House Democrats Accuse SEC of Political Bias in Crypto Enforcement

In a sharply worded letter to SEC Commissioner Paul Atkins, Representatives Maxine Waters (D-CA), Brad Sherman (D-CA), and Sean Casten (D-IL) accused the regulator of a “whiplash policy reversal” in its enforcement approach. The lawmakers specifically criticized the SEC’s retreat from cases involving major crypto exchanges Binance, Coinbase, and Kraken, most of which were initiated under former Chair Gary Gensler. They argued that this shift creates “the appearance that political considerations, not legal merits, potentially drove this decision,” particularly noting that crypto firms spent tens of millions of dollars to support President Donald Trump’s 2024 re-election campaign before he appointed Atkins to reshape Gensler’s regulatory framework.

The letter’s central focus is the SEC’s case against Justin Sun, founder of the Tron network. The SEC sued Sun in March 2023, alleging his companies conducted over 600,000 wash trades to artificially inflate the TRX token’s trading volume, along with fraud and unregistered securities violations. However, in February, the SEC asked a judge to pause the litigation to explore a settlement. Lawmakers directly linked this potential leniency to Sun’s political connections, writing that “the SEC’s request to stay the Sun litigation… may have been unduly influenced by Sun’s relationship with the Trump family, including his significant financial contributions to their businesses.”

The lawmakers devoted significant attention to detailing Justin Sun’s financial engagements with Trump-affiliated crypto ventures. They highlighted Sun’s $75 million investment in World Liberty Financial, a DeFi project backed by members of the Trump family. Furthermore, they cited a since-deleted post on X where Sun pledged to buy $10 million worth of tokens from the project in September, which they characterized as “an apparent effort to persuade [the team] that he is committed to the project” and secure the release of his frozen tokens. This activity occurred “during pending settlement discussions with the SEC,” according to the letter.

Beyond political connections, the Democrats raised grave national security concerns, suggesting Sun “may be a security risk” to the United States. Although Sun is a diplomatic representative for Grenada, lawmakers cited news reports and court records indicating he resides in China and maintains links to Chinese Communist Party institutions. They referenced a 2021 announcement where Sun stated he would work with China’s Central Party School on a project linked to the country’s central bank and an internet censor. The letter also cited a report from The Verge where Sun suggested obligations to powerful government officials, and allegations from a pseudonymous investigator that Tron’s 2017 initial coin offering involved wallets connected to a CCP-linked “crypto crime cartel.”

“These circumstances create a clear appearance of regulatory capture and political interference that strikes at the heart of the SEC’s independence,” the lawmakers wrote. They urged the Commission to demonstrate that its decisions “have been—and will remain—free from foreign pressure or interference,” noting that “the involvement of a PRC national who the SEC believes may reside in Hong Kong raises a set of questions regarding the susceptibility of the SEC to potential foreign influence.”

The political firestorm over SEC enforcement comes as broader legislative efforts to clarify crypto regulation face significant hurdles. The letter emerged just as the passage of a key crypto market structure bill appeared increasingly unlikely, following Coinbase’s decision to withdraw its support. This legislation sought to delineate jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission (CFTC), with the CFTC poised to assume oversight of spot crypto trading if it passed. Its derailment follows weeks of intensive lobbying on issues including decentralized finance (DeFi) and stablecoin regulation, leaving the industry in a prolonged state of regulatory ambiguity.

While the letter reflects partisan conflicts reminiscent of prior years, the Democrats framed their demands as non-partisan, detailing “an opportunity to demonstrate to Americans that the SEC still has their back.” They called for the SEC to lean back into its case against Sun, whom they described as “one of Trump’s biggest crypto boosters.” The lawmakers’ comprehensive critique—encompassing allegations of political bias, detailed financial connections, and national security risks—places intense scrutiny on the SEC’s independence at a critical juncture for cryptocurrency regulation in the United States, with both enforcement policy and legislative clarity hanging in the balance.