The Securities and Exchange Commission (SEC) under the new administration brought in 20 enforcement actions against the cryptocurrency businesses in 2021. There were 14 litigation actions in the US federal courts and six administrative proceedings.
According to a report “SEC Cryptocurrency Enforcement: 2021 Update”, 70% of the cases were related to initial coin offerings (ICOs). It said the securities market watchdog issued four delinquent filing orders, two follow-on actions and sought compliance with investigative writs in 2021.
Simona Mola, the report’s author and senior manager at Cornerstone Research, says SEC chair Gary Gensler holds cryptocurrency enforcement a key priority. She highlighted that the commission’s enforcement was notably high between the end of May and mid-September. This was when the SEC imposed first-of-a-kind actions against an unregistered digital asset exchange, a crypto-lending platform, and a decentralized finance lender. It imposed one of the largest monetary penalties in an ICO- enforcement action.
In regards to the 20 enforcement actions, the report stated that 65% alleged fraud under Section 17(a) of the Securities Act and/or Section 10(b) and Rule 10b-5 of the Exchange Act. 80% claimed unregistered security offering violation under Section 5(a), and 55% of actions included both allegations.
The SEC, since its first cryptocurrency-related enforcement action in 2013, found 58 litigation actions and 39 administrative proceedings against companies dealing with crypto assets. The agency also imposed monetary penalties totaling $2.35 billion.
Abe Chernin, a vice-president at Cornerstone Research, said SEC under the new administration continues to bring ICO-related enforcement actions based on the Howey Test. It established whether a transaction qualifies as an investment contract subject to SEC regulation. There could be further scrutiny of DeFi platforms for ICOs.
