The lawsuit was filed due to conflicts of interest involving Tether. Meanwhile, U.S. Attorney Damian Williams announced his resignation, and will likely be replaced by former SEC Chair Jay Clayton. It was also recently announced that Tornado Cash developer Alexey Pertsev will remain in pre-trial detention. The SEC’s annual report revealed that the regulator reported record financial remedies of $8.2 billion for 2024, which was driven by a settlement with Terraform Labs.
Swan Bitcoin Takes Legal Action Against Law Firm
Financial services company Swan Bitcoin filed a lawsuit against its legal counsel, Gibson, Dunn & Crutcher, for legal malpractice. The dispute started after Gibson’s decision to hire lawyer Barry Berke, who represents Tether. The stablecoin issuer is one of Swan’s competitors. Swan accused the law firm of prioritizing Tether’s interests over its own, despite initially taking on Swan as a client to handle a legal battle against Tether and former employees.
According to the lawsuit that was filed in California’s Superior Court on Nov. 22, Swan claims Gibson “wooed and won” the company as a client but later embraced Tether, leaving Swan without proper legal representation. Swan CEO Cory Klippsten even reportedly received a call from a Gibson attorney advising that the firm could no longer represent Swan because of a potential conflict of interest stemming from Berke’s hiring.
The legal battle between Swan and Gibson was filed on the heels of a separate lawsuit Swan filed in September against former employees that were accused of stealing software code to launch a rival crypto-mining company called Proton Management. Swan claims Proton persuaded Tether to sever ties with Swan and support Proton instead. While Tether is not directly named as a defendant in this case, the implications of its involvement certainly fueled the tensions between Swan and Gibson.
On Nov. 24, Gibson filed to withdraw as Swan’s legal counsel in the Proton lawsuit due to a breakdown in the attorney-client relationship. The firm alleged that Swan refused to pay outstanding legal fees and demanded millions of dollars in compensation to avoid opposing Gibson’s withdrawal.
In response, Swan also filed for a temporary restraining order on Nov. 25 to prevent Gibson from exiting the case and to block the firm from formally representing Tether. Swan argues that Gibson’s actions violate the “Hot Potato” Rule, which is an ethical guideline prohibiting lawyers from dropping clients to resolve conflicts of interest.
The Superior Court of California is scheduled to hear Swan’s request for a restraining order on Nov. 26. The outcome could have a big impact on both Swan’s case against Proton and Gibson’s ability to continue its representation of Tether.
High-Profile Crypto Attorney Damian Williams Steps Down
Another lawyer involved in the crypto space also made headlines recently. Damian Williams, the United States Attorney for the Southern District of New York, announced his resignation ahead of President-elect Donald Trump’s anticipated nomination of a replacement in January. Williams held the position since 2021, but will step down effective Dec. 13. He will be handing over responsibilities to Acting U.S. Attorney Edward Y. Kim, the current Deputy U.S. Attorney.
During his tenure, Williams led many high-profile cases involving crypto executives, including former FTX CEO Sam Bankman-Fried and several others tied to the exchange and Alameda Research. Williams was appointed by President Joe Biden, and has been a prominent figure in crypto-related enforcement actions. His expected successor is Jay Clayton, a former Securities and Exchange Commission (SEC) Chair and Wall Street insider with ties to firms like Goldman Sachs and digital asset management platform Fireblocks.
Clayton’s nomination is a sign of potential shifts in the direction of crypto enforcement in the Southern District of New York, which is a jurisdiction that is known for handling major financial and crypto-related cases, including those against OneCoin scheme creators. While it is still unclear how Clayton will approach crypto enforcement, recent comments from officials in the district suggest a possible reduction in these cases. Scott Hartman, a member of the office’s fraud task force, revealed on Nov. 15 that prosecutors plan to scale back the number of crypto-related cases.
U.S. Attorney Damian Williams
The announcement was made as the office prepares for the Jan. 28 trial of former Celsius CEO Alex Mashinsky. The trial is set to take place after Trump’s inauguration but likely before a new U.S. Attorney is confirmed.
Tornado Cash Developer's Legal Battle Continues
In other legal news, the developer of the Tornado Cash crypto mixing protocol, Alexey Pertsev, will remain in pre-trial detention. The decision raised quite a few eyebrows among developers of privacy-preserving technologies. Pertsev faces money laundering-related charges, and is very disappointed over the court’s decision. In a Nov. 21 post, he stated that his extended detention impedes his ability to prepare for an appeal.
Tornado Cash is a non-custodial mixing protocol that does not hold or control user funds, but it still faced a lot of scrutiny from regulators. In 2022, the U.S. government sanctioned the platform due to its use for laundering illicit funds.
Despite these sanctions, Tornado Cash saw an increase in activity. It even recorded about $1.8 billion in deposits in the first half of 2024, which was up 45% from 2023. On Nov. 14, Democratic lawmakers in the United States demanded answers from Treasury officials about ongoing efforts to address the platform's operation.
Pertsev’s legal troubles started with allegations that Tornado Cash facilitated the laundering of $1.2 billion in illicit assets. In May, Dutch judges at the s-Hertogenbosch Court of Appeal found Pertsev guilty and sentenced him to over five years in prison. During his trial in March, Pertsev argued that he could not be held responsible for the actions of users who misused the protocol. However, the court rejected his defense, and stated that the developers failed to implement safeguards that were good enough to prevent criminal exploitation of the platform.
Because of this, the case caused widespread concern in the privacy tech community. Developers worry that the outcome sets a precedent where people who create privacy-preserving tools could be held liable for how others use them. Matthew Niemerg, the co-founder and president of AlephZero, pointed out that future privacy protocols have to incorporate features that ensure legal compliance to navigate the regulations.
SEC Nets Record Penalties
If a Trump administration brings about change in how crypto legislation and regulation is approached, it will be a great relief to many. In fact, the SEC reported a record-breaking $8.2 billion in financial remedies for the fiscal year 2024, despite a 26% drop in enforcement cases compared to the previous year.
The milestone was revealed in the SEC’s annual report that was released on Nov. 22. The record-breaking year was largely attributed to a $4.47 billion settlement with Terraform Labs and its former CEO Do Kwon. This settlement stemmed from fraud charges related to the 2022 collapse of Terraform’s blockchain ecosystem that caused billions in losses.
It is, however, important to keep in mind that without the Terraform settlement, the SEC’s total collections would have been $3.72 billion, which could have been its lowest since 2013 when it brought in $3.4 billion. The agency recorded $2.1 billion in penalties and a record $6.1 billion in disgorgement.
In the report, outgoing SEC Chair Gary Gensler shared that the agency is still very much committed to holding wrongdoers accountable. During Gensler’s leadership, the SEC intensified its focus on crypto, and peaked with 46 crypto-related enforcement actions in 2023. However, the number of crypto cases dropped to 11 in 2024, but fines still soared by more than 3,000%.
