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Crypto Exchanges and Crypto Under Fire

Crypto Exchanges and Crypto Under Fire

May 24, 2023

Time to review your strategy for Crypto Assets in a new legal environment.

The last 8+ years has been an interesting time in Crypto currency.  For the most part the government has reminded quiet.  They didn’t say much. Didn’t want to get involved.  I personally know entrepreneurs in Chicago who sought to build and offer a crypto currency (coin) in a manner that was consistent with SEC regulations / expectations. The SEC didn’t want to play ball. They didn’t tell them what to do, not do or where the lines in the sand started and ended.

Not one whiff of guidance. 

I say this not in defense of where we are today in the Crypto market so much as an indication and story that provides more detail into how little oversight and regulation this marketplace has been built on.  Just how much time effort energy and attention the market was able to fill in on its own with little if any meaningful scrutiny.    

Heading into Summer of 2023 if you own Crypto Coins / Currency you need to do some homework. 

The SEC is coming after exchanges and operators. It seems there have been a lot of bad actors working in a manner that is inconsistent with basic regulations and reporting requirements.  In case you missed the first major incident… start reading up on the failure of FTX.[i] A company that was once worth $32 billion is no longer.  Its failure brought down several other firms.  Treasury Secretary Janet Yellen called FTX’s collapse a “Lehman moment” for the cryptocurrency industry. 


Today there is a long list of companies and actors who have been charged for crimes.   Including: money laundering, wire fraud, conspiring to violate US campaign finance laws and conspiracy. 

As a result, we have crypto firms going bankrupt.[ii]







Several operators are leaving the United States due to SEC action.  One of the largest, Binance has come out hard seeking to protect their business model by moving.  They claim the US regulatory crackdown is making it “very difficult” to do business.  They are currently looking to move all operations to the UK.[iii]. On May 23rd it came out in a CNBC article that Binance has “commingled” funds with clients.[iv]   Which would be like your bank treating the money in your account like theirs on the backend and suggest the accounting at Binance is or at one point was similar to a Ponzi scheme. I'm interested to see what actually happened and the facts of legal proceedings to follow.  This is a big deal with a lot of legal consequences that will continue to undermine trust in the Crypto market. 

As a result of this massive shift in the legal and business environment, digital assets that have been billed as a way to securely or secretly stash money in an anonymous way are getting pulled into the US legal system.  Consumers are finding that if their crypto is held with a custodian such as an exchange and the exchange goes bankrupt, their crypto currency is not protected and subject to loss.[v]

The average consumer is most likely unaware of this risk and others.  While those deep into (highly knowledgeable) DiFi are already aware of ways to position their crypto in a way that is self-custodial. [vi]

What to do now?  Well, the SEC[vii] and FINRA don’t want licensed financial advisors to talk about Crypto. So, this blog post is for your information only.  We do not advocate or advise on crypto, however we are not going to be naive to the fact that a lot of people have purchased coins over the past 8 years. With the market swelling to a valuation over $2 trillion dollars before coming down the last 18 months.  It would do consumers financial harm to not receive questions and resources to help them think critically about what is going on right now in an unregulated market with public and private companies under imense legla pressure after watching a number of high profile operators in the last year collapse.. 

What to do?

  • Check on the financial state of your exchange / custodian though publicly available information and filings. We expect most of the providers to go through major challenges in the next 12 – 36 months. With the possibility of ongoing, expensive, and time-consuming legal proceedings, challenges and engagements as rules are codified and expectations for “providing services” in crypto established with regulators.[viii]   


  • Document your holdings. Personally, and in your tax reporting when you file your taxes.


  • Talk with an accountant to understand how gains and losses are recorded and taxed.


  • Consider moving your holdings to a cold wallet or custodian that is in a stronger financial standing. Get more educations on the pros and cons of such moves and what you need to do to protect it moving forward.


  • Follow updates and information provided by the SEC. They publish regular investor.

alerts.  Their most recent posting (Click Here) outlines what to expect from a legitimate crypto platform / crypto asset investment service.[ix]   


Do not be complacent.  This is a time to act if you have holdings in Crypto.