Author: Wenser, Odaily Planet Daily
Recently, an industry report on the U.S. SEC's enforcement fines in the crypto industry has attracted a lot of attention. It mentioned that the U.S. SEC's cryptocurrency enforcement fines in 2024 will reach 4.7 billion U.S. dollars. It is worth mentioning that this figure was only 150.3 million U.S. dollars in fiscal year 2023, an increase of more than 30 times year-on-year.
Today, after the Bitcoin spot ETF and Ethereum spot ETF were approved, as the dividing line between the traditional financial industry and the cryptocurrency industry becomes increasingly blurred, the influence of the US SEC on the cryptocurrency industry continues to increase. This article briefly analyzes the hidden information behind the US SEC's enforcement fines through the report for reference by industry insiders.
Sky-high fines: 4 cryptocurrency projects fined a total of $6.58 billion
4 sky-high fines
In terms of the amount, the SEC’s four “sky-high fines” include the following events:
The originator of UST&LUNA: Terraform Labs and founder Do Kwon
The U.S. SEC imposed a fine of up to $4.68 billion on Terraform Labs and its founder Do Kwon for misleading investors and providing unregistered securities. The details of the fine are: "As part of the settlement, Terraform agreed to pay $3.586875883 billion in illegal gains, $466952423 million in prejudgment interest, and $420 million in civil penalties. Terraform also agreed to stop selling its crypto asset securities, end operations, replace two directors, and distribute the remaining assets to investor victims and creditors through a liquidation plan, which needs to be approved by the court in Terraform's ongoing bankruptcy case. Do Kwon agreed to share with Terraform $110 million in illegal gains and $14.32196 million in prejudgment interest, as well as $80 million in civil penalties."
Although after the news broke, Fortune magazine claimed that "Terraform Labs has gone bankrupt and is unable to pay the huge fine of $4.47 billion to the US SEC", and at the end of July, the SEC also issued a statement saying that "the SEC will not receive any compensation until investors and creditors receive full compensation in the corresponding bankruptcy case."
At present, the latest progress of the ticket is that the Terra project party issued an announcement in August stating that the Chapter 11 bankruptcy case hearing of Terraform Labs Pte Ltd (TFL) and Terraform Labs Limited (TLL) will be held at 10 pm Beijing time on September 19, 2024 (10 am Eastern Time in the United States).
Social giants with nearly 1 billion users: Telegram Group Inc. and TON Issuer Inc.
Telegram was fined $1.24 billion by the SEC after it was found to have illegally sold unregistered digital tokens in its TON (Telegram Open Network) initial coin offering (ICO). The SEC intervened, halted the project, and stressed the importance of registration and compliance when raising funds through token sales.
According to relevant information from the U.S. SEC: "The defendants (referring to Telegram and the former TON) sold approximately 2.9 billion digital tokens called "Grams" at a discount to 171 initial purchasers worldwide, including more than 1 billion Grams to 39 U.S. purchasers. Telegram promised to deliver Grams to initial purchasers no later than October 31, 2019 after the launch of its blockchain, at which time the purchasers and Telegram will be able to sell billions of Grams to the U.S. market. The complaint alleges that the defendants failed to register their offer and sale of Grams (securities), in violation of the registration provisions of the Securities Act of 1933."
Everyone knows what happened next. Telegram handed TON over to the "community", returned part of the IC0 funds ($1.2 billion), and accepted the corresponding penalty ($18.5 million).
The episode with the most “traditional financial attributes”: GTV Media Group Inc., Saraca Media Group Inc. and Voice of Guo Media Inc.
The entities were fined $539.43 million for their unlawful and unregistered offering of GTV common stock and digital asset securities. The SEC’s action is intended to address the lack of transparency and regulatory compliance in its offering and protect investors from fraud and misinformation.
It can be seen that digital asset securities related to media groups are also within the “range” of the US SEC.
Unresolved “Securities” Case: Ripple Labs Inc.
Ripple Labs faces a $125 million fine for selling XRP as an unregistered security. The case is one of the most closely watched in the cryptocurrency space and involves a debate over whether XRP should be classified as a security under U.S. law. The SEC brought the case to protect investors from fraud and highlight the need for stricter regulation of ICOs and token sales.
The incident came to a temporary end in early August this year, when a U.S. judge ruled that Ripple’s sale of XRP to retail investors did not violate federal securities laws, but Ripple still had to pay a $125 million fine. Just a few days ago, Ripple asked the judge to suspend the execution of the SEC’s $125 million fine.
To summarize, the main reasons for the huge fines lie in the IC0 token sales, unregistered securities identification and other links, and the related projects are the "face" of the crypto industry, which is in line with the US SEC's purpose of "making a show of force".
Fines trends: Fewer incidents, bigger amounts
Looking back at the fine trends from 2014 to 2024, before 2018, the number of enforcement actions was only in the single digits, indicating that the U.S. SEC paid limited attention to the cryptocurrency industry at that time, and also indirectly indicated that the crypto industry was in its wild period and had a limited scale.
