A new report highlights Gary Gensler's aggressive approach to the cryptocurrency industry. Samuel Corum – Bloomberg via Getty Images
After a disastrous 2022 that included the collapse of FTX, the SEC's enforcement actions against cryptocurrency companies reached a record high in 2023, according to a new report.
Data compiled by consulting firm Cornerstone shows a 53% jump from 2022, with a total of 46 actions nearly double what happened in 2021, the year Gary Gensler became SEC chairman.
Among the actions, 20 cases within the agency were resolved as administrative actions, such as the case against Kim Kardashian, who agreed to settle charges and pay $1.26 million for promoting EMAX tokens on social media without disclosing that she was paid $250,000 for the delivery.
According to the report, the total penalties settled against the industry in 2023 amounted to $281.4 million, an increase of about $40 million over the previous year. At the end of 2023, SEC-wide penalties totaled approximately $2.89 billion — roughly 0.1% of the industry's total value.
The lion's share of allegations still relate to fraud and unregistered securities, at 57% and 61% respectively – with many cases overlapping – underscoring the ongoing tension over how to define crypto assets from a legal standpoint.
“Execution is a tool, not the destination,” said a March 2023 op-ed by Gensler cited in a Cornerstone report. The goal is to make market participants comply with laws and rules and protect our “clients”: American investors.
The SEC did not immediately respond to additional requests for comment luck.
Aftershocks
The 2023 numbers suggest some long-term effects from the previous year, when several cryptocurrency companies, including BlockFi and Three Arrows Capital, as well as FTX, collapsed and sent shockwaves throughout the industry.
Much of the litigation is still ongoing, including SEC cases against both Coinbase and Binance, which hinge on how assets traded on the two exchanges are legally classified. Every company seeks early dismissal of its case.
“The SEC continues to claim broad authority over all investments while offering no limiting principle to its definition of an investment contract,” Paul Grewal, chief legal officer at Coinbase, said in a statement. tweet After the hearing.
Today we presented the arguments in our proposal to bounce @SECgov suit against @coinbase. Hours and hours later, this remains clear: The SEC continues to claim broad authority over all investments while offering no limiting principle to its definition of an investment contract. 1/4
– paulgrewal.eth (@iampaulgrewal) January 17, 2024
In the case of US-based Coinbase, said Elliot Stein, senior litigation analyst at Bloomberg luck He expects a 70% chance The lawsuit filed by the regulator in June 2023 will be dismissed by the end of the second quarter.
However, with Binance, an offshore exchange, it becomes more complicated. In November, it admitted breaching the law by failing to use adequate anti-money laundering controls, with founder Changpeng Zhao stepping down as CEO after pleading guilty. Chow is awaiting sentencing next month, but could face up to 18 months in prison.
The SEC argued that the settlements showed that Binance knew it was improperly targeting customers in the United States. In its response, the company argued in a filing that securities laws do not apply such as the Bank Secrecy Act or the International Emergency Economic Powers Act — laws that govern the charges that Binance settled.
“Judicial admissions under the BSA do not make any of the SEC’s claims accessible to the securities laws,” Binance and Zhao claimed in the filing.
Another notable case was the failed Terraform Labs trial, where a federal judge sided with the SEC and ruled that four of its cryptocurrency tokens — including UST and LUNA — constituted unregistered securities. The ruling was a departure from a case against Ripple in which a different judge decided that the exchange's native cryptocurrency, XRP, are not securities — at least in some cases.
Amid the SEC's recent wave of lawsuits, a federal judge in Utah also accused the agency of getting out of line in its prosecution of Digital Licensing Inc. The SEC, according to U.S. District Judge Robert Shelby, appears to have provided “materially false and misleading information.” “Representations” in order to freeze millions of dollars in assets belonging to the project. The agency later apologized.
“I fully appreciate the extraordinary responsibility entrusted to the SEC when enforcing the federal securities laws,” SEC Enforcement Chief Gurbir Grewal wrote. “I understand that the department did not live up to these standards in this case, and I apologize for this shortcoming.”
