Crypto Vs SEC: A List Of SEC Crackdowns In February 2023

On Feb 27, 2023

The Securities and Exchange Commission (SEC) has been busy in the month of February 2023, cracking down on cryptocurrency firms in the United States. The SEC’s actions come as a result of the collapse of FTX, which left many investors with significant losses.

The agency is aiming to protect investors by enforcing securities laws, imposing fines, and promoting transparency. Kraken, Terraform, and even NBA player Paul Pierce have already been fined, while Coinbase, Paxos, and Binance are currently under scrutiny. This article explores the SEC’s actions and what they mean for the cryptocurrency market as a whole.

SEC aims to protect investors

The United States Securities and Exchange Commission (SEC) is a federal agency responsible for enforcing securities laws and regulating the securities industry in the United States. The SEC was created in 1934 in response to the stock market crash of 1929 and the subsequent Great Depression.

The SEC’s main functions include protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. The SEC enforces securities laws, oversees securities markets and participants, requires companies to disclose financial information related to securities, and provides investor education.

The SEC is targeting cryptocurrency firms for violating securities laws and causing significant losses to US investors following the collapse of FTX exchange. The agency aims to regulate the cryptocurrency market, prevent fraudulent activities, and ensure compliance with securities laws to protect investors and promote transparency in this emerging market.

Let’s see what the SEC did in February to regulate the crypto industry.

Feb 10: Kraken paid a $30 million fine to settle charges with the SEC for not disclosing information related to its staking services. The company failed to register its crypto asset staking-as-a-service program, which promised annual investment returns of up to 21 percent. As a result, two Kraken entities had to stop offering or selling securities through crypto asset staking services or staking programs. Following the fine, Kraken stopped providing staking services altogether in the U.S.

Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.
— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023

Feb 17: The SEC charged Terraform Labs and its founder, Do Hyeong Kwon, with a multi-billion-dollar crypto securities fraud. Terraform created a stablecoin called Terra Luna, which was pegged to the USD but had no proper cash backing. They manipulated the market by showing fake reserves and transactions, which resulted in million dollar losses for investors. The founders have been given an arrest warrant and are currently on the run.

Today we charged Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon with orchestrating a multi-billion-dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.
— U.S. Securities and Exchange Commission (@SECGov) February 16, 2023

Feb 17: The SEC charged former NBA player Paul Pierce for promoting a cryptocurrency called EMAX on social media without disclosing he was paid to do so. The SEC also accused Pierce of making false statements about a particular crypto asset. According to the SEC, it’s important for individuals promoting a cryptocurrency to disclose if they’re being paid to do so. Investors need to know if the person promoting the cryptocurrency has a conflict of interest, and Pierce failed to do so.

Today we announced charges against former NBA player Paul Pierce for touting EMAX tokens on social media without disclosing the payment he received for the promotion and for making false and misleading promotional statements about the same crypto asset.
— U.S. Securities and Exchange Commission (@SECGov) February 17, 2023

Crypto Firms under Scrutiny

Paxos, the stablecoin issuer of BUSD, is in talks with the Securities and Exchange Commission regarding its issuance. Last week, different regulators forced Paxos to stop issuing the BUSD Binance stablecoin, ending its partnership with the world’s largest crypto exchange. Paxos is holding “constructive talks” with regulators. The regulatory news caused BUSD to lose about $2.5 billion in market value, according to Binance founder Chanpeng Zhao.

Coinbase is being investigated by the SEC over its staking program, and the company’s CEO, Brian Armstrong, has said he is prepared to take the matter to court. Coinbase’s chief legal officer, Paul Grewal, has pointed out that their staking services are different from Kraken’s, as Coinbase users retain ownership of their cryptocurrency at all times. Armstrong has warned that the United States risks losing its position as a financial hub if it does not introduce clear legislation soon.

The SEC is cracking down on Binance for its staking program, joining a growing list of cryptocurrency firms facing regulatory scrutiny. With investigations ongoing, the industry is likely to see increased regulatory oversight to protect investors and maintain market stability.