From 2018 to 2023, with the transition of market cycles from bull to bear, the cryptocurrency industry has become increasingly mature, and the number of U.S. SEC enforcement actions has gradually increased from 14 to 30; until 2024, the 15th anniversary of the birth of Bitcoin and the 10th anniversary of the birth of Ethereum, combined with the approval of Bitcoin spot ETF and Ethereum spot ETF, the number of participants in the U.S. cryptocurrency industry has exceeded 50 million. The scale of the cryptocurrency industry and the scope of the momentum it has brought are no longer to be underestimated, so the number of SEC enforcement actions has dropped sharply to 11, but the amount of fines has reached a new high.
According to statistics, in 2018, the average fine amount was only 3.39 million US dollars, but by 2024 this figure had risen to an average of 426 million US dollars, an increase of 12,466.37%.
US SEC fines by year
Landmark Years: 2019, 2021, 2024
In 2019, the average fine amount of the U.S. SEC jumped sharply from $3.39 million to $70.68 million. The $1.24 billion fine imposed on Telegram Group Inc. and the TON blockchain project for selling unregistered digital tokens became a "regulatory turning point." This figure increased by 1979.05% compared to 2018, indicating a major shift in the SEC's approach to dealing with regulatory violations in the cryptocurrency field.
It is worth mentioning that the chairman of the SEC at that time was Jay Clayton, who was appointed by Trump during his tenure and was known as the "Wall Street Plague God". During his tenure, the SEC accused Tesla founder Musk of posting "false and misleading" privatization news on social media in 2018. In the end, Musk settled with the SEC, resigned as chairman of Tesla and paid a $20 million fine. In addition, the US SEC's tough attitude towards the cryptocurrency industry also began with Jay Clayton. Not only did Jay Clayton include relevant transactions in the securities law, but he also restricted cryptocurrency fundraising activities and Bitcoin trading funds: In 2018, the SEC urged cryptocurrency trading platforms to register and accept further supervision, and believed that except for Bitcoin and Ethereum, other digital cryptocurrencies are securities and should be regulated by US securities laws. The initial token issuance IC0 "is basically a securities issuance that needs to comply with specific regulatory requirements." At the same time, since 2018, the SEC has postponed and rejected the Bitcoin ETF applications of many asset management companies due to reasons such as avoiding market manipulation and unclear regulatory rules, which once caused market dissatisfaction.
At the end of 2020, when he resigned, the SEC had completed 65 final rulemakings, levied $14 billion in fines, and paid about $565 million to whistleblowers, including a record $114 million in bonuses, the largest award in the program's history. According to Politico, the total number of enforcement cases during Clayton's tenure, 3,152, was far higher than that of the previous SEC chairman. Subsequently, Allison Herren Lee temporarily served as the chairman of the U.S. SEC.
In April 2021, the current US SEC Chairman Gary Gensler came to power. As the Chairman of the U.S. Commodity Futures Trading Commission (CFTC) during Obama's administration, former Goldman Sachs investment banker, and MIT professor, Gary Gensler inherited Jay Clayton's tough attitude towards the crypto industry. At the same time, due to his familiarity with cryptocurrencies, he began his own "crypto-unfriendly regulatory journey" - in 2021, the average fine amount of the US SEC quickly rebounded to US$35.2 million, an increase of 579.35% from 2020. It was this year that the US SEC launched an investigation and fine against Ripple. Gary Gensler, with his "familiarity" with the crypto industry, began to refocus the US SEC on the major players in the cryptocurrency industry.
The "huge fine" in 2024 is more like putting an end to the "UST and LUNA bankruptcy incident" in 2022. As we mentioned earlier, the specific implementation still needs to be tested by time.
Fine amount: There were few high fines, with 76 fines below $10 million.
Looking back at past fines, from 2020 to 2024, there were only two high fines of US$1 billion, while there were as many as 76 fines of less than US$10 million. This shows that, on the one hand, small and medium-sized enterprises facing compliance issues are often punished; on the other hand, it also shows that the US SEC is ruthless towards small projects and its regulatory supervision is quite extensive.
Of course, from a trend perspective, the current attitude of the U.S. SEC is to take more influential enforcement actions (such as higher fines, more vigorous publicity, etc.) against representative cases to establish industry cases.
Statistics of fines in 2020-2024
Summary: Supervision is becoming more mature with the development of the industry, and the US SEC is still the "Sword of Damocles"
In 2013, when cryptocurrencies were in their infancy, the US SEC fined 40.7 million US dollars.
In 2020, the U.S. SEC fined Robinhood Financial LLC $65 million;
In 2022, the US SEC prosecuted the fraudulent ICO of individual actor Barksdales;
In 2023, the US SEC filed charges against US listed exchanges such as Coinbase;
In 2024, the US SEC imposed a record fine of $4.68 billion on Terraform Labs and Do Kwon.
It can be said that with the increasing maturity of the crypto industry, regulatory forces represented by the U.S. SEC are also gradually infiltrating. To some extent, it has a certain warning effect on participants in the "dark forest" of cryptocurrency, especially project parties and individuals and organizations that commit fraud, like a "sword of Damocles" hanging over their heads.
The development of the encryption industry may also need to forge its own path through blood and fire, swords and frost.