Throughout 2021, the SEC followed through on its commitment to aggressively enforce the federal securities laws to digital assets markets.[1] These efforts have resulted in the SEC sharpening its focus on cryptocurrency exchanges and lending products.
In August of 2021, Chair Gensler made some his first public statements on cryptocurrency as SEC Chair while speaking on a panel at the Aspen Security Forum. At the Forum, Chair Gensler noted that the digital assets market had become “rife with fraud, scams and abuse in certain applications” and cautioned that the SEC would “continue to take our authorities as far as they go.”[2] On September 14, during his testimony before the Senate Committee on Banking, Housing, and Urban Affairs, Chair Gensler discussed his views on digital assets.[3] Though he described himself as “technology neutral,” he highlighted a lack of investor protection, likening the space to “the Wild West or the old world of ‘buyer beware’ that existed before the securities laws were enacted.”[4]
A Brief History of SEC Activity in Cryptocurrency
From the infancy of cryptocurrency, the question has been whether digital assets are securities. The SEC brought its first cryptocurrency enforcement action in 2013, when it filed SEC v. Shavers, Case No. 4:13-CV-416 (E.D. Tex. Aug. 6, 2013), against an individual and a business for running an alleged Ponzi scheme involving Bitcoin. The SEC charged the defendants with offering and selling unregistered securities and with securities fraud. The defendants in Shavers challenged the court’s jurisdiction, arguing that the investments did not satisfy the legal definition of a security under the Howey test.[6] Generally, Howey defines investment contracts as any contract, transaction, or scheme involving: (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of others. The defendants in Shaver argued there had been…
