First Circuit Allows SEC to Freeze Crypto Proceeds in Relief-Defendant Case

Court Orders Gastauer Assets Frozen Over Crypto Fraud

The First Circuit has upheld an asset freeze against Raimund Gastauer, a relief defendant in an SEC enforcement action tied to an alleged $100 million crypto fraud. The ruling strengthens the Commission’s ability to reach third-party holdings when it suspects ill-gotten crypto proceeds, tightening the net around wallets and exchanges that might otherwise serve as safe harbors.

The case grew out of the SEC’s lawsuit against Roger Knox and several Wintercap entities for selling unregistered tokens that promised outsized yields from a supposed trading algorithm. After obtaining a preliminary injunction and asset freeze against the primary defendants, the Commission added Raimund Gastauer—Knox’s father-in-law—as a relief defendant, claiming he had received roughly $3.3 million in investor funds funneled through offshore entities. Gastauer argued that because he was never accused of wrongdoing, the court lacked authority to restrain his personal assets without showing a likelihood of dissipation or unjust enrichment. A district judge disagreed and froze the accounts; Gastauer appealed.

A three-judge panel affirmed. Writing for the court, Judge Sandra Lynch held that the SEC may freeze assets in a relief defendant’s possession when it demonstrates a likelihood that the funds are traceable to the fraud and that the recipient has no legitimate claim to them. The panel rejected Gastauer’s contention that the freeze required proof he would hide the money, ruling instead that the Commission only needed to show the assets could be returned to defrauded investors. Because Gastauer offered no evidence that the millions he received were earned through any legitimate service or investment, the freeze stands.

In plain terms, the court has told anyone who receives crypto-linked cash from targets of SEC probes that merely sitting on the money is no defense; if investigators can trace the funds and show the recipient has no clean claim, those assets can be locked before trial. The decision lowers the bar for the SEC to reach downstream wallets and custodians, even when the nominal owner is not accused of fraud.

The ruling tilts authority toward the Commission at the expense of crypto counterparties who value speed and finality. Exchanges and DeFi protocols that custody relief-defendant assets now face greater litigation risk if their customers land in enforcement crosshairs, while traders holding tokens or stablecoins that may be deemed proceeds must weigh the chance of sudden freezes. Stablecoin issuers and centralized exchanges could see compliance teams scrutinize inbound flows more aggressively, and DeFi liquidity providers may demand stronger source-of-funds attestations to avoid becoming accidental relief defendants.

Investors should treat any large, unexplained transfer from a crypto venture under regulatory heat as a flashing red light rather than a liquidity opportunity.