The U.S. Securities and Exchange Commission has subpoenaed at least three cryptocurrency venture capital (VC) firms this year, according to a source familiar with the SEC’s investigation.
A subpoena titled “relating to certain intermediaries providing cryptocurrency assets” reads:
“The staff of the U.S. Securities and Exchange Commission is conducting an investigation into the above matter to determine whether violations of the federal securities laws have occurred.”
The SEC’s investigation into crypto venture capitalists shows the agency is now looking at the early stages of the crypto capital funnel — the investors from whom the majority of crypto startups receive their initial cash.
At least two other crypto venture capital firms also received requests for essentially identical documents, the source said, declining to be named due to restrictions on public comment on the matter.
Subpoenas sent to crypto venture capital firms have requested all contracts for any token transactions investors have ever made.
Subpoenas sent to crypto venture capital funds demanding all contracts related to any token deals that have been executed have raised concerns about excessive interference and the high costs associated with compliance.
An unaffected crypto fund’s lawyer stressed that such broad inquiries could be seen as disproportionate and burdensome. The sense that this was a “hunt in the dark” suggests that the subpoenas may be trying to uncover potential problems by casting a broad net, rather than targeting specific, well-defined concerns.
As an expert in the field of securities and commodities fraud, Elisha Kobre, an attorney at Bradley Arant Boult Cummings, believes that the SEC’s scrutiny of venture capital funds is a possible and even a natural extension of their enforcement efforts given the growing trend of scrutiny in the cryptocurrency industry. Given the rapid growth and ever-changing nature of cryptocurrency markets, it is no surprise that regulators are expanding their attention to stakeholders in the ecosystem, including the venture capital funds that support and fund these digital assets.
The move follows previous signs that the SEC is expanding its crackdown on crypto, reflecting the agency’s continued efforts to regulate and enforce the sector. Following the collapse of FTX in late 2022, the SEC’s approach has become increasingly aggressive, targeting multiple entities and individuals in the crypto space.
Ari Paul, chief investment officer at BlockTower Capital, suggested that the SEC’s investigations now include crypto venture capital funds, although specific details of those investigations have not been released. The SEC’s general policy is not to comment on ongoing investigations, so getting more information directly from them is difficult.
Recent actions by the SEC include suing major exchanges like Binance and Coinbase, as well as legal threats against decentralized platforms like Uniswap. This broad crackdown shows the SEC’s intent to bring more regulatory oversight and clarity to the rapidly growing cryptocurrency industry.
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