Wednesday, June 22 2022

The Securities and Exchange Commission (SEC) recently announced that it will add 20 positions to its new Crypto Assets and Cyber ​​Unit, including fraud analysts, investigative attorneys, trial attorneys and supervisors. With current SEC Chairman Gary Gensler publicly stating that he believes the law is clear enough and only requires enforcement, it is important to point out that all of these positions are law enforcement related and that none of the new staff will be responsible for carrying out the SEC’s Statutory Obligations to propose rules and interpret the law for industry participants. As reported by Axiosthis follows the announcement that current head of the Crypto Assets and Cyber ​​Unit, Kristina Littman, has resigned with plans to leave the SEC in early June.


In the last five years of its existence, the Crypto Assets and Cyber ​​Unit has taken enforcement actions against over 80 crypto-asset offerings and platforms and secured over $2 billion in settlements. Virtually all fintech-related SEC enforcement actions are settled without admitting or denying the government’s allegations due to the cost of putting up a defense, including the BlockFi lending protocol in particular. deal to pay $50 million to settle with the SEC, and another $50 million to settle with 32 states, for violating the Investment Company Act of 1940.

Another highly publicized trial, SEC vs. Ripple, is expected to go to trial in November 2022. Legal watchers will be watching this case closely for clues about the SEC’s positions in the Biden administration and how the court rulings will shape the law. The court’s opinion will set binding precedent, unlike SEC orders issued in settlements, which are drafted by SEC staff and do not have the force of law.

These SEC actions follow President Biden’s Executive Order on Digital Assets (discussed in detail here), which noted that 40 million Americans now invest in crypto assets and globally have a market value of approximately $2 trillion. of dollars. Crypto assets have been the fastest growing – and most profitable – asset class in recent years, expanding rapidly since their invention in 2010. In a sign of growing mainstream acceptance, Fidelity, the largest retirement plan provider in the United States, recently announced that by mid-2022, it will allow employers to offer up to 20% of their investors’ 401(k) retirement funds in bitcoin.

Biden’s executive order directed the administration to carefully study the market and work with industry participants to develop a comprehensive federal approach to regulating crypto assets. However, as an independent agency, the SEC is not required to follow White House guidelines. Yet the growing emphasis on “regulation by enforcement” rather than “regulation by regulation” is noted by many observers as inconsistent with the executive order, as well as with the SEC’s own traditions. .


Including these 20 new positions, the Crypto Assets and Cyber ​​​​Unit will have a total of 50 employees and seeks to focus more on the growing crypto market, in particular:

  • Crypto Asset Offerings
  • Crypto Asset Exchanges
  • Crypto Asset Lending and Staking Products
  • Decentralized finance (DeFi) platforms
  • Non-fungible tokens (NFT)
  • Stable Coins

The first four categories are established targets of recent SEC enforcement action, with NFTs and stablecoins having garnered some attention to date and appear to be on the verge of further scrutiny.

The jurisdiction of the SEC over this whole area is unclear given the lack of modern judicial precedent, particularly with respect to NFTs and stablecoins. Many players in the NFT industry view their business as a collectibles business, not a securities business. Additionally, stablecoins offer no opportunity for profit and are unlikely to ultimately be defined as securities of investment contracts.

Still, the SEC under Gensler’s chairmanship has been aggressive and expansive in its enforcement reach, appearing to rival the arguably more technologically adept Commodities and Futures Trading Commission (CTFC). In his announcement, Chairman Gensler cites investor protection as the rationale for the additional positions within the Crypto Assets and Cyber ​​Unit, stating, “By nearly doubling the size of this key unit, the SEC will be better equipped to control wrongdoing in the crypto markets while continuing to identify cybersecurity disclosure and control issues. »

The United States lags behind other major financial centers when it comes to its crypto regulatory framework. The laws in Switzerland and the Bahamas, for example, offer investors more clarity and accommodation than the United States currently offers. As a result, US-founded crypto firms could move overseas, and the expansion of the Crypto Assets and Cyber ​​Unit (and likely increased law enforcement) could help further that. . In any case, additions to crypto assets and cyberunity will be another centerpiece of the fluid and dynamic crypto asset markets.

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