Table of Contents
- SEC Warning To Crypto Projects
- SEC Action Not Limited To High Profile Exchanges
- DeFi On The Radar
- Litigation Work Piling Up
- SEC’s Enforcement Action
The United States Securities and Exchange Commission plans to bring more charges against crypto exchanges and decentralized finance (DeFi).
The assertion was made by David Hirsch, the head of the SEC’s Crypto Assets and Cyber Unit. However, he conceded that the agency’s litigation load is considerably heavy.
SEC Warning To Crypto Projects
David Hirsch, the head of the SEC’s Crypto Assets and Cyber Unit, has warned that the agency is not done going after cryptocurrency exchanges and decentralized finance (DeFi) projects it sees as violating securities laws. The action taken against these entities will be similar to those initiated against crypto giants such as Coinbase and Binance. According to Hirsch, the agency is looking to bring new charges against dealers, exchanges, crypto brokers, dealers, and clearing agencies that don’t make proper disclosures or register with the agency.
The agency’s enforcement office is going about its litigation business at an unusual pace, stating that it is aware of and investigating other firms. According to Hirsch, these firms are involved in the same activities as Binance and Coinbase. He further added that the industry’s compliance breaches “hold true even beyond the two crypto entities already mentioned.” Hirsch stated that the Securities and Exchange Commission will bring charges against several crypto businesses that apparently violate the law.
SEC Action Not Limited To High Profile Exchanges
The Securities and Exchange Commission is already embroiled in several complicated cases in federal courts. However, such action is only sometimes successful, as seen with the recent Ripple ruling. According to Hirsch, The SEC will expand its enforcement action beyond just high-profile exchanges.
“We’re going to continue to be active as to intermediaries. That can be brokers, dealers, exchanges, clearing agencies or any others who are active in this space, are within our jurisdiction and not meeting their obligations, either through registration or failure to provide adequate or complete disclosures.”
DeFi On The Radar
Hirsch also issued a warning to DeFi projects, stating that they would not be spared of the enforcement division’s attention as well.
“We’re going to continue to conduct investigations, we’re gonna be active in the space, and adding the label of DeFi is not going to be something that’s going to deter us from continuing our work.”
Litigation Work Piling Up
The Securities and Exchange Commission has previously adopted a rather sedate approach to enforcement, typically targeting misdeeds and violations at regulated businesses. These businesses are generally large Wall Street firms that have large legal departments and budgets. As a result, they can quickly negotiate settlements with the SEC. However, action against digital asset companies ends up going to court because they threaten the very existence of these companies.
The Securities and Exchange Commission has a limited budget, often less than the Wall Street Giants it faces. As a result, the agency’s bandwidth is relatively limited. Hirsch did concede that the SEC may be stretched, stating that they have a lot of litigation going on, and conceded that the agency can only do so much.
“There are more tokens extant -- I think maybe 20,000, 25,000, last I read -- than the SEC or any agency has the resources to pursue directly, and similarly, there are a number of centralized platforms out there, some that are acting as unregistered exchanges.”
SEC’s Enforcement Action
Despite limited resources, the Securities and Exchange Commission has taken action against crypto exchanges Binance and Coinbase. More recently, the agency initiated action against two NFT projects. However, companies such as Ripple and Grayscale have fought back against the SEC action. In August, the US Court of Appeals for the DC Circuit ruled that the SEC would have to re-review Grayscale’s application for a Spot Bitcoin ETF. Grayscale had sued the SEC after it had rejected the application to convert its flagship GBTC fund.
In the case of Ripple, the judge ruled that some of Ripple’s sales did not violate securities laws, thanks to a blind bid process in place for them. However, the judge ruled that other direct sales of the XRP token to institutional investors were securities.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.