On May 3, 2022, the SEC announced that it was renaming the Division of Enforcement’s Cyber Unit as the Crypto Assets and Cyber Unit, and significantly increasing its size with the addition of 20 new positions.[1]  In the same announcement, the SEC articulated specific areas of focus within the digital assets space, including:  (i) crypto asset offerings; (ii) crypto asset exchanges; (iii) crypto asset lending and staking products; (iv) decentralized finance (“DeFi”) platforms; (v) non-fungible tokens (“NFTs”); and (vi) stablecoins.

The announced areas of focus are largely consistent with Chair Gensler’s prior announcements on his digital asset enforcement priorities,[2] along with a previously reported but newly-announced focus on NFTs.[3]

The press release underscores that the SEC is committed to dedicating significant investigative and litigation resources to enforcement in the digital asset industry and is likely to continue with this initiative for the foreseeable future.  Simultaneous with the release, the SEC published new job openings in the unit for a national unit chief and a dedicated trial unit supervisor, as well as staff attorney positions in several offices.[4]  The explicit reference in the press release to dedicated trial counsel (a first for a national enforcement unit) signals an understanding by the SEC that some of the unit’s cases may ultimately need to be litigated in federal court.

Today’s announcement focuses solely on the work of the Division of Enforcement in the digital asset space, suggesting that the SEC may be gearing up for a period of continued litigiousness with the digital asset industry.  The announcement makes no mention of the Division of Corporate Finance, the Division of Trading and Markets, or the Strategic Hub for Innovation and Financial Technology (“FinHub”) – the Divisions most naturally looked to by the industry to develop a consistent policy-oriented regulatory framework under which industry participants should act.  Until such a framework is created, the SEC may well forego opportunities both to impose limits on risky behavior and encourage innovation, and seems likely to continue its attempts to develop the law in this area piecemeal through enforcement actions.

Finally, it is uncertain how the SEC’s jurisdiction in this space will ultimately shake out in relation to other agencies.  A number of federal agencies – including the SEC, the CFTC, and FinCen – have brought actions against digital asset market participants, and it remains to be seen whether or how potential overlap will be reconciled.  For example, the SEC has reiterated in this press release that it views at least some stablecoins as securities, while the CFTC has characterized stablecoins as commodities.[5]  A big unknown is whether Congress will ultimately intervene through legislation to help alleviate uncertainty and clarify how market participants can comply with the current regulatory environment.  Members of Congress have introduced proposed legislation that would attempt to clarify the jurisdiction of the respective federal agencies over digital asset markets.  For example, on April 28, 2022, a group of bipartisan members of the House of Representatives introduced the Digital Commodity Exchange Act of 2022 (“DCEA”), which explicitly aims to address “gaps between the [CFTC’s] and the [SEC’s] regulation of the digital asset marketplace.”[6]  Whether support exists for legislative reform remains an open question.

For the time being, however, it is clear that the current SEC and the Division of Enforcement are poised to ramp up their enforcement efforts in the digital asset space.

[1] Press Release, “SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit,” U.S. Securities and Exchange Commission (May 3, 2022), https://www.sec.gov/news/press-release/2022-78.

[2] See, e.g., Statement, “Remarks before the Aspen Security Forum,” U.S. Securities and Exchange Commission (Aug. 3, 2021), https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03 (listing crypto asset offerings, crypto asset exchanges, crypto lending platforms, DeFi platforms, and stablecoins); Speech, “Prepared Remarks of Gary Gensler on Crypto Markets Penn Law Capital Markets Association Annual Conference,” U.S. Securities and Exchange Commission (Apr. 4, 2022), https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422 (listing crypto tokens, crypto trading platforms, crypto lending platforms, DeFi platforms, and stablecoins).

[3] See Bloomberg, “SEC Scrutinizes NFT Market over Illegal Crypto Token Offerings,” (Mar. 2, 2022), https://www.bloomberg.com/news/articles/2022-03-02/sec-scrutinizes-nft-market-over-illegal-crypto-token-offeringshttps://www.bloomberg.com/news/articles/2022-03-02/sec-scrutinizes-nft-market-over-illegal-crypto-token-offerings.

[4] See USA Jobs, Securities and Exchange Commission (accessed May 3, 2022), https://www.usajobs.gov/Search/Results?a=SE00.

[5] See, e.g., In re Tether Holdings Limited, CFTC Docket No. 22-04 (Oct. 15, 2021) (“The USDt token, a virtual currency stablecoin, is a commodity and subject to applicable provisions of the [Commodity Exchange] Act.”).

[6] House Committee on Agriculture, “Summary of the Digital Commodity Exchange Act of 2022” (Apr. 28, 2022), https://republicans-agriculture.house.gov/uploadedfiles/04.28.2022_dceasummary_final.pdf.