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SEC committee encourages 'aggressive enforcement' against crypto firms

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(Kitco News) - The recent enforcement actions by the U.S. Securities and Exchange Commission (SEC) have worried the crypto community, but they are being welcomed by the SEC Investor Advisory Committee (IAC), which recently sent a letter to SEC Chair Gary Gensler encouraging him to maintain the pressure on the digital assets industry.

The IAC opened the letter by noting the growth that the crypto industry has seen over the past five years which has led to large fluctuations in value. This has resulted in many investors suffering significant losses, with some estimates indicating that these losses have exceeded $2 trillion.

“As a result of targeted marketing, a significant amount of these losses have been borne by unsophisticated investors, including many minority investors seeking rapid investment growth without the knowledge or information to assess the risks associated with such investments,” the IAC wrote. “Numerous high-profile crypto firms have gone bankrupt, or, are on the edge of bankruptcy, and many of them have been charged with civil and criminal violations of various laws.”

The IAC also highlighted the borderless nature of crypto transactions, which “make them well-suited for various illegal activities such as money laundering and tax evasion.”

According to the U.S. Treasury, an estimated $14 billion worth of digital asset-based crime occurred around the world in 2021, double the figure from 2020. “The number of scams in 2021 rose by over 60% year-over-year, while the value of stolen digital assets rose by over 80% in 2021,” the IAC said.

The committee also reiterated the long-standing position of the SEC and Gensler that the vast majority of cryptocurrencies are securities and fall under the jurisdiction of the agency.

“We believe that virtually all, if not all, crypto tokens are securities and that they, as well as the platforms and custodians dealing with them, are subject to regulation under the federal securities laws to protect investors,” they wrote. “Accordingly, the offering of crypto asset securities and the platforms trading them should comply with the registration, disclosure, anti-fraud provisions and other investor protector provisions of the federal securities laws.”

In response to the continued growth of the crypto industry and the dangers they believe it poses to the public, the IAC is encouraging the SEC to: “Aggressively continue to assert authority over crypto assets that are securities and over trading platforms that list or transact in such crypto asset securities; Continue to provide guidance regarding crypto assets to promote compliance by crypto industry participants with the federal securities laws; and Continue to make crypto asset-related enforcement a top priority and, where needed, develop specialized personnel with knowledge of the crypto industry.”

The committee acknowledged that many in the crypto industry “still assert that there is lack of clarity regarding the application of the federal securities laws to crypto and digital assets and that there are gaps in the SEC’s guidance,” and recommended that the agency consider issuing a request for comment regarding areas where additional guidance is needed. “The SEC can then use this input to craft additional guidance or propose rules to address issues identified,” they wrote.

The IAC also recommended that the SEC should oppose any legislation that seeks to “create special exemptions to the federal securities laws for crypto assets that would undermine investor protection,” and said the agency should “conduct examinations of broker-dealers and investment advisers focused on whether standards of care are being followed when making recommendations and providing investment advice regarding crypto-related assets.”

SEC launches investor education month as survey shows the majority of Americans lack financial knowledge

The SEC is wasting no time in beefing up its crypto enforcement unit, as a new job posting placed by the agency indicates that it is looking to hire general attorneys in New York, New York, San Francisco, California and Washington D.C. for the Crypto Assets and Cyber Unit in its Division of Enforcement.

According to the listing, some of the duties of the new position include conducting “complex, fast-moving investigations” involving crypto asset securities and cyber issues, developing investigative or litigation plans, drafting subpoenas or document requests, questioning witnesses through interviews and evaluating evidence.

The positions offer a salary range of $140,830 to $259,590 per year, and interested applicants have until April 17 to apply for the positions. The starting date for the application period was April 3, which is interesting in that it came just five days after Gensler requested and received nearly $2.4 billion in funding for the agency to help it increase its enforcement against crypto “misconduct.”

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