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SEC actions against digital asset companies rose 50% in 2022: report

The United States Securities and Exchange Commission (SEC) ramped up its focus on the digital asset industry in 2022, with a new report revealing that its enforcement actions against Bitcoin companies shot up 50% last year.

The report by consulting firm Cornerstone Research revealed that the agency brought 30 enforcement actions against the industry, up from 20 in 2021. Of these, 24 were litigation actions, while six were administrative proceedings. The agency also filed two follow-on actions, two delinquent filing orders, and one stop order.

“The SEC has sharpened its focus on cryptocurrency lending and trading platforms and decentralized finance platforms. As Chair Gensler has noted, the ‘runway is getting shorter’ for crypto intermediaries to register with the SEC. This could lead to more enforcement actions coming from the SEC,” commented Simon Mola, the report’s author.

The SEC’s renewed focus on the digital asset industry under the stewardship of Chairman Gary Gensler became clear in May last year when it renamed its Crypto Assets and Cyber Unit and doubled the headcount. This would allow the agency to “police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity,” Gensler stated at the time.

According to Cornerstone’s report, the agency charged 79 defendants last year, 56 being individuals and 23 being virtual asset service providers (VASPs). The consulting firm noted that the SEC had shifted its focus to individuals under Gensler’s leadership. Pre-Gensler, actions against individuals accounted for a mere 20%. However, in 2021 they accounted for 35% and 50% last year.

Gensler is cleaning out the initial coin offering (ICO) rot in the industry, with close to half of last year’s actions relating to ICOs.

Last year also saw the SEC bring the first insider trading actions against a digital asset industry participant. As CoinGeek reported, the agency filed an action against Ishan Wahi, accusing him of using insider information to trade tokens ahead of their listing on Coinbase (NASDAQ: COIN). Wahi was a product manager at the exchange.

The SEC first brought an action against a digital asset industry participant in 2013, and since then, it has racked up $2.61 billion in total monetary penalties. Last year, it collected $242 million.

‘Toothless’ Gensler still not doing enough

While the SEC has ramped up its actions against scammers, frauds, and non-compliant companies in the crypto sector, many feel it has failed in its mandate to protect investors. In most actions, the SEC has only acted after a company has imploded or billions of dollars have been lost.

Just recently, the regulator only sprung to action after FTX was revealed to be comingling users’ assets with its own, lending to its subsidiaries, and making risky bets through which it lost billions of dollars.

Gensler has been criticized by many for failing to uncover the scams before they went up in smoke.

One of his fiercest critics is Sen. Elizabeth Warren (D-Mass.), the digital currency skeptic who, in an editorial for the Wall Street Journal, stated that “power is worthless if the cop on the beat won’t use it.”

Others like Rep. Jim Himes (D-Conn.) have concurred, claiming that Gensler seems clueless on how to protect digital asset investors.

“I asked him specifically what the next steps are. It’s not clear to me what the answer is there…We don’t have a clear plan to solve the problem of noncompliance,” Himes stated after Gensler appeared before the House Financial Services Committee.

For Gensler, the solution might lie in working with other agencies to police the industry. According to the Cornerstone report, since 2013, “the SEC has received assistance from outside agencies and organizations in 56 actions (44%).”

This interagency cooperation, however, has been hindered by the infighting for supremacy, with Gensler in a tug-of-war with the CFTC for jurisdiction over the digital asset industry.

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