Trump mulls Samourai Wallet pardon; Fed Reserve helps Custodia Bank

President Trump is mulling his next crypto pardon, the SEC is determined to show it’s still an enforcement agency, and the Federal Reserve just made Caitlin Long’s Best. Christmas. Ever.

The GOP leadership of the Senate Banking Committee confirmed that there will be no markup session of their digital asset market structure bill, the Responsible Financial Innovation Act (RFIA), this week. And since this week is the last on the Congressional calendar, forward progress will now have to wait until “early 2026,” according to a spokesperson for Committee chair Tim Scott (R-SC).

The spokesperson also referenced Scott’s alleged desire for a ‘bipartisan’ bill, which is something of a turnaround from his previous comments complaining about Democrats’ “shifting objections” to the GOP’s go-it-alone effort. It seems Scott belatedly realized that some of the objections the Dems put forward were legitimate, and ignoring them could doom the bill if/when it comes to the Senate floor for a vote.

Among these objections is the ‘quorum’ issue, aka ensuring a minority party presence on federal agencies like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), both of which play a role in digital asset oversight. The CFTC is currently down to a single (GOP-appointed) commissioner, while the SEC will lose its sole remaining Dem-appointee come year’s end.

On December 15, a Decrypt reporter asked President Trump about the minority party question, to which Trump replied: “There are certain areas that we do look at, and certain areas that we do share power. And I’m open to that.” In reality, Trump has shown little interest in filling any of the empty seats on understaffed agencies, and even Trump’s pick to chair the CFTC thinks it’s doing fine with just one commissioner.

However, Trump qualified his openness by asking, “Do you think [Dems] would be appointing Republicans if it were up to them? Typically, they’re not appointing Republicans.” It might not surprise you to learn that, until now, both Democratic and Republican presidents have indeed shown deference to the minority representation precedent, which is a legal requirement, not the whim of the individual occupying the White House.

Meanwhile, Wednesday saw Scott host a meeting with crypto execs and advocacy groups, along with a few Dem senators plus (reportedly) representatives of Goldman Sachs (NASDAQ: GS), BNY (NASDAQ: BK), the Financial Services Forum, and the Securities Industry and Financial Markets Association (SIFMA) on Wednesday.

The meeting was called so stakeholders could review the latest agreed-upon draft of the RFIA. This new draft, which has yet to leak, almost certainly still contains areas marked TBD, including the fight over stablecoin ‘yield v rewards’ and the ever-vexing question of how much responsibility decentralized finance (DeFi) developers will bear when bad actors use the platforms for illicit purposes.

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Pardon me?

Speaking of DeFi devs, Trump was asked Monday regarding a possible pardon for Keonne Rodriguez, co-founder of the defunct coin mixing service Samourai Wallet.

Rodriguez was sentenced to five years in prison last month, while Samourai’s other co-founder, William Lonergan Hill, got four years. This summer, both men pleaded guilty to operating an unlicensed money transmitting business after years of blatantly promoting their platform’s capacity to evade U.S. economic blacklists.

Asked about a possible pardon for Rodriguez, Trump said: “I’ve heard about it, I’ll look at it.” Trump directed his next comments at U.S. Attorney General Pam Bondi, who was in the room at the time, telling her, “We’ll look at that, Pam.” (For the record, Bondi leads the Department of Justice that prosecuted the Samourais, evidently with Bondi’s blessing.)

But Rodriguez told Decrypt that he doubts he’ll receive a pardon. Rodriguez cited the Samourais’ lack of resources to influence Trump’s decision-making compared to Changpeng ‘CZ’ Zhao, founder of the Binance exchange, who received a pardon from Trump in October. “We’re not CZ. We don’t have billions of dollars. We don’t have the same type of influence people like that have.”

Not long before CZ’s pardon, Binance was involved in a controversial three-way deal that saw Binance purchase $2 billion worth of USD1, the Trump-linked stablecoin. Shortly after the pardon was granted, Binance’s U.S.-facing exchange Binance.US announced it would start accepting USD1 deposits. Binance also reportedly assisted last year’s launch of the Trump-linked DeFi project World Liberty Financial (WLF).

(On Wednesday, Bloomberg reported that Binance was considering several approaches for rebooting the struggling Binance.US. Among the options being considered are reducing CZ’s ownership stake in Binance.US and for the exchange to enter into a partnership with a U.S. entity like BlackRock (NASDAQ: BLK) or—wait for it—WLF.)

Rodriguez may doubt that Trump will follow through, but hope dies hard. Ahead of his Friday deadline for reporting to prison, Rodriguez is giving interviews and tweeting about how Trump “knows what lawfare and weaponized justice looks like … And it is all over our case, just like his.” On December 15, Rodriguez tweeted “Let’s get this over the line.”

Rodriguez also found time to tell Gavin Newsom to “suck a lemon” after California’s governor released a new website listing “Trump’s top 10 criminal cronies.” The list includes both CZ and Ross Ulbricht, founder of the defunct Silk Road darkweb marketplace, who Trump pardoned shortly after he was sworn into office this January. Also making Newsom’s naughty list were the four ‘BitMEX bros’ that Trump pardoned in March.

