WASHINGTON—The Securities and Exchange Commission will boost the size of its special unit devoted to investigating cryptocurrency frauds and other misconduct, a move that follows the agency’s aggressive push to get the unregulated industry to come under federal supervision.
The SEC said it plans to add 20 investigators and litigators to its Crypto Assets and Cyber Unit, which was created in September 2017 when regulators noticed a surge of new digital coins sold to the public. The commission has positioned itself as the chief government bulwark against fraud in the $1.7 trillion market, which so far has sidestepped most federal consumer- and investor-protection rules.
SEC Chairman Gary Gensler says the crypto industry is rife with fraud and abuse, likening it to the “Wild West.” The SEC filed nearly 100 cryptocurrency-related enforcement actions from 2013 to 2021, according to Cornerstone Research, with most of those targeting new sales of digital coins.
“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space,” SEC Enforcement Director Gurbir S. Grewal said in a written statement. “The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.”
The SEC has so far resolved most cryptocurrency investigations through settlements, although it is litigating with Ripple Labs Inc. and two of its executives over the sale of a well-known digital coin, XRP.
It is also investigating Binance.US, an affiliate of Binance, the world’s largest cryptocurrency exchange. As the agency pursues cases against bigger and more successful companies, regulators might need to take more claims to federal court.
With the addition of 20 enforcers, the SEC’s special cryptocurrency unit would have 50 lawyers and other personnel. It will also get a new leader. Kristina Littman, the unit’s current chief, has announced internally that she plans to leave the agency in June, an SEC spokesman said.
In addition to cryptocurrency issuers and trading platforms, the SEC said the unit will scrutinize newer assets such as nonfungible tokens, or NFTs, which are digital proofs of purchase for items such as art, baseball cards or digital music. NFTs are stored and traded on computer networks using the same technology that powers bitcoin and other cryptocurrencies. In some cases, lawyers argue, tradable NFTs can meet the legal definition of securities, which could bring them under the SEC’s oversight.
Mr. Gensler, a longtime regulator who carved out a niche teaching about bitcoin at the Massachusetts Institute of Technology, has struggled to persuade major crypto firms to voluntarily adopt the SEC’s investor protections. He has urged cryptocurrency-trading platforms to register with the SEC as exchanges, saying many of the digital tokens they list are securities and the activity might be illegal if done without any federal oversight.
So far, companies that operate major trading venues—such as Coinbase Global Inc., COIN 7.66% FTX and Binance—have resisted Mr. Gensler’s request, saying they don’t believe they trade securities. Registering as exchanges would subject them to new costs and compliance requirements, including creating rules for listing new assets that would need to be approved by the SEC.
Write to Dave Michaels at [email protected] and Paul Kiernan at [email protected]
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