Cryptocurrency crimes have surged fourfold as SEC litigation skyrocketed in Q3 2024.
After a sluggish start to the year, the Securities and Exchange Commission (SEC) significantly ramped up its cryptocurrency-related litigation in the third quarter.
According to Finbold Research, the number of cases involving cryptocurrencies jumped from just 9 in the first half of the year to an astonishing 12 in Q3 alone. This rise reflects a growing trend where the SEC is intensifying scrutiny over the digital assets space.
SEC’s Increased Activity in Cryptocurrency Cases
Between July and September 2024, half of all digital asset cases brought forth by the SEC occurred, signalling a clear shift in enforcement priorities.
- Q1: 6 cases
- Q2: 3 cases
- Q3: 12 cases
Interestingly, September alone saw more total litigation releases than the entire first quarter of the year.
The heightened activity underscores the SEC’s commitment to regulating the cryptocurrency market, with one significant case involving the auditor for FTX, Prager Metis CPAs, LLC.
SEC Settles with FTX Auditor Over Oversights
The Prager Metis case is a prime example of the SEC’s enforcement efforts. The SEC alleged that between February 2021 and April 2022, Prager failed to adhere to Generally Accepted Auditing Standards (GAAS).
- The auditor neglected to assess systemic risks between FTX and Alameda Research, which proved detrimental to FTX users.
As of October 8, 2024, a settlement was reached where Prager Metis will pay a $745,000 civil penalty and implement remedial measures. These include hiring an independent consultant to ensure compliance with best practices.
Unregistered Offerings Dominate SEC Complaints
Throughout 2024, the SEC has targeted a wide array of individuals and companies involved in cryptocurrency.
- High-profile cases aside, many complaints centre around unregistered offerings and sales of securities.
- Companies like Geosyn Mining, Plutus Lending, and TrueCoin have all faced legal action for violations.
Cryptocurrency firms often criticize the SEC for unclear guidelines regarding digital assets being classified as securities. However, the SEC maintains that the rules, including the Howey Test, are well-defined.
The Dark Side: Fraud and Scams
The rise in litigation also highlights how cryptocurrencies attract fraudsters.
Many cases involved:
- Ponzi and Pyramid schemes
- Offering fraud, where investors are lured into nonexistent projects
One shocking example involved CoinW6, which operated a romance scam that bilked investors out of $2.2 million by promising unrealistic returns.
The criminals used platforms like CoinW6.com and others to deceive investors, leading to extortion attempts when victims sought to withdraw their money.
Notable Insider Trading Cases in Cryptocurrency
In addition to fraud, insider trading cases continue to plague the cryptocurrency space.
A high-profile case involved Ishan Wahi, a former product manager at Coinbase.
Wahi and his associates were accused of trading based on insider knowledge of upcoming cryptocurrency listings on the exchange.
- The SEC successfully secured a default judgment against one of Wahi’s accomplices, ordering him to pay over $2.4 million in penalties.
The SEC’s crackdown on insider trading highlights the complexities surrounding cryptocurrency regulation.
A Minority of Overall SEC Cases
Despite the increase in cryptocurrency-related litigation, it’s crucial to note that these cases represent a small fraction of the SEC’s total enforcement actions.
Out of 228 cases reported from January to September 2024, only 21 involved cryptocurrencies, making up just 9.21% of the total.
Even in September, the busiest month of the year, cryptocurrency cases comprised less than 11.11%.
Many of these cases involve fraudulent schemes that exploit the popularity of cryptocurrencies rather than targeting the industry itself.
Conclusion: The Future of Cryptocurrency Regulation
As cryptocurrency adoption grows, so does regulatory scrutiny. The surge in SEC litigation in Q3 2024 reflects a shift toward a more defined legal framework for digital assets.
With the SEC intensifying its enforcement actions, the future of cryptocurrency may hinge on clearer regulations.
Understanding this evolving landscape is essential for investors and industry participants alike.
In conclusion, cryptocurrency crimes have surged dramatically amid increasing SEC scrutiny, signalling a crucial moment for the digital asset space.
