Mediaboss Marketing

04 May 2023

Ankura Consulting Group LLC

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One of the world's largest cryptocurrency exchanges, thefamous, or infamous FTX Trading Ltd (FTX) filed for bankruptcy in2022. Shortly thereafter, U.S. regulators, in particular the U.S.Securities and Exchange Commission (SEC) as well as the CommodityFutures Trading Commission (CFTC) brought to light theirinvestigations of FTX's relationship with its sister entityAlameda Research, the FTX US platform, and its crypto-lendingactivities, liquidity issues, and mishandled customer funds.

A month after FTX filed for bankruptcy, the SEC released newguidance on December 8, 2022, requiring companies that issuesecurities to disclose to investors their exposure and risk to thecryptocurrency market. Under the new guidance, companies will haveto include crypto asset holdings as well as their risk exposure tothe FTX bankruptcy and other market developments in their publicfilings.

The Securities and Exchange Commission (SEC) charged SamuelBankman-Fried with orchestrating a scheme to defraud equityinvestors in FTX Trading Ltd. (FTX), the crypto trading platform ofwhich he was the CEO and Co-founder. Investigations as to othersecurities law violations and into other entities and personsrelating to the alleged misconduct are ongoing. According to theSEC's complaint, since at least May 2019, FTX, based in TheBahamas, raised more than $1.8 billion from equity investors,including approximately $1.1 billion from approximately 90 U.S.-based investors.

The SEC continues to prioritize its cryptocurrency enforcement.In 2022, the SEC administration reported a total of 30cryptocurrency-related enforcement actions, up 50% from 2021. Toput this in context, there have only been 127 totalcryptocurrency-related enforcement actions since 2013. The mostfrequent allegations in cryptocurrency-related enforcement actionsremained fraud and unregistered securities offerings as seenbelow.

The current SEC Chair, Gary Gensler provided insight into itsadministration's outlook stating, "There's no reasonto treat the crypto market differently just because differenttechnology is used. We should be technology-neutral. . . . Wealready have robust ways to protect investors trading on platforms.And we have robust ways to protect investors when entrepreneurswant to raise money from the public. We ought to apply these sameprotections in the crypto markets. Let's not risk undermining90 years of securities laws and create some regulatory arbitrage orloopholes.".

Since 2013, monetary penalties against digital-asset marketparticipants amounted to approximately $2.61 billion. Totaling $242million in 2022 alone. Please find the total monetary penalties inSEC cryptocurrency enforcement actions below.

Although most litigations occur in New York, there has beenincreased cryptocurrency enforcement actions in other federalcourts brought on by the SEC. Below you can see the types ofallegations in SEC cryptocurrency litigations by court venue.

The year 2022 was a rollercoaster year for the crypto industry,from the downfall of the FTX empire to its effect on other entitiesin the crypto ecosystem. Many prominent institutional tradingfirms, venture funds, and market makers were also adverselyimpacted by loss of trust in the industry, centralized exchanges,and the liquidity crunch. Moving forward, Federal regulators,including the SEC, and state regulators continue to walk a fineline between maintaining regulatory compliance and controllingillegal activity and cybercrime while still encouraging thedevelopment of a growing virtual currency and potentially lucrativedigital assets industry.

Our team can assist organizations with the ever-changing Federaland State regulatory environments. With its large team of longtimelicensing officers and former Federal and State regulators, We haveextensive experience in licensing money transmission,cryptocurrency, prepaid access, currency exchange, lending, andgaming. We also provide Anti-Money Laundering/Combating theFinancing of Terrorism (AML/CFT), fraud prevention, integratedregulatory compliance, financial crimes prevention and enterpriserisk management services, and regulatory compliance services to theFintech industry.

REFERENCES

SEC-Cryptocurrency-Enforcement-2022-Updatechrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.cornerstone.com/wp-content/uploads/2023/01/SEC-Cryptocurrency-Enforcement-2022-Update.pdfhttps://www.sec.gov/litigation/litreleases/2023/lr25616.htm

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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