SEC cracks down on crypto – Fin Tech

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June 27, 2023

Alto Litigation

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Gary Gensler, the chairman of the Securities and Exchange Commission, keeps his promises, at least when it comes to cracking down on crypto trading. And not everyone is happy about it.

In recent weeks, the SEC has:

Brought charges against former Hall of Fame NBA star Paul Pierce for touting EMAX tokens, a crypto asset offered and sold by Ethereum, on social media without disclosing that he received more than 244,000 $ in chips for his promotional effort. The SEC also alleged that Pierce misrepresented the size of his personal token holdings. Without admitting or denying the allegations, Pierce agreed to pay a $1.115 million fine and pay approximately $240,000 in restitution. Accused Singapore-based Terraform Labs PTE Ltd. and its CEO and majority shareholder, Do Hyeong Kwon, of a four-year scheme that raised billions of dollars from investors by selling various crypto assets that the SEC alleged as securities in unrecorded fraudulent transactions that resulted in significant losses for US investors. The complaint alleged, among other things, that the defendants misled investors about the stability of Terraform’s algorithmic “stablecoin”, called Terra USD (UST), which was allegedly pegged to the value of the US dollar. The SEC claimed that the value of UST was only backed by billions of dollars of investors, and then after the cash disappeared, the value of other crypto assets in UST and Terraform fell to zero. Accused Payward Ventures, Inc. and Payward Trading Ltd., commonly referred to as Kraken, of failing to register the offering and sale of their crypto asset staking program as a service, under which Kraken bundled the crypto assets provided by the investors and staked them on behalf of the investors. Staking involves locking up tokens in exchange for new tokens when the staked crypto is part of the data validation process on a blockchain. The SEC complaint filed in federal court in San Francisco alleged that although Kraken promised 21% annual investment returns, investors were not provided with necessary information, including information regarding the business and financial condition of the companies. defendants, the fees and the risk of investors losing the protection of their tokens. The Kraken entities settled the issue by agreeing to end the staking program and pay $30 million in reimbursement, prejudgment interest and penalties. However, SEC Commissioner Hester Peirce, a longtime crypto advocate, opposed the enforcement action, arguing that staking services provide an advantage to investors. Accused Genesis Global Capital and Gemini Trust Company (controlled by the Winkelvoss Brothers) of unregistered offering and selling of securities through the Gemini Earn crypto asset lending program. Brought settled charges against Nexo Capital, Inc. for failing to register the offering and sale of its retail crypto asset lending product, Earn Interest Product (EIP). Nexo agreed to stop the sale of EIP and pay a $22.5 million fine, as well as pay an identical amount to settle the state’s regulatory actions. Voted 4 to 1 to change federal custody requirements to include crypto assets, which would likely require crypto exchanges to get additional regulatory approval. Commissioner Peirce again objected, objecting to the rule on the grounds of its expediency, applicability and scope. But she also said she hoped to support a final rule after public comment and possible amendments. Commissioner Peirce was not the only critic. The chief policy officer of the Blockchain Association, an industry group, has accused the SEC of engaging in “regulation by enforcement”. And Coinbase CEO Brian Armstrong accused the SEC of “sketchy behavior” while Tyler Winkelvoss called the SEC’s accusations against Genesis and Gemini “completely counterproductive.”

Originally published February 22, 2023

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