A quick guide to cryptocurrency enforcement and regulation

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Cryptocurrency Litigation Series: Second of Four

What you need to know in a minute or less

The rise in government investigations and enforcement actions related to players in the cryptocurrency industry is striking. The scope and scale of the government’s attention to the industry continues to show in daily headlines. Given the somewhat murky regulatory environment that persists today, a feature of the current enforcement landscape is the government’s tendency to regulate largely through enforcement, rather than crafting rules specific to industry.

Cryptocurrency Working Groups

In an effort to prioritize and focus enforcement efforts, government agencies have created teams and task forces with enforcement mandates specific to the cryptocurrency space. Among others, the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) played a leading role.

  • On May 3, 2022, the SEC announced that it had nearly doubled the size of the Enforcement Division’s Crypto Assets and Cyber ​​Unit, originally created in 2017.1 In announcing this significant development, SEC Chairman Gary Gensler emphasized the SEC’s priority of devoting substantial resources and attention to policing the crypto markets.

  • On October 6, 2021, the DOJ launched a National Cryptocurrency Enforcement Team (NCET) to handle criminal investigations and prosecutions regarding the cryptocurrency industry, including a focus on cryptocurrency exchanges. virtual currencies.2

Main objectives of enforcement

Much of the application of crypto has focused on whether particular cryptocurrency products, technologies, and offerings qualify as securities, commodities, or currencies — or a category entirely different, which may or may not be subject to regulation.

While regulators do indeed focus on the current activities and future actions of market participants, they also focus on past conduct. For example, the SEC recently took enforcement action on a number of initial coin offerings (ICOs) that took place in 2017. As such, the government has demonstrated that he does not have a short memory and is instead committed to upholding past behaviors. , although such behavior occurred during a period when the regulatory landscape was arguably ambiguous.

Stay aware and prepared

Regulators are focused on protecting investors in crypto markets. The SEC, in particular, has paid considerable attention to crypto asset exchanges, decentralized finance (“DeFi”) platforms, crypto asset lending and staking products, and more. Staying informed of ever-changing trends in the application of crypto will allow you to anticipate areas for improvement in your business model and conduct, and ensure that you are not caught off guard when the government strikes. at the door.

In the next edition of Litigation Minute, we will outline best practices to follow should you become the subject of an investigation or legal action.


FOOTNOTES

1 US Securities and Exchange Commission (SEC). (May 3, 2022). SEC nearly doubles size of app’s crypto assets and cyber unit [Press release].

2 The United States Department of Justice (DOJ). (October 6, 2021). Deputy Attorney General Lisa O. Monaco Announces National Anti-Cryptocurrency Team [Press release].

Copyright 2022 K&L GatesNational Law Review, Volume XII, Number 312

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