The BA criticized the SEC’s "regulation by enforcement" strategy, and believes it is having a very negative impact on innovation and U.S. tech investment. This sentiment is echoed by many other platforms like Immutable, which recently received a Wells notice and vowed to fight the SEC's claims regarding its IMX token. Meanwhile, Gustavo Rodriguez, who was a promoter of the Ponzi scheme IcomTech, was sentenced to eight years in prison. The Southern District of New York has become the center of the ongoing legal scrutiny in the crypto sector.
SEC's Regulation by Enforcement Costs Crypto Firms Millions
The Blockchain Association (BA), which is an advocacy group for cryptocurrency and blockchain interests, recently pointed out that the U.S. Securities and Exchange Commission (SEC) cost digital asset companies at least $426 million in litigation expenses since Gary Gensler assumed his role as chair. In an Oct. 31 update to its “regulation by enforcement” tracking page, the BA reported that from 2021 to 2023, the SEC pursued 104 cases against the crypto sector. Based on self-reported data from BA member firms, these companies collectively spent $426 million in “defensive litigation” to counter the regulator's actions.
In a statement, the BA shared that both the industry and American voters are calling for fair treatment and a fresh approach. They also want the SEC’s persistent legal confrontations with the sector to end. Additionally, the BA also called for new leadership at the SEC, as the crypto community has been very dissatisfied with Gensler’s enforcement-focused approach since taking the helm in 2021. During his tenure, the SEC targeted well known crypto firms, including Binance, Ripple, and Coinbase, as well as several other players.
In a post on X, the BA’s leadership also shared their concerns over the detrimental impact of Gensler’s regulatory stance, which they described as an “anti-innovation crypto crusade” that resulted in “an immeasurable loss of jobs, innovation, and U.S. tech investment.” CEO Kristin Smith and the organization urged crypto advocates to push for leadership change at the SEC.
However, while BA’s posts didn’t name any specific candidates, the topic of SEC leadership is becoming increasingly relevant in the 2024 U.S. elections. Republican candidate Donald Trump even vowed to remove Gensler if he gets elected, while Vice President Kamala Harris reportedly considered potential replacements should the Democrats retain the presidency.
The BA also talked about the fact that crypto became a crucial election issue with the power to influence voters. In fact, it stated that “Crypto Voters” represent 18% of the electorate and are more inclined to support candidates who endorse innovations in digital assets.
According to the BA, no political party “claimed” the issue yet, which makes these voters particularly winnable. Early voting already started in many states, and with Election Day set for Nov. 5, the outcome remains uncertain.
Immutable Vows to Fight SEC
Despite the industry’s unhappiness with the regulator, it is showing no signs of stopping its actions. Immutable, a crypto gaming platform, publicly committed to fighting any enforcement action from the U.S. SEC after receiving a Wells notice from the regulator. In a Nov. 1 statement, Immutable shared that while the SEC did not specify its claims in the notice, the platform believes the inquiry targets the “listing and private sales” of its IMX token back in 2021. Several other companies, including OpenSea, Crypto.com, and Uniswap, also received Wells notices this year.
Immutable shared some more details about a ten-minute call with the SEC shortly after the notice, during which the regulator raised some concerns over a 2021 blog post from Immutable. The SEC pointed to a statement in the post about a pre-launch investment in the IMX token at $0.10 per token, claiming it was issued at a “$10 pre-100:1 split.”
According to Immutable, the SEC implied there was no real exchange of value, but the company disagreed. It argued that genuine consideration occurred and that a constructive dialogue would have clarified the matter.
A Wells notice signals the SEC’s intent to pursue an enforcement action, and they are often issued after concluding an investigation with indications of potential securities law violations. Immutable is very frustrated with how abruptly the notice was delivered, and believes it is different from its usual approach, which involves extensive discussions and interviews. According to Immutable, the SEC unexpectedly informed the company that the Wells notice would be issued within the week, yet it arrived within hours.
IMX price action over the past 24 hours (Source: CoinMarketCap)
Immutable stands firm on the fact that its IMX token does not qualify as a security and it is more than ready to contest the SEC’s claims. The company also criticized the regulator’s “sprayed-and-prayed” method, as the SEC also issued notices to CEO James Ferguson and the Digital World’s Foundation, the IMX token issuer’s parent entity. After the news of the SEC’s actions, the price of IMX dropped by 13+% in 24 hours to $1.17.
IcomTech Promoter Sentenced to 8 Years in Proson
In other legal news, Gustavo Rodriguez, who was convicted of conspiracy to commit wire fraud for promoting the crypto firm IcomTech, has been sentenced to eight years in prison. At an Oct. 31 hearing in the United States District Court for the Southern District of New York, Judge Jennifer Rochon extended the sentence because of what she called “intentional false statements” in Rodriguez’s testimony.
Inner City Press reported that prosecutors described Rodriguez as “remorseless” and accused him of perjuring himself. While the government wanted a 160-month sentence, Judge Rochon imposed eight years, acknowledging Rodriguez’s role in creating the back office and website that made the fraud possible. She did note that he did not profit to the same extent as some of the others who were also involved.
Rodriguez’s conviction stems from his role in promoting IcomTech, which authorities allege operated as a Ponzi scheme. The scheme defrauded users of over $8 million between 2018 and 2019. Rodriguez and another promoter, David Brend, were found guilty in March of 2024.
Brend is set to be sentenced on Nov. 22, while IcomTech’s founder, David Carmona, received a ten-year sentence after his December 2023 guilty plea. Former CEO Marco Ochoa was sentenced to five years in January of 2024.
The Southern District of New York has become a central venue for crypto-related cases as it even handled charges against former FTX executives, Celsius CEO Alex Mashinsky, and Mango Markets exploiter Avraham Eisenberg. Recently, FTX’s former engineering director, Nishad Singh, was sentenced to time served. This was the first non-prison sentence among the indicted FTX personnel. Meanwhile, FTX co-founder Gary Wang’s sentencing is set for Nov. 20. The court has also overseen many enforcement actions from the SEC against companies like Coinbase and Ripple Labs.
