Category Archives: Cryptocurrency and Digital Assets

SEC’s Focus on Cyber and AI to Continue Under Trump Administration

by Andrew J. Ceresney, Charu A. Chandrasekhar, Luke Dembosky, Avi Gesser, Erez Liebermann, Julie M. Riewe, Jeff Robins, Kristin A. Snyder, and Cameron Sharp

Top left to right: Andrew J. Ceresney, Charu A. Chandrasekhar, Luke Dembosky, and Avi Gesser. Bottom left to right: Erez Liebermann, Julie M. Riewe, Jeff Robins, and Kristin A. Snyder. (Photos courtesy of Debevoise & Plimpton LLP).

On February 20, 2025, the SEC announced the creation of the Cyber and Emerging Technologies Unit (“CETU”) to focus on “combatting cyber-related misconduct and to protect retail investors from bad actors in the emerging technologies space.” In this blog post, we provide an overview of the announcement, which illustrates that the Trump administration will continue to prioritize SEC cybersecurity and artificial intelligence examinations and enforcement, with a particular emphasis on fraudulent conduct impacting retail investors.

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The SEC’s Crypto Task Force Maps Its Journey

by Matthew Solomon, Tom Bednar, Hugh Conroy, Jr., Deborah North, Rahul Mukhi, Brandon Hammer, Samuel Levander, and Alex Janghorbani

From left to right: Matthew Solomon, Tom Bednar, Hugh Conroy, Jr., Deborah North, Rahul Mukhi, Brandon Hammer, Samuel Levander, and Alexander Janghorbani (photos courtesy of Cleary Gottlieb)

On February 4, 2025, SEC Commissioner Hester Peirce published a statement titled “The Journey Begins,” laying out a vision for the new administration’s SEC Crypto Task Force.[1] The statement signals a clean break from the enforcement-centered approach to the digital asset industry taken by former SEC Chair Gary Gensler. Commissioner Peirce compares that past approach to a bad road trip, where the Commission “refused to use regulatory tools at its disposal and incessantly slammed on the enforcement brakes as it lurched along a meandering route with a destination not discernible to anyone.”

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What Could a “Strategic Bitcoin Reserve” Mean in Practice?

by Stephen T. Gannon and Daniel M. Payne

Stephen T. Gannon and Daniel M. Payne (photos courtesy of authors)

The United States is no stranger to stockpiling strategic assets to serve important national interests. The U.S. strategic gold reserve provides financial stability and supports the value of the U.S. dollar. The U.S. strategic petroleum reserve, in contrast, protects the U.S. from emergencies and economic shocks in the oil industry, on which much of the modern economy depends. Now, the U.S. is strongly considering a new strategic reserve: the Strategic Bitcoin Reserve (“SBR”), in which billions of dollars’ worth of the digital currency Bitcoin would be securely stored as a new financial hedge and support for the U.S. dollar.

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SEC Enforcement Year-End Overview

by Joel Cohen, Ladan Stewart, Tami Stark, Marietou Diouf, Gabriella Klein, and Robert DeNault

Top (Left to Right): Joel M. Cohen, Ladan Stewart and Tami Stark. Bottom (Left to Right): Marietou Diouf, Gabriella Klein, and Robert DeNault. (Photos courtesy of White & Case LLP)

Introduction

2024 marks the final year of Gary Gensler’s term as Chair of the U.S. Securities and Exchange Commission (“SEC”). The Gensler SEC has been aggressive on both the enforcement and rulemaking fronts. In response, the financial industry has fought back in sometimes unprecedented ways, including through legal challenges to the SEC’s rulemaking and enforcement programs. While questions remain about what the SEC will prioritize under the leadership of presumptive incoming Chair Paul Atkins, it seems likely that many of Chair Gensler’s enforcement priorities will be rolled back in the coming years. We can expect, for example, to have neared the end of the SEC’s years-long off-channel communications sweep. And the Gensler SEC’s intense focus on the crypto industry will very likely shift significantly under Chair Atkins.

We provide here an overview of the SEC’s enforcement program in 2024 and end with additional thoughts on how the agency’s enforcement priorities will likely change in 2025 and beyond.

