The U.S. Securities and Exchange Commission (SEC), under the leadership of former chair Gary Gensler, has reportedly utilized settlements to push the founders of decentralized finance (DeFi) platforms to exit the industry permanently. This alarming claim was articulated by Joey Krug, a partner at venture capital firm Founders Fund, during his appearance at the ETHDenver conference on February 27. Krug alleged that the government has approached DeFi protocol founders with the intention of urging them to settle with the SEC.
These settlements frequently include clauses that prevent the founders from returning to the cryptocurrency sector. Furthermore, these arrangements contain non-disparagement clauses, effectively prohibiting any public discourse about the settlements. Such revelations intensify the ongoing discussions within the crypto industry, referred to as "Operation Chokepoint 2.0," which posits that the Biden administration has endeavored to restrict the domestic crypto industry through rigorous regulatory enforcement and by exerting pressure on banks to restrict services to crypto-related firms. Krug elaborated that regulatory agencies often threaten founders with the prospect of jail time should they fail to comply with the settlements.
However, he acknowledged that these civil agencies would need to consult with the Department of Justice (DOJ) for any criminal charges, and as of now, none of these cases have been escalated to the DOJ. He firmly believes that none of the involved founders have actually contravened any laws. Initially skeptical regarding the existence of such settlements, Krug claimed he was presented with agreements by unnamed founders, which confirmed the presence of these restrictive clauses. In terms of accountability, the SEC has remained silent on these accusations.
Since 1972, the SEC has included a "gag rule" in its settlements, which stops defendants from criticizing the agency's assertions. This practice has drawn criticism from Commissioner Hester Peirce, who argues that it undermines regulatory integrity. Krug proposed that DeFi founders could only bring these settlements to light if Congress called upon them for testimony.
Many founders are keen to share their detrimental experiences with government actions if provided the opportunity by Congress. In related developments, the Federal Deposit Insurance Corporation (FDIC) has recently issued nearly 800 pages of "pause letters" directed at banks and financial entities regarding their crypto services.
The U.S. House and Senate conducted hearings on the topic of crypto debanking in early February, where crypto executives vocalized the difficulties they face in accessing financial services amidst the current administration's regulations..