The Fight to Regulate Crypto Securities
SEC Chairman Gary Gensler has taken a head-on approach to address how cryptocurrency should be regulated and comply with SEC law. Gensler has stated that most cryptocurrencies can be considered securities.
If a cryptocurrency product is identified as a security, it must be registered with the SEC or find an exemption to formal SEC registration, but many ICOs have failed to do so.
As the SEC continues to crack down on the cryptocurrency industry, some hoped that companies would be able to come forward about their previous unlawful fundraising, and in return receive full amnesty from SEC penalties. However, the SEC recently made it clear this option will not be on the table.
Gurbir Grewal, Director of the SEC Enforcement Division, stated in February 2022 that voluntarily coming forward and registering crypto products and platforms does not mean the money that companies raised unlawfully will be swept under the rug.
Grewal did say companies that self-report will be “viewed more favorably.” However, they can still anticipate penalties. So, what does this mean for crypto companies still on the fence about registering with the SEC?
“Achieving self-compliance, even in light of potential penalties and fines, could… allow a business to run its operations well into the future,” says Michael Brandwein, Senior Attorney at Gordon Law Group. “For those concerned with SEC enforcement action, self-reporting can alleviate the dark cloud of an SEC enforcement action looming over a business and its owners.”
Recent SEC Cases Against Crypto
The SEC continues to crack down on individuals and companies that take advantage of investors through unregistered securities and fraudulent offerings. In March 2022, the Securities and Exchange Commission charged siblings John and Tina Barksdale in a $124 million ‘Snake Oil’ crypto fraud operation.
The Barksdales sold and operated Omerus Coin and falsely claimed it had a $250 million crypto mining operation and $190 million in assets. They also promoted the false operations through roadshows, YouTube videos, and the Omerus Coin website. The SEC also claimed the Barksdale’s misused millions of dollars of investors’ funds for personal use.
In June 2021, the SEC hit Loci Inc. and its CEO John Wise with $7.6 million in civil penalties for false and misleading statements connected with an ICO promoting the unregistered offer and sale of digital asset securities. The SEC found Loci and Wise raised nearly $8 million by selling their digital token “LOCIcoin.” The SEC ruled investors are entitled to truthful information, and Loci failed to provide this regarding critical aspects of their business.
President Joe Biden recently signed an executive order directing federal agencies to coordinate efforts to regulate cryptocurrencies and other digital assets. President Biden is gauging the benefits and risks of cryptocurrency to determine whether to create an American digital currency.
With so much attention shifting towards cryptocurrencies and digital assets, the SEC will continue to ramp up its efforts to regulate them. Individuals and companies who have failed to register securities in the past may want to take advantage of the current leniency of the SEC.
Contact the experienced lawyers at the Gordon Law Group if you find yourself in the SEC’s crosshairs!