SEC Chairman Ramps up Cryptocurrency Enforcement: $281M in Penalties Imposed in 2023

9 months ago 4

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The US Securities and Exchange Commission (SEC) increased its cryptocurrency enforcement actions by 53% in 2023. According to a new report, the 46 crypto enforcement actions carried out under Chairman Gary Gensler last year were the most the agency has carried out since 2013.

The SEC instituted 26 cases in US federal courts and 20 administrative proceedings in 2023. The total penalties imposed by the agency amounted to $281 million.

SEC Targets Cryptocurrency Securities

Around 82% of the SEC’s cases included fraud charges, while 37% addressed unregistered securities in initial coin offerings (ICOs). In total, the SEC’s actions targeted 124 defendants, of which 46% were firms and 54% were individuals.

According to Abe Chernin of Cornerstone Research’s Fintech practices, the SEC has focused on alleged violations of the so-called Howey Test for securities. Coinbase is currently fighting allegations it operated as an unregistered broker-dealer, while Kraken paid the SEC $30 million to settle allegations of selling unregistered securities.

The agency instituted administrative proceedings involving non-fungible tokens (NFTs) for the first time in 2023. It charged the creators of the Stoner Catz web television series with raising $8 million for their show through the sales of Stoner Catz NFTs.

The SEC Chairman is Not Done Yet

According to former SEC official John Reed Stark, the agency will likely pursue more enforcement actions against exchanges in 2024. Stark said more enforcement was necessary because most exchanges operate without regulatory oversight.

He said a primary concern is the conflicts of interest in many crypto businesses. For example, the SEC sued crypto and stock brokerage Robinhood in December 2020 for routing customer orders in a way that didn’t prioritize getting the best deal for customers.

In June last year, the agency took Coinbase, the largest US crypto exchange, to task for depriving “investors of significant protections…and safeguards against conflicts of interest” and offering 12 tokens as unregistered securities.

The judge said last week in a hearing that the SEC’s standard of what constitutes security is defined too broadly. US District Judge Katherine Polk Failla said of the SEC’s assertions of its jurisdictions,

“I want to understand how your standard does not sweep in the collectible market or commodities. It is a real fear that I have that your argument is just sweeping too broadly.”

Failla is expected to issue a ruling in the coming months. If she allows any part of the case to continue, the lawsuit could make it to trial next year.

In the long run, SEC chair Gary Gensler sees enforcement actions as a tool rather than a destination. The head of the SEC’s Crypto Assets and Cyber Units, David Hirsch, affirmed the agency’s goal to police the decentralized finance space.