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The number of crypto-related litigations brought by
the SEC increased four times in the third quarter compared to the prior
quarter, according to a recent study. This comes as the sector faces
intensified scrutiny amid heightened enforcement actions by the regulator.
Surging Enforcement Actions
The research by Finbold indicates that from July to
September 2024, the SEC filed more digital asset cases than in the entire first
quarter of the year. The number of cases climbed to 12 in Q3, a notable rise
from just 6 cases in Q1 and 3 in Q2.
In particular, the SEC concentrated on unregistered
offerings, which remain the most common complaint. Several firms faced lawsuits
for allegedly infringing on securities laws. The report highlighted that despite pushback from the
cryptocurrency community over perceived vague regulatory guidelines, the SEC
insists that existing rules, including the Howey Test, are clear and
enforceable.
The increase in litigation also highlights the ongoing
exploitation of cryptocurrencies by fraudsters. Various scams, including Ponzi
and pyramid schemes, have increased, taking advantage of the burgeoning
interest in digital assets.
Notably, the SEC reported a significant romance scam,
which deceived investors into losing by promising high returns through fake
investment opportunities. Fraudsters frequently utilize false claims of
compliance and performance to lure unsuspecting investors, indicating that
regulatory oversight is critical in safeguarding the public.
Insider Trading Cases
Despite the surge in cryptocurrency-related
litigations, these cases represent a minority of the SEC’s overall enforcement
actions in 2024. Of the 228 cases reported between January and September, only
21 reportedly involved cryptocurrencies, accounting for approximately 9.21% of
the total.
In August, the SEC charged Abra, a digital asset
platform operated by Plutus Lending LLC, for failing to register its retail
crypto lending program, Abra Earn. The watchdog added that Abra operated as an
unregistered investment company amid concerns about investor protection and
regulatory compliance.
SEC said that Abra launched Abra Earn, a program
facilitating crypto lending at various interest rates among US investors. This
program allegedly amassed significant traction, with $600 million in assets at
its peak, nearly $500 million of which came from US investors.
This article was written by Jared Kirui at www.financemagnates.com.
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