SEC Cryptocurrency Enforcement under the Gensler Administration

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This is an excerpt from SEC Cryptocurrency Enforcement: 2023 Update.

  • In addition to tokens and crypto issuers, the SEC enforcement continued its focus on crypto lending and trading platforms.
  • In January 2023, the SEC brought two enforcement actions against three firms for unregistered offer and sale of crypto asset securities through their lending programs.[4]
  • On February 9, 2023, the SEC charged Payward Venture Inc. and Payward Trading Ltd (d/b/a Kraken) with failing to register the offer and sale of their crypto asset staking-as-a-service program. To settle the SEC’s charges, the two entities agreed to pay $30 million of monetary penalties and cease their crypto asset staking programs.[5] At the announcement of this enforcement action, Commissioner Hester Peirce released a dissenting statement, noting that “[i]nstead of taking the path of thinking through staking programs and issuing guidance, we again chose to speak through an enforcement action.”[6]
  • On March 29, 2023, the SEC announced the first of the enforcement actions against five separate crypto trading platforms and certain individual defendants for allegedly failing to register as an exchange, a broker-dealer, and a clearing agency under Sections 5, 15(a), and 17A(b) of the Exchange Act.[7]

“Enforcement is a tool, not the destination. The goal is to get market participants into compliance with laws and rules and to protect our ‘clients’: U.S. investors.” [8]

Gary Gensler, SEC Chair, March 9, 2023

Cumulative Number of SEC Cryptocurrency Enforcement Actions during the Gensler Administration
April 2021–December 2023

Source: SEC.gov
Note: The figure focuses on SEC cryptocurrency litigations and administrative proceedings. Dates represent the filing date of the complaint or order instituting cease-and-desist proceedings under Section 8A of the Securities Act, Section 21C of the Exchange Act, and/or Section 203(e) and 203(k) of the Investment Advisers Act. Trading suspensions, delinquent filings, stop orders, subpoenas, and follow-on administrative orders are excluded from the figure. Gary Gensler was sworn in as Chair of the SEC on April 17, 2021.
  • On August 28, 2023, the SEC brought its first enforcement action related to NFTs—against a media and entertainment company—alleging that it conducted an unregistered securities offering of crypto asset securities in the form of NFTs under Sections 5(a) and 5(c) of the Securities Act.[9]
  • At the announcement of the enforcement action, Commissioners Hester Peirce and Mark Uyeda released a joint dissenting statement: “Regardless of what one thinks of the Howey analysis, this matter raises larger questions with which the Commission should grapple before bringing additional NFT cases.”[10]
  • In addition to enforcement, the SEC engaged in other cryptocurrency-related initiatives. On February 15, 2023, the SEC proposed amendments to its custody rule to enhance protections of customer assets, including crypto assets, managed by registered investment advisers. If adopted, the changes would “amend and redesignate Rule 206(4)-2 … under the Investment Advisers Act of 1940 and amend certain related recordkeeping and reporting obligations.”[11]

“Rather than swiping left on crypto, we should remember that new technologies sometimes take a long time to find their footing. What kind of country would we have if regulators prohibited people from experimenting with technologies that other people think are stupid or meaningless or even ones that could cause harm? … Sure, sometimes people make very bad decisions on behalf of themselves or their families, but handing over the keys to the government does not ensure that decisions will be good.”[18]

Hester Peirce, SEC Commissioner, January 20, 2023

  • On April 14, 2023, the SEC reopened the comment period for the proposed amendments to Exchange Act Rule 3b-16 regarding the definition of “exchange.”[13] As stated in the SEC press release, “[t]he reopening release reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems, and provides supplemental information and economic analysis for systems that would be included in the new, proposed exchange definition.”[14]
  • On December 15, 2023, the SEC denied a petition for proposing and adopting rules to govern securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.[15]
  • In a statement, Chair Gensler commented on the denial that he “was pleased to support the Commission’s decision for three reasons. First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”[16]
  • Commissioners Peirce and Uyeda released a joint statement to disagree with the Commission’s decision to deny the petition for rulemaking.[17]

[4] Complaint, SEC v. Genesis Global Capital LLC and Gemini Trust Company LLC, 1:23-cv-00287 (S.D.N.Y.), January 12, 2023; In the Matter of Nexo Capital Inc., January 19, 2023, https://www.sec.gov/files/litigation/admin/2023/33-11149.pdf.

