SEC Enforcement Director Underscores Focus on Digital Assets
In testimony before the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, SEC Director of Enforcement Gurbir S. Grewal stated that the Division is focusing enhanced resources on protecting investors in digital asset markets.
In his remarks, Mr. Grewal highlighted the Division's "robust" enforcement efforts "on investigating securities law violations related to crypto asset offerings, exchanges, broker-dealers, and lending and staking products; decentralized finance ("DeFi") platforms; non-fungible tokens ("NFTs"); and stablecoins." He noted that the Division had increased the size of its Crypto-Asset and Cyber Unit to handle many of the "first-of-their-kind enforcement actions" that arise from digital asset markets. He stated that since 2017, "the unit brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion, as well as numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and appropriately disclose cyber-related risks and incidents." As to additional "robust enforcement," he also highlighted the SEC's plans to focus on gatekeeper accountability, focusing on individuals - such as accountants and lawyers-presumed to be responsible for preventing misconduct.
On remedies, Mr. Grewal reported that the Division is assessing whether penalties are sufficient to appropriately deter misconduct. He stated that "[i]n addition to punishing wrongdoers for violations of the securities laws, [the SEC's] remedies must deter those violations from happening in the first place[,]" and that the penalties "must be viewed as more than the cost of doing business." He underscored that enforcing proper penalties against wrongdoers, with harsher penalties for recidivists, can help restore the public's trust in the SEC's ability to police the markets.
On compliance, Mr. Grewal stated that the Division will "vigorously enforce the securities laws and rules that go to the heart of robust compliance, including those concerning required disclosures, misuse of nonpublic information, cybersecurity, and the violation of record-keeping obligations." He noted that rapid technological changes have the potential to benefit the markets, but create new opportunities for misconduct and he emphasized that a company should tailor its compliance practices and policies to its specific needs as opposed to following a "check-the-box" compliance framework. To assist with monitoring compliance, Mr. Grewal urged firms to "respond appropriately to red flags and make timely and accurate required disclosures, which are essential to investor protection and enhancing trust and confidence in the markets."
Mr. Grewal advocated for additional resources in the FY 2023 budget, stating that he "seeks additional staff to enable Enforcement to meet these mounting challenges and to maintain an effective investigative capacity and deterrent presence for the benefit of our markets and investors."
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