Continuing to focus on the application of cryptography, the SEC on May 3, 2022 announced the addition of 20 positions to its relaunched Crypto Assets and Cyber Unit – formerly the Cyber Unit. The additions nearly double the size of the unit, which now has 50 full-time staff – investigative attorneys, trial attorneys, fraud analysts and others – as part of the agency’s goal to “polish wrongdoing in the crypto markets while continuing to identify disclosure and control cybersecurity issues.”
In its announcement, the SEC noted that its newly expanded unit has filed more than 80 enforcement actions since its launch in 2017. When it comes to crypto enforcement going forward, the unit will focus on investigation of possible violations related to:
- crypto asset offerings
- crypto asset exchanges
- crypto asset lending and staking products
- decentralized finance (DeFi) platforms
- non-fungible tokens (NFT)
This announcement further demonstrates the growing focus on crypto enforcement at the federal level, including the formation by the U.S. Department of Justice (DOJ) in late 2021 of a National Cryptocurrency Enforcement TeamPresident Biden’s Executive Order of March 2022 titled “Ensure responsible development of digital assets“, the recent formation of the FBI of the Virtual Assets Business Unitthe DOJ’s first-ever criminal charges involving NFTs — filed last month — and the Office of Foreign Assets Control’s designation and sanctioning this month of a Russian-led group virtual currency mining operation.
For its part, the SEC’s own enforcement activity involving cryptocurrency and decentralized technologies shows no signs of slowing down. In March 2022, the agency sued two people for allegedly defrauding retail investors of more than $124 million in unregistered deals involving a digital token . Last week, the SEC accused several people of reportedly raised over $10 million through fraudulent and unregistered offers of “digital asset securities”. In this action, style Securities and Exchange Commission c. Chiang, et al., filed in the Northern District of Texas and investigated in parallel with criminal law enforcement authorities, the SEC alleges that the defendants offered unregistered tokens, misappropriated investor funds and made efforts to list the tokens on an unregistered trading platform. In another parallel action with criminal law enforcement, the SEC last week accused individuals and their entity of raising less than $1 million using alleged misrepresentations about a so-called automated digital asset trading robot. Meanwhile, many are closely watching developments – and discovery fights – in the SEC’s non-registration litigation against Ripple Labs, which Holland & Knight’s SECond Opinions blog has previously reported on, and which appears positioned for a summary judgment battle later this year over the crucial issue of whether or not XRP is a security under federal law.
Looking at the list of focus areas in today’s announcement, the SEC’s Crypto Assets and Cyber Unit looks set to dive even deeper into the broad areas of crypto application. Many expect this to include digital asset trading platforms in the light of, for example,1 1) the agency recently resolved its first case involving an alleged failure to register offers and sales of a retail crypto lending product under the Investment Companies Act 1940; and 2) the agency’s January 26, 2022 proposed changes to the ATS regulations, which Holland & Knight covered in detail earlier this year.
The SECond Opinions blog will continue to monitor SEC activity in this space and provide further updates. If you need additional information on this topic – or anything related to SEC enforcement or internal investigations – please contact the authors or another member of Holland & Knight’s defense team. Securities Enforcement.
1 The SEC’s Office of Investor Education and Advocacy recently issued a Investor newsletter process interest-bearing accounts on crypto assets.