red 
US regulators collected $179.7 million in fines in the first six months of 2022, government data show. The actions mainly relate to unregistered businesses or crypto token offerings, fraud, anti-money laundering (AML) deficiencies, and misleading marketing communications. These latest cryptocurrency crackdowns bring the total collected by US regulators to $3.35 billion since Bitcoin’s inception.
The largest single enforcement action of 2022 so far has been brought against BlockFi – a crypto lender – which agreed to pay $100 million in April for failing to register its loan product. According to the agreement, $50 million was claimed by the 32 US states where similar charges were filed, while the remaining $50 million is owed to the US Securities and Exchange Commission (SEC).
The biggest action overall – as of 2020 – continues to be the $1.2 billion settlement between the SEC and Telegram Group Inc. and its subsidiaries TON Issuer Inc. fully owned. The charges relate to Telegram’s unregistered offering of digital “Gram” tokens that were found to have violated federal securities laws.
The SEC – along with the US Commodity Futures Trading Commission (CFTC), the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) – has launched more than 130 enforcement actions against cryptocurrency-related companies since 2009. However, some of these are ongoing and have yet to result in fines.
Of the $3.35 billion in fines received by these agencies, $1.1 billion came from civil penalties, $2.1 billion from disgorgement (including interest), and $166.3 million from restitution.
SEC enforcement actions account for more than 70% of all cryptocurrency-related fines collected by the US to date. It comes as the regulator touts cryptoassets and emerging technologies as two of its top priorities for 2022. In May, the SEC revealed it was nearly doubling its cryptoassets and cyber unit — citing the “explosion” of the crypto market in recent years — to “protect investors and ensure fair and orderly markets […] critical challenges”.
A recent bill introduced in the US Senate would potentially reduce the SEC’s influence by placing many of the crypto market oversight responsibilities under the CFTC. However, SEC Chairman Gary Gensler warned that such a move could hinder efforts to ensure effective regulation of the crypto market.
High-profile cases continue
Among the US enforcement measures are ongoing efforts against fraudulent initial coin offerings (ICOs) that erupted during the 2017-18 ICO frenzy. In May 2022, a New York District Court ordered three defendants associated with the issuer of the “CTR Token” to pay $40 million in disgorgement for selling unregistered securities.
Centra Tech Inc – the entity responsible for issuing unregistered tokens – made $32 million in 2018 through false advertising. This included falsely promoting non-existent partnerships with major payment providers such as Visa and Mastercard. Two celebrities – Floyd Maywether Jr and DJ Khaled – previously agreed in 2018 to pay $767,000 to promote CTR tokens without disclosing that they were paid for it.
Other high-profile enforcement actions are ongoing and have yet to result in charges or fines. On June 9, the US Court of Appeals upheld the SEC’s subpoenas against Terraform Labs and its founder Do Kwon. The enforcement action came shortly after the crash of Luna and its UST stablecoin. It seeks to investigate whether Terraform Labs violated federal securities laws when it promoted the “Mirror Protocol” – a protocol for decentralized financial investment.
More jurisdictions are starting to issue cryptocurrencies
While the US is by far the largest initiator of cryptocurrency enforcement measures and recipient of fines, other jurisdictions are also beginning to increase their cryptocurrency enforcement capabilities. In April 2022, the Central Bank of Nigeria fined four banks a total of $1.9 million for failing to prevent customers from transacting with the cryptoasset.
Turkey – another country taking a tough stance on crypto-assets despite a surge in consumer investment – has fined five digital asset exchanges since December 2021 $2.1 million for compliance deficiencies. The fines were launched after the Financial Crimes Investigation Board (MASAK) – the financial intelligence unit (equivalent to FinCEN) – was given regulatory powers to investigate and issue fines against virtual asset services in May 2021.
In France, an influencer was fined $21,000 in July 2021 for promoting crypto investments on his Snapchat story without advertising that he was paid for it. Meanwhile, Spain and the United Kingdom are also considering new regulations to prevent misleading crypto-asset promotion.
India also announced in March 2022 that it had recovered $1.1 million in tax evasion from 11 crypto exchanges during 2021 and 2022. The exchanges were also fined an additional $120,000.
Today, the Canadian Securities Commission of Ontario imposed an administrative penalty of $1.6 million (including administrative costs) against KuCoin and banned it from participating in Ontario’s capital markets. A special judgment was issued against ByBit, resulting in disgorgement (including administrative costs) of $1.9 million. Both enforcement actions were issued for non-compliance with Ontario’s securities laws.
However, the vast majority of fines are still issued by the United States of America, which accounts for 98% of fines received through enforcement actions in the crypto space.
Elliptical Analysis: What Do Enforcement Actions Mean for Crypto?
A series of enforcement actions related to cryptoassets further contradicts the theory that crypto is unregulated or unregulated. Both in the US and other punishing jurisdictions such as Turkey, Nigeria and European countries, crypto-asset services are subject to strict regulations. Similar to traditional financial services, such regulations range from anti-money laundering compliance to proper securities registration and promotion.
It’s also worth noting that most of the enforcement actions that resulted in fines in 2022 mostly related to offenses committed during the ICO frenzy of 2017-18. – and not on recent incidents. Regulators, consumers and blockchain developers have evolved since the ICO days. If fraudsters who launched unregistered securities offerings back in 2017 fail to evade enforcement, it will be even more difficult for future fraudsters today to evade regulators or recruit gullible investors.
The success of US regulators in recovering assets from some of the most notorious unregistered offerings or scams in crypto history does not necessarily indicate that the industry is plagued by financial crime, as critics may be quick to suggest. Instead, the success of enforcement actions reinforces that crypto is public traceable through a distributed ledger – in marked contrast to centralized traditional financial services. The transparent nature of blockchain increases the difficulty for fraudsters to engage or cash in on their ill-gotten crypto assets without being noticed by law enforcement or virtual asset services.
Elliptic offers wallet verification and transaction monitoring tools to ensure that regulators and virtual asset services can identify transactions related to unregistered securities offerings, fraud, Ponzi schemes and other financial crimes. Our blockchain forensics tool, Elliptic Investigator, allows our clients to monitor on-chain activity and attempts to monetize fraudulently obtained cryptoassets. You can read our 2022 “Preventing financial crime in cryptoassets” report on typologies or contact us for a demo.
