The SEC charged that a scheme in which Gemini pooled customers' crypto assets and lent them to Genesis while promising the customers high interest returns is an unregistered security. The SEC case, like that against Coinbase, will proceed.

Both rulings tended to negate a 2023 ruling from federal Judge Analisa Torres of New York in an SEC enforcement action against Ripple, the developer of a crypto token known as XRP. Torres found that under some circumstances the token might not be a security. But her ruling is being buried by an onslaught of decisions by her colleagues that the crypto marketers and exchanges are dealing in unregistered securities, which is illegal.

The hangover from March continued into this month. On April 5, a federal jury in New York found Terraform Labs and its chief executive and major shareholder, Do Kwon, liable in what the SEC termed "a massive crypto fraud."

The case involved Terraform's so-called stablecoin UST, a crypto token that was pegged 1 to 1 with the U.S. dollar. Kwon was not in court to hear the verdict; he is in custody in the Balkan country of Montenegro while U.S. and South Korean authorities vie for his extradition.

Terraform had claimed that UST coin would automatically "self-heal" via a software algorithm if its value fell below the $1 peg. That happened in May 2021. When the coin did return to its $1 value, the SEC alleged, Terraform and Kwon bragged that the price restoration was a triumph over the "decision-making of human agents in a time of market volatility."

In fact, the algorithm had nothing to do with it. According to testimony at the trial, which began in late March, Terraform was secretly bailed out by the trading firm Jump Trading, which may have invested tens of millions of dollars to prop up UST and emerged from the deal with a profit that may have exceeded $1 billion. Failing to disclose that arrangement to investors broke the law, the SEC said.

Kwon and Terraform also lied to the public that Chai, a South Korean financial firm akin to Venmo, was using Terraform to process transactions; in fact, Chai had ceased using Terraform in 2020, the SEC said.

These deceptions, the agency alleged, painted a picture of robust health within Terraform that came apart in May 2022, when UST again depegged from the U.S. dollar and could not be restored. The value of UST fell in effect to zero, the SEC said, "wiping out over $40 billion of total market value ... and sending shock waves through the crypto asset community."

Terraform is now bankrupt; no charges have been brought against Jump.

These events should give American lawmakers pause as they ponder what to do, if anything, about regulating crypto. At a hearing Tuesday of the Senate Committee on Banking, Housing, and Urban Affairs, Sen. Sherrod Brown (D-Ohio), the committee chairman, warned that crypto is a potential threat to national security.

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