According to a Cornerstone Research report released last week, the Securities and Exchange Commission (“SEC” or “Commission”) filed 75 cryptocurrency-related actions dating back to July 1, 2013, and “establish[ed] itself as a key U.S. cryptocurrency regulator.”
Cornerstone released its report titled "SEC Cryptocurrency Enforcement: Q3 2013 — Q4 2020", which catalogs 7.5 years of the SEC’s enforcement activity involving cryptocurrencies and digital assets. For a broader look at blockchain litigation involving all criminal and civil blockchain-related cases in addition to the enforcement actions in Cornerstone’s report, refer to Murphy & McGonigle’s Blockchain Litigation Database.
The report found that since July of 2013, the SEC has brought 75 enforcement actions along with a number of subpoenas and trading suspensions related to cryptocurrencies and digital assets, against a mix of individuals and firms. Of the 75 enforcement actions brought, 43 were litigated in U.S. federal district courts, while the remaining 32 were brought in administrative proceedings. About half of the litigated actions were litigated in New York courts, with 18 filed in New York’s Southern District and another 4 filed in the Eastern District. As of March 5, 2021, 25 of the 43 filed actions have reached a conclusion.
The majority of the Commission’s civil lawsuits involved an allegedly fraudulent scheme, with 81% of actions involving an allegation of fraud; 72% of lawsuits involved alleged unregistered securities violations. In 58% of lawsuits, both fraud and unregistered securities violations were alleged. Separately, in only four of the Commission’s 32 administrative proceedings was there an allegation of fraud, while 21 involved unregistered securities violations. The statistics show that the SEC has a clear preference for bringing any allegations of fraud in federal court.
Slightly over half (52%) of all enforcement activity was related to Initial Coin Offering (“ICOs”). The Commission’s enforcement activity against ICO’s heightened in 2017 after the Commission released its DAO report, applying the Howey test to tokens to determine their status as investment contracts. The report also shows that the SEC brought 19 trading suspensions during the time period examined, with all suspension orders having been issued since April of 2017.
As of March of this year, 70% of the enforcement actions brought by the Commission have been settled for more than $1.77 billion in total monetary penalties.
The SEC has faced criticism over the past few years for failing to provide clear guidance to the cryptocurrency and digital asset industry. However, there is optimism that new chairman Gary Gensler, a former professor at MIT’s Sloan School of Business where he taught on subjects such as digital assets, will help bring clarity to the space.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.