Justin Sun Deal Complicates SEC’s Crypto Stance, Legal Experts Say

Last week, the SEC did something rather unusual for the Trump era—it announced a plan to fine a crypto company for violating America’s securities laws.

Since President Donald Trump’s return to power, the Wall Street regulator has dropped virtually all crypto-related cases it inherited from prior administrations. The agency’s new leadership has argued it should have no part in regulating most crypto activity.

But on Thursday, the SEC moved to settle its longstanding case against Justin Sun, a controversial crypto entrepreneur with business ties to the Trump family. Legal experts say the unique dynamics of the settlement may have unforeseen implications—and, potentially, undermine some of the logic propping up the Trump SEC’s aggressively pro-crypto posture.

In 2023, the SEC under President Joe Biden accused Sun not only of offering unregistered securities in the form of two crypto tokens—TRX and BTT—but also of manipulating the secondary markets for those tokens with wash trading.

Within weeks of Trump’s return to the White House, however, the SEC paused the case. The move prompted an uproar among Democrats, who highlighted Sun’s payments of tens of millions of dollars to Trump family crypto projects. Sun quickly became the face of political attacks regarding the president’s alleged “crypto corruption.”

Last week, the SEC finally announced a plan to settle its case against Sun for $10 million and dismiss all outstanding charges against the entrepreneur. Sen. Elizabeth Warren (D-MA) swiftly blasted the deal, which still needs to be approved by a federal judge, as a “free pass” handed to a “crypto billionaire with ties to Donald Trump.”

But there may be more to the proposed settlement than meets the eye. While the agreement between Sun and the SEC did not require the crypto entrepreneur to admit any wrongdoing, it did expressly state Sun needed to pay the $10 million for violating the Securities Act of 1933.

If the SEC wanted to fine Sun, it had to claim jurisdiction over his case. But does that mean the Trump SEC still contends TRX or BTT were, in fact, securities? Such an admission could constitute a huge shift in the SEC’s approach to crypto, given the regulator has dismissed nearly every other ongoing case involving similar tokens.

A source familiar with the SEC’s thinking confirmed the agency did, in fact, take such a view when deciding it had jurisdiction to settle its case against Sun.

“The SEC has jurisdiction because it alleged in the amended complaint that, at the time of the wash trading, TRX was offered and sold subject to an investment contract,” the source told Decrypt.

Amanda Fischer, a former SEC official who worked at the regulator when Sun was initially charged, told Decrypt she found the explanation strange. If the SEC believes TRX was offered as a security, then U.S.-based crypto platforms that listed the token should therefore also be considered unregistered securities exchanges, she said.

What’s more, TRX is not unlike numerous other crypto tokens listed by crypto exchanges previously sued by the SEC, including Coinbase and Kraken. SEC lawsuits against Coinbase, Kraken, and other major crypto exchanges were dismissed when Trump returned to office last year.

The SEC declined to comment for this story. Representatives for Sun did not respond to Decrypt’s requests for comment.

Fischer argues the SEC is only asserting jurisdiction over TRX because agency leadership found itself stuck between a rock and a hard place. Drop all charges against someone like Justin Sun and face immense public blowback; pursue the case against him, and the SEC would have to explain in court why this crypto offering is a security but most aren’t.

A relatively small fine may have emerged as the best compromise, Fischer said. But now, the move has potentially put the SEC in an awkward position.

“The agency is desperate to save face and create the appearance that they’re enforcing the law against the president’s benefactors by imposing a sweetheart settlement,” Fischer said. “After scolding the Gensler SEC for creating ‘uncertainty,’ the Commission now asserts jurisdiction when it’s politically convenient.”

Gary Gensler, the previous chair of the SEC, was endlessly criticized by crypto leaders for taking a case-by-case view of digital assets. In contrast, the Trump SEC has pledged to create simple, uniform rules that will allow most crypto projects to breathe easy.

But if the Trump SEC now contends TRX was a security offering—at least at some point—legal experts say that view could throw a wrench in the regulator’s laissez faire crypto logic.

“The whole message has been we want clear rules of the road,” Drew Rolle, a partner at Alliston & Bird specializing in securities law and crypto, told Decrypt. “That’s what makes this interesting.”

Rolle said that, in light of the Justin Sun settlement, crypto projects may have to continue deducing for themselves what types of crypto tokens and sales potentially trigger securities laws—even if the Trump SEC has promised most crypto tokens shouldn’t be considered securities.

Andrew Hinkes, a crypto-focused partner at Winston & Strawn, agreed. He said the SEC’s settlement with Justin Sun suggests the agency is now taking the view that crypto tokens can be sold in ways that trigger the securities laws, even if the tokens are not themselves securities.

“The fact that the SEC is settling this action suggests that the SEC seems to believe that the instruments at issue were offered in investment contracts at the relevant time,” Hinkes told Decrypt. 

It remains to be seen whether the SEC will actually enforce that view broadly, or if it was unique to Justin Sun’s case. But the move could immediately impact other litigation—such as private lawsuits filed by TRX holders against Sun.

“I wouldn’t be surprised if potential claimants point to this and try to leverage it,” Rolle said.