Q1 2023 Sees The SEC Double Down On Enforcement Actions In The Crypto Space

2023 has already seen the Securities and Exchange Commission (SEC) swinging into enforcement action within the crypto space. With Q1 2023 almost over, the SEC has charged several individuals and crypto companies over crypto asset securities-related offences.

In a March 22, 2023 press release, the SEC announced that it had charged Justin Sun and three of its subsidiaries for the offer and sale of unregistered crypto asset securities of Tron (TRX) and BitTorrent (BTT) and for artificially inflating the trading volumes (wash trading) of TRX.

The press release further stated that the SEC had charged several celebrities for touting TRX and BTT without disclosing their compensation. The celebrities paid fines of more than $400,000 without admitting or denying the SEC’s findings.

In February 2023, the SEC charged Nishad Singh, the former FTX Trading Ltd Co-Lead Engineer, for defrauding Investors. It was alleged that Singh created software code that enabled FTX customer funds to be diverted to the cryptocurrency trading firm Alameda Research, which was co-founded by Sam Bankman-Fried (co-founder and former CEO of FTX).

In February 2023, the SEC charged Terraform Labs and its CEO Do Hyeong Kwon (known as Do Kwon) with crypto asset securities fraud and misleading investors about the stability of the algorithmic stablecoin Terra USD (UST). Do Kwon was reportedly arrested in Montenegro on Thursday, March 23, 2023.

In February 2023, the SEC charged the Kraken Exchange for failure to register the offer and sale of its crypto asset staking program. The Kraken Exchange immediately ceased its staking programs and paid US$ 30 million in disgorgement, prejudgment interest, and civil penalties.

In January 2023, Nexo Capital Inc. paid a US$ 22.5 million penalty to the SEC and ceased offering and selling its retail crypto asset lending product to U.S. investors.

In January 2023, the SEC charged Avraham Eisenberg, a U.S. citizen, with orchestrating an attack on a crypto asset trading platform, Mango Markets, by manipulating a “governance token”, the MNGO token, to steal approximately US$ 116 million worth of crypto assets.

During his speech on September 8, 2023, the SEC Chair, Gary Gensler, stated that the SEC’s oversight role should not change just because the issuance and trading of certain securities are based on new technology.

According to Gensler, the vast majority of the tokens in the crypto market are securities and therefore their offer and sale are covered under securities laws. Gensler further states that many crypto intermediaries transact in securities and should hence register with the SEC. Some in the crypto space do not agree with this position.

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