Democrats Challenge SEC Over Dropped Crypto Cases as Platform X Restricts Token Reward Programs

Congressional Democrats Criticize SEC Enforcement Retreat

Several Democratic members of the U.S. House of Representatives are intensifying pressure on the Securities and Exchange Commission over its recent handling of cryptocurrency enforcement cases. Representatives Maxine Waters, Sean Casten, and Brad Sherman sent a letter to SEC Chair Paul Atkins criticizing the agency for suspending or dismissing numerous prominent crypto proceedings since early 2025, including the case against Tron founder Justin Sun ^[1].

According to the lawmakers, the SEC has withdrawn from more than a dozen enforcement actions, including cases against major exchanges Binance, Coinbase, and Kraken ^[1]. The representatives argue this development raises fundamental questions about the agency's priorities and enforcement capabilities, particularly given previous investor losses in the industry.

Allegations of Political Influence

The timing of the SEC's enforcement retreat has drawn particular scrutiny from Democratic lawmakers, who note it coincides with significantly increased political contributions from the cryptocurrency sector. The representatives described what they call an "unmistakable conclusion of a pay-to-play system" ^[1].

According to the congressional letter, crypto companies donated at least 85 million dollars to President Donald Trump's reelection campaign ^[1]. Additionally, several firms whose cases were dismissed reportedly contributed at least one million dollars each to Trump's inauguration ^[1].

Justin Sun Case Under Spotlight

The lawmakers specifically highlighted the SEC's prosecution of Justin Sun, which has been paused for nearly a year ^[1]. Sun was sued in 2023 over allegedly unregistered securities offerings, market manipulation, and misleading celebrity endorsements ^[1].

The representatives criticized the prolonged suspension, arguing it sends a message that securities laws are being selectively enforced in favor of politically influential actors ^[1]. They also raised security concerns regarding Sun's alleged connections to China and demanded the preservation of all relevant communications ^[1].

X Platform Eliminates Crypto Posting Rewards

In a separate regulatory development, Elon Musk's social media platform X has discontinued programs that allowed cryptocurrency projects to compensate users with tokens for posting content. X product chief Nikita Bier announced the company revoked API access for these reward applications, stating they generated excessive spam and low-quality AI-generated posts ^[2].

Following the announcement, the KAITO token declined approximately 15 percent, dropping from around 0.70 dollars to 0.57 dollars ^[2].

Industry Adapts to Platform Changes

KaitoAI founder Yu Hu announced the company would shut down its "Yaps" rewards and leaderboard system in response to X's policy change ^[2]. Kaito is transitioning to a new model called Kaito Studio, which will emphasize higher-quality creators and improved brand partnerships rather than mass reward programs ^[2].

Hu explained that while Yaps was designed to fairly compensate users based on contributions, spam proliferated on X due to other projects maintaining weaker standards and algorithm changes that allowed low-quality content to spread ^[2].

The new Kaito Studio will implement a tiered system connecting brands with selected creators based on data and relevance, expanding to platforms including YouTube and TikTok before moving into non-crypto sectors ^[2]. Hu confirmed that Kaito's other products, including Kaito Pro, API, Launchpad, and Markets, remain unaffected by the changes ^[2].

The platform's decision generated mixed reactions within the cryptocurrency community, with some experts attributing the problem to AI spam campaigns while others praised X for addressing fake engagement and improving content quality ^[2].