SEC Hiring Spree to Fight Crypto Fraud
The Securities and Exchange Commission (SEC) is expanding its fight against cryptocurrency fraud. It will soon increase its staff by hiring a “double whammy” of analysts and attorneys. They will almost double the size of the new Crypto Assets and Cyber Unit, which is dedicated to investigating cyber-related threats to the nation’s markets. This unit already has 30 full-time employees, and it will have 50 by the end of this year.
SEC Chair Gary Gensler has defended the agency’s efforts against crypto-corruptions, stating that it was important to dedicate resources to protect the crypto market. He also emphasized that retail investors are the primary victims of crypto fraud.
SEC has charged several individuals with violating federal securities laws. Among them are Sarah L. Theissen and Cheri Beth Bowen. In addition, Ronald R. Deering and Mark F. Hamlin have agreed to settle charges.
SEC has a track record of winning enforcement actions against crypto entities. One of its biggest victories was against LBRY, a crypto-based exchange that sold tokens to U.S. investors without complying with federal securities laws. Another was against Kik, a messaging app that sold digital asset securities to US investors.
The SEC has also been a leader in addressing cyber-related threats to the nation’s market. It has brought forward dozens of enforcement actions involving crypto projects. Additionally, it has also partnered with the IRS Criminal Investigation Division to investigate Silk Road, a darknet drugs marketplace.
As more investors enter the crypto market, the SEC is putting a special unit in place to combat cryptocurrency fraud. Its first action was against BlockFi Lending LLC, which violated the Investment Company Act of 1940.
Coinbase is currently facing an SEC investigation. The exchange has offered a crypto product, called Lend, which purported to offer 4% interest on the USD Coin. However, it hasn’t registered the program with the Treasury Department.
SEC’s Crypto Assets and Cyber Unit has compiled numerous enforcement actions against public companies and registrants. A few of its notable cases include the case against Kik, which sold digital assets to investors without complying with federal securities laws. Also, the SEC’s action against BlockFi Lending LLC was the first known SEC case involving a crypto-lending product.
While the SEC has a clear stance on crypto-related matters, it is not providing consumers with a clear understanding of its anti-crypto posture. In fact, it has been repeatedly scolded for its failure to investigate crypto firms in November 2022.
On the same day the SEC denied a request for a comment letter from Grayscale, the firm asked the U.S. Court of Appeals for the District of Columbia Circuit to review the agency’s decision. Since the Howey Decision over seventy-five years ago, federal courts have confirmed SEC’s jurisdiction in emergency asset freeze hearings involving crypto markets.
However, the SEC’s crypto-related efforts have been consistently criticized by crypto enthusiasts for lacking due process rights of legitimate crypto-financiers. This has led many to argue that the SEC is a dangerous regulatory outlaw.