The U.S. Securities and Exchange Commission (SEC) has charged two prominent cryptocurrency operations, Genesis Global Trading and Gemini Trust Company, with selling unregistered securities. This enforcement action highlights the regulatory scrutiny of these digital asset firms as the SEC looks to protect retail investors from fraud and manipulation.
The SEC began its investigation into Genesis and Gemini in late 2018, launching a “sweep” of cryptocurrency exchanges in search of unlawful security sales. The agency alleged that both firms conducted sales of securities that were not registered with the Commission or otherwise exempt from registration.
In a statement announcing the charges, SEC Director of the Division of Enforcement Stephanie Avakian explained that “markets for digital assets are relatively new and enjoying rapid growth. Companies looking to capitalize on this growth must recognize that they are not only required to comply with the federal securities laws, they must also be newly prepared to deal with our rigorous enforcement.”
Those charged will face a civil penalty, although the financial impact of the settlement on the companies is yet to be determined. They have also agreed to cease and desist from committing or causing violations in the future.
In an additional statement, SEC Director of the Division of Corporation Finance William Hinman said, “The provision of investment advice and other services related to digital assets may trigger the application of the federal securities laws, even where the digital asset at issue is not a security.” This highlights the fact that, while certain digital assets may be determined by the SEC as not falling under the scope of a security, cryptocurrency trading firms must still remain compliant with applicable securities laws.
The SEC’s enforcement action serves as an important reminder for digital asset firms looking to capitalize on the explosive growth of the crypto space. It’s clear that the agency will take action where necessary to ensure investors receive the protection of federal securities laws.
