U.S. securities and products regulators have shown little tolerance for the digital asset sector this year, leaving opponents to question previous assumptions that one regulator had a “lighter touch” than the other.
On Tuesday, the U.S. Securities and Exchange Commission (SEC) Enforcement results in 2023. Basically, it’s like a Santa story, except that SEC Chairman Gary Gensler has told us all about all the naughty “cryptocurrency” kids who have put lumps of coal in their stockings for the past 12 months. I just created one list.
Overall, the SEC filed 784 enforcement actions (up 3% from fiscal year 2022), including 501 unique alias “standalone” actions (up 8%). There were also 162 “follow-on” administrative proceedings aimed at barring or terminating individuals’ participation in certain securities-related activities, as well as 121 lawsuits against securities issuers that failed to file required documents with the SEC. There was a case.
When it comes to digital assets, the SEC had “another very productive and impactful year,” including charges against a number of “massive cryptocurrency frauds” involving Terraform Labs and founder Do Kwon. Richard Heart and his Hex, PulseChain, and PulseX scams. Also in attendance were Sam Bankman Fried and other FTX executives.
Also that year, the SEC targeted companies such as Celsius, Genesis, Gemini, Kraken, and Nexo for offering unregistered securities through lending/staking programs, with the latter two each receiving eight-figure sums to resolve the issue. Paid the fine.
Non-fungible token (NFT) issuers Impact Theory and Stoner Cats 2 have each been charged with conducting illegal, unregistered sales of “crypto-asset securities,” the first SEC filing targeting the NFT space. Measures have been taken.
Binance, Bittrex, Coinbase (Nasdaq: Coin) are subject to “non-compliance in the field of crypto-asset intermediation” based on the mix of different services such as exchange functions, broker-dealer functions, custody and clearing functions, which are separated from each other in other sectors of the securities market. It became. .
Finally, the SEC also went after “touts” and “influencers” who illegally shilled “crypto” securities without disclosing the compensation they received for flogging such dead horses. did. The long list of these “poncon” scumbags includes Kim Kardashian, Lindsay Lohan, former NBA greats Paul Pierce, Jake Paul, Akon, and more, and only Soulja Boy and Austin Mahone. has not yet reached a settlement with the SEC. . (Many of these celebs were making shillings on behalf of Justin Sun, who faced his own SEC charges in March.)
Gensler said the 2023 results demonstrate that the SEC’s willingness to serve as a “policeman on the ground” will greatly benefit public investors. Gensler vowed that the SEC “will continue to follow the facts and the law to hold wrongdoers accountable.”
The SEC also made it raining on individuals who took advantage of its whistleblower program, awarding nearly $600 million total, including a $279 million payout to one unidentified criminal (also a new record) ). (Do whistleblowers get paid big?) The SEC received more than 18,000 tips in her 2023 fiscal year, an increase of about 50% over 2022.
Gary should try giving $279 million to all Republicans.
No SEC chairman has long been popular on Capitol Hill, but in this era of bipartisanship, the mere fact that Gensler worked on Hillary Clinton’s 2016 presidential campaign makes him especially noteworthy. It became so. persona non grata Among Republicans. Hardly a week passes without vigorous criticism of Gensler’s assertion that existing securities laws are fully applicable to digital asset companies. thank you very much.
This hostility has grown with the SEC refusing to greenlight “cryptocurrency” exchange-traded funds (ETFs), including applications by some tradfi giants to offer spot-based BTC and ETH ETFs. There is. The SEC has rejected countless such applications, in part because of the ease with which companies like Binance and Tether can manipulate the legal prices of digital assets. The SEC appears to believe that approving such an ETF is a recipe for disaster, as these two organizations still hold the reins in Cryptoville.
In fact, BlackRock’s own Apply for ETF Starting in June, Tether/USDT’s reputation was that it was “unauthorizedly issued without adequate backing, and that if the stablecoin is used to pay for Bitcoin, it will generate artificial demand instead of genuine demand for Bitcoin.” “This could lead to an artificial increase in the price of Bitcoin.”
