The US Securities and Exchange Commission, under former chair Gary Gensler, used settlements to pressure founders of decentralized finance platforms from ever working in the industry again, according to venture capital firm Founders Fund partner Joey Krug.

“The thing people don’t really know about is that the government, in many cases, went to founders of DeFi protocols […] and basically told the founders you effectively have to do a settlement with us,” Krug said on stage at the ETHDenver conference on Feb. 27.

“In many cases, they said you also have to sign a thing that says you will never work in crypto again,” he added. “By the way, this agreement, you can’t really talk about it publicly because there’s a non-disparagement clause.”

Krug’s claim adds to a crypto industry rumor dubbed “Operation Chokepoint 2.0” that says the Biden administration tried to kill the local industry through regulators’ enforcement actions and by pressuring banks to cut off or limit services to crypto firms.

“These agencies would basically go to the founders, and they would say, ‘Hey, if you don’t agree to this, you’re just going to end up in jail.’”

Krug said such civil agencies would have to defer to the Department of Justice for it to file criminal charges, but “none of these matters have been referred to the DOJ yet.” He also claimed that “none of these founders actually broke the law.”

Krug said that at first, he “didn’t really believe” such settlements existed, but some founders — who he didn’t name — later showed him their agreements.

“Sure enough, there are clauses that say you can never work in crypto again [and] you can’t talk about this to anyone,” he said. 

“It was just a crazy, crazy administrative state that got really out of control.”

The SEC did not immediately respond to a request for comment.

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Since 1972, the SEC has included a “gag rule” in its settlements that forbids defendants from criticizing the agency’s claims — a clause that Commissioner Hester Peirce has said “undermines regulatory integrity.”

Krug said the only way DeFi founders could comment on the settlements is if Congress asked them to testify. He added there are “a lot of founders who would love to talk about how the government basically really screwed them over if Congress asked them to testify.”

Earlier this month, the bank-regulating Federal Deposit Insurance Corporation released nearly 800 pages of so-called “pause letters” that it sent banks and finance firms over their crypto services.

Both the US House and Senate held hearings on crypto debanking in early February that heard from crypto executives on their claimed torrid dealings with trying to access financial services under the Biden administration.

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Additional reporting by Turner Wright.