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On May 3, 2022, the Securities and Exchange Commission announced1 that it plans to add 20 new members to the unit responsible for investigating and prosecuting crypto and cyber-related matters, growing the unit to at least 50 members. The unit, formerly known as the Cyber Unit, will be re-branded as the “Crypto Assets and Cyber Unit.”

In its announcement, the Commission said the unit will focus on crypto asset offerings, exchanges, lending and staking products, DeFi platforms, NFTs, and stablecoins. The unit will also investigate cybersecurity disclosure and control issues impacting public companies and/or SEC registrants.

In connection with the announcement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement focused on risks to retail investors, noting: “Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in the space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants.”


1 See, https://www.sec.gov/news/press-release/2022-78.

LEGAL TOKENS

The simple takeaway is that cryptomarket participants should expect an uptick in activity from the SEC’s Enforcement Division, particularly those who provide services to retail markets or customers.

On another note, it was never clear why the Enforcement team responsible for investigating crypto-related matters was lumped into the Cyber Unit, which was tasked with cybersecurity matters. The rebranding, at least, makes sense.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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Author's Assets

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Anthony Tu-Sekine | PARTNER

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokenstoken custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain.

You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.

Anthony’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector” 

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Philip Moustakis | COUNSEL

A former senior counsel in the SEC’s Division of Enforcement, Philip advises companies and individuals at Seward & Kissel on cryptocurrencies and blockchain technology, SEC enforcement matters, other regulatory investigations, and internal investigations. As a founding member of the SEC’s Cyber Unit, Philip advised the Commission on cryptocurrencies and investigated matters involving initial coin offerings (ICOs), unlawful touting of ICOs, and other violations of the federal securities laws related to cryptocurrencies. Publicly filed enforcement matters Philip spearheaded included the SEC’s first ever Bitcoin-related enforcement action against the operator of Bitcoin Savings & Trust, a Bitcoin-denominated Ponzi scheme, settled proceedings against an operator of a Bitcoin-related social media marketing venture and a popular Bitcoin betting site for the offer and sale of unregistered securities, and settled proceedings against an operator of unregistered cryptocurrency-denominated securities exchanges and broker-dealers.

“The SEC is a principles based regulator, and it will assert its jurisdiction over any securities offering or transaction, as it has done since the onset of the ICO craze, regardless of the technology used to facilitate such an offering.”

Philip’s thoughts on the recent SEC enforcement action against Kik Interactive, Inc. as published in the Crowdfund Insider article “Former SEC Senior Counsel Comments on Kik Ruling: Kik Could Have Benefited From Traditional Capital Markets Lawyer”