The U.S. Securities and Exchange Commission (SEC) has increased cryptocurrency enforcement actions by 53% in 2023. The 46 cryptocurrency enforcement actions taken by Chairman Gary Gensler last year are the most the agency has taken since 2013, according to a new report.
The SEC filed 26 cases and 20 administrative proceedings in U.S. federal courts in 2023. The total fines levied by the agency amount to $281 million.
SEC Targets Cryptocurrency Securities
Approximately 82% of SEC cases involved allegations of fraud, and 37% involved unregistered securities in initial coin offerings (ICOs). In total, the SEC’s action targeted 124 defendants, 46% of whom were corporations and 54% of whom were individuals.
The SEC has been focused on alleged violations of the so-called Howey test for securities, according to Abe Chernin, director of Cornerstone Research’s Fintech practice. Coinbase is currently fighting charges that it operated as an unregistered broker-dealer, and Kraken paid $30 million to the SEC to settle charges that it sold unregistered securities.
The agency first began administrative proceedings related to non-fungible tokens (NFTs) in 2023. It charged the creators of the Stoner Catz web TV series to raise $8 million to cover the cost of the show through the sale of Stoner Catz NFTs.
SEC Chairman Isn’t Done Yet
The agency will likely take more enforcement actions against exchanges in 2024, according to former SEC official John Reed Stark. Stark said more enforcement action is needed because most exchanges operate without regulatory oversight.
He said the main concern is the conflict of interest in many cryptocurrency businesses. For example, the SEC sued cryptocurrency and stock brokerage Robinhood in December 2020 for allegedly routing customer orders in a way that did not prioritize the best trades for customers.
Last June, the agency tasked Coinbase, the largest U.S. cryptocurrency exchange, with depriving it of “important investor protection and conflict-of-interest safeguards” and offering 12 tokens as unregistered securities.
Read more: What does it mean to receive a Wells notice from the SEC?
The judge said at a hearing last week that the SEC’s standards for what constitutes a security are too broadly defined. U.S. District Judge Katherine Polk Failla commented on the SEC’s jurisdictional claim:
“I want to know how your standards don’t sweep the collectibles market or merchandise. “I am truly afraid that your claims are being spread too widely.”
Failla is expected to issue a ruling in the coming months. Her case could go to trial next year if she is allowed to continue with her part of the case.
Read more: Who is Gary Gensler? Everything you need to know about the SEC Chairman
In the long term, SEC Chairman Gary Gensler sees enforcement actions as a tool, not a destination. David Hirsch, head of the SEC’s Crypto Assets and Cyber Division, confirmed the agency’s goal to police the decentralized finance space.
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