The Securities and Exchange Commission (SEC) is ramping up its enforcement actions against those involved in cryptocurrency-related misconduct, according to Gary Gensler, the commission’s chair. In a recent speech to securities lawyers, Gensler revealed that the agency had filed over 780 court cases and administrative actions in the just-completed September fiscal year, marking a 3% increase from the previous year. Many of these actions targeted individuals and entities operating in the cryptocurrency space, with Gensler emphasizing that the SEC would not back down when it comes to overseeing this rapidly evolving industry.
A Tumultuous Landscape
Gensler painted a bleak picture of the cryptocurrency markets, describing them as “rife with fraud, scams, bankruptcies, and money laundering.” He drew parallels between the current state of affairs and the rampant misconduct observed in the 1920s, a backdrop that ultimately led to the establishment of federal securities laws. Gensler’s strong remarks reflect the SEC’s determination to combat illicit activities within the cryptocurrency ecosystem.
Prominent Figures Under Scrutiny
During his speech, Gensler highlighted several high-profile cases pursued by the SEC in the past year. Notable individuals such as Samuel Bankman-Fried of FTX, Changpeng Zhao, the founder of Binance, and Coinbase Global—a leading trading platform—have all found themselves in the crosshairs of the commission. These actors are currently challenging the SEC’s claims against them. Gensler refrained from naming every individual charged, underscoring the widespread noncompliance prevalent in this field.
Gensler made it clear that federal securities laws extend beyond traditional stocks and bonds. As per his interpretation, any asset deemed an “investment contract” falls under the jurisdiction of these laws. Considering the majority of crypto assets fall within this definition, Gensler stressed that individuals engaged in cryptocurrency trading are subject to securities laws.
By highlighting the SEC’s commitment to combating cryptocurrency-related misconduct and clarifying its jurisdiction over the industry, Gensler’s speech serves as a stern warning to those involved in illicit activities within the crypto markets.
Discussion on the Securities and Exchange Commission’s Enforcement Actions
The Securities and Exchange Commission (SEC) has faced objections from the crypto industry regarding its classification of tokens as securities. However, a federal district court judge ruled in July that a token belonging to Ripple Labs may not necessarily be considered a security. Despite this, the SEC has pursued an appeal, and other federal judges have sided with the SEC, deeming crypto tokens as securities.
Throughout the fiscal year of September 2023, the SEC achieved $5 billion in recoveries from its securities prosecutions. This sum included $930 million that was returned to affected investors. Among the noteworthy recoveries was a $413 million penalty imposed on Danske Bank (DNSKF), Denmark’s major financial institution. The penalty was a consequence of Danske Bank concealing its anti-money-laundering failures, which were originally brought to light by investigative journalists and groups such as the Organized Crime and Corruption Reporting Project.
One of the SEC’s primary areas of focus was the widespread use of personal messaging and phone calls by Wall Street to conduct official business. Violations related to record-keeping resulted in penalties for 23 firms during the fiscal year of 2023.
In previous years, defense lawyers had successfully urged the agency to penalize companies while letting individuals evade responsibility. However, in the most recent fiscal year, SEC Chair Gary Gensler disclosed that two-thirds of the agency’s enforcement actions involved charging individuals. He further highlighted that a total of 113 individuals, including former McDonald’s CEO Stephen Easterbrook, were prohibited from serving as officers or directors of public companies. Easterbrook consented to this prohibition without admitting to the SEC’s allegations of fraud.
Gensler emphasized the SEC’s commitment to litigation, stating that they are willing to take legal action against well-resourced founders, long-established firms, emerging industries, and even the largest crypto exchanges.