After a disastrous 2022 that included the launch of FTX, SEC enforcement actions against cryptocurrency companies reached a record high in 2023, according to a new report.
Data compiled by consulting firm Cornerstone shows a 53% increase from 2022, with a total of 46 lawsuits, nearly double the number in 2021, when Gary Gensler became SEC chairman.
20 of those lawsuits were resolved as administrative actions within the agency, such as the case against Kim Kardashian, who agreed to settle charges and pay $1.26 million in exchange for promoting EMAX tokens on social media, without disclosing that she received $250,000.
According to the report, fines assessed against the industry totaled $281.4 million in 2023, an increase of about $40 million from the previous year. By the end of 2023, SEC fines will total about $2.89 billion, or about 0.1% of the total value of the industry.
Most complaints relate to fraud and unregistered securities, overlapping in most cases by 57% and 61% respectively, highlighting the ongoing tensions in defining crypto assets from a legal perspective.
“Repression is a means, not an end,” Gensler’s March 2023 op-ed cited in the Cornerstone report said. The goal is to ensure compliance with laws and regulations by market participants and to protect our “customers” and American investors.
The SEC did not immediately respond to Fortune's request for additional comment.
The 2023 numbers suggest some of the long-term impact of the previous year, when several cryptocurrency companies, including BlockFi and Three Arrows Capital, collapsed along with FTX, sending shockwaves through the industry.
There are several lawsuits underway, including an SEC case against Coinbase and Binance, that hinge on how assets traded on these exchange pairs are legally classified. Every company wants to close its deals immediately.
“The SEC continues to assert its broad jurisdiction over all investments by not issuing guidance that limits the definition of investment agreements,” Paul Grewal, chief legal officer at Coinbase, said in a tweet after the hearing.
As for US-based Coinbase, Elliott Stein, a senior litigation analyst at Bloomberg, told Fortune that he estimates the likelihood of the regulator's June 2023 case being resolved by the end of the second quarter at 70%.
However, things are more complicated with Binance, an offshore exchange. In November, the company admitted to violating the law by failing to implement adequate anti-money laundering controls, and its founder Changpeng Zhao resigned from his position as CEO after pleading guilty. Chow is awaiting sentencing next month but faces up to 18 months in prison.
The SEC argued that the settlement shows that Binance knew it was inappropriately targeting US customers. The Company asserts that securities laws such as the Bank Secrecy Act and the International Emergency Economic Powers Act do not apply; The law regulates claims that Binance settlement.
“Judicial recognition under the BSA does not constitute SEC requirements under the securities laws,” Binance and Zhao argued in their filing.
Another notable case was the failed lawsuit against Terraform Labs, in which a federal judge sided with the SEC and ruled that four crypto tokens, including UST and Luna, were unregistered securities. The ruling marks a departure from the case against Ripple, where a different judge ruled that the exchange's native token, XRP, was not a security, at least in some respects.
The SEC's latest lawsuits involve a federal judge in Utah accusing the agency of improper conduct in its prosecution of cryptocurrency company Digital Licensing Inc. According to U.S. District Judge Robert Shelby, the SEC appears to have made "false and misleading" statements. "offer" to freeze millions of dollars in assets related to the project, prompting the company to apologize.
“I fully appreciate the extraordinary responsibility entrusted to the SEC in enforcing the federal securities laws,” wrote Gurbir Grewal, the SEC’s chief enforcement officer. “I understand that the administration did not meet these standards in this case, and I apologize for this shortcoming.”