Ethan Ostroff, Alexandra Barrage, Joanna Cline, and Jay Dubow discuss the evolving landscape of the SEC's enforcement actions involving cryptocurrencies.
In this episode of Crypto Exchange, Ethan Ostroff and Alexandra Barrage are joined by partners Joanna Cline and Jay Dubow to discuss the evolving landscape of the SEC's enforcement actions involving cryptocurrencies.
The episode highlights the demand for clear regulatory guidelines in the digital asset space, particularly regarding the classification of tokens and cryptocurrencies as securities. The recent establishment of the SEC's cryptocurrency task force and public statements from key figures, including SEC commissioners and the newly nominated SEC chair Paul Atkins, signal a potential shift in regulatory approach.
The discussion covers the SEC's historical reliance on enforcement actions, the impact of recent administrative changes, and the anticipated role of the task force in providing a comprehensive regulatory framework.
Additionally, the episode explores the broader implications of these developments, including potential legislative recommendations and the interplay between various regulatory bodies.
The Crypto Exchange Podcast — Navigating 2025: The SEC's Evolving Role in Cryptocurrency Enforcement
Hosts: Ethan Ostroff and Alexandra Barrage
Guests: Joanna Cline and Jay Dubow
Ethan Ostroff:
Welcome to another episode of The Crypto Exchange, a Troutman Pepper Locke podcast, focusing on the world of digital assets. I'm Ethan Ostroff, a partner at Troutman Pepper Locke and a co-host to the podcast, along with Alexandra Barrage.
Before we jump into today's episode, let me remind you to visit and subscribe to our blogs, ConsumerFinancialServicesLawMonitor.com and TroutmanFinancialServices.com. Don't forget to check out our other podcast on troutman.com/podcasts.
Today, Alex and I are joined by our partners, Joanna Cline and Jay Dubow to discuss the current status and development in the SEC's enforcement cases involving cryptocurrencies. Including the impact of DOGE’s efforts on SEC and cryptocurrency enforcement, and the overall effectiveness of the SEC's enforcement of security law violations related to cryptocurrencies.
Alex, Joanna, and Jay, thank you for joining today. Look forward to this discussion. I think my thought was to take a higher-level step back here, and everyone can acknowledge there's been a demand for clear guidelines that's been recurring in the digital asset space here, in particular as it relates to whether or not a particular token or cryptocurrency is a security, and how that has been playing out in the context of enforcement actions brought by the FCC.
But we seem to have, in many respects, found ourselves in a new dawn over the past, approximately, six weeks. We've got this context of the recent launch by the SEC of a cryptocurrency task force, public statements regarding cryptocurrency regulation by current SEC commissioners and Paul Atkins, who's been nominated to become the chair of the SEC, as well as all these other activities, and statements by the White House, and lawmakers on Capitol Hill, and other regulators. So, I thought, Alex, maybe we could just talk a little bit at the beginning about higher level. What are we expecting now in this ecosystem and what are your thoughts about it?
Alexandra Barrage:
Thank you very much, Ethan. It's a pleasure to be here, co-hosting with you, and here with Jay and Joanna. I'm Alex Barrage, this is the first time I've co-hosted a podcast. For those of you who don't know me, I'm a partner at Troutman Pepper Locke. My focus is on core bank regulatory work, work with banks of all sizes, FinTechs of all sizes, crypto companies. And I'm always fascinated to learn more about the market regulators side of things. I come from the banking regulator side. I was formerly at the FDIC for seven and a half years. So, it's a pleasure to be here.
I liked your frame, Ethan, about the recent change in administration and all of the different things that are happening in a pretty rapid pace. We've seen meaningful shifts in crypto policy. David Sacks was recently appointed czar of crypto and AI, new leadership at the SEC with Paul Atkins. The SEC has repurposed its crypto and cyber unit. SEC Commissioner Hester Peirce wants to get input from the public on key aspects of crypto clarity. There have been a number of heavily litigated cases during the Biden administration, involving various crypto companies, that at least, over the past few days, it's been reported maybe going away, terminating. So, it's just a lot happening.