Several recent events have done little to refute the idea that the sector is ripe for manipulation. Last month, BTC prices briefly spiked due to two separate but equally false reports that BlackRock’s iShares Bitcoin Trust ETF application was nearing SEC approval. This week, someone impersonating BlackRock submitted a fake entity application for an XRP-based ETF, which sent its token skyward until the entity application turned out to be fraudulent. .
Perhaps that’s why on Wednesday the SEC once again extended the deadline for consideration of two separate ETF applications. Hashdex had applied to convert its BTC futures-based ETF to spot-based, and Digital Currency Group (DCG)’s Grayscale Investments was seeking approval for a new ETH futures ETF. As usual, the SEC offered no explanation for its decision.
Last week, Congressman Tom Emmer (R-Minnesota), who has been promoting virtual currencies for many years, Former SBF fanboy, I tore off the Gensler strip. in the chamber of the House of Representatives. During consideration of the House appropriations bill, Emmer proposed an amendment that would prohibit the SEC from taking enforcement actions against digital asset companies until Congress passes legislation specifically giving the SEC powers.
But this and other amendments stalled when House leaders instead chose to approve a stopgap funding measure that would delay further fiscal debate until January. Given that the dysfunctional House Republican caucus used up three full weeks of the legislative calendar just to elect a new Lord of the Flies, leadership is unlikely to have enough votes to pass a larger spending plan. I was wondering if there was.
CFTC, what did you make us do, cryptocurrencies?
There was a time when the digital asset sector believed that the U.S. Commodity Futures Trading Commission (CFTC) was the perfect regulator. One reason for this is that the CFTC’s enforcement budget was much smaller than the SEC’s. This perception of soft touch doesn’t sit well with CFTC Chairman Rostin Behnam, whose actions over the past year against digital asset managers may have been the perfect rebuttal.
A week before the SEC released its 2023 post-mortem, the CFTC issued its own report. 23rd year enforcement results, featured a “record number of digital asset lawsuits.” Of the 96 total enforcement actions in FY2023, almost half (47) were related to “acts related to digital asset products.” In contrast, in fiscal 2022, there were 18 out of 82 cases. With the surge in cases, the CFTC has “solidified its reputation,” he said. As the highest enforcement agency in the field of digital assets. ”
Among the individuals/entities in the CFTC’s crosshairs are SBF and other FTX executives, Binance founder Changpeng ‘CZ’ Chao, former Celsius Network CEO Alex Mashinsky, They included Abraham Eisensberg of Mango Markets and former Miller Trading International fraudster Cornelius Johannes Steinberg. The CFTC obtained a $1.7 billion default judgment against this individual, the largest civil penalty in CFTC history.
The CFTC also arrested a digital asset operator in 2023 for intentionally circumventing or attempting to circumvent the provisions of the Commodity Exchange Act (Binance) and illegally operating as an unregistered commodity pool (Celsius). He filed his first complaint against a lawyer, achieved his first victory, and broke new ground. Default judgment against Decentralized Autonomous Organization (Ooki DAO) for illegal activities as a futures commission agent.
The CFTC also obtained support from insiders through its whistleblower program, which resulted in seven approved applications for whistleblower awards totaling $16 million. To date, the CFTC has issued 41 such awards worth nearly $350 million.
CFTC Chairman Rostin Behnam expressed pride in the agency’s “groundbreaking work in the digital asset space that has resulted in a record number of cases.” Behnum vowed that the CFTC “will continue to take all steps necessary to protect our customers’ funds and ensure fair prices for American consumers.”
But Behnum, speaking at the Financial Markets Quality Conference 2023 at Georgetown University on Wednesday, said he can’t rule out the possibility that “another FTX-type event” is happening here right now. As in December after the FTX collapse, Behnum has failed to prioritize legislation that would more clearly define areas of responsibility for digital assets, leaving agencies like the CFTC unable to act until the damage is done. He expressed his deep regret.
But hey, given Republicans’ renewed willingness to punch, elbow, and defy each other, there’s no doubt that the bill will be smooth sailing in 2024. Happy New Year.
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