March 28, 2024
SEC Continues Pursuit of Crypto Exchanges and DeFi Projects for Securities Violations
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SEC Continues Pursuit of Crypto Exchanges and DeFi Projects for Securities Violations

As it did with Coinbase Inc. (COIN) and Binance, the U.S. Securities and Exchange Commission (SEC) is continuing to pursue cryptocurrency exchanges and decentralized financing (DeFi) projects it believes are breaking securities rules, according to David Hirsch, head of the agency’s Crypto Assets and Cyber Unit.

Hirsch said Tuesday at the Securities Enforcement Forum Central in Chicago that his enforcement office, which is currently litigating at a very unusual pace for the SEC, is aware of and examining other firms engaged in much the same activity seen at those two major platforms and that the industry’s compliance breaches “hold well beyond any two entities.”

Hirsch said, “We’re going to continue to bring those charges,” adding that the agency is keeping an eye on several other companies that conduct business like Coinbase and Binance. His organization is already involved in several intricate cryptocurrency matters before federal judges, though not always successfully, as evidenced by its recent attempt to appeal a Ripple verdict.

Hirsch claimed that the SEC’s interest in cryptocurrencies extends far beyond the well-known exchanges.

“We’re going to continue to be active as intermediaries,” he stated. “That can be brokers, dealers, exchanges, clearing agencies, or any others who are active in this space, are within our jurisdiction, and are not meeting their obligations, either through registration or failure to provide adequate or complete disclosures.”

DeFi projects won’t escape the enforcement division’s scrutiny, according to Hirsch.

“We’re going to continue to conduct investigations; we’re going to 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,” he explained.

The U.S. securities regulator is used to taking a very measured approach to enforcement, focusing on wrongdoing at regulated companies that promptly start negotiating settlements. These companies are frequently big Wall Street corporations with sizable legal teams. Companies that deal in digital assets frequently file lawsuits against the agency because the accusations they face pose a threat to their very existence.

The SEC’s enforcement resources are limited and frequently fewer than those of the financial behemoths it is accustomed to taking on.

Hirsch said, “We do have a lot of litigation going on.”

A. Kristina Littman, who moderated the event and was previously the SEC’s chief of crypto enforcement before Hirsch and is currently employed at Willkie Farr & Gallagher, remarked, “It feels like you’re at capacity.”

Hirsch acknowledged that the SEC had limited power.

“There are more tokens extant—maybe 20,000 or 25,000, last I read—than the SEC or any agency has the resources to pursue directly,” he added. “And similarly, there are several centralized platforms out there, some of which are acting as unregistered exchanges.”

Image: Unsplash

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