One of the things that we're going to learn more about from Joanna and Jay is what's happening at the SEC with respect to crypto on a whole bunch of different topics. Whether it's enforcement, or the task force, or even some potential rulemaking. So really, interested to hear about those developments, and I think I'll turn it over to Jay.
Jay Dubow:
Thank you very much and glad to join this podcast today. I'm Jay Dubow. I am a partner in our white-collar group in the Philadelphia office. I also co-chair our securities, investigations, and enforcement group. I began my legal career at the SEC in the Division of Enforcement in Washington, D.C. After being a staff attorney, I became a branch chief.
Today, we're looking at, as noted, a rapidly changing environment involving government generally, involving the SEC, and crypto. We're going to talk today a little bit about those changes. Before this is finished, there'll be, I'm sure, additional changes that we won't even know about, but we're going to focus on enforcement actions that have been previously brought. Not only by the prior Biden administration, but even the first Trump administration. The Ripple case actually was brought under Chairman Clayton, who was appointed by President Trump in his first term. We'll also talk about the task force at the SEC, as well as the potential for rulemaking down the road.
Ethan Ostroff:
It seems like, from my perspective, the SEC has relied on enforcement actions rather than clear guidelines to regulate this ecosystem for years. I mean, going back to the first enforcement action in 2013, I think there's been something over 200 cryptocurrency-related enforcement actions since then. I guess, when we talk about what's happened with the SEC's enforcement cases involving cryptocurrencies now, one thing I'm interested is, we got this decision from the Third Circuit in early 2025, that ordered the SEC to explain how and when securities laws applied to cryptocurrency.
So, Jay, Joanna, I mean, what are you all thinking about how that case sits now and what we might expect, if anything from it, given this shift in what's going on in Washington? And what are some of the other things that you all are seeing in the context of the SEC's enforcement cases?
Joanna Cline:
Yes. Thanks, Ethan. This is Joanna. So, I'm Joanna Cline, I'm the head of Troutman Pepper Locke's Delaware office, and I'm a business litigator. So, I'm looking at these issues with more of an eye toward 10b-5 actions, as well as derivative spin-off cases that might get filed down the road in Delaware. But in terms of what's making waves out there, getting our attention, the coin-based litigation was really interesting. As you know, it was sort of proceeding on two tracks. So, we had the SEC enforcement action pending in the Second Circuit. The basis of which was, cryptocurrency tokens are securities. So, the platforms on which they trade are illegal unless they register as securities exchanges. So, we had that enforcement action going on, and then, parallel, you had Coinbase's own action to compel the SEC to write rules to clarify the regulatory landscape.
That battle eventually worked its way to the Third Circuit, as you mentioned, Ethan. The court found that the SEC's explanation for denying the rulemaking petition was not sufficiently reasonable, and it remanded the case down to the SEC to provide further explanation. That's where the thing stood, until about last week when the SEC apparently agreed to drop its lawsuit against Coinbase that had been pending in the Second Circuit. So, you've got what seems to be a market shift in the government kind of backing off the enforcement action side of things and waiting for the regulatory process to unfold.
Ethan Ostroff:
Do you guys have any thoughts about what might happen now that the case has been remanded back to the SEC? I mean, is this just sort of get folded back into the larger activities by the SEC, and the activities of the task force, and the request for information that just come out? Is that how we expect that to play out, but perhaps nothing formal? Or would we expect to see something formally come out of the SEC following that remand?
Jay Dubow:
I would expect that this will be the so-called official response, will be part of what the SEC is doing overall with the task force. That's going to be an effort across the agency. And not just the agency itself, I think it's broader than that. As you know, President Trump issued an executive order on January 23rd of this year relating to digital assets. As part of that, formed a working group, and that working group is across agency. It includes the SEC, and the CFTC, and other agencies. That is also looking at digital assets, and regulations, and the SEC's task force is really – will be part of that. I think it's not just limited as far as regulation at the federal level to the SEC. There's other agencies that are potentially involved, and that's going to be worked out as part of that working group. But certainly, the SEC's task force will weigh in and provide input.
