First Circuit Expands SEC Reach: Relief-Defendants Must Forfeit Crypto Proceeds Even Without Knowledge
SEC Wins Key Forfeiture Round in Crypto Laundering Case
The First Circuit just handed the SEC a major procedural victory, ruling that a relief-defendant in an alleged crypto fraud can be forced to hand over assets without proving he knew about the scheme. The decision keeps pressure on anyone holding or moving digital assets that regulators claim are tainted—even if they claim ignorance.
The case grew out of an SEC enforcement action against Michael Gastauer and his network of offshore companies, accused of running a years-long fraud that raised roughly $185 million through unregistered crypto and securities offerings. The agency named Raimund Gastauer, Michael’s father and a German resident, as a relief-defendant after tracing investor funds into accounts he controlled. Raimund moved to dismiss, arguing the SEC lacked jurisdiction over him and that the complaint failed to state a viable claim for disgorgement. A district judge denied the motion, and Raimund appealed.
Writing for a unanimous panel, the First Circuit held that the complaint adequately alleged Raimund received investor money without providing legitimate value in return, satisfying the low bar for naming a relief-defendant. The court rejected his personal-jurisdiction challenge, noting he had purposefully directed funds into the United States and maintained U.S. bank accounts that allegedly funneled proceeds. It also clarified that a relief-defendant need not be accused of wrongdoing; the government only has to show he holds assets that belong, in equity, to the victims.
In plain English, the ruling lowers the barrier for the SEC to freeze or claw back crypto-related funds parked with third parties. It signals that simply receiving or holding digital-asset proceeds—no matter how innocently—can expose someone to asset seizure if regulators can trace a fraud back to the source.
For markets, the decision widens the SEC’s practical reach over exchanges, custodians, and even DeFi protocols that might serve as pass-through points for investor money later labeled illicit. Traders and liquidity providers now face heightened “taint” risk: wallets or smart contracts that ever touch questionable tokens could become targets for disgorgement actions, regardless of the holder’s knowledge. Stablecoin issuers and centralized platforms may tighten compliance screens, while offshore entities could see U.S. dollar banking relationships further strained.
The message is blunt: in crypto enforcement, possession of the asset increasingly matters more than proof of intent.
