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SEC Official Hints At Even More Charges Against Crypto Exchanges In The Coming Months

  • The SEC says it will be increasing the intensity of its enforcement actions against erring crypto service providers.
  • Despite the claim, the Commission appears to be underfunded in its quest to police the virtual currency ecosystem.
  • The SEC is involved in several high-profile cases against virtual currency firms, including Ripple Labs, Coinbase, and Binance.

Despite juggling a string of high-profile cases, the SEC is keen on increasing the width of its enforcement to other crypto entities, putting a strain on the commission’s resources.

The U.S. Securities and Exchange Commission (SEC) has reiterated its intent to heighten its scrutiny over the virtual currency sector for the protection of investors. According to David Hirsch, head of the SEC’s Crypto Assets and Cyber Unit, the securities watchdog will be instituting fresh legal action against more crypto firms 

Hirsh disclosed that the enforcement action will extend to firms operating under the tag of decentralized finance (DeFi), hinting at a crackdown on unregistered securities.

“We’re going to continue to continue to conduct investigations,” said Hirsch. “We’re gonna be active in the space, and adding the label of DeFi is not going to be something that’s going to deter us from continuing our work.”

The SEC’s grouse is directed against the offer of unregistered securities, with the regulator designating some virtual currencies as securities following a strict application of the rules in Howey’s test.

The crusade against unregistered securities has seen the Commission begin legal proceedings against Ripple Labs over the issuance of XRP tokens. In a strong show of intent, the SEC extended its enforcement drive against Binance and Coinbase for facilitating the sale of unregistered securities on their platforms. 

All three entities have opted to slug it out with the regulator in court without recourse to a settlement. The SEC’s action against mainstream financial firms usually ends up in multimillion-dollar settlements but the decision of virtual currency firms to defend themselves in court puts the SEC in unfamiliar territory.

Hirsch conceded that the SEC’s crypto enforcement unit is grappling with several legal cases, hinting that resources may be stretched thin. With plans to expand enforcement action to DeFi protocols, the situation appears grim for the securities regulator.

“There are more tokens extant than the SEC or any agency has the resources to pursue directly, and similarly, there are a number of centralized platforms out there, some that are acting as unregistered exchanges,” said Hirsch.

Grabbing the bull by the horns

While things have not gone according to plan for the SEC in its campaigns against Ripple Labs and Binance, the Commission has shown little to no indication of throwing in the towel. 

Back in 2022, the SEC announced that it had doubled the employee strength of its crypto monitoring unit to support its enforcement actions against erring firms in the industry. Since the establishment of the unit, the SEC says it has instituted over 80 actions against fraudulent activity in the space, leading to the recovery of over $2 billion worth of investors’ funds.

“By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issued with respect to cybersecurity,” said SEC Chair Gary Gensler.

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