Alexandra Barrage:
Jay, what do you think might be the interaction, if any, between the SEC's task force, which will clearly address crypto in some way, and the broader work that's being done through David Sacks, the czar that was appointed by the president to deal with crypto and AI, and the various entities that feed into that working group? Basically, there's a task force and a working group, and they've got overlapping remit. What's your best guess for how they might interact, if at all?
Jay Dubow:
I mean, I think there's going to be clearly a unified working to – they're going to work together so the parts fit. Part of the problem with crypto regulation has been a lack of clarity in which agency even has regulatory of control over certain of these assets. So, I think it's part of the working group that the task force is overseeing. I think at the conclusion of that, I would expect there will be recommendations perhaps for legislation, and which agencies should be regulating these assets, and other similar type of assets. But the SEC's task force and the work that it's doing, I would expect to have a large role in providing information and its thoughts on the regulation overall.
Ethan Ostroff:
To me, one of the interesting things here, like leading up to this, what I sort of generally refer to as a paradigm shift is, you had the SEC saying, "These are securities." You had the CFTC saying, "These are commodities." Then, you had the CFPB sticking its toe in the water as well saying, "Hey, these are funds. These are funds under EFTA." So, you had these competing jurisdictional battles with seemingly, the teeth of the CFPB being pulled out, and turn over in the commissioners at the CFTC and the SEC. I wonder if that turf war will sort of dissipate away. Although, you know, obviously, everyone's watching curiously to see how it gets resolved. Because at a high level, the SEC seems to be unwinding all of its policies and practices that really defined it in the previous administration under former SEC chair, Gensler, in particular, like not just with digital assets, but in particular, with regarding to digital assets, there's been this dramatic shift.
We've had all of these enforcement actions apparently going away. That's what the public reports are, that these major enforcement actions, and some of them obviously involve getting SEC approval, right? Commissioner approval. But they seem to be going away, so you have this retreat from that. Then, you have other big, major cryptocurrency platforms who have publicly said, effectively, the SEC is closing its investigations after having issued Wells notices, so that they seem to be walking away from not just investigations, but also the enforcement actions. Then, most recently, I think, within like, I think it was on February 20th, we had the SEC voluntarily dismisses appeal of the decisions down in the Northern District of Texas to vacate a couple of rules that had to do with defining dealer and government securities dealer that had caused a lot of consternation. My recollection is, it was the same day that they announced they were dropping that appeal that we had the announcement of the task force.
What if anything, or do you all think about what we're expected to see next? And perhaps, you might talk a little specifically about the cryptocurrency task force and what its mission is.
Joanna Cline:
It seems like folks are just hitting the pause button or the reset button, I guess, I would say. The mission of the task force is to establish a comprehensive and clear regulatory framework. I'm sure we'll all be waiting to see something comprehensive and clear. But the idea, obviously, is to get the clarity that had been lacking. As you described, Ethan, this landscape that was sort of a patchwork quilt of enforcement actions wasn't really user friendly, and didn't promote predictability and things like that.
Historically, the SEC had relied on this patchwork quilt of enforcement actions to regulate the digital asset industry. Their case specific determinations of whether the digital assets in question meant the so-called Howey test for a definition of a security. So, there was little predictability and a lot of confusion over sort of what the guideposts were. The idea behind the task force is to clarify the extent to which the securities law applies. Some of the milestones include the status of different types of crypto assets rather than treating them all the same.
To define, I think as Jay alluded to, the SEC's jurisdiction with a little more clarity. To provide guidelines for compliance for all sorts of different programs and products. They use the word experiment to do some cross-border experimentation, jus – we all know where this is going with a little more fluency around the world than to start experimenting on that, and doing some thought leadership there.
