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SEC to bring more charges against crypto firms, says head of crypto assets and cyber unit

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(Kitco News) - Amid the widespread pushback to the Securities and Exchange Commission’s (SEC) regulation-by-enforcement approach to cryptocurrencies, David Hirsch, head of the agency’s Crypto Assets and Cyber Unit, has warned that more actions are coming related to ongoing investigations.

While speaking at the Securities Enforcement Forum Central in Chicago on Tuesday, Hirsch said the SEC is currently investigating cryptocurrency exchanges and decentralized finance (DeFi) platforms that have allegedly conducted similar breaches as Coinbase and Binance.US, and a response from the regulator will be forthcoming.

He said that the compliance breaches across the crypto industry “hold true well beyond any two entities,” and his office is aware of and investigating multiple firms that are involved in the same activities that Coinbase and Binance.US have been charged for.

“We’re going to continue to bring those charges,” Hirsch said.

The SEC’s Crypto Assets and Cyber Unit is currently involved in multiple high-profile cases – including the lawsuits against Coinbase, Binance, Binance.US, and Ripple – and shows no sign of slowing the pace of its enforcement actions, which will extend beyond large projects and exchanges.

“We're going to continue to be active as to intermediaries,” he said. “That can be brokers, dealers, exchanges, clearing agencies, or any others who are active in this space, are within our jurisdiction, and [are] not meeting their obligations, either through registration or failure to provide adequate or complete disclosures.”

Noting the recent actions taken against the decentralized finance (DeFi) platforms Opyn, XeroEx, and Deridex by the Commodity Futures Trading Commission (CFTC), Hirsch said this sector of protocols is of particular interest to the SEC as people think the decentralized nature of the market shields them from complying with regulations.

“We're going to continue to conduct investigations, we're gonna be active in the space, and adding the label of DeFi is not going to be something that's going to deter us from continuing our work,” he said.

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When the event’s moderator, A. Kristina Littman, asked if “It feels like you’re at capacity,” Hirsch conceded that the agency has “a lot of litigation going on” and said the agency’s reach can only go so far.

"There are more tokens extant – I think maybe 20,000, 25,000, last I read – than the SEC or any agency has the resources to pursue directly, and similarly, there are a number of centralized platforms out there, some that are acting as unregistered exchanges," he said.

This limits the SEC’s ability to police the asset class as a whole, as the agency has a finite enforcement budget that limits its bandwidth. Historically, the regulator has often targeted larger Wall Street firms that quickly enter into negotiation settlements in an effort to get any charges behind them.

That happens less often in the case of digital asset companies as they tend to be smaller and have capital in reserves, which pushes them to take the SEC to court rather than settle. This has led to a build-up of crypto-related cases on the regulator’s docket and claims from the crypto community that the agency is unfairly targeting the industry.

The recent actions taken against the Impact Theory and Stoner Cats non-fungible token (NFT) projects highlight the agency’s push to expand enforcement beyond large cryptocurrency exchanges to target smaller projects that sell unregistered securities to the public.

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