The SEC Backs Out of Salt Lake City After Disastrous Crypto Lawsuit

(Fortune) - Last week's Consensus crypto conference in Austin was billed to be a triumphant celebration of the budding bull market, but it really felt like an extended campaign rally gloating over the blockchain industry's recent wins in D.C.

At the annual CoinCenter dinner, the libertarian-minded think tank invited House Majority Whip and crypto crusader Tom Emmer (R-Minn.) to give a toast. "Gary Gensler sucks," he roared upon taking the stage, to uproarious applause. (He later joked that he strayed from his handlers' prepared remarks.)

So is crypto winning? It's been hard not to feel that way the past few weeks, buoyed by legislative victories, the ETH ETF approval, an additional $75 million of corporate donations to a blockchain-focused super PAC, and a surprising backlash to President Joe Biden's decision to veto a Congressional F-U to a wonky SEC bulletin. Ever the subtle wordsmith, Messari CEO and newfound Trump cheerleader Ryan Selkis declared on Twitter that the industry was officially at "war" against the Democratic party.

The crypto army may have won its first battle, and against its most despised general at that. In a press release issued late on Tuesday, the SEC announced it would close its Salt Lake Regional Office later this year, citing "significant attrition." For those eagle-eyed watchers, Salt Lake City is the branch that originated the agency's ill-fated lawsuit against the crypto firm Debt Box, a case that the blockchain industry has since held up as an emblem of Gensler's overreach.

The lawsuit has been an unmitigated embarrassment for the agency, which has otherwise scored judicial victories against crypto companies in recent months. After SEC attorneys brought the enforcement action against the Utah-based company last summer, they asked a judge for a restraining order and asset freeze through an ex parte application, meaning the company would not be notified, arguing that its executives were a flight risk.

A series of filings revealed that the SEC did not in fact have any evidence that the firm was attempting to flee the country, instead conflating and confabulating evidence. The judge referred to it as a "gross abuse of power," taking the unprecedented step of sanctioning the agency and ordering it to pay $1.8 million in legal fees. Two SEC lawyers leading the case stepped down after being told they would be terminated.

Yesterday's press release seems to be the final surrender from the SEC, though the announcement does not cite the doomed crypto lawsuit. Attrition has been a persistent issue during Gensler's tenure, as I reported in my profile of the controversial chair last year. Some former attorneys I spoke with cited his aggressive approach to litigation as a source of stress.

Those celebrating a premature victory may want to recork those champagne bottles, however. With myriad lawsuits still winding their way through the courts, the crypto industry's "war" is just beginning.

By Leo Schwartz


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