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Cornerstone Reports, The US SEC Has Become The Main Crypto Regulator

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  • The SEC settled over 70% of the enforcement actions for more than $1.77 billion in total monetary penalties in early March 2021.
  • Following trading suspensions’ rise in 2017, 2018 witnessed a sharp increase in administrative proceedings and litigation.
  • In June 2018, the SEC’s Corporate Finance Division director announced that Bitcoin (BTC) and Ether (ETH) aren’t securities. 

The United States Securities and Exchange Commission (SEC) has established itself as the central authority, or the primary regulator, of all things crypto. Ever since it first dipped its toes into the crypto space, the regulator has directed several enforcement actions against digital asset market participants. 

The SEC Analysis Report

This Tuesday, the economic consulting firm Cornerstone Research published a feature citing the firm’s recent report titled, “SEC Cryptocurrency Enforcement: Q3 2013–Q4 2020.” The report revealed the U.S. regulator has brought 75 enforcement actions, ordered 19 trading suspensions, and issued numerous statements and investor alerts from July 2013 till the end of 2020, ensuring smooth conduct of cryptocurrency dealings. In fact, as revealed by the report’s author, Simona Mola, the SEC settled over “70% of the enforcement actions for more than $1.77 billion,” total monetary penalties, in early March 2021.

Crypto Dealings And Defendants

The SEC’s first crypto-concerning enforcement action was taken in July 2013 with SEC v. Shavers et al. that found the defendants guilty of a Bitcoin-related Ponzi scheme fraud. Till and especially during the year 2016, SEC’s crypto involvement remained minimal. With a dramatic rise of trading suspensions in 2017, 2018 witnessed a sharp increase in both administrative proceedings and litigation. The litigants included cryptocurrency issuers, brokers, exchanges, and other service providers, with primary allegations of fraud, unregistered securities offerings, failure to register offerings of swaps to non-eligible contract participants, failure to disclose compensation when promoting security, or failure to register as a broker or an exchange.

Enforcement Actions

During the period of July 2013 to December 2020, the SEC brought 75 enforcement actions and issued 19 trading suspensions against crypto offenders. Details about the 75 enforcement actions: 

  • 32 of them, dealing solely with unregistered securities offerings, were resolved at the administrative level within the SEC.
  • Remaining 43 were prosecuted at the district court level, majorly involving both unregistered securities offerings and fraud.
  • Around half of the 43 U.S. court litigations occurred in New York.
  • Of 43, defendants in 34 actions were a combination of individuals and firms.
  • And from the rest, 7 litigations were with only individuals as defendants, and the remaining 2 were only firms.
  • More than half, i.e., 25 of the 43 litigations, were resolved by March 5, 2021, for over $1.77 billion in total monetary penalties.

Across history, several of SEC’s crypto guidance accompanied enforcement actions. It also issued warning and safety measures to investors for digital dealings. With the sheer quantity of initiated actions and promulgated guidance, the SEC has established itself as a leader in analyzing the legal status of cryptocurrencies.

Securities, Reports, And Regulations

In July 2017, the SEC released the DAO Report of Investigation. The report was based on the Howey test from the 1946 U.S. Supreme Court decision to determine whether a token is an investment contract. The legal analysis was again leveraged to stop an initial coin offering issuer for failure to register securities in December 2017.

Back in June 2018, William Hinman, director of the Corporate Finance Division of the SEC, ascertained that Bitcoin (BTC) and Ether (ETH) aren’t securities. He also announced an analysis report that defined and categorized tokens into securities and those with mere consumption utility. The analysis was later formalized in April 2019.

According to Abe Chernin, the head of consumer finance practice and vice president at Cornerstone Research, the new administration is now expected to “develop a clearer regulatory approach and pursue greater interagency coordination to foster innovation in cryptocurrency markets.”

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