Jay Dubow:
If I could add to that, and Commissioner Hester Peirce who's chairing this task force on February 21st, made an announcement that they're inviting the public to provide comment to them regarding crypto assets and blockchain technology. As part of that, there's over 100 questions across 48-numbered paragraphs, there are a lot of topics. I'm not going to go over all of those. But the real topics are sort of based in four categories. One is crypto assets that are securities. The second is crypto assets that are offered and sold as part of an investment contract, a security, but the crypto asset is not itself a security. Also, tokenized securities, and then, all other crypto assets, which are not securities.
I think part of this task force, and the efforts that are going to be made in terms of how the SEC is going to approach this can be gleaned from the dissent that the two republican commissioners had issued on a number of these enforcement actions when they were brought during the last administration. Which the view was that, this was in large part regulation by enforcement rather in regulation by drafting and creating regulation.
I think when you look through this, you have the regulators under Gensler were filing enforcement actions based on, in large part, a statute that was enacted in 1933 to try to govern an asset class that is wholly unique and evolving in today's society. They just – it's a round peg trying to fit in a square hole. That's a large part of what this task force is looking for, has come up with rules, and fair rules that everyone understands, not old rules, and say, "Aha, you violated them based on the way your asset is." So, that's why all these cases are being either paused or dismissed, that we keep seeing almost every day, new ones about major cryptocurrency enforcement actions.
Ethan Ostroff:
Let me ask you this. How unusual is it for one of the commissioners, like espousing her own views, in this instance about questions, and saying things like, in this press, this is not a roadmap to actions. It doesn't necessarily signal this is the direction the staff will take. But she, as one commissioner, issues this sort of public request and also invited people to submit request for meetings as well, to discuss things. Is that unusual? I mean, this is not like a normal sort of request for information, right?
Jay Dubow:
It's certainly unusual. I don't think it's unprecedented in terms of getting input from the public and from the industry about how regulations should be drafted. I think, this is certainly broader and larger in scope in terms of what it's seeking. When you say one commissioner, I don't know, but I would suspect that Commissioner Peirce has discussed that with acting Chair Uyeda. Also, it wouldn't surprise me if nominated Chair Atkins has been sort of in discussions about this as well.
Alexandra Barrage:
I have a question, and it's related to this idea of both the task force, the dissents that have come out publicly during the Biden administration from Uyeda and Peirce. I remember back in 2023, I worked with my former colleague on a blog related to the SEC's proposal on custody, custody rule proposal, which had real implications for crypto. I'd be curious, first, what do you think is the fate of this proposal? I'm not aware that it's going to be taken up. Maybe I'm wrong about that, you guys will tell me. Do you think the task force is going to look at, as a general matter, the outstanding proposals that are out there consistent with the EO that we saw early in the Trump 2 administration, and just get these rule makings off the calendar? How do you think about that?
Jay Dubow:
I mean, I think they're going to look at everything. That's why the request for information is over 100 questions, lots of topics. I think they're trying to really do an overall policy relating to cryptocurrencies, and crypto assets, and blockchain that isn't just piecemeal. So, I think everything is on the table, and I think there's going to be a strong effort to come up with a very broad-based policy that would apply, you know, broadly as possible.
Again, I don't think at the end, it's going to be limited to just the SEC as we talked about the working group. I think there's going to be – some of this may be in the form of recommendations for legislation. Because as we all know, a rule by one SEC can be changed in the next SEC. It's much easier if you have statutory changes at a congressional level that would have longer-lasting impact.
Ethan Ostroff:
That's interesting. I'm also curious, do you all have any thoughts about the efforts of DOGE on the hill and with regulators impacting the SEC and cryptocurrency enforcement?
Jay Dubow:
Yes, I do. It's clearly going to impact everything that the SEC does in a number of ways. There's an overall effort to reduce the size of the federal government. So, to the extent that there are reductions at the SEC, and in the enforcement division, that will impact the number of investigations that it can do. If the examinations group is reduced in size, that could reduce the number of examinations of funds that are done or reduce the frequency at which funds are reviewed and examined. The SEC supposedly announced an elimination of the regional director position. So, there's 10 regional offices.
