The SEC Ramps Up Efforts to Police Crypto Industry

As the crypto industry continues to grow and market volatility remains high, the Securities and Exchange Commission (SEC) has announced its plan to increase its regulation of the area. The SEC’s Crypto Assets and Cyber Unit, which was created in 2017, will expand from thirty to fifty positions. The unit is tasked with protecting investors from crypto-related frauds and scams. The increase in staffing will allow for more investor protection focused on the areas of crypto asset offerings, crypto asset exchanges, crypto asset lending and staking practices, decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and stablecoins. The twenty additional positions will mostly consist of supervisors, investigative staff attorneys, trial counsels, and fraud analysts.

SEC chair, Gary Gensler, explained that the unit’s expansion is necessary because despite the SEC finding that certain crypto tokens are securities and should be regulated as such, offerings of these tokens are often not accompanied by the required disclosures. Since the unit’s creation in 2017, it has brought more than eighty enforcement actions dealing with fraudulent and unregistered crypto offerings. These actions have resulted in over two billion of monetary relief.

The SEC has stated that it will continue to strengthen its enforcement division and ensure that registrants are making the appropriate disclosures. Gensler has indicated that the increase in the unit will give the division more of an ability to investigate misconduct by exploring additional tips and referrals that the division receives. The announcement comes just months after the first-ever executive order for government oversight and research into digital assets, such as cryptocurrency, was issued.

Commissioner Hester Pierce, pushed back on Gensler’s announcement on Twitter noting that “[t]he SEC is a regulatory agency with an enforcement division, not an enforcement agency,” she tweeted. “Why are we leading with enforcement in crypto?”

Despite Commissioner Pierce’s skepticism, it appears likely we will see more crypto-related enforcement actions in the coming months.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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