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Samuels v. Lido DAO: a Potential New Frontier for Liability in the Cryptocurrency Space

by Stephen Gannon, James Goldfarb, and Alexandra Coyle

Stephen Gannon, James Goldfarb, and Alexandra Coyle (photos courtesy of Davis Wright Tremaine LLP)

In denying motions to dismiss, court potentially expands liability for venture capital firms investing in cryptocurrency enterprises

A recent order handed down by U.S. District Judge Vince Chhabria of the Northern District of California could be a new source of concern for digital asset entrepreneurs and the venture capital firms which invest in and support them. In Samuels v. Lido DAO the court denied the motion to dismiss filed by an entity called Lido DAO (“Lido”) and a group of its institutional investors regarding what was alleged to be a sale of unregistered tokens on an exchange. Lido was and is the operator of a successful “Staking as a Service” business conducted through a decentralized autonomous organization, or a “DAO.” Founded in 2020, Lido provides a service in which it gathers ETH from individual holders, which it then pools and “stakes” to provide validation for transactions on the Ethereum blockchain. It also selects validators and provides an “oracle” to ensure that (i) the validators, (ii) the owners who pooled their ETH, and (iii) Lido itself receive the correct ETH rewards for performing the validation work.[1]

In largely denying defendants’ motions to dismiss, the court’s order potentially greatly expands the liability venture capital firms based in California might face, particularly in the context of investing in cryptocurrency enterprises, and may raise more questions than it answers for parties involved in such disputes.

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Fifth Circuit Holds that OFAC May Not Maintain Sanctions on Cryptocurrency Mixer Tornado Cash

by Sharon Cohen Levin, James M. McDonald, Eric J. Kadel Jr., Anthony J. Lewis, Judson O. Littleton, Adam J. Szubin, Shari D. Leventhal, and Berke B. Gursoy

Top left to right: Sharon Cohen Levin, James M. McDonald, Eric J. Kadel Jr., and Anthony J. Lewis. Bottom left to right: Judson O. Littleton, Adam J. Szubin, Shari D. Leventhal, and Berke B. Gursoy (photos courtesy of Sullivan & Cromwell)

Court Concludes that Immutable Smart Contracts Are Not “Property” Under Relevant Sanctions Legislation

SUMMARY

In a significant decision issued on November 26, 2024, the U.S. Court of Appeals for the Fifth Circuit held in Van Loon et al. v. Department of the Treasury that the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) exceeded its statutory authority under the International Emergency Economic Powers Act (“IEEPA”) by sanctioning Tornado Cash, a cryptocurrency mixing service that enables users to conduct anonymized cryptocurrency transactions through the use of immutable smart contracts. The case centered on whether these immutable smart contracts could be considered “property,” as required to be sanctionable under IEEPA. Relying on the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overruled the longstanding doctrine of Chevron deference to agency interpretations of statutory text, the Fifth Circuit concluded that immutable smart contracts did not constitute property and were therefore not subject to OFAC’s designation authority under IEEPA.

This ruling has potentially significant implications for OFAC’s efforts to sanction parties involved in decentralized finance (DeFi) and could alter the future enforcement landscape for parties and platforms that provide anonymity-enhancing services to cryptocurrency users.

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“Operation Chokepoint 2.0”: De-Banking Policies and the Adverse Use of Reputational Risk in Bank Supervision

by Stephen T. Gannon, Max Bonici, Elizabeth Lan Davis, and Kristal Rovira

Left to Right: Stephen T. Gannon, Max Bonici, Elizabeth Lan Davis, and Kristal Rovira (photos courtesy of Davis Wright Tremaine LLP)

How subjective supervisory standards suppressed innovation and damaged innovators.

“The power to regulate—in addition to the power to tax—is the power to destroy.”

Peter Wallison, Judicial Fortitude (2018)

As we have previously noted, we expect that the second Trump Administration will be significantly more favorable to crypto than the Biden Administration, especially with the recent appointment of David Sacks as the Administration’s “Crypto Czar.” We anticipate that in short order the new Administration will address “de-banking,” a regulatory practice that has vexed the digital asset industry—and banking in general—over the last several years. In this context, “de-banking” means canceling banking services to crypto entities and individuals associated with them or crypto activities. It is a practice that has been sharply criticized and has become even less comprehensible as the digital asset industry has matured and embraced (indeed, has sought) reasonable regulation. In the last several days the attention paid to this issue has increased sharply as a result of comments by Marc Andreessen on the Joe Rogan podcast.

