SEC Nearly Doubles Crypto Enforcement Unit, Citing Fraud Risk in a Booming Market

The US Securities and Exchange Commission (SEC) announced on Tuesday that it is closing to double down on its cryptocurrency enforcement division, adding another 20 positions to the recently-changed Crypto and Cyber ​​Assets Unit. its name to “Cyber ​​Unit”. The total number of staff will increase from 30 to 50, increasing the agency’s ability to prosecute securities law violations related to new crypto products.

In a press release, the SEC cited a boom period for crypto markets and a corresponding responsibility to keep investors safe from the growing risk of fraudulent investment schemes.

“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuse in this space. In the meantime, cyber-related threats continue to present existential risks to our financial participants and markets,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “The beefed-up crypto and cyber assets unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges,” Grewal said.

As cryptocurrency has become more available to retail investors, fraud and abuse have kept pace. One prominent type of scam is known as a “rug pull,” where a project’s operators solicit investments, promise big profits, and simply run away with the money, as recently happened with a collection of 3D avatars called Frosties and a crypto token. Inspired by the Netflix hit show squid game.

In its announcement, the SEC expressed a particular interest in crimes related to staking and lending platforms, decentralized finance (DeFi) services, stablecoins, and NFTs. The newly created staff positions would include investigative attorneys, trial attorneys and fraud analysts, the SEC said.

“The Division of Enforcement’s Crypto Assets and Cyber ​​Unit has successfully brought dozens of cases against those seeking to take advantage of investors in the crypto markets,” SEC Chairman Gary Gensler said in a statement. “By nearly doubling the size of this key unit, the SEC will be better equipped to police irregularities in the crypto markets while continuing to identify disclosure and enforcement issues regarding cybersecurity.”

Since taking office as SEC chairman in 2021, Gensler has frequently highlighted the need for more power and resources to regulate cryptocurrencies. In August 2021, he described the industry as the “Wild West” in terms of protecting investors, and called on Congress to expand the agency’s authority to regulate trading and lending platforms. Shortly thereafter, the SEC filed its first charges against a DeFi platform, accusing Cayman Islands-based operators Blockchain Credit Partners of unrecorded sales of more than $30 million worth of securities.

While the expansion of the crypto enforcement team is a boon for Gensler, it is unclear if it will be enough to meet the full range of the agency’s ambitions in the field. Previously, Gensler highlighted the myriad of recently launched products and services that could come under the SEC’s mandate, citing 6,000 new projects that need evaluation to determine if they qualify as securities under US law.

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