The Securities and Exchange Commission (SEC) is beefing up its personnel to protect investors in crypto markets and from cyber attacks.
The SEC will add 20 new staff members to a unit that’s been recently renamed the crypto assets and cyber unit, formerly the cyber unit, increasing the staff by two-thirds to 50 people.
The action marks the latest sign that the SEC is serious about policing wrongdoing in crypto markets.
“As more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,” said SEC Chair Gary Gensler. “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets.”
The unit will focus on policing crypto asset offerings, crypto exchanges, crypto lending products, decentralized finance platforms, NFTs, and stablecoins.
“Sheriff Gensler is setting out to tame the Wild West of Crypto and he is rounding up a big posse,” said James Angel, associate professor at Georgetown University’s McDonough School of Business, who specializes in financial regulation. “This is long overdue. There has been too much fraud and manipulation in the crypto space, and it is time to protect the investors from the fraudsters.”
But Angle warned that the SEC is regulating by enforcement and deciding after the fact what is allowed and what is not, rather than issuing clear rules for the industry to follow.
“The industry has been begging for clear rules and our government hasn't figured them out,” he said. “So the SEC goes after anything that smells bad to the SEC.”
The SEC has already been looking at crypto products as well as how to regulate cryptocurrency trading exchanges. Gensler has encouraged crypto firms and exchanges to register their products and services with the Commission — warning that the SEC could bring enforcement action if firms do not comply.
The SEC has brought 80 enforcement actions against unregistered crypto asset offerings and platforms over the past five years, racking up more than $2 billion in fines — including a $100 million charge against BlockFi earlier this year for failing to register its retail crypto lending product.
Crypto crimes are ballooning and sophisticated attacks could continue to increase. Last year, crypto theft hit $3.2 billion, a 516% increase over 2020, according to Chainalysis. That compares with the overall size of the cryptocurrency market, which is around $2 trillion.
Investors lost over $1.22 billion to hackers in the first quarter, nearly eight times more than the $154 million lost in the first quarter of 2021, according to crypto security firm Immunefi. Ninety-nine percent of those losses were from software exploits, specifically hacks against Wormhole and Ronin.
The SEC’s actions come after President Biden issued an executive order tasking agencies across the government to study cryptocurrencies and come up with regulation proposals. Meanwhile, Sens. Cynthia Lummis (R, WY) and Kirsten Gillibrand (D, NY) are drafting a comprehensive bill to regulate cryptocurrencies, which would delineate responsibilities for the SEC and other financial overseers.
Sen. Lummis says most cryptocurrencies are commodities, which would put them under the jurisdiction of the Commodity Futures Trading Commission for trading spot markets and futures markets. She says for crypto products that are bundled into securities, they would be subject to the so-called Howey Test, a case law test that helps determine what's a security, which would fall under the SEC.
The legislation also provides for protecting users on exchanges against losing money in the event of hacks, by looking to the SEC to enforce consumer protection on exchanges.
Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. Follow her at @Jenniferisms.
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