Regrettably, the de-banking problem is not new. De-banking crypto is simply the latest variation of regulators using vague and amorphous standards to supervise bank conduct through the subjective lens of what the federal banking agencies call “reputational risk.”

Below we discuss how we got here and some ways forward.

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Cryptoasset Developments: Prospects for Legal Clarity

by Kevin S. Schwartz, David M. Adlerstein, Samantha M. Altschuler, and Sabina M. Beleuz Neagu

Left to Right: Kevin S. Schwartz, David M. Adlerstein, Samantha M. Altschuler, and Sabina M. Beleuz Neagu (photos courtesy of Wachtell, Lipton, Rosen & Katz)

A resilient cryptoasset industry is emerging from weathering years of headwinds — from edicts prohibiting the banking of the industry, to an SEC leadership bent on aggressive regulation-by-enforcement in lieu of transparent rulemaking. Looking ahead, tailwinds abound: Bitcoin and Ether exchange-traded products, approved just this year, already have over $150 billion in assets under management. Leading financial institutions have announced plans to tokenize substantial new funds on public blockchains. And tens of millions of Americans own cryptoassets, as use cases continue to proliferate — from payments for goods and services, both on- and off-blockchain; to decentralized financial (DeFi) platforms; to the authentication of content provenance (an essential need amidst AI’s rapid development). With a new Administration and Congress in the offing, there are at last prospects for regulatory clarity in an arena long clouded by uncertainty.

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Second Circuit: Crypto Exchange Binance Subject to U.S. Securities Laws to Avoid a Regulatory Vacuum

by David Livshiz, Timothy Howard, Andrew Gladstein, Peter Linken, Jacob Johnston, and Seve Kale

Left to right: David Livshiz, Timothy Howard, Andrew Gladstein, Peter Linken, and Seve Kale (photos courtesy of authors)

A recent Second Circuit decision underscores that decentralized crypto exchanges with no claimed “home” jurisdiction face a substantial likelihood of exposure to U.S. securities laws. In Williams v. Binance, 96 F.4th 129 (2d Cir. 2024), the Second Circuit held plaintiffs adequately alleged crypto token purchases made on Binance’s trading platform by U.S. persons were domestic transactions and subject to U.S. securities laws on two independent grounds. First, it was plausible that plaintiffs’ purchase orders were matched with sellers on servers located in the U.S. Second, Binance’s Terms of Use stated orders became irrevocable once they were sent to Binance, which the plaintiffs alleged occurred from their homes in the United States. The Court’s extraterritoriality analysis focused on Binance’s express disclaimer of a physical presence or geographical headquarters and the inapplicability of any other country’s securities regime. These factors created the possibility of a regulatory vacuum absent imposition of U.S. securities laws. Underscoring this point, the Court reasoned that “[e]ven if the Binance exchange lacks a physical location, the answer to where [it matches transactions] cannot be ‘nowhere.’” Williams, 96 F.4th at 138.

It will take years before the full implications of Williams become clear; but what is already clear is that U.S. courts are likely to be skeptical of corporate structures that appear to leave a company immune from litigation anywhere. This skepticism is particularly relevant to crypto exchanges and other decentralized actors, which may not have or maintain a traditional “home” jurisdiction or base. Such decentralized actors may wish to consider taking steps to reduce the risk of exposure to U.S. securities laws, including affirmatively establishing a domicile outside the U.S. by opening a non-U.S. office or otherwise formally submitting to regulation by another nation, using servers data centers, and other computer network infrastructure outside of the United States, and drafting terms of service or other contractual agreements to provide that transactions become irrevocable in a location outside the U.S.

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Crypto Experts React to Recent SDNY Ethereum Fraud Indictment

The NYU Law Program on Corporate Compliance and Enforcement (PCCE) is following the U.S. Attorney’s Office for the Southern District of New York’s recent indictment of two individuals for allegedly attacking and stealing $25 million from the Ethereum blockchain. The indictment in the case, United States v. Peraire-Bueno, 24 Cr. 293 (SDNY), is available here. Below, several crypto experts and former prosecutors provide their reactions to the case.

Left to right: Maria Vullo, Daniel Payne, Elizabeth Roper, Usman Sheikh, Justin Herring, and Robertson Park (photos courtesy of the authors)

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