Of all financial markets, the crypto market appears to be the most susceptible to frauds due to the anonymity of transactions. However, over the years, several financial regulators in many countries have ramped up their crypto enforcement actions.
One of such agencies the U.S. Securities and Exchange Commission (SEC) who have become an active regulator of the country’s crypto space.
According to a Cornerstone Research report, the SEC has raised 75 enforcement actions between Q3 2013 and Q4 2020. Most of the accusations by the regulator were associated with fraud and the sales of unregistered securities. Per the report, the number of allegations spiked in 2019, with the agency instituting several lawsuits in Q3.
The report shows that 43 of the actions raised involved the U.S. district courts while the remainder was settled as administrative proceedings within the federal agency. Of the litigations, 25 had been resolved as of March 5, 2021.
The SEC Enforcement Action Against ICOs Spiked in 2017
More than half of those 43 actions litigated in the U.S. district courts were related to the issuance of unregistered securities, says the report. Furthermore, within those 8-years (2013-2020), the regulator raised 19 orders for trade suspension.
The commission was also drawn to initial coin offerings (ICO), raising the most enforcement actions towards ICO in 2017. Later that year agency used the Howey test to classify a token as an investment contract.
The Howey test was successfully used against an ICO issuer Munchee Inc. after it was charged with failure to register its securities.
Another enforcement action that stormed the crypto world is that of Ripple Labs, which the SEC filed in December 2020. The regulator accused the company of selling an unregistered security and also profiting from the sales. However, the case is still ongoing with no clear hint of the outcome.