SEC Escalates Crypto Scrutiny: Unregistered Offerings Lead Surge in Lawsuits

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 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. That accounts 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.