Continuing its focus on crypto enforcement, the SEC on May 3, 2022, announced the addition of 20 positions to its relaunched Crypto Assets and Cyber Unit – formerly the Cyber Unit. The additions nearly double the size of the unit, which now leverages 50 full-time employees – investigative attorneys, trial counsel, fraud analysts and others – as part of the agency's goal to "police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity."
In its announcement, the SEC noted that its newly expanded unit has brought more than 80 enforcement actions since it was launched in 2017. As it pertains to crypto enforcement going forward, the unit will focus on investigating possible violations relating to:
- crypto asset offerings
- crypto asset exchanges
- crypto asset lending and staking products
- decentralized finance (DeFi) platforms
- non-fungible tokens (NFTs)
- stablecoins
This announcement further evidences the ever-increasing focus on crypto enforcement at the federal level, including the U.S. Department of Justice's (DOJ) formation in late 2021 of a National Cryptocurrency Enforcement Team, President Biden's March 2022 Executive Order titled "Ensuring Responsible Development of Digital Assets," the FBI's recent formation of the Virtual Asset Exploitation Unit, DOJ's first-ever criminal charges involving NFTs – filed last month – and the Office of Foreign Assets Control's designation and sanctioning this month of a Russian-led virtual currency mining operation.
For its part, the SEC's own enforcement activity involving cryptocurrency and decentralized technologies shows no sign of slowing down. In March 2022, the agency sued two individuals for allegedly defrauding retail investors out of more than $124 million in unregistered offerings involving a digital token . Last week, the SEC charged several individuals with allegedly raising more than $10 million through fraudulent and unregistered "digital asset securities" offerings. In that action, styled Securities and Exchange Commission v. Chiang, et al., filed in the Northern District of Texas and investigated in parallel with criminal law enforcement authorities there, the SEC alleges that defendants offered unregistered tokens, misappropriated investor funds and took efforts to list the tokens on an unregistered trading platform. In another parallel action with criminal law enforcement, the SEC last week charged individuals and their entity with raising less than $1 million using alleged misrepresentations about a supposed automated digital asset trading bot. Meanwhile, many are closely watching developments – and discovery fights – in the SEC's failure-to-register litigation against Ripple Labs, which Holland & Knight's SECond Opinions Blog has previously reported on, and which appears positioned for a summary judgment battle later this year on the pivotal question of whether or not XRP is a security under federal law.
Looking at the list of focus areas in today's announcement, the SEC's Crypto Assets and Cyber Unit appears primed to lean even further into broad areas of crypto enforcement. Many expect this to include digital asset trading platforms in light of, for instance,1 1) the agency recently resolving its first case involving an alleged failure to register offers and sales of a retail crypto lending product under the Investment Company Act of 1940; and 2) the agency's Jan. 26, 2022, proposed amendments to Regulation ATS, which Holland & Knight covered in detail earlier this year.
The SECond Opinions Blog will continue to monitor the SEC's activity in this space and provide further updates. If you need any additional information on this topic – or anything related to SEC enforcement or internal investigations – please contact the authors or another member of Holland & Knight's Securities Enforcement Defense Team.
Notes
1 The SEC's Office of Investor Education and Advocacy recently issued an Investor Bulletin addressing crypto asset interest-bearing accounts. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-97
