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Last week, the SEC announced that it had charged Genesis Global Capital and Gemini Trust Company for the unregistered offer & sale of securities to retail investors via their crypto asset lending program. Based on the SEC’s 22-page complaint and a Twitter response from Gemini co-founder Tyler Winklevoss, the SEC appears to have had its eye on the program for the past 17 months – and was spurred to action on the enforcement front when the firm “paused” withdrawals (the pause has not been lifted; a Genesis bankruptcy filing is reportedly imminent). According to Bloomberg, the SEC and federal prosecutors are also investigating internal financial dealings of related entities.

This is only the tip of the iceberg for current crypto enforcement actions. A report out yesterday from Cornerstone research points out that in 2022 (the first full year under SEC Chair Gary Gensler), crypto-related enforcement actions increased by 50%. Here are highlights from Cornerstone’s press release:

In 2022, the SEC charged a total of 79 defendants or respondents in cryptocurrency enforcement actions, of which 56 (71%) were individuals and 23 (29%) were firms. The proportion of enforcement actions charging only individuals has grown under the Gensler administration from nearly 20%, on average, in the 2013‒2020 period to 35% in 2021 and 50% in 2022.

Of the 30 total enforcement actions in 2022, 14 involved initial coin offerings (ICOs), and over half (57%) of these ICO-related actions included a fraud allegation. In addition, the SEC brought first-of-their-kind charges in 2022 in the cryptocurrency space related to insider trading and market manipulation. …

Since its first cryptocurrency-related enforcement action in 2013 through the end of 2022, the SEC has brought 127 enforcement actions, including 82 litigation actions and 45 administrative proceedings against digital-asset market participants.

Over the same period, the SEC has imposed approximately $2.61 billion in total monetary penalties, of which $242 million were settlements the agency reached in 2022.

As we embark on what may be the “golden era” of SEC crypto enforcement, the SEC continues to await a ruling (or settlement) on its Ripple case, which we’ve blogged about a few times. That high-profile case may help answer whether the SEC has jurisdiction to regulate this asset class, if Congress doesn’t step in to answer the question. In the latest tussle, the SEC lost a request to keep private a preliminary draft of a 2018 speech from Bill Hinman that shared his view that Ether was not a security. And of course, lots of folks are watching the headline-grabbing SBF prosecution.

You can continue to keep up with recent regulatory developments and guidance in our “Crypto” Practice Area.

– Liz Dunshee