The Securities and Exchange Commission (SEC) was busy in the month of February 2023, cracking down on cryptocurrency businesses in the United States. The SEC actions stem from the collapse of FTX, which left many investors with significant losses.
The agency aims to protect investors by enforcing securities laws, imposing fines and promoting transparency. Kraken, Terraform, and even NBA player Paul Pierce have already been fined, while Coinbase, Paxos, and Binance are currently under scrutiny. This article explores the actions of the SEC and what they mean for the cryptocurrency market as a whole.
The SEC aims to protect investors
The United States Securities and Exchange Commission (SEC) is a federal agency responsible for enforcing securities laws and regulating the securities industry in the United States. The SEC was created in 1934 in response to the stock market crash of 1929 and the ensuing Great Depression.
The primary functions of the SEC include protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. The SEC enforces securities laws, supervises securities markets and participants, compels companies to disclose financial information relating to securities, and provides investor education.
The SEC is targeting cryptocurrency firms for violating securities laws and causing major losses to US investors following the collapse of the FTX exchange. The agency aims to regulate the cryptocurrency market, prevent fraudulent activity, and ensure compliance with securities laws to protect investors and promote transparency in this emerging market.
Let’s see what the SEC did in February to regulate the crypto industry.
- February 10: Kraken has paid a $30 million fine to settle charges with the SEC for failing to disclose information related to its staking services. The company did not register its crypto asset staking program as a service, which promised annual investment returns of up to 21%. As a result, two Kraken entities had to stop offering or selling securities through crypto asset staking services or staking programs. Following the fine, Kraken completely ceased providing staking services in the United States
- February 17: The SEC has charged Terraform Labs and its founder, Do Hyeong Kwon, with multi-billion dollar cryptocurrency fraud. Terraform created a stablecoin called Terra Luna, which was pegged to USD but lacked proper cash collateral. They manipulated the market by showing fake reserves and trades which resulted in losses of millions of dollars for investors. The founders have received an arrest warrant and are currently at large.
- February 17: The SEC has accused former NBA player Paul Pierce of promoting a cryptocurrency called EMAX on social media without disclosing that he was paid to do so. The SEC also accused Pierce of making false claims about a particular crypto asset. According to the SEC, it is important that people promoting a cryptocurrency disclose whether they are paid to do so. Investors need to know if the person promoting the cryptocurrency has a conflict of interest, and Pierce did not.
Crypto businesses under scrutiny
Paxos, the stable issuer of BUSD, is in talks with the Securities and Exchange Commission regarding its issuance. Last week, various regulators forced Paxos to stop issuing the BUSD Binance stablecoin, ending its partnership with the world’s largest crypto exchange. Paxos holds “constructive discussions” with regulators. The regulatory news caused BUSD to lose around $2.5 billion in market value, according to Binance founder Chanpeng Zhao.
Coinbase is under investigation by the SEC over its staking program, and the company’s CEO, Brian Armstrong, has said he is ready to take the matter to court. Coinbase Chief Legal Officer Paul Grewal pointed out that their staking services are different from Kraken because Coinbase users retain ownership of their cryptocurrency at all times. Armstrong warned that the United States risked losing its position as a financial hub if it did not quickly introduce clear legislation.
The SEC is cracking down on Binance for its staking program, joining a growing list of cryptocurrency firms facing regulatory scrutiny. With ongoing investigations, the sector is likely to see increased regulatory oversight to protect investors and maintain market stability.