Reflecting its determination to monitor the crypto markets, the Security and Exchange Commission has renamed the Cyber Unit the “Crypto Assets and Cyber Unit” and is nearly doubling its size from 30 to 50 members, according to a May 3 press release from the agency. The additional permanent positions will include investigative staff attorneys, trial lawyers, and fraud analysts, who will focus their efforts on prosecuting securities violations related to: crypto asset offerings; crypto asset exchanges; crypto asset lending and staking products; decentralized finance platforms; non-fungible tokens (NFTs); and stablecoins. In other words, the SEC will continue to target the full panoply of hot topics in the crypto world.
The expansion puts into effect SEC Chair Gary Gensler’s September comment to Senator Catherine Cortez Mastro of Nevada that the SEC could use “a lot more people” to regulate the 6,000 unique digital “projects” that may qualify as securities under the Howey test. The expanded Crypto Assets and Cyber Unit’s responsibilities will go beyond monitoring the ever-expanding and continually evolving crypto field. As Chair Gensler stated, “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.”
The enhancement of the Crypto Assets and Cyber Unit put into action the SEC’s repeated signaling that it will crack down on securities laws violations in the crypto markets. With the increase in staff, stakeholders in the crypto space can expect to see an uptick in crypto-related enforcement actions in 2022. The agency has already brought numerous cases against companies that raised money through initial coin offerings, against crypto exchanges that trade unregistered tokens, and against crypto lending companies. It is also significant that in making this announcement, Chair Gensler specifically named nonfungible tokens (NFTs) as a regulatory priority. The SEC has yet to bring an enforcement action involving NFTs. It appears that the SEC hopes to change that.