In the wake of the collapse of FTX and subsequent charges filed against the company and some of its executives, regulators are cracking down on cryptocurrency markets. In my experience as the founder of a compliance executive search firm, once the SEC ramps up its investigations, other regulatory authorities will also join in with their own enforcement investigations and actions.
The Securities and Exchange Commission (SEC), the leading regulator of the financial and securities industries, is growing its headcount, an SEC spokesperson told CoinDesk last Wednesday. The new headcount will aid in the agency’s ability to review, investigate, audit, examine and potentially prosecute securities law violations related to these new crypto products and trading activities. The regulator’s representative did not disclose how many new positions would be added.
In May 2022, the SEC announced that the agency would hire 20 additional regulatory personnel. The new hires would become part of the newly rebranded Crypto Assets and Cyber Unit division, growing to 50 professionals tasked with being responsible for “protecting investors in crypto markets and from cyber-related threats.”
According to the SEC, the additional staff would include supervisors, investigative staff attorneys, fraud analysts and trial counsels with a focus on investigating securities law violations in: crypto asset offerings, exchanges, and lending and staking products; decentralized finance platforms; non-fungible tokens and stablecoins.
SEC chair Gary Gensler said in the announcement, “The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them.” Gensler added, “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. 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.”
Since its creation in 2017, the unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion.
In July, Gurbir Grewel, head of SEC Enforcement, asked Congress for additional resources to effectively monitor and review the crypto industry, according to reporting by Coindesk. Grewal requested that the House Financial Services subcommittee allocate sufficient funds to recruit and hire an additional 125 more regulatory professionals, as the SEC is having a hard time keeping up with the number of investigations, bankruptcies and implosions of digital asset platforms.
Are Crypto Exchanges Safe And Qualified Custodians?
Last Thursday in prepared remarks before an Investor Advisory Committee meeting, Gensler made comments concerning cryptocurrency exchanges in the U.S., reiterating his stance that cryptocurrency exchanges are not safe and qualified custodians. Gensler said, “To be clear: just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is. When these platforms fail—something we’ve seen time and again—investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court.” The SEC chair tweeted about the agency’s proposal to ensure that custodial companies meet requirements around the segregation of funds and pass annual audits by certified public accountants.
Public Citizen, a non-partisan nonprofit consumer advocacy group with more than 500,000 members, wrote an open letter praising Gensler for recognizing some crypto firms are issuing unregistered securities and acting as unregistered exchanges, brokers or other regulated financial intermediaries.
The advocacy group claims, “Crypto enthusiasts have perpetrated a massive Ponzi scheme, disproportionately harming people of color and those with modest incomes.” It goes on to say in the letter, “The crypto balloon has been inflated by influencers, many surreptitiously paid; massive advertising campaigns that were funded through crypto firms’ misuse or theft of customer funds; and a rogues gallery of online crypto enthusiasts, some of whom have a self-interest in inflating the price of tokens.”
What The SEC Is Targeting
The SEC alleges that many digital tokens are unregistered securities. The agency points to FTX exchange token FTT and yield products offered by a number of platforms. The regulator separately accused cryptocurrency platform Kraken of inappropriately offering securities in the form of its staking service. According to the regulator, Kraken failed to adequately disclose the risks of participating in the program. The crypto platform agreed to pay $30 million to settle the charges and shutter the product.
The SEC is also taking shots at the international crypto exchange Binance—whose top executive, Changpeng Zhao, brought the FTX scandal to light—by threatening to sue Paxos to stop offering Binance USD. The regulatory agency asserts that BUSD is an unregistered security.
Regulators have also called into question whether or not Binance’s U.S. and global arms are independent of each other. According to the Wall Street Journal, the two look to be more converged than previously disclosed, allegedly “mixing staff and finances and sharing an affiliated entity that bought and sold cryptocurrencies.” The Journal reported that Binance potentially had access to U.S. customer data, since its developers in China had access to software code belonging to Binance.US users’ digital wallets.
Crypto Executive Fights Back
Crypto executives, such as Coinbase CEO Brian Armstrong, are critical of Gensler’s actions. Armstrong said on Bloomberg TV that the U.S. is behind on getting its regulatory act together, while the rest of the world embraces crypto. Armstrong also defended Coinbase’s staking product, according to the Block. He called for a “clear rule book” on crypto assets and criticized Gensler’s regulation-by-enforcement approach.
What This All Means
With the heightened attention and SEC enforcement actions, companies will ramp up hiring internally to ensure compliance with crypto laws and regulations.
Here are 10 open compliance positions within the crypto space:
- Coinbase—Regulatory Policy Senior Manager
- Coinbase—ACH Analyst, Payments Risk Operations
- Cash App—Crypto Regulatory Counsel
- eBay—Crypto Counsel
- Andreessen Horowitz (a16z)—Partner 22, Compliance Officer, Crypto
- Zero Hash—Associate General Counsel, Regulatory
- Zero Hash—Vice President of Legal, Regulatory
- Anchorage Digital—Compliance Testing and Monitoring Analytics Associate
- Anchorage Digital—Compliance Testing and Monitoring Manager
- Paxos—Risk Assessment Program Manager