I. Overview

After many months of rapid-fire crypto-related enforcement actions from the SEC, April itself only had one notable complaint, which was filed against Bittrex.  The most important development was not a complaint, but a Wells submission from Coinbase, the largest digital asset exchange in the United States.  Coinbase released publicly its lengthy Wells submission, which calls out the SEC for its own approval of Coinbase’s Form S-1 not long ago and for what Coinbase claims are faulty legal theories that the SEC would rely on if they proceed.  This battle between the SEC and well-funded Coinbase will have far reaching implications for the entire industry.

The DOJ and CFTC also had a quiet April.  Although the DOJ filed no crypto-related charges in April, it did charge Do Kwon in late March with multiple fraud charges and market manipulation relating to the collapse of LUNA/UST.  Unlike recent cases that involved coordinated filings between the SEC and DOJ, the Do Kwon indictment came more than a month after the SEC filed its charges.  The CFTC filed one complaint in April relating to alleged fraudulent solicitations of crypto and fiat investments related to a fraudulent crypto fund that never actually materialized.

II. SEC Crypto Enforcement

A. Coinbase, Inc. (March 2023)

Despite no complaint being filed yet, the first public exchange in Coinbase’s looming battle with the SEC was likely the most important April enforcement action in the crypto space.  After over 30 meetings with the SEC, Coinbase announced on March 22, 2023 that it was served with a “vague and broad” Wells Notice.  On April 19, 2023 (released publicly on April 27), the company submitted its lengthy response to the SEC, which included a 53-page written response attaching a chart of 73 “engagements” with the SEC since 2018, along with a 14-minute video summarizing the company’s position.

According to Coinbase, an SEC complaint would include claims that Coinbase is acting as an unregistered exchange and clearing agency in connection to its spot trading; acting as an unregistered broker based on its trading-related services, including providing self-custody wallet software; and offering an unregistered security in connection with Coinbase’s staking product.

Coinbase’s Wells submission focuses on three main points: 1) the SEC’s prior approval of Coinbase’s Form S-1 and the fact that Coinbase’s business has not changed much since its initial public offering; 2) the SEC’s use of untested legal theories that are foreclosed by various constitutional and equitable defenses; and 3) Coinbase’s contention that it does not list securities, in part because all sales on its platform are secondary sales that do not create a contractual relationship with any issuers.

B. Beaxy Digital, Ltd. (March 29, 2023)

The SEC filed a complaint against Beaxy Digital, Ltd., its founder Artak Hamazaspyan and a half dozen other companies in connection with their alleged unregistered private sale of the BXY token to “approximately 200 crypto asset investors,” and for operating as an unregistered exchange, broker, and dealer.

The unregistered dealer charge was made against a market maker (with financial connections to the Beaxy platform), which may have contributed to the SEC’s decision to also charge the company behind the platform itself (“Windy”) with operating as an unregistered broker.  In its broker allegations, the SEC claimed that Windy received transaction-based compensation, custodied customer funds, and solicited and recruited “investors” to the Beaxy platform via social media advertising.

As for the BXY token, the SEC alleged that offers and sales of the token were an investment contract under Howey in the following ways: 1) an investment of money from the $8M provided by 200 investors via SAFTs that were sold at discounts; 2) a common enterprise based on offering materials that said funds would be pooled and used to develop the project, and the fact that the company retained 40% of the supply, aligning their interests with investors; 3) expectations of profits based on the team telling investors that exchange tokens were the most profitable offerings in 2018 and labeling BXY as “speculative”; and 4) that these profits were derived from the efforts of others because the team tied the success of the token to the platform’s success and the team’s hiring of the market maker.

C. Bittrex, Inc., et. al. (April 17, 2023)

Just two weeks after Bittrex announced that it would be suspending activity in the United States, the SEC filed a complaint against Bittrex, Inc., Bittrex Global, and William Shihara (CEO until 2019), alleging Bittrex was acting as an unregistered national securities exchange, broker, and clearing agency.  The exchange was once a top three digital asset exchange in the United States, but its volume had dropped substantially in recent years.

The SEC claimed jurisdiction over Bittrex Global due to various alleged connections to the United States entity: 1) U.S. staff provided services to Bittrex Global via a services agreement; 2) the U.S. entity provided technology to Bittrex Global; and 3) the two entities shared a single matching engine and order book for common assets.

In the complaint, the SEC named six new crypto tokens that it claims are securities: Algorand (ALGO), Omise Go (OMG), Dash (DASH), Tokencard (TKN), i-House Token (IHT), and Naga (NGC).  These tokens represent a wide variety of mechanisms and fact patterns, with the DASH token being the most notable given its similarities to Bitcoin’s distribution and its categorization by the Crypto Rating Council as having the least risk of being a security (along with tokens like Bitcoin and DAI).

Also of note in the complaint are allegations that the Bittrex team made requests for issuers to remove language from documentation that could raise red flags with the SEC, which the team allegedly referred to as “problematic statement cleanup.”  The SEC included some examples in its complaint, including one where an employee at Bittrex asked if the token team had “scrub[bed] the docs of investment related terms,” but that was also included with a request for a legal memo on whether the token was a security.

On May 8, 2023, just three weeks after being charged by the SEC, Bittrex sought bankruptcy protection for its U.S.-based operations.  The company blamed a lack of clarity in the U.S. regulatory regime, saying it created “a substantial negative economic impact on the digital asset industry and resulted in . . . soaring regulatory costs.”

III. DOJ Crypto Enforcement Actions

A. Do Hyeong Kwon a/k/a Do Kwon (S.D.N.Y. March 23, 2023)

One month after the SEC’s action against Do Kwon and Terraform Labs Pte Ltd. related to the collapse of LUNA/UST, the DOJ filed an indictment against Do Kwon for allegedly defrauding purchasers of LUNA and UST by deceiving them about various aspects of the blockchain underlying the Terra ecosystem.  The charges include conspiracy to defraud, commodities fraud, securities fraud, wire fraud, and conspiracy to defraud and engage in market manipulation.

The S.D.N.Y. indictment is light on facts, but alleges the following overt acts by Do Kwon in furtherance of the various fraud charges: 1) false and misleading statements during a TV interview and on social media “about the extent to which the Terra blockchain had been adopted by users”; 2) offering to compensate an unnamed firm “for their assistance in altering the market price of UST”; and 3) posting on social media and providing in an interview a “false and misleading statement about the effectiveness and sustainability of the algorithmic mechanism that ensured the stability of UST’s price.”

IV. CFTC Enforcement Actions

A. Rashawn Russell (April 11, 2023)

The CFTC filed this enforcement action in E.D.N.Y, charging Russell with fraudulently soliciting retail investments in a digital asset trading fund and then using at least $1 million of the funds raised for his personal use.  The complaint alleges that, from late-to-mid 2022, Russell received investments of Bitcoin, Ether, and fiat while guaranteeing no losses for investors, paired with promises of minimum returns of 25%.  Almost none of the actual funds received were traded and Russell allegedly used the money to pay for personal expenses, gambling activities, and to provide payments to investors who wanted to withdraw funds.

A few days earlier, on April 6, 2023, Russell was also indicted by DOJ on one count of wire fraud related to the same conduct.


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For more discussion and analysis of developments regarding enforcement actions see our other posts:


Winston M. Paes is a litigation partner and a member of the White Collar and Regulatory Defense Group. He can be reached at wmpaes@debevoise.com


Ben Leb is an associate in the Litigation Department. He can be reached at bjleb@debevoise.com.


Ben Stadler is an associate in the Litigation Department. He can be reached at bstadler@debevoise.com.