In recent years, the SEC has established itself as an active cryptocurrency enforcement agency, according to a new report from Cornerstone Research. The report, entitled “SEC Cryptocurrency Enforcement: Q3 2013 – Q4 2020,” details that between July 2013 and year end 2020, the agency initiated a total of 75 enforcement actions and 19 trading suspension orders against respondents involved with digital assets. The report also shows that the agency’s cryptocurrency activity has steadily increased throughout the 2013-2020 period. A copy of the report can be found here. Cornerstone Research’s May 11, 2021 press release about the report can be found here.
The SEC’s first cryptocurrency-related enforcement action was the July 12, 2013 civil lawsuit the agency launched against Trendon Shavers and his related entity Bitcoin Savings and Trust, in which the agency alleged that the respondents had engaged in a bitcoin-denominated Ponzi scheme. The level of the agency’s cryptocurrency-related enforcement activity significantly increased after its July 2017 issuance of the DAO investigative report, in which the agency took the position that the digital assets in question represented “securities” within the meaning of the U.S. securities laws.
During the period July 2013 through December 31, 2020, the agency brought a total of 75 cryptocurrency-related enforcement actions, 43 of which were litigated in U.S. district courts and 32 of which were pursued as administrative actions. In addition, since July 2013, the SEC has also issued 19 orders of trading suspensions.
The number of agency actions has increased as the years have progressed, especially since 2017. Thus, in 2017, there were a total of 10 enforcement actions and suspension orders; in 2018, there were a total of 22 enforcement actions and suspension orders; and in 2020, there were a total of 28 enforcement actions and suspension orders. During the period 2013-2016, there were a total of only seven enforcement actions and suspension orders.
In the agency’s 75 cryptocurrency-related enforcement actions, allegations of fraud and unregistered securities were the most frequently asserted. 52 of the 75 enforcement actions (69%) raised allegations of unregistered securities under Section 5 of the Securities Act of 1933; and 39 of 75 (52%) raised allegations of fraud under Section 10 and 17 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. 28 of 75 (37%) raised both allegations of unregistered securities and fraud. Other frequent allegations were failures to register as broker-dealers or as exchanges; promotion of securities without disclosing compensation; and violations of unregistered offerings of swaps to non-eligible contract participants. Three of the 75 actions were brought by the SEC in parallel with the CFTC.
Of the 32 administrative proceedings, 66% involved allegations of unregistered securities, while only four of the 32 involved allegations of fraud. Of the 43 litigated matters, 31 (72%) involved allegations of unregistered securities, and 58% of the 43 litigated matters involved allegations of both unregistered securities and fraud.
As of March 2021, 25 of the 43 litigated matters had reached a resolution, while 18 litigated matters remained pending. About half of the 43 litigated matters were filed in U.S. district courts in New York, with 18 in the Southern District of New York and four in the Eastern District of New York.
An Appendix to the report lists all 75 of the enforcement actions the agency initiated during the period 2013 through 2020. It is interesting to note how many of the resolved matters involved monetary payments, many including both disgorgements and civil penalties, as well as interest. Some of the monetary payments are quite substantial, including, for example, the 2015 litigation against Steve Chen, which, among other things, resulted in a disgorgement of over $186 million. The 2019 litigation against Telegram Group resulted in an award of over $1.2 billion in disgorgement, as well as civil penalties of over $18.5 million.