"Throat Lock Operation 2.0" Confirmed? FDIC Compensation and Abandonment of Appeal, Insider Details of the Crypto "Pause Letter" Revealed

On February 9th, the Federal Deposit Insurance Corporation (FDIC) agreed to pay $188,440 in legal fees and waived its right to continue the Freedom of Information Act (FOIA) lawsuit regarding the “Suspension Letter” for cryptocurrencies, thereby ending a legal dispute that has captured industry attention. The case forced regulators to disclose documents revealing how multiple banks were asked to suspend or restrict crypto-related activities.

According to a joint status report filed with the U.S. District Court in Washington, the FDIC will pay all legal fees to History Associates Incorporated. This research firm was commissioned by the United States’ largest compliance CEX to initiate the FOIA request. The FDIC also committed to adjusting its FOIA processing procedures, moving away from blanket refusals based on “record type” and instead evaluating exemptions on a case-by-case basis.

The relevant documents were first disclosed in a report from the FDIC Office of Inspector General in October 2023. The report criticized the agency for sending letters to banks demanding they suspend or cease expanding existing or planned crypto activities. The court previously ruled that the FDIC’s blanket denials and excessive redactions violated FOIA and found that they lacked good faith.

BitAML founder and CEO Joe Ciccolo stated that the ruling reflects that regulatory decisions at the time were more influenced by “political and reputational considerations” rather than traditional safety and soundness analysis. He believes that, as guardians of consumer and public funds, the FDIC should set a transparency standard.

The so-called “Stranglehold Action 2.0” refers to the coordinated efforts by multiple U.S. banking regulators to restrict crypto companies from accessing banking services. The name originates from a regulatory initiative during the Obama era targeting high-risk industries. In November 2023, the aforementioned CEX’s initial request for related correspondence was denied, leading to a lawsuit filed by History Associates. U.S. District Judge Ana Reyes repeatedly ordered the disclosure and warned the FDIC about insufficient review. Ultimately, the FDIC submitted all documents after multiple orders.

Following the settlement, CEX Chief Legal Officer Paul Grewal stated on X (formerly Twitter) that the years-long litigation “revealed dozens of suspension letters, which are direct evidence of coordinated industry suppression.” The FDIC also pledged to guide employees in interpreting FOIA more flexibly during internal training and announced it would no longer deny bank regulatory documents outright based on Exemption 8.

Once compensation is completed, both parties will formally withdraw their lawsuits. This case is seen as a significant milestone in the transparency of U.S. crypto regulation.