Ellison faced up to 10 years in prison, but her sentence was reduced because of her cooperation with prosecutors and her vulnerable position under the influence of Sam Bankman-Fried. Meanwhile, the DOJ filed an antitrust lawsuit against Visa, accusing the company of monopolistic practices in the debit payments market. Additionally, the SEC settled charges with TrueUSD issuers over the unregistered sale of investment contracts, while SEC Chair Gary Gensler faced tough questioning from lawmakers over his handling of crypto regulations during a congressional hearing.
Caroline Ellison Receives Light Sentence
Former Alameda Research CEO Caroline Ellison was sentenced to two years in a minimum-security prison for her involvement in the collapse of FTX. The sentencing was delivered by Judge Lewis Kaplan in the District Court of Southern New York. Ellison is also required to forfeit the approximately $11 billion she earned from FTX. Her prison surrender date is scheduled for after Nov. 7, 2024.
Ellison’s potential sentence could have been as long as 10 years, but Kaplan was sympathetic towards her during the sentencing due to her vulnerability in the face of manipulation by FTX founder Sam Bankman-Fried. Judge Kaplan told Ellison, “You’re a very strong person, Ms. Ellison, in some ways, but not inviolable. Mr. Bankman-Fried had your Kryptonite. […] You were vulnerable and you were exploited.”
Ellison has also faced a lot of harassment from the crypto community both online and in real life, which made her afraid to appear in public. Her cooperation with prosecutors, especially in the case against Bankman-Fried, led to a recommendation for leniency. Her legal team requested that her prison time be limited to time served, but Kaplan rejected the notion of a ‘get out of jail free’ option.
The sentencing could give some hints at the potential outcomes for Ellison's co-defendants, Gary Wang and Nishad Singh, who are also former FTX executives. Both have pleaded guilty and are awaiting their own sentencing. Singh’s is set for Oct. 30 and Wang’s for Nov. 20. Bankman-Fried received a 25-year sentence in March.
DOJ Files Antitrust Suit Against Visa
While the US Justice System has dealt with Ellison, it is just getting started with Visa. The United States Department of Justice has filed an antitrust lawsuit against Visa, and accused the payments giant of maintaining a monopoly in the debit payments market.
The complaint was submitted to a federal court in New York on Sept. 24, and alleges that Visa employs exclusivity agreements and threatens vendors with penalties to prevent competition from stealing its dominant market share. Reports suggest that Visa holds a 60% market share in the US debit transactions sector, and generates $7 billion in transaction fees.
US Attorney General Merrick Garland described Visa’s conduct as monopolistic, and believes that the company’s power makes it possible for it to charge very excessive fees. According to Garland, merchants and banks pass these fees on to consumers, which leads to higher prices and reduced service quality. He also shared that Visa’s practices impact the price of almost everything consumers buy.
The DOJ also claims that Visa uses its market size and influence to form partnerships with potential competitors. This effectively prevents alternatives from gaining ground. This also aligns with concerns that Visa’s conduct continues to inflate consumer prices, even as new transaction options enter the market.
Total payments volume for stablecoins vs Visa (Source: Sacra)
As early as 2024, analysts raised concerns that Visa could lose its market-leading position, especially as competition from stablecoins gains momentum. Jan-Erik Asplund, co-founder of Sacra, predicted that stablecoins will surpass Visa as the preferred medium for international payments because of their convenience.
Visa downplayed these concerns by arguing that stablecoin data is unreliable and that the potential threat to its global status has been overstated.
SEC Settles Charges with TrueUSD Issuers
In other crypto-related legal news, the United States Securities and Exchange Commission (SEC) has settled charges with TrueCoin and TrustToken over the fraudulent and unregistered sales of investment contracts involving the TrueUSD (TUSD) stablecoin. The complaint was filed in the District Court for Northern California, and both companies agreed to settle on Sept. 24, after declining to take the case before a judge.
From November of 2020 to April of 2023, TrueCoin and TrustToken allegedly sold unregistered investment contracts through TrueUSD on the TrueFi lending protocol. The SEC also accused the companies of falsely marketing TUSD as being fully backed by US dollars, when the funds backing the stablecoin were instead invested in a risky overseas fund. By September of 2024, 99% of the funds backing TUSD were reportedly tied to this overseas investment, despite the fact that the companies were very aware of potential redemption issues.
The SEC also revealed that by March of 2022, the operations of TUSD were sold to an offshore entity, and the stablecoin was commonly referred to as “Justin Sun-linked.” Though TrueCoin and TrustToken did not admit or deny the charges, they agreed to pay civil penalties of $163,766 each. TrueCoin will also pay a disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are now awaiting court approval.
Issues surrounding TUSD were very clear earlier when the stablecoin depegged in June 2023 after halting minting due to Prime Trust, a crypto custody service, being issued a cease-and-desist order by Nevada regulators. The coin depegged again in January, which caused massive selling because of difficulties posting real-time attestations of its reserves. This raised concerns about under-collateralization.
Binance also delisted many TUSD trading pairs in March but stopped short of fully removing the coin from its platform.
Lawmakers Grill Gensler on SEC’s Crypto Oversight
While the SEC is very committed to its crackdown of the crypto industry, the regulator itself is also facing some serious scrutiny. SEC Chair Gary Gensler recently faced tough questioning from both Republicans and Democrats during a congressional hearing over his handling of crypto industry regulation.
The hearing was held by the House Financial Services Committee. During the hearing, Republican Majority Whip Tom Emmer criticized Gensler for the SEC’s case against crypto startup DEBT Box. A federal judge in Utah previously sanctioned the SEC for acting in bad faith and for making misleading statements in the case. This prompted Emmer to ask if Gensler was embarrassed by the situation. Gensler admitted the case was not well handled.
The SEC’s approach to regulating crypto has faced a lot of criticism from some lawmakers for lacking clarity. Others, like Democrat Maxine Waters, defended the agency’s efforts to protect investors.
Emmer also questioned Gensler about Vice President Kamala Harris’ recent remarks encouraging innovation in digital assets and AI while protecting consumers, and even suggested that Harris might be criticizing Gensler’s regulatory approach. Gensler responded that laws are in place but Congress can change them.
Democrat Ritchie Torres also pressed Gensler on how the SEC defines securities by using the example of a New York Yankees ticket. Torres questioned whether buying a ticket for access to a game is similar to purchasing an NFT for access to an animated web series, and pointed out that the SEC has charged entities like Stoner Cats 2 LLC for unregistered securities offerings.
Gensler speaking during the hearing (Source: YouTube)
Gensler explained that it depends on whether buyers are expecting profits, referencing the Howey Test, which determines if an asset qualifies as a security based on expectations of profit from a common enterprise. Torres argued that this reasoning could then apply to various consumer goods or collectibles.
