Cryptocurrency: Be prepared in the face of increasing enforcement | Harris Beach PLC


This summer has been a busy one for cryptocurrency regulators as aggressive action may signal an uptick in consumer compliance activity.

In August alone, the New York Department of Financial Services (“DFS”) filed its first enforcement action against a DFS-licensed “virtual currency deal” — resulting in a $30 million settlement involving cryptocurrency investment platform Robinhood Crypto, LLC — and the US-led Securities and Exchange Commission has indicted 11 people in an alleged crypto pyramid and Ponzi scheme called Forsage. The US Treasury Department’s Office of Foreign Assets Control sanctioned and banned currency mixer Tornado Cash, claiming that the platform has laundered more than $7 billion in virtual currency since its launch in 2019.

Cryptocurrency Enforcement Measures

These latest moves follow others that are also signaling that regulators and law enforcement officials are becoming more aggressive towards crypto companies:

  • In July, the Justice Department charged a former Coinbase employee with insider trading, alleging that he shared inside information that benefited his brother and a friend. In this case, the SEC took the near-unprecedented step of designating nine different crypto tokens as securities, a move that signals a significant change in how crypto companies are treated going forward.
  • Just weeks earlier, the DOJ had criminally indicted six people in four separate counts of alleged cryptocurrency fraud, including the largest non-fungible token scheme known to date.
  • Earlier this summer, DFS released its first guidance on stablecoins, which requires them to be fully backed by a reserve that is separate from issuers’ operating funds and is regularly certified by an auditor.
  • The SEC announced in May that it would add 20 posts to its Crypto Assets and Cyber ​​Unit for a total of 50 posts dedicated to protecting investors from crypto and cyber threats.

Howey test and cryptocurrencies

In addition to these actions, SEC Chairman Gary Gensler has repeatedly commented that he believes most cryptocurrencies are “Howey Test” securities, signaling that the SEC intends to push for increased regulation of the the industry had long suspected it was coming.

These moves indicate that the United States is likely to join many other countries in increasing regulation of cryptocurrencies (and likely digital assets). In the industry, some also fear a combination of over-regulation, the cost of doing business and legal complexity, and with it the possibility of companies going abroad as the specter of penalties, fines and prosecution mounts.

As digital currencies become increasingly mainstream and play an expanded role in corporate transactions, staying current on legal and compliance issues is vital for business owners and financial institutions across all industries.

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