SEC to Nearly Double Size of Crypto Enforcement Unit

A press release issued by the Securities and Exchange Commission (SEC) announced the creation of 20 additional positions in the newly renamed Crypto Assets and Cyber Unit, which aims to protect crypto investors and from cyber-related threats. The expansion comes after President Biden issued an executive order in early March, directing agencies to plan for the country’s success in the digital finance age.

Expansion of the unit, first created in 2017, will allow it to better police wrongdoing while continuing to identify disclosure and control issues with respect to cybersecurity, the announcement said. The press release noted that the unit has brought numerous actions against SEC registrants and public companies for subpar cybersecurity controls and inadequate disclosure of cyber-related risks and incidents.

In addition, the unit has brought over 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, securing monetary relief of more than $2 billion. One example is the high-profile showdown ongoing between the SEC and Ripple Labs asking the judiciary to determine whether cryptocurrency is a security within the meaning of the law.

The agency sued Ripple and two company leaders in December 2020 for failing to register prior to offering and selling its digital token, the XRP. Most recently, the Southern District of New York court denied the individual defendants’ bid to exit the case, finding that the SEC had sufficiently stated aiding and abetting claims against them.

In another recent action, the SEC settled a case containing similar allegations against BlockFi for $100 million.

Reportedly, the new unit is set to focus on emerging securities law violations related to crypto asset offerings, asset exchanges, asset lending and staking products, decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and stablecoins.

As discussed by Law Street Media’s Kirsten Errick in a July 2021 analysis, much agency activity has centered around digital token offerings, including initial coin offerings (ICOs). The article noted that further regulatory action could implicate trade secret, disclosure, market manipulation, contract, and tax-related questions.