When many people were getting ready to celebrate Holidays and say goodbye to 2020, the SEC made a few significant announcements that could affect its future work course. 

On December 23, 2020, Chairman Jay Clayton announced his resignation after more than three years of leading the SEC. His tenure coincided with the time of exponential growth of blockchain technology and the popularization of tokens. In the blockchain field, now former SEC Chairman Clayton will be remembered for his crackdown on the ICOs during which the SEC halted several unlawful token sales and exposed crypto fraud. 

One day before Chairman Clayton’s departure, the SEC announced that it filed charges against Ripple Labs Inc. and two of its executives, Christian Larsen, the company’s co-founder, executive chairman of its board, and former CEO, as well as Bradley Garlinghouse, the company’s current CEO. In its complaint, the SEC alleged that Ripple sold its tokens XRP to raise capital and finance the company’s business without the appropriate disclosures and procedure required under U.S. securities law. The SEC further alleged that Mr. Larsen and Mr. Garlinghouse, the largest holders of the XRP tokens, personally profiled approximately $600 million by misinforming the market and withholding valuable material information about XRP tokens and Ripple’s operations.  

The SEC charged defendants with violating the registration provisions of the Securities Act of 1933, seeking injunctive relief, disgorgement with prejudgment interest, and civil penalties. Immediately after the announcement, the XRP tokens started losing their value. Moreover, eventually, they will be removed from all exchanges.

Another case that was investigated during former Chairman Clayton’s tenure came to light on December 28, 2020, when the SEC announced the filing of emergency action and obtained an order imposing the asset freeze and other emergency relief in connection with the fraud related to cryptocurrency trading fund Virgil Sigma Fund LP. According to the SEC complaint, the founder of Virgil Sigma Fund LP and several affiliated entities, Stefan Qin, personally and through those entities, defrauded the public by making false statements about the fund’s operations, its strategy, assets, and financial conditions. As alleged in the complaint, Mr. Qin also attempted to use the investors’ funds for his personal needs. 

As a result, the SEC charged Mr. Qin and the affiliated entities with violations of the antifraud provisions of the federal securities laws seeking permanent injunctions, including conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties.

The SEC continues to work on several crypto-related cases, which were initiated during former Chairman Clayton’s tenure. However, the new chairman will be determining the SEC’s focus and its priorities. 

On December 28, 2020, Elad L. Roisman was designated by President Donald J. Trump as Acting Chairman of the SEC. According to his press release, Acting Chairman Roisman appeared to be committed to working full force and to maintaining the course started by former Chairman Clayton. However, Elad L. Roisman is known for his more favorable position towards blockchain and crypto-assets. Although this is a temporary appointment that can change after the Presidential inauguration, we are hopeful that, in addition to its law enforcement actions and focus on the investors’ protection, the SEC will be leading new regulatory efforts to allow the complete integration of crypto into our lives. 

One of such steps was already taken on December 28, 2020, when the SEC issued a statement and request for comment asking the public to provide its opinion regarding allowing the broker-dealers to perform the full set of broker-dealer functions concerning digital asset securities. The statement highlights the issues that currently exist and suggests a number of steps that could be taken by broker-dealers to address the unique attributes of digital securities and minimize the risk to investors and other market participants. The SEC lists seven specific questions relevant to the challenges that broker-dealer could face and encourages everyone to provide the answers. 

If you want to get involved and provide valuable input, you can do so by completing the online comment form at https://www.sec.gov/rules/submitcomments.htm or sending an email to ru***********@se*.gov

This summary is provided by international attorney Katrina Arden. Attorney Katrina Arden spoke at the leading tech conferences, authored legal articles and participated in discussions with multiple countries’ regulators on the development and implementation of the blockchain and cryptocurrency law.

LEAVE A REPLY

Please enter your comment!
Please enter your name here