SEC Warns No End in Sight for Rise of Crypto Enforcement | BakerHotelier

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U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler recently testified before Congress to seek approval for 170 additional positions, citing increased demand from law enforcement agencies on, among other things, a growing crypto market “plagued by non-compliance”. Gensler’s testimony provided additional context regarding his agency’s 2024 annual budget justification performance plan, which called for approximately $2.4 billion to be used by the SEC to expand operations and increase regulatory oversight activities and of application. Insight

On March 29, Gensler testified before the Financial Services and General Government Subcommittee of the U.S. House Appropriations Committee during a hearing on the SEC’s fiscal year 2024 budget justification annual performance plan. During his testimony, Gensler highlighted the role of technology in “tremendous growth and change” in the nation’s capital markets, which has led to increased demand for SEC oversight.[1]

Budget justification

Gensler justified the agency’s budget and staffing request by emphasizing the SEC’s role as a “watchful cop” who “must be able to deal with the bad actors game.”[2] To fulfill this role, Gensler asserted that the SEC is required to “grow along with the expansion and increased complexity of capital markets” to fulfill its law enforcement mission. This increased jurisdictional expansion includes crypto markets, according to Gensler, who described this market segment as “rife with non-compliance” and a place “where investors have put hard-earned assets at risk in a class of highly speculative assets”.[3]

Request for staff increase

The SEC’s budget request for fiscal year 2024 seeks to fund a total of 5,139 full-time equivalent (FTE) positions, which would include 170 additional positions and continued support for the 400 positions added in 2023.[4] The SEC’s request, if approved, would divide these full-time employees into the following divisions:

Enforcement; Examinations; Financing of companies; Trade and Markets; investment management; and economic analysis and risk analysis.

Nearly half of the requested staff would be added to the agency’s enforcement and examinations divisions. Gensler justified the increased hiring in the Enforcement Division by citing the agency’s receipt of “over 35,000 separate tips, complaints and referrals from whistleblowers and others during the fiscal year. 2022” – which would have doubled the number received by the agency in 2016. Meanwhile, according to Gensler, the Enforcement Division was down 5% over the same period.

As we reported last year, the SEC expanded its Crypto Assets and Cyber ​​Unit (the unit f/k/a the Cyber ​​Unit) to 50 staff members, nearly double the previous unit size. In addition, the SEC has requested for 2023 that 125 additional staff members join its enforcement division, of which 33 have been requested for the unit, 34 for litigation, and 44 to help fight misconduct and “speed up the process.” implementing measures”, and focused on cryptography. It should be noted that the 2022 and 2023 budget requests are significant departures from 2022, when the SEC only requested nine new positions in the enforcement division and only briefly mentioned digital assets.

Conclusion

As was the case in 2022, the SEC continues to focus on regulatory and enforcement initiatives related to crypto. As such, we can expect existing cases to be vigorously litigated and new investigations and enforcement actions to be launched quickly and vigorously.

[1] Gary Gensler, General Government Financial Services and Appropriations for 2023 Before the House of Representatives Appropriations Committee Subcommittee, 118th Cong. 1st sess. (2023), https://docs.house.gov/meetings/AP/AP23/20230329/115576/HHRG-118-AP23-TTF-GenslerG-20230329.pdf.

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