The Securities and Exchange Commission brought 46 enforcement actions against digital asset market participants last year. That number is the highest since 2013, and a 53% increase from 2022.

Since SEC chair Gary Gensler took his position in 2021, actions against crypto firms have almost doubled. Those figures come from the new SEC Cryptocurrency Enforcement: 2023 Update, issued by Cornerstone Research. The report found that the SEC imposed $281 million in monetary penalties for settlements reached in 2023, up about $40 million from the year before. By the end of last year, the total amount of SEC-leveled penalties against crypto operations reached $2.89 billion, roughly 0.1% of the industry’s total value. Most of the SEC’s allegations are related to fraud and unregistered securities.

Seventeen of the enforcement actions from 2023 were related to initial coin offerings, with 14 of them including allegations of fraud. In 2023, the SEC also brought two administrative proceedings related to non-fungible tokens (NFTs) for the first time ever. Those charges involved allegations of conducting unregistered securities offerings of crypto asset securities in the form of NFTs. The Benefits of Cooperation Perhaps most notably, the SEC targeted two crypto exchanges within two days last June. First, the agency went after Binance, accusing the exchange and founder Changpeng Zhao of misappropriating customer money, misleading investors, and continuing to recruit U.S.

customers despite not being permitted to operate in the country. Then the next day, the SEC accused crypto exchange Coinbase of operating as an unregistered securities exchange. Relative to a decade prior, the SEC has been increasingly recognizing self-reporting, cooperation, or remedial efforts. The Cornerstone report notes that 14 of the 27 respondents charged in administrative proceedings in 2023 had engaged in such cooperative efforts.

In two of the proceedings, the SEC imposed no monetary penalties because of cooperation. But that has not been the case for some of the players that the SEC targeted. James Wester, Director of Digital Assets and Crypto at Javelin Strategy & Research, noted that Coinbase had asked for clarification and guidance from the SEC, but was charged nevertheless. “By bringing this action against Coinbase, the SEC seems to be saying it will not offer direction on compliance to market participants before they offer services but instead will proscribe activities via lawsuits after they have come to market,” Wester said. “That’s not a good method for encouraging innovation.” Coinbase has since asked the court to dismiss the SEC’s lawsuit.

The Coinbase case is still being heard before a deferral judge in Manhattan.

By Tom Nawrocki
Jan 25, 2024 00:00
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