U.S. SEC Hopes New Class of Crypto Cops Can Constrain Criminal Conmen

U.S. SEC Hopes New Class of Crypto Cops Can Constrain Criminal Conmen
Photo: ROSLAN RAHMAN/AFP, Getty Images

The U.S. federal government is creeping ever-so-slowly toward the idea that the decentralized finance space may need some centralised backbone to cut down on rampant fraud on the part of crypto startups and investors.

The Securities and Exchange Commission announced they are adding 20 new investigators to its Crypto Assets and Cyber Unit, bringing the total number of agency crypto cops to 50. The unit includes lawyers and other personnel tasked with policing the whole crop of crypto assets, exchanges, and platforms, as well as NFTs and stablecoins.

The Wall Street Journal also reported, according to a SEC spokesperson, that the unit’s current leader, Kristina Littman, is stepping down and somebody else will be taking the reins. Littman has been in charge of the unit since December, 2019, but has spent nearly 12 years at the SEC. The Journal reported, according to unnamed internal sources, that Littman plans to leave the agency in June.

In a release, the SEC praised the unit’s effectiveness, bringing 80 enforcement actions against fraudulent and unregistered crypto offerings and platforms worth approximately $US2 ($3) billion since its creation. It has previously filed actions against platforms like Bitconnect and Ripple Labs Inc., and current investigations reportedly include major crypto exchange Binance, which has come under scrutiny for its foreign relationships.

SEC Chair Gary Gensler said in the release that as more investors access crypto markets, more enforcement is needed, adding “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.”

Though when looking at overall SEC operations, those numbers represent a small fraction of the total number of agency enforcement actions. The agency reported it had conducted 434 new actions in 2021 alone.

The SEC’s crypto unit started in 2017 during a surge of new cryptocurrency coins entering the marketplace. This industry boom has led to a near $US3 ($4) trillion industry worldwide, but despite its rapid growth, governments have had a hard time keeping up with the variety and number of new scams perpetuated intentionally and unintentionally by supposed crypto enthusiasts. Other than the many examples of fake crypto projects running off with people’s money, there are examples of accusations of insider trading and hackers openly trading stolen crypto assets online.

Regulating the crypto market

Some officials are still trying to get real movement going on regulations. Mairead McGuinness, a commissioner of financial services for the European Commission, wrote an op-ed for The Hill where she called for more regulation and “global cooperation” to rein in crypto, especially pointing out that crypto is used extensively by more corrupt governments and has also been used to fund terrorism.

The White House put out an executive order back in March that mandates federal agencies start fighting back against illicit crypto activities and protect the millions of American consumers who are investing in crypto.

Of course, the issue becomes that much harder when former electeds and government officials who were in charge of regulating crypto turn around and start shilling for those same platforms. John Clayman, a former SEC chairman who stepped down in 2020, is now working for Isreali crypto firm Fireblock, according to Forbes.

But while rising crypto stocks show that the industry seems happy about new enforcement, it does not stop the companies from creating their own rules by lobbying state governments to pass pro-crypto legislation. New York State is currently considering putting a moratorium on crypto mining, which is one of two ways new coins are added to a blockchain. Fast Company has reported that crypto lobbyists have descended upon state lawmakers. Just as the number of scams have ramped up since that 2017 coin boom, crypto lobbying is up three times as much since 2018, according to consumer advocacy group Public Citizen.