Gary Gensler, the chair of the Securities and Exchange Commission, keeps his promises, at least when it comes to cracking down on crypto trading. And not everyone is happy about it.
In recent weeks, the SEC has:
- Brought charges against Hall of Famer former NBA star Paul Pierce for touting EMAX tokens, a crypto asset offered and sold by Ethereum, on social media without disclosing that he received more than $244,000 in tokens for his promotional effort. The SEC also alleged that Pierce misrepresented the size of his personal holdings of the tokens. Without admitting or denying the allegations, Pierce agreed to pay a $1.115 million penalty and make approximately $240,000 in disgorgement.
- Accused Singapore-based Terraform Labs PTE Ltd. and its CEO and majority stockholder, Do Hyeong Kwon, of a four-year scheme that raised billions of dollars from investors by selling various crypto assets that the SEC alleged were securities in fraudulent unregistered transactions that resulted in significant losses for U.S. investors. The complaint asserted, among other things, that defendants misled investors about the stability of Terraform's algorithmic "stablecoin," called Terra USD (UST), that purportedly was pegged to the value of the U.S. dollar. The SEC charged that UST's value was propped only by billions of dollars from investors, and then that after cash disappeared, the value of UST and Terraform's other crypto assets fell to zero.
- Charged Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby Kraken pooled crypto assets provided by investors and stakes them on behalf of investors. Staking involves locking up tokens in exchange for new tokens when the staked crypto becomes part of the process for validating data on a blockchain. The SEC's complaint filed in federal court in San Francisco alleged that although Kraken promised 21% annual investment returns, investors did not receive necessary disclosure, including disclosures surrounding the business and financial condition of defendants, fees, and the risk that investors might lose protection of their tokens. The Kraken entities settled by agreeing to shut down the staking program and pay $30 million in disgorgement, prejudgment interest and penalties. However, SEC Commissioner Hester Peirce, a longtime defender of crypto, objected to the enforcement action, arguing that staking services provide a benefit to investors.
- Charged Genesis Global Capital and Gemini Trust Company (controlled by the Winkelvoss Brothers) with the unregistered offer and sale of securities through the Gemini Earn crypto asset lending program.
- Brought settled charges against Nexo Capital, Inc. for failing to register the offer and sale of its retail crypto asset lending product, Earn Interest Product (EIP). Nexo agreed to halt the sale of EIP and pay a $22.5 million penalty, as well as pay an identical amount to settle state regulatory actions.
- Voted 4-1 to amend federal custody requirements to include crypto assets, which would likely require crypto exchanges to obtain further regulatory approval. Commissioner Peirce again objected, opposing the rule because of its timing, workability and breadth. But she also stated that she hoped to support a final rule after public comment and possible amendments. Commissioner Peirce was not alone in her criticism. The chief policy officer of the Blockchain Association, an industry group, accused the SEC of engaging in "regulation by enforcement." And Coinbase's CEO, Brian Armstrong, accused the SEC of "sketchy behavior" while Tyler Winkelvoss called the SEC's charges against Genesis and Gemini as "totally counterproductive."
Originally published February 22, 2023
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