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SEC Crypto Enforcements: 50% Against ICOs in 2022

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  • Consulting agency Cornerstone Research presented research with data from 2013 to 2022. 
  • Out of 30 enforcements, 14 were about ICOs. 
  • Considerable actions were taken against unregistered securities. 

The United States’ financial watchdog, the Securities and Exchange Commission (SEC,) is very serious about regulating cryptocurrency. For that, they brought numerous crypto-related enforcement actions last year, nearly 50% more when compared with 2021. This information is per the report of Cornerstone Research, a consulting firm. 

The Report

The firm’s database consists of cryptocurrency-related enforcement actions brought by SEC from January 1, 2013, to December 31, 2022. San Francisco-based Cornerstone Research is a litigation consulting firm that provides financial analysis and expert testimonies to attorneys, government agencies, and corporations. The report says that in 2021, the number of litigations was just 14, which increased to 24 this year, plus six administrative proceedings. 

The report suggests that out of 30 enforcements, 14 were centered around Initial Coin Offerings (ICOs), and 57% of these actions include allegations of deceit. 

Cases taken into consideration by SEC

The SEC went on to bring its first-ever insider trading and market manipulation case, which arose from sale and purchase and sale of digital assets, where Coinbase’s Nikhil Wahi, brother of its product manager Ishan Wahi was sent to 10 months imprisonment for his role in crypto insider trading scheme. 

Another high-profile case involves BlockFi, in February 2022, where it failed to register the offers and sales on its lending product. At the same time, former crypto white knight and founder of FTX Sam Bankman-Fried involvement in the biggest crypto black swan event. 

Simona Mola, who authored the report, said:

“Under Chair Gensler, the SEC has sharpened its focus on cryptocurrency lending and trading platforms and decentralized finance (DeFi) platforms.”

As per Mola, SEC Chair was seen saying that the “runway is getting shorter” for all the crypto companies; if they want to stay compliant, they should register with the agency. The researcher further says that:

“This could lead to more enforcement actions coming from the SEC’s Crypto Assets and Cyber Unit, which recently expanded its workforce to investigate securities law violations in crypto markets.”

Hunt for Unregistered Securities

A closer look at the report reveals that 22 enforcement actions were brought by SEC in 2022, meaning 73% of violations of unregistered securities violations under Section 5(a) & 5(c) of the Securities Act, and 15% of these were at fault for both allegations.

Four actions saw that SEC had alleged the failures to register as a broker or a dealer under Section 15 of the Exchange Act against seven individuals and one company. 

Gensler seems stern in his statement that the native assets of Proof-of-Stake (PoS) blockchains, which allow the holders to earn passively through staking, should be treated as securities and be registered as such. 

The report hints that out of 127 crypto-related enforcement actions from 2013, 73% of cases involved unregistered security offering violations, and 70 were about ICOs. In a similar time frame, the SEC imposed roughly $2.61 billion in monetary penalties, and $242 million in settlements were done by 2022.

Nancy J. Allen

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