letter to His Majesty’s Treasury urging the government to address the problem of inequitable treatment of DeFi transactions under UK tax laws. According to the letter, regulatory updates are necessary to reflect the nature of crypto-related transactions, specifically lending and staking transactions. UK law currently treats crypto assets differently than other securities in the case of repurchase legislation, which follows a “no gain, no loss” structure. The group argues that if this treatment were extended to crypto assets, it would be a “practical approach to making DeFi lending and staking transactions tax neutral,” and thus more accurately reflect the nature of DeFi.
As a reminder, in June 2023, DEF submitted a comment letter to His Majesty’s Revenue and Customs on the “Taxation of Decentralised Finance (DeFi) Involving the Lending and Staking of Cryptoassets.” DEF commends the call for the UK government—and all governments— to remain “tax neutral” and deliver on the promise of regulatory clarity that respects innovation decentralization in transacting.
DEF Hosts Welcome to Congress Event
Last Thursday, DEF held an event to welcome new Members to the 119th Congress. During the event, our team explained the basics of DeFi and chatted with Congressional staffers about how the 119th Congress can positively impact U.S. innovation and tech development. Above all else, we reiterated that the DeFi Education Fund is a resource for all on the Hill who have questions about DeFi, its technology, and its community. Furthermore, we distributed our newly created DeFi 101 books, which can be accessed at the link.
If you would like to connect with a member of our team to learn more or schedule a “DeFi 101” briefing, please do not hesitate to reach out.
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