According to Reuters, there is going to be the elimination of the heads of each of those offices. So, it'll be less – I'll say, less decentralized, more centralized. One would imagine in that context. The SEC announced, I think yesterday, a requirement of a back-to-office by mid-March that will certainly impact, I'm sure, some SEC employees who have gotten used to working remotely. So, that could cause people to leave. I think there's also just all of these things are contributing to a morale issue, not just limited to the SEC, but across the federal government. But certainly, at the SEC, which when you have morale issues, I think that tends to cause the enforcement program to not be as vigorous as it might otherwise be, and that would be across the board, including crypto.
Alexandra Barrage:
If we have a reduction in force across the federal government and we have a thinning of the ranks of SEC enforcement staff, does that mean there will be no SEC enforcement? Obviously, that's a leading question, but I'm sure we'll have some thoughts.
Joanna Cline:
I don't think the answer is that there'll be zero enforcement. SEC enforcement isn't necessarily dead, but I think what we're all saying is that there's definitely a huge reset button being pushed, and people kind of regrouping, and there's going to be a tectonic shift in what's going on. We've talked a lot today about the fact of the numbers of enforcement actions going down. There's something like a 30% decrease. We talked about the SEC's dropping of the Coinbase case and some other cases that we've mentioned today. Those are sort of anecdotal data points. So, it does look like things are going down.
On the other hand, in the old landscape, enforcement actions had been the only law. So now they're going forward, once this task force and these processes sort of come to fruition, there will be regulatory guidance. So, presumably the SEC can take fewer cases to achieve its enforcement goals to the extent that actually wants to pursue enforcement. We have to remember that President Trump has pledged to secure America's position as the world's leader in a digital economy. So, presumably, there need to be some level of enforcement in order to do that.
Jay Dubow:
Yes. In fact, I think, as I said earlier, morale issues, smaller enforcement division, which would be expected will be certainly fewer cases. I think there'll be a focus, though, and there will continue to be enforcement cases. I think there'll be certainly fraud cases brought, Ponzi schemes. There will be a focus on protecting retail investors. So, if someone's using a crypto type of program in lying, cheating, or stealing, those kinds of cases will still continue to go forward.
There also could be increased regulatory activity at the state level. So, the states have brought some enforcement actions in this space, the New York Department of Financial Services has brought actions. They attained a $37 million settlement from a crypto-lending platform. So, we could expect New York and perhaps other states to step in and try to fill the void to some degree.
Ethan Ostroff:
To me, I'm skeptical of how much activity the SEC will have in this space, even for various types of traditional fraud, or scams, or pump and dumps. I mean, to me, I envision a world of a significant increase of private securities litigation and lots more class actions when retail customers feel like they've been defrauded as opposed to the SEC using what seems to be increasingly limited resources to bring those cases. That's just my two cents.
Jay Dubow:
I agree with that, Ethan. But I also think, and I think Joanna alluded to this, there's going to be at some point a framework. There'll be, whether it's congressional, statutory, or SEC rules, or CFTC rules. At some point, there will be some kind of regulatory guidance. Once that's in place, if cryptocurrency companies issues – if they violate those particular rules, then there could be enforcement action following that.
Again, the problem with the current wave of enforcement actions according to the republican commissioners is that, there wasn't clear guidance in place and you were using an old regime to try to regulate through enforcement. If you have regulations and people violate those, then, you could see enforcement action.
Ethan Ostroff:
Joanna and Jay, thank you again for joining me and Alex today. Alex, thank you for graciously agreeing to become a co-host of this podcast. I think our listeners are going to be thrilled hearing your voice being more active in these discussions. I'm really looking forward to working and talking more with you about all of these various issues. From a lawyer's perspective, I think it's an exciting time to be in this space, and there's a lot of very interesting things happening, and it's very fast moving. So, there's some real sense of brighter days are ahead.
I want to thank our audience for listening to today's episode. Again, don't forget to visit our blogs and subscribe so you can get the latest updates. And please also make sure to subscribe to this podcast via Apple Podcast, Google Play, Stitcher, or whatever platform you use. We look forward to our next episode.
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