The following is an excerpt from a Cornerstone Research report entitled SEC Cryptocurrency Enforcement: 2021 Update. To read the full report, please click here.
For more information about this report, please click here.
-
In the first months of 2021, the number of cryptocurrency-related enforcement actions slightly trailed those in early 2020.
-
On April 17, 2021, Gary Gensler was sworn in as the chair of the SEC.[i] Chair Gensler included crypto assets as one of the main areas to which he will direct SEC resources.[ii]
-
After Chair Gensler began his tenure at the SEC and appointed his team, the cryptocurrency enforcement activity under the new administration picked up. Between August and September, the enforcement activity was in line with the enforcement activity under the prior administration. In the last months of the year, enforcement activity slowed down.
-
In addition to enforcement actions, the SEC engaged in several cryptocurrency-related initiatives. For example, in May 2021, the SEC’s Division of Investment Management issued a statement encouraging investors to consider the risk associated with investing in a mutual fund with exposure to the Bitcoin futures market.[iii]
-
The SEC’s Office of Investor Education and Advocacy, in conjunction with the CFTC’s Office of Customer Education and Outreach, issued an investor bulletin on Bitcoin futures in June 2021,[iv] followed by two investor alerts on fraudsters posing as brokers or investment advisers and on crypto investment scams.[v]
-
In 2021, the SEC’s Division of Trading and Markets also sought comment on cryptocurrency custody arrangements by broker-dealers and relating to investment advisers,[vi] while the SEC’s Division of Examinations listed Fintech and digital assets as 2021 priorities.[vii]
-
On May 26, 2021, Chair Gensler stated that, given the “many challenges and gaps for investor protection” in the cryptocurrency markets, he was “looking forward to working with fellow regulators and with Congress to fill in the gaps of investor protection.”[viii]
-
A few days later, on May 28, 2021, the SEC filed its first cryptocurrency-related litigation under Chair Gensler against five individuals who allegedly promoted a global crypto lending securities offering that raised over $2 billion from retail investors.[ix]
-
On June 22, 2021, the SEC issued its first cryptocurrency-related administrative proceeding of Chair Gensler’s tenure against Loci Inc. and its CEO, alleging materially false and misleading statements in connection with an unregistered offer and sale of digital asset securities.[x]
-
Both actions were settled in multimillion-dollar settlements of total monetary penalties.[xi]
Under Chair Gensler, the SEC cryptocurrency enforcement activity heightened from the end of May to mid-September 2021.
-
On August 6, 2021, the SEC brought the first case involving securities using DeFi technology,[xii] followed by a litigation against an unregistered online digital asset exchange on August 9, 2021.[xiii]
-
On September 13, 2021, the SEC reached a multimillion-dollar settlement against three media companies—GTV Media Group Inc., Saraca Media Group Inc., and Voice of Guo Media Inc.—that were allegedly conducting an illegal unregistered offering of stock and digital assets.[xiv]
[i] SEC Chair Gary Gensler, “Testimony before the Subcommittee on Financial Services and General Government, U.S. House Appropriations Committee,” May 26, 2021, https://www.sec.gov/news/testimony/gensler-2021-05-26.
[ii] SEC, “SEC Charges U.S. Promoters of $2 Billion Global Crypto Lending Securities Offering,” May 28, 2021, https://www.sec.gov/news/press-release/2021-90. See also SEC v. Trevon Brown et al., 1:21-cv-04791 (S.D.N.Y.).
[iii] SEC, “SEC Charges ICO Issuer and CEO with Fraud and Unregistered Securities Offering,” June 22, 2021, https://www.sec.gov/news/press-release/2021-108. See also In the Matter of Loci Inc. and John Wise, June 22, 2021.
[iv] SEC, “SEC Obtains Judgments against Bit[C]connect Promoters Michael Noble and Joshua Jeppesen and a Relief Defendant,” August 19, 2021, https://www.sec.gov/litigation/litreleases/2021/lr25177.htm. See also SEC v. Brown et al., 1:21-cv-04791 (S.D.N.Y.). The final judgment against Jeppesen orders him to pay $3,039,485 in disgorgement and prejudgment interest, 190 Bitcoin in disgorgement, and a $150,000 penalty, and to turn over information and access to a Bitcoin wallet to satisfy his obligation to pay the 190 Bitcoin in disgorgement. The judgment against Noble orders him to pay disgorgement, prejudgment interest, and a civil penalty in an amount to be determined by the court at a later date upon the SEC’s motion. The final judgment against Mascola orders her to pay $576,358 in disgorgement and prejudgment interest. In In the Matter of Loci Inc. and John Wise, June 22, 2021, the SEC imposed a civil monetary penalty of $7,600,000 to respondent Loci Inc., as well as disgorgement of $38,163 and prejudgment interest of $6,209.40 to respondent Wise.
[v] SEC, “SEC Charges Decentralized Finance Lender and Top Executives for Raising $30 Million through Fraudulent Offerings. Case Is Agency’s First Involving Securities Using DeFi Technology,” August 6, 2021, https://www.sec.gov/news/press-release/2021-145. See also In the Matter of Blockchain Credit Partners d/b/a DeFi Money Market Gregory Keough, and Derek Acree, August 6, 2021, https://www.sec.gov/litigation/admin/2021/33-10961.pdf.
[vi] SEC, “SEC Charges Poloniex for Operating Unregistered Digital Asset Exchange,” August 9, 2021, https://www.sec.gov/news/press-release/2021-147.
[vii] SEC, “SEC Charges Three Media Companies with Illegal Offerings of Stock and Digital Assets,” September 13, 2021, https://www.sec.gov/news/press-release/2021-175. See also In the Matter of GTV Media Group Inc. Saraca Media Group Inc., and Voice of Guo Media Inc., September 13, 2021.
[viii] SEC, “Gary Gensler Sworn in as Member of the SEC,” April 17, 2021, https://www.sec.gov/news/press-release/2021-65.
[ix] SEC Chair Gary Gensler, “Testimony before the Subcommittee on Financial Services and General Government, U.S. House Appropriations Committee,” May 26, 2021, https://www.sec.gov/news/testimony/gensler-2021-05-26.
[x] SEC Division of Investment Management Staff, “Staff Statement on Funds Registered Under the Investment Company Act Investing in the Bitcoin Futures Market,” May 11, 2021, https://www.sec.gov/news/public-statement/staff-statement-investing-bitc….
[xi] SEC’s Office of Investor Education and Advocacy and the CFTC’s Office of Customer Education and Outreach, “Funds Trading in Bitcoin Futures – Investor Bulletin,” June 10, 2021, https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_fundstrading.
[xii] SEC’s Office of Investor Education and Advocacy, “Fraudsters Posing as Brokers or Investment Advisers – Investor Bulletin,” July 27, 2021, https://www.sec.gov/oiea/investor-alerts-and-bulletins/fraudsters-posing-brokers-or-investment-advisers-investor-alert; SEC’s Office of Investor Education and Advocacy, “Digital Asset and ‘Crypto’ Investment Scams – Investor Alert,” September 1, 2021, https://www.sec.gov/oiea/investor-alerts-and-bulletins/digital-asset-and….
[xiii] SEC, “SEC Issues Statement and Requests Comment Regarding the Custody of Digital Asset Securities by Special Purpose Broker-Dealers,” December 23, 2020, https://www.sec.gov/news/press-release/2020-340.
[xiv] SEC, “SEC Division of Examinations Announces 2021 Examination Priorities,” March 3, 2021, https://www.sec.gov/news/press-release/2021-39.