SEC Under Gary Gensler Targets CyberKongz and Unicoin With Wells Notices in Final Push Before Trump Takeover

SEC Targets Unicoin with Wells Notice in Final Push Before Gensler's Exit

Gary Gensler’s departure from the U.S. Securities and Exchange Commission (SEC) is just a month away, but the embattled chair is showing no signs of easing the regulatory pressure on the crypto sector.

The recent target of the SEC's aggressive approach is Unicoin, a U.S.-based cryptocurrency investment firm, which received a Wells Notice last week.

The SEC plans to file a lawsuit against the company, accusing it of fraud, deceptive practices, and the offering and sale of unregistered securities.

Wells Notice: A Formal Warning

A Wells Notice is a formal warning issued by the SEC before legal action is taken, and it indicates the agency's intention to accuse the company of serious infractions.

While the exact violations were not detailed, the notice specifically raised concerns about fraud.

Unicoin's CEO, Alex Konanykhin, confirmed in an interview with Fortune that the SEC had previously issued subpoenas to his company in May.

The subpoenas focused on Unicoin’s primary product: a cryptocurrency backed by real-world assets, including a significant real estate portfolio.

Konanykhin expressed frustration with the SEC’s actions, describing the agency’s approach as “bullsh*t,” a sentiment echoed across the crypto community, which has increasingly viewed Gensler's enforcement actions as politically motivated.

“Complete and utter bullsh*t,” Konanykhin added, reflecting the broader frustration felt by many in the industry regarding the SEC’s stance on crypto.

SEC's Latest Target: CyberKongz NFT Gaming Project

The SEC's aggressive approach didn't end there; its latest target is NFT gaming project CyberKongz.

On 16 December 2024, the project received a Wells Notice from the SEC, indicating potential enforcement actions over its 2021 Genesis Kongz contract migration, which the SEC views as a token sale.

CyberKongz disputes this, calling it a technical upgrade and accusing the SEC of misunderstanding blockchain technology.

SEC’s Ongoing Legal Campaign

The Wells Notice against Unicoin and CyberKongz is just the latest in a series of lawsuits and enforcement actions initiated by the SEC.

Under Gensler's leadership, the SEC has targeted some of the biggest names in crypto, including exchanges like Coinbase and celebrities like Kim Kardashian for promoting digital assets.

Initially, there had been optimism that Gensler’s background as a blockchain educator at MIT might translate into a more open regulatory stance toward the crypto industry.

However, following the collapse of FTX in November 2022, Gensler took a hardline approach, labelling much of the crypto sector as a “Wild West” riddled with scams and fraud.

Despite facing significant pushback from crypto companies, investors, and politicians, Gensler's SEC has continued to ramp up enforcement actions.

Many of the industry’s biggest players have sought to unseat Gensler through political channels, with former President Trump emerging as a prominent supporter of crypto.

Gensler announced his resignation in January, yet the SEC has pressed ahead with legal action, including the Unicoin case.

Unicoin’s Unconventional Structure and Ambitions

Unicoin differs from many other crypto firms facing regulatory scrutiny.

Founded in 2015, the company’s offering is unique in that its cryptocurrency is backed by tangible assets, such as real estate.

In one of its notable deals earlier this year, Unicoin secured nearly 8,000 acres of land in the Bahamas valued at over half a billion dollars in exchange for future token issuance.

Konanykhin claims that Unicoin has sold $3.5 billion worth of its tokens, targeting around 70,000 investors through various deals, including buy-now-pay-later agreements.

Unicoin’s structure, collateralised by real-world assets, sets it apart from many other crypto projects, which typically lack such tangible backing.

Konanykhin asserts that Unicoin views its token as a security and has worked with the SEC for years, although it never managed to formally register with the agency.

While the company has faced multiple SEC investigations, this is the first time it has received a Wells Notice.

SEC’s Focus on Fraud Violations

Unlike previous enforcement actions against major crypto companies like Coinbase, the SEC’s Wells Notice against Unicoin includes fraud-related violations, marking a significant departure in its approach.

Konanykhin believes this is a targeted effort to block Unicoin's upcoming Initial Coin Offering (ICO), a move that he believes is politically motivated in response to Unicoin’s plans to go public.

The SEC, however, has remained tight-lipped about the specifics of the investigation, with a spokesperson stating,

“The SEC does not comment on the existence or nonexistence of a possible investigation.”

Konanykhin’s frustration with the SEC’s actions is palpable.

In the Fortune interview, he questioned how Unicoin had become such a focal point for the SEC, stating,

“How did we get so important to become the final focus of the SEC?”

He also mentioned that Unicoin had entered into a standstill agreement earlier in the year, which prohibited the company from proceeding with its ICO or going public.

However, following Trump’s victory in the recent election, Konanykhin decided to breach that agreement, seeking to move forward with the firm’s plans.

CyberKongz's Defiance and Origins Amid SEC Scrutiny

Meanwhile, CyberKongz has expressed strong opposition to the SEC's Wells Notice, accusing the regulator of lacking comprehension of blockchain technologies.

In a statement, the project criticised the SEC for equating its 2021 contract migration to a token sale and pledged to contest the notice while defending the blockchain gaming sector from what it sees as regulatory overreach.

Founded in 2021, CyberKongz emerged as a pioneer in the NFT space, offering randomly generated 2D and 3D avatars with unique attributes.

Known for its “play & kollect” games on the Ronin blockchain, the project has gained a loyal following without venture funding or significant treasury backing.

Its Genesis Kongz NFTs introduced utility tokens like BANANA, creating an innovative model that blends gaming with blockchain technology.

Despite the SEC's scrutiny, CyberKongz continues to hold its ground, with its NFT floor price remaining resilient at 8.2 ETH ($32,800).

The Clock is Ticking

With Gensler set to step down in January, there is uncertainty surrounding whether the SEC will be able to file a lawsuit before the end of his tenure.

The pressure on the agency to conclude its legal battles before the change in leadership is mounting.

As the crypto industry braces for what could be one of its final confrontations with Gensler’s SEC, many are watching closely to see how the agency’s stance will evolve in the future.

Unicoin, for its part, plans to fight back against the SEC’s charges, with Konanykhin confirming that the company intends to engage in a prolonged legal battle.

CyberKongz, on the other hand, plans to challenge the SEC's Wells Notice, arguing that the regulator misunderstands blockchain technologies and has made unjust accusations.

The project aims to defend itself while advocating for the broader blockchain gaming industry, particularly projects that combine NFTs with utility tokens.

Despite operating without venture funding or significant treasury reserves, CyberKongz is determined to contest the SEC’s stance, which it believes lacks clarity and fairness.