How the US justice department became top cop in the crypto ‘Wild West’

Last year, Securities and Exchange Commission chair Gary Gensler vowed that the regulator would be the “cop on the beat” policing the “Wild West” of the cryptocurrency industry. The SEC would go on to file dozens of civil lawsuits against some of the sector’s largest players, including exchanges Binance and Coinbase and leading crypto lenders Genesis and Celsius.

But the headlines in 2023 were stolen by another arm of the US government, as the Department of Justice swooped in with high-profile criminal prosecutions that produced rapid resolutions.

In less than 12 months, prosecutors had won the conviction of FTX’s Sam Bankman-Fried — who faces potentially decades behind bars — and dethroned Changpeng Zhao, or CZ, the former head of Binance.

“You always get people’s attention when other executives in the industry are rolling up their sleeves to be fingerprinted,” said Widge Devaney, a former federal prosecutor now at law firm Baker McKenzie. “It is a lot more real than whether something is a security or not,” he added, referring to the SEC’s ongoing battle to get courts to define the status of various tokens.

“The DoJ has led the way in defining the boundaries of the crypto industry,” said another former senior prosecutor, who asked not to be named, “and in some respects it reflects a missed opportunity for the SEC”.

Many of the justice department’s high-profile crypto indictments have been accompanied by parallel complaints by the SEC. Both have brought cases against Alex Mashinsky, the former head of Celsius, and Do Kwon, the Korean mastermind behind the TerraUSD and Luna tokens, alongside lesser-known crypto personalities.

The SEC scored a big legal win this week when a US federal judge found that the digital assets at the heart of its case against collapsed stablecoin operator Terraform Labs and its chief executive Kwon qualify as securities. A Terraform spokesperson said it “strongly” disagreed with the decision and that…