SEC Expands Crypto Fraud Crackdown SEC Expands Crypto Fraud Crackdown
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SEC Expands Crypto Fraud Crackdown

SEC Expands Crypto Fraud Crackdown

Photo by Joshua Brown on Unsplash

The Securities and Exchange Commission (SEC) is doubling down on their efforts to stamp out cryptocurrency investment fraud, according to a report by Politico published Nov. 1.

Custody Questions

The government regulatory body is questioning investment advisers registered with the SEC to determine how they store their cryptocurrency, probing for evidence of price manipulation, and looking into just how vulnerable crypto is to outside attacks.

The agency released its annual enforcement reportย that catalogs its previous efforts to stamp out crime in the cryptocurrency space, including its approach to ICOs. The report claims โ€œdozensโ€ of investigations opened around ICOs in the last fiscal year, and twelve stand-alone cases were brought to court in FY 2018.

The report states:

โ€œAs of the close of FY 2018, the SEC had brought over a dozen stand-alone enforcement actions involving digital assets and ICOs…In the past year, the Division has opened dozens of investigations involving ICOs and digital assets, many of which were ongoing at the close of FY 2018.โ€

This new leg of the SECโ€™s investigation goes beyond the subpoenas and voluntary requests for information that the regulator has sent to ICOs by targeting investment advisers with the potential to manage millions. According to Politico, the SEC regulates advisers who oversee more than $100 million in client assets.

Rules for fiat currency say that investment advisers have to hold them in a bank or at a brokerage firm, but the storage of cryptocurrency in digital wallets raises questions around what kind of policies should be in place regarding their protection. The SEC is asking which advisers have a policy in place for crypto custody, and those without one could see trouble from the regulator.

Forming Guidelines

Reports of thefts and hacks, as well as the patchy regulatory environment for cryptocurrency exchanges in North America, are all fueling the SEC investigation as the agency tries to nail down a way to put a consistent value to digital assets.

SEC to Engage Directly with ICOs and the Public via New Portal
Related: SEC to Engage Directly with ICOs and the Public via New Portal

The agency recently opened its own online portal, allowing interested companies to ask questions and gain information on compliance.ย Named FinHub, the portal offers a way for people in the crypto and blockchain space to engage with the regulator directly. As of yet, the SEC does not appear to have issued any hard guidelines for investment advisers as a result of this sweep.

Until they do, its best for advisers to treat their digital assets with the same amount of care as their more conventional ones, says General Counsel Gail Bernstein of the Investment Adviser Association. Bernsteinโ€™s company represents over 600 SEC-registered advisement firms, and she stated in an interview with Politico:

โ€œAdvisers should think about investments in crypto assets the same way they think about any investments, through the lens of their fiduciary duty and compliance programs.โ€

She added:

โ€œTypically, after a sweep of this type, the SEC staff will publish its findings and observations, and that can provide very helpful guidance for advisers as they consider their compliance obligations.โ€

Posted In: Regulation