Ulbricht himself tweeted a list of men he claimed “created tools of freedom and financial independence,” for which they were “rewarded with federal prison sentences.” In addition to the Samourais, Ulbricht added Roman Storm (of rival mixer Tornado Cash), Roman Sterlingov (of the Bitcoin Fog mixer), and Ian Freeman (who laundered money through crypto ATMs).

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SEC denies Trump link to crypto suit dismissals

This weekend, the New York Times published a lengthy article detailing the connections between Trump, his family’s numerous crypto ventures, and the growing number of crypto firms who’ve had their SEC probes paused or dropped. The Times noted that “although the particulars of the crypto lawsuits differed, many of these firms had something in common: financial ties to Mr. Trump.”

The Times said the SEC “is no longer actively pursuing a single case against a firm with known Trump ties. The SEC “backtracked against every firm that either has relationships with the Trump family’s crypto businesses or has donated to his political causes. The agency’s only remaining crypto cases are against little-known defendants without clear ties to Mr. Trump.”

The SEC told the Times that political favoritism “had nothing to do with” how it handled crypto enforcement. The Times acknowledged that it had no evidence that Trump pressured the SEC to go easy on crypto firms, nor was there any direct evidence that the firms whose probes were dropped had tried to influence the cases against them through donations or business ties to Trump.

That said, it probably wasn’t the greatest timing for Sani Kulechov, founder/CEO of the Aave digital asset lending platform, to announce just two days later that “the SEC has concluded its investigation into the Aave protocol.” Kulechov’s tweet included a screenshot of an SEC letter dated August 12 declaring that “we do not intend to recommend an enforcement action” against the entities/individuals behind Aave.

For what it’s worth, in October 2024, Trump’s WLF announced that it was deploying an Aave V3 instance for WLF. This January, WLF announced that it had purchased $4.7 million worth of AAVE tokens. In July, WLF borrowed $7.5 million worth of the USDT (Tether) stablecoin from Aave to boost WLF’s USD1 stablecoin. In August, confusion reigned over conflicting claims that the Aave decentralized autonomous organization (DAO) had approved a plan by which Aave would be granted 7% of WLFI’s token supply in exchange for deploying WLF on Aave V3.

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SEC v Shima Capital

The first of these pitches, which occurred between May 2021 and March 2023, raised $158 million from 349 investors for the crypto-focused Shima Capital. The SEC alleges that Gao’s pitch deck claimed a 90x return on his prior investments, when the real number was 2.8x. Shima also lied to investors regarding the content of a news article that pointed out the pitch deck’s discrepancies, with Gao telling investors the wonky math was a simple clerical error.

The second pitch occurred between April and May 2021 and raised nearly $12 million from five investors for a special purpose vehicle Gao called BitClout SPV. GAO told investors he could buy BitClout tokens at a 20-40% discount, but Gao sold these tokens to BitClout SPV at a higher price than he paid, pocketing the $1.9 million difference.

The SEC said Gao had agreed to a settlement that required him to pay disgorgement of over $3.9 million plus $304,622 in interest. Gao also agreed to be permanently enjoined from engaging in future violations of this sort, as did Shima Capital.

On December 16, former journo Kate Irwin tweeted a screenshot of an email she said Gao had sent Shima’s portfolio company founders on November 26, in which Gao shares the “difficult but important news” that he had begun to “transition down as Managing Director of Shima Capital Management LLC.” Gao added that the fund “will undertake an orderly wind-down and monetize investments as liquidity and market conditions allow.”

Gao said he accepted “full responsibility” for inflating his “pre-Shima track record.” Gao also accepted responsibility for profiting at the expense of BitClout investors, adding that he “will be paying back the amount I gained” from this deception.

Gao’s shenanigans were public knowledge for over a year now, having been reported on by Fortune and other publications that noted declining assets-under-management amid questionable practices by Gao, as well as Shima’s inability to find an auditor willing to stamp its books with their seal of approval.

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OFAC settles with Exodus wallet, DoJ fines Paxful

Other federal agencies appear equally keen to emphasize that the government hasn’t completely abandoned its pursuit of crypto criminals. On December 16, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $3.1 million settlement with Exodus Movement Inc., operators of the Exodus digital wallet.

OFAC claims that between October 2017 and January 2019, Exodus provided customer support services to users in Iran in violation of OFAC’s sanctions on the country. OFAC cited 254 apparent violations, 12 of which were described as “egregious,” and none of which were voluntarily disclosed.

The violations included instances in which Exodus customer support staff recommended the use of virtual private networks (VPNs) to Iran-based users looking to evade sanctions controls at certain digital asset exchanges. These recommendations were made despite knowledge that the customers were based in Iran and that the exchanges in question were blocking users from that country.