[5] Complaint, SEC v. Payward Ventures Inc. (d/b/a Kraken) and Payward Trading Ltd. (d/b/a/ Kraken), 3:23-cv-00588 (N.D.Cal.), February 9, 2023. See also SEC, “Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges,” Press Release, https://www.sec.gov/news/press-release/2023-25.

[6] Commissioner Hester M. Peirce, “Kraken Down: Statement on SEC v. Payward Ventures, Inc., et al.,” February 9, 2023, https://www.sec.gov/news/statement/peirce-statement-kraken-020923.

[7] Complaint, SEC v. Beaxy Digital, LTD et al., 1:23-cv-01962 (N.D.Ill.), March 29, 2023; Complaint, SEC v. Bittrex, Inc. et al., 2:23-cv-00580 (W.D.Wa.), April 17, 2023; Complaint, SEC v. Binance Holdings Limited et al., 1:23-cv-01599 (D.D.C.), June 5, 2023; Complaint, SEC v. Coinbase, Inc. and Coinbase Global, Inc., 1:23-cv-04738 (S.D.N.Y.), June 6, 2023; Complaint, SEC v. Payward Inc. (d/b/a Kraken) and Payward Ventures Inc. (d/b/a Kraken), 3:23-cv-06003 (N.D.Cal.), November 20, 2023.

[8] Chair Gary Gensler, “Getting crypto firms to do their work within the bounds of the law,” The Hill, March 9, 2023, https://thehill.com/opinion/congress-blog/3891970-getting-crypto-firms-to-do-their-work-within-the-bounds-of-the-law/.

[9] Administrative Proceeding Order, In the Matter of Impact Theory LLC, August 28, 2023, https://www.sec.gov/files/litigation/admin/2023/33-11226.pdf. See also SEC, “SEC Charges LA-Based Media and Entertainment Co. Impact Theory for Unregistered Offering of NFTs,” Press Release, August 28, 2023, https://www.sec.gov/news/press-release/2023-163.

[10] Commissioners Hester M. Peirce and Mark T. Uyeda, “NFTs & the SEC: Statement on Impact Theory, LLC,” Statement, August 28, 2023, https://www.sec.gov/news/statement/peirce-uyeda-statement-nft-082823. Howey refers to SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (“Howey”).

[11] SEC, “SEC Proposes Enhanced Safeguarding Rule for Registered Investment Advisers,” Press Release, February 15, 2023, https://www.sec.gov/news/press-release/2023-30.

[12] Chair Gary Gensler, “’We’ve Seen This Story Before’ Remarks before the Piper Sandler Global Exchange & Fintech Conference,” Speech, June 8, 2023, https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-060823.

[13] SEC, “SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information,” Press Release, April 14, 2023, https://www.sec.gov/news/press-release/2023-77.

[14] Id.

[15] Chair Gary Gensler, “Statement on the Denial of a Rulemaking Petition Submitted on behalf of Coinbase Global, Inc.” Statement, December 15, 2023, https://www.sec.gov/news/statement/gensler-coinbase-petition-121523; Coinbase, “Re: Petition for Rulemaking – Digital Asset Securities Regulation,” July 21, 2022, https://www.sec.gov/rules/petitions/2022/petn4-789.pdf.

[16] Chair Gary Gensler, “Statement on the Denial of a Rulemaking Petition Submitted on behalf of Coinbase Global, Inc.” Statement, December 15, 2023, https://www.sec.gov/news/statement/gensler-coinbase-petition-121523.

[17] Commissioners Hester M. Peirce and Mark T. Uyeda, “Statement Regarding Denial of Petition for Rulemaking,” Statement, December 15, 2023, https://www.sec.gov/news/statement/peirce-uyeda-petition-121523.

[18] Commissioner Hester M. Peirce, “Outdated: Remarks before the Digital Assets at Duke Conference,” Speech, January 20, 2023, https://www.sec.gov/news/speech/peirce-remarks-duke-conference-012023.

The views expressed herein are solely those of the authors and do not necessarily represent the views of Cornerstone Research.

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