After a disastrous 2022, including the FTX crash, SEC action against crypto companies reached a record high in 2023, according to a new report.
Data compiled by consulting firm Cornerstone shows a 53% increase over 2022 and a total of 46 stocks, nearly doubling from 2021, when Gary Gensler was SEC chairman.
Twenty lawsuits were resolved through an administrative hearing within the agency, such as the case against Kim Kardashian, who agreed to settle the allegations and pay $1.26 million for promoting EMAX tokens on social media without disclosing that she had received $250,000 for the chip
According to the report, fines against the industry totaled $281.4 million in 2023, an increase of nearly $40 million from the previous year. By the end of 2023, the amount of fines assessed by the SEC was approximately $2.89 billion, or about 0.1% of the industry's total value.
Most lawsuits continue to relate to fraud and unregistered securities (57% and 61% respectively), with many cases overlapping, highlighting ongoing tensions over how crypto assets are legally defined.
Gensler’s March 2023 editorial, cited in the Cornerstone report, said: “Regulation enforcement is a means, not an end. The goal is to ensure that market participants follow laws and regulations and that we continue to “protect customers” – American investors.”
The SEC did not immediately respond to Fortune 's additional requests for comment.
The 2023 data highlights some of the long-term impact of the previous year, when several cryptocurrency companies collapsed alongside FTX, sending shockwaves through the industry, including BlockFi and Three Arrows Capital.
Much of the litigation, including the SEC's case against Coinbase and Binance, hinges on how the assets traded in the trading pair are legally classified. Every company requires early termination.
“The SEC continues to have broad authority over all investments and places no limits on the definition of an investment agreement,” Paul Grewal, Coinbase’s chief legal officer, tweeted after the hearing.
In the case of U.S.-based Coinbase, Bloomberg senior analyst Elliott Stein told Fortune that he expects a 70 percent chance the regulator will dismiss the lawsuit in June 2023 by the end of the second quarter
However, things are more complicated with Binance, an offshore exchange. In November, the company pleaded guilty to violating the law by failing to implement adequate money laundering controls, and founder Changpeng Zhao resigned as CEO after pleading guilty. Zhao is awaiting sentencing next month but faces up to 18 months in prison.
The SEC argued that the calculations showed that Binance knew it was improperly targeting customers in the United States. In rebuttal, the company argued in a statement that securities laws such as the Bank Secrecy Act or the International Emergency Economic Powers Act - laws that govern the lawsuits settled by Binance - do not apply.
“The presumption of jurisdiction under the BSA does not preclude enforcement of the SEC’s securities law claims,” Binance and Zhao said in a statement.
Another notable case was the Terraform Labs bankruptcy case, where a federal judge sided with the SEC and ruled that four of its crypto tokens, including UST and LUNA, were unregistered securities. The ruling differs from the case against Ripple, in which a different judge ruled that the exchange's native token XRP was not a security, at least under certain circumstances.
As part of the latest SEC lawsuits, a federal judge in Utah also accused the agency of overstepping its bounds in its prosecution of cryptocurrency company Digital Licensing Inc. According to U.S. District Judge Robert Shelby, the SEC appears to have made “materially false and misleading statements.” ordered to freeze assets worth millions of dollars related to the project. The agency later apologized.
“I fully appreciate the extraordinary responsibility entrusted to the SEC in enforcing the federal securities laws,” wrote SEC Chief Executive Officer Gurbir Grewal. “In this case, I understand that the device did not meet these standards and I apologize for this error.”
This story was originally published on Fortune.com