The SEC suffered a significant loss last week in its ongoing legal battle with Ripple over the XRP digital token. While the District Court held that Ripple’s initial sales of XRP to institutional investors constituted the sale of unregistered securities, it was a Pyrrhic victory as the court held
SEC enforcement
The Crypto Wars Escalate
The gloves are off. The SEC’s recent enforcement actions against leading crypto exchanges suggest that the SEC has decided that time’s up for the crypto industry as it currently exists in the United States.
After spending years urging industry participants to come in and register, the SEC has made clear,…
SEC to Hire More Staff in Crypto Assets and Cyber Unit and Ratchet Up Scrutiny of Industry
By Jeffrey Neuburger on
The Securities and Exchange Commission (SEC) announced today that it would hire 20 additional positions to the Crypto Assets and Cyber Unit (formerly known as the Cyber Unit) within the Division of Enforcement, increasing the number of dedicated positions to 50. The “Crypto Unit” is tasked with protecting investors in crypto markets and from cyber-related threats. With more personnel and resources available, the SEC believes the unit will be “better equipped to police wrongdoing in the crypto markets” while still staying involved in disclosure and controls issues with respect to cybersecurity.
According to the release, the 20 additional hires will include supervisors, investigative staff attorneys and fraud analysts, with a focus on investigating securities law violations in: crypto asset offerings, exchanges, and lending and staking products; decentralized finance (“DeFi”) platforms; non-fungible tokens (“NFTs”); and stablecoins.
As we stated in a recent post, statements and proposals by financial regulators suggest that providers should expect more scrutiny and additional compliance hurdles going forward.
Decentralized Finance: The Next Frontier of SEC Enforcement
By Wai Choy & Jeffrey Neuburger on
The SEC’s push to regulate the next generation of blockchain-based applications will likely give rise to disputes and enforcement actions, particularly in the developing decentralized finance (DeFi) space. Although DeFi has the potential to enhance or replace traditional financial products by speeding execution and reducing transaction costs using blockchain technology,…
SEC Brings Charges against Blockchain-Based Trading Platform over Alleged Violations of Disclosure Rules
By Sarah Hughes on
On January 10, 2022, the Securities and Exchange Commission (“SEC” or the “Commission”) announced it settled charges in In re tZERO ATS, LLC, No. 93938 (SEC Order Jan. 10, 2022) (“Order”). The Order details how the SEC fined blockchain-based trading platform tZERO ATS, LLC (“tZERO”), an alternative trading systems (“ATS”), for alleged violations of Regulation ATS, which requires certain disclosures to the Commission.
An ATS is a trading system that meets the definition of “exchange” under federal securities laws but is not required to register as a national securities exchange if the ATS operates under an exemption provided under regulations under the Securities Exchange Act of 1934 (“Exchange Act”). As stated in the Order, tZERO is an ATS that offers both “digitally enhanced securities” recorded on a blockchain and trading and settlement services for unique investments that may not be available through traditional brokerages.
SEC Brings Charges against Allegedly Fraudulent Unregistered Decentralized Finance Project That Ran on the Ethereum Platform
By Karen J. Garnett on
On August 6, 2021, the Securities and Exchange Commission (SEC) announced that it had charged two men, Gregory Keough and Derek Acree, and their company, Blockchain Credit Partners, doing business as DeFi Money Market (collectively, the “Respondents”), for unregistered sales of more than $30 million of securities using smart contracts and so-called “decentralized finance” (DeFi) technology and for making false and misleading statements about their business to investors in violation of the federal securities laws. (In re Blockchain Credit Partners, No. 3-20453 (SEC Order Aug. 6, 2021)).
In recent days, many eyeballs were closely watching the drama behind the cryptocurrency taxation and transparency measures contained in the Senate’s infrastructure bill and are still digesting SEC Chair Gary Gensler’s recent remarks before the Aspen Security Forum that offered some clues on where the agency will go with respect to cryptocurrency regulation and enforcement. Meanwhile, the SEC continued its enforcement efforts to shut down what it deems fraudulent and unregistered securities offerings involving digital assets. After ceasing operations in February 2021, Respondents consented to a cease-and-desist order that includes disgorgement totaling almost $13 million and civil penalties of $125,000 each of the individual Respondents. The SEC’s order provides another example of how the now-familiar investment contract analysis applies to tokens, with some additional insights on the impact of voting rights under the Howey test and a further analysis of tokens as notes.
SEC Chair’s Remarks Suggest Crypto is the “Wild West,” Signaling Future Enforcement and Desire for Enhanced Regulatory Authority
By Karen J. Garnett & Jonathan Mollod on
Gary Gensler, Chair of the Securities and Exchange Commission (SEC), attracted a lot of attention following his remarks at the Aspen Security Forum earlier this month, asking Congress for more authority “to write rules for and attach guardrails to crypto trading and lending” and opining that for the “volatile” industry to truly prosper it needs more investor and consumer protections. But make no mistake: Gensler is not waiting around for Congress to act. In his remarks, Gensler highlighted various areas where the SEC currently has jurisdiction and emphasized that “we have taken and will continue to take our authorities as far as they go.”