Some $630,000 of the settlement will be used to bolster Exodus’s sanctions compliance controls. OFAC noted that Exodus provided substantial cooperation to OFAC over the “yearslong” investigation and that the violations in question were “a fraction of a percent” of its total number of Exodus wallet downloads and customer support queries during the period in question.

Meanwhile, on December 9, the Treasury’s Financial Crimes Enforcement Network (FinCEN) slapped a $3.5 million civil penalty on the peer-to-peer exchange/wallet Paxful Inc and Paxful USA for willful violations of the Bank Secrecy Act (BSA).

FinCEN accused Paxful of facilitating “more than $500 million in suspicious activity involving a host of illicit actors,” including sanctioned countries like Iran, North Korea, and Venezuela, as well as Backpage.com, the website shut down by the feds in 2018 for facilitating prostitution and sex trafficking.

Paxful admitted to willful violations of the BSA, including failing to register with FinCEN as a money services business for nearly a three-year period and failing to file suspicious activity reports. In fact, Paxful failed to implement any written anti-money laundering (AML) program in its first four years of operation.

The next day, the Department of Justice (DoJ) imposed a $4 million criminal penalty on Paxful Holdings for violating the Travel Act by promoting illegal prostitution through interstate commerce, conspiring to operate an unlicensed money-transmitting business by knowingly transmitting funds derived from criminal offenses, and conspiring to violate the BSA’s AML requirements.

Paxful suspended operations in April 2023 after the implosion of the Celsius Network crypto lender took millions of Paxful customers’ dollars with it. Paxful restarted its operations in May but shut down for good this November due to “the lasting impact of historic misconduct by former co-founders Ray Youssef and Artur Schaback.”

Schaback pleaded guilty in July 2024 to conspiracy to fail to maintain an effective AML program. Schaback was supposed to be sentenced that November, but there’s been no additional reporting on what occurred or why his sentencing might have been delayed.

Youssef, who went on to lead the P2P trading platform NoOnes (which was hacked for $8 million in January), responded to Paxful’s shutdown announcement by saying “Paxful should have closed down when I left the company two years ago. I told the new management that p2p crypto doesn’t work when you are based in the U.S., but they preferred to serve Uncle Sam instead of doing what was right for their users.”

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Federal Reserve bails out Custodia Bank

On December 15, Custodia Bank, which holds special-purpose depository institution (SPDI) status in Wyoming, filed an appeal of the October 31 ruling that the Federal Reserve Board of Governors was correct in denying Custodia access to a Fed master account.

That 2-1 ruling by a three-judge panel of the U.S. Court of Appeals for the Tenth Circuit said the Fed had the discretion to reject access to master accounts “to safeguard our nation’s financial system.” But the dissenting judge argued that the Kansas City Fed had “unlawfully denied [the crypto-friendly Custodia] access to those services which are vital to its business.”

Custodia’s 101-page filing for an ‘en banc’ review by the full 10th Circuit Appeals Court liberally quotes from Judge Tymkovich’s dissent. But appeals of this nature are rarely granted, usually in cases involving significant issues of public interest or situations in which one ruling contradicts another ruling by the same circuit court or the U.S. Supreme Court.

But it may not matter, because the Federal Reserve issued a notice on December 17 withdrawing a 2023 policy statement that directly impacts Custodia’s case. The 2023 statement governing banks’ “novel and unprecedented” activities limited Board-supervised state member banks to the same activities permissible for banks supervised by other federal bank regulators.

However, the Fed notes that since that 2023 statement was issued, “the financial system and the Board’s understanding of innovative products and services have evolved. As a result, the 2023 policy statement is no longer appropriate and has been withdrawn. The new policy statement creates an avenue for both insured and uninsured Board-supervised state member banks to engage in certain innovative activities.”

The new policy states that uninsured state member banks may be permitted by the Board “to engage as principal in activities that are not authorized for national banks or insured state-chartered banks, provided that the Board finds that the uninsured state member bank would be capable of engaging in such activity in a manner consistent with bank safety and soundness and preserving the stability of the U.S. financial system.”

Not all Fed governors supported this decision. Gov. Michael Barr, who until February served as the Board’s vice-chair for supervision, issued a statement saying, “I cannot agree to rescind the current policy statement and adopt a new one that would, in effect, encourage regulatory arbitrage, undermine a level playing field, and promote incentives misaligned with maintaining financial stability.”

Reaction from Custodia founder/CEO Caitlin Long was immediate and effusive, tweeting “the Fed broke the law by citing this very guidance in the Custodia denial, even tho the guidance hadn’t become official yet.” Long said it wasn’t surprising that “the Fed’s debanker-in-chief, Michael Barr, dissented” but claimed “nature is healing.”

It hasn’t been two months since Fed Gov. Christopher Waller suggested that the Fed could create “skinny master accounts” that would focus “primarily on payment innovations” for crypto operators. But with the Fed tearing down the walls that prevented access to full master accounts, who wants the diet version when the full-fat/all-carb version can be yours for the same price?

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