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Home/Markets & Investing/SEC ENFORCEMENT ACTION · CRYPTO IRS RULING

A Trump-linked crypto project’s governance structure is under fire from its biggest investor — and the implications for user funds are not theoretical

MT

Morgan Thatcher

SEC enforcement action · Apr 13, 2026

A Trump-linked crypto project’s governance structure is under fire from its biggest investor — and the implications for user funds are not theoretical

Source: DojiDoji Data Terminal

The WLFI token is down 75% from its September peak, trading at $0.079 — an all-time low — as users confront a stark reality: their assets can be frozen at will by anonymous parties.

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In September, World Liberty Financial froze one of Justin Sun’s wallets after he transferred WLFI tokens to HTX, the crypto exchange he owns. The move locked his holdings in place. Sun responded by accusing the project of implanting backdoor controls, freezing investor funds without disclosure, and treating the community like a “personal ATM.”

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Institutional capital will enter the U.S. crypto market and anchor development in the country for the first time in nearly a decade if the CLARITY Act becomes law. This would reduce regulatory risk for firms and investors by ending a patchwork of enforcement actions. Jurisdiction would be split between the SEC and the SEC and the CFTC based on asset type and platform function, with defined registration pathways for intermediaries and trading platforms. Disclosure rules, custody standards, and investor protections would apply across the board. The SEC's Project Crypto, launched in 2025, would execute this transition through updated token taxonomy and application of the Howey test. Treasury Secretary Scott Bessent has warned that delays sacrifice U.S. competitiveness and encourage offshoring. The House has already passed the act, and the Senate Banking Committee is scheduled to hold a markup in the second half of April. The Senate must pass the legislation by May to avoid pushing consideration of the act into the period following the November 2026 midterm elections.

He demanded public identification of who controls the single guardian external owned account and the 3/5 multisig that governs the WLFI smart contract. That structure, Sun warned, gives a small, unnamed group unilateral power to freeze any token holder’s assets. “Community governance and voting are meaningless,” he said. “Every proposal, every vote, every claim of decentralised decision-making is theatre.”

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Crypto innovators will now have a predictable regulatory environment instead of an enforcement-driven model. This shift is driven by the Commodity Futures Trading Commission (CFTC) and its newly launched Innovation Task Force (ITF). The ITF is composed of a public regulators and private-sector experts from law firms, the Blockchain Association, and DeFi funds. The task force focuses on crypto, blockchain, AI, and prediction markets to establish clear guidelines. CFTC Chairman Michael S. Selig stated the goal is to provide "rules of the road" for innovators.

World Liberty Financial fired back with a public threat of litigation, calling Sun’s allegations “baseless” and accusing him of playing the victim. The exchange freeze, the accusations, and the counter-accusations have laid bare a governance model where control is concentrated, not distributed.

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A promised hourly return of P1,212 becomes a warning about unregistered crypto platforms

A promised hourly return of P1,121.08 is not an investment opportunity—it’s a red flag. The Securities and Exchange Commission (SEC) has warned the public against the unregistered scheme Ecocapsule, which dangles a maximum hourly income of P1,212.08 under its "mini" plan, promising up to P174,643.02 over 60 days. The larger plan offers up to P43,411.02 daily, totaling P347,298.08 in 80 days—returns so steep they defy legitimate market mechanics. Ecocapsule is not registered with the SEC and holds no license to solicit investments. It also promotes team-building and marketing commissions, a structure commonly tied to illegal pyramiding. The regulator identified the scheme as part of a broader trend of unauthorized digital platforms exploiting app-based access to commit financial fraud. Separately, the SEC flagged HTX Cryptocurrency Exchange and Huobi Global, operating under the HTX brand, for offering crypto trading and derivatives without corporate registration, securities licensing, or status as a registered crypto-asset service provider. These platforms distribute unauthorized application package files that, when installed, can give scammers full access to mobile devices—enabling them to intercept one-time passwords, steal banking credentials, and initiate unauthorized loans. Soliciting investments without proper registration violates Republic Act No. 8799, the Securities Regulation Code. The SEC urges the public to report suspicious schemes through its hotline or iMessage Portal. Enforcement actions and financial literacy campaigns will continue as part of the Commission’s effort to curb illegal investment activities.

The project’s financial moves have compounded the risk. Reports show World Liberty Financial used five billion WLFI tokens as collateral to borrow $75 million in stablecoins through Dolomite, a DeFi protocol founded by a World Liberty Financial adviser. That position exposed lenders to volatility and created a withdrawal bottleneck for some USD1 holders.

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Stablecoin Holders Won’t Be Protected If Reserves Fail — Even With FDIC Insurance

Individual stablecoin holders have no direct claim on reserve assets if a permitted payment stablecoin issuer (PPSI) fails — even though those reserves may be held in FDIC-insured deposits. The FDIC’s proposed rule, issued April 7 under the GENIUS Act, mandates that PPSIs fully back all outstanding stablecoins with reserves in U.S. currency or short-term Treasury bills. Those reserves, when held in bank deposits, are insured up to $250,000 — but only as corporate deposits of the issuer. There is no pass-through insurance to the individuals holding the stablecoins. That means if the issuer collapses, stablecoin holders are unsecured creditors with no priority access to the underlying reserves. The rule also requires PPSIs to demonstrate they can redeem stablecoins within two business days and maintain capital and liquidity appropriate to their risk profile. At the same time, the FDIC confirmed that tokenized deposits — regardless of underlying distributed ledger technology — qualify as insured deposits under the Federal Deposit Insurance Act. Yet the protection ends at the corporate level. The move comes as the IMF warned in an April 2 report that stablecoins, like money market funds, can appear stable until confidence breaks — at which point their structural vulnerabilities can accelerate financial crises.

CORE3, a crypto ratings firm, assigned WLFI a D grade — among the riskiest in its coverage — citing insider-heavy token ownership and weak security oversight. The token’s collapse mirrors broader altcoin declines, but its structural flaws are specific, self-imposed, and now actively contested by its largest investor. The credibility of a Trump-linked crypto venture is no longer just a market question. It’s a governance crisis.

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