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The Securities and Exchange Commission will expand its Enforcement Division unit focused on crypto assets and cyber violations by 20 positions to 50 in total.
SEC Chair Gary Gensler said the move was intended to match growing investor interest in the crypto markets. He said it was “increasingly important” the commission dedicate more resources to protecting those investors, noting that the Division of Enforcement’s Crypto Asset and Cyber Unit had already brought dozens of cases against fraudulent crypto investments.
“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 issues with respect to cybersecurity,” Gensler said about the expansion.
The unit was first created in 2017 and has brought more than 80 enforcement actions resulting in more than $2 billion in fines, according to the commission. With the new additions, the unit will focus on investigating violations concerning crypto asset offerings, crypto asset exchanges, crypto asset lending and staking products, as well as NFTs, DeFi platforms and stablecoins.
SEC Commissioner Hester Peirce took to Twitter to criticize the move hours after the staff additions were announced.
“The SEC is a regulatory agency with an enforcement division, not an enforcement agency,” she wrote in a reply to an SEC tweet on the boost in staff. “Why are we leading with enforcement in crypto?”
Peirce has been publicly critical about decisions and actions of the SEC, particularly after the five commissioners that lead the regulatory agency tilted to a 3-2 Democratic majority after Pres. Joe Biden was elected president and nominated Gensler as chair. Additionally, her interest in digital assets has garnered support from the crypto community.
The expansion in staff was a sign that the SEC would continue to look closely at advisors and issuers in the digital asset space, according to Gabriel Edelman, a managing director at the compliance consulting firm Foreside.
“Blockchain and digital asset investments are growing and it makes sense that regulatory bodies would grow in this space, as well,” he said.
Some of the more than 80 enforcement actions have targeted individuals in the wealth management space, including Richard Hoffman, a former Ameriprise dual registrant. In February, the SEC accused Hoffman of soliciting investments from clients for a crypto-trading Ponzi scheme run by a duo of alleged fraudsters, one of whom purportedly had ties with the Colombo crime family (the scheme was run through Zima Global Ventures, and was co-founded by John Michael Caruso, who gave himself the moniker of “the “Kryp+o K!ng,” according to the Phoenix Business Journal).
The commission’s 2021 report on enforcement activity detailed other actions taken in the past year, including charges against three individuals who promoted unregistered offerings via digital asset companies, as well as as charges against a Calif.-based issuer and its two founders that raised more than $9 million in an unregistered offering of digital securities.
Max Schatzow, a securities attorney with RIA Lawyers, said he believed the traditional examination staff for the SEC would continue to serve as the “frontline” for investigations into crypto violations in the advisor space, and would maintain their focus on the issues outlined in the crypto risk alert released this past February.
“Namely, they will be looking at portfolio management issues, recordkeeping, custody, disclosures and valuations,” he said.
The 20 additional staff members will include supervisors, investigative staff attorneys, trial counsels and fraud analysts, and will be posted in SEC headquarters in Washington, D.C., as well as in a number of regional offices. According to Gurbir S. Grewal, the SEC’s Enforcement Division Director, cyber-related threats continued to pose “existential risks” for financial markets.
“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space,” he said. “The bolstered Crypto Assets and Cyber Until will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.”
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