ARTICLE
24 January 2023

SEC Charges U.S. Crypto Lender And Exchange With Securities Law Violations

B
BakerHostetler

Contributor

Recognized as one of the top firms for client service, BakerHostetler is a leading national law firm that helps clients around the world address their most complex and critical business and regulatory issues. With five core national practice groups — Business, Labor and Employment, Intellectual Property, Litigation, and Tax — the firm has more than 970 lawyers located in 14 offices coast to coast. BakerHostetler is widely regarded as having one of the country’s top 10 tax practices, a nationally recognized litigation practice, an award-winning data privacy practice and an industry-leading business practice. The firm is also recognized internationally for its groundbreaking work recovering more than $13 billion in the Madoff Recovery Initiative, representing the SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC. Visit bakerlaw.com
Relief sought in the complaint includes permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
United States Technology

The U.S. Securities and Exchange Commission (SEC) recently charged a major U.S. digital asset lender (Lender), and a major U.S. digital asset exchange and custodian (Exchange), with the unregistered offer and sale of securities to retail investors through a crypto-asset lending program offered by the Exchange. According to a press release from the SEC, the companies purportedly raised billions of dollars' worth of crypto assets from hundreds of thousands of investors, with customers of the Exchange being offered the opportunity to loan their crypto assets to the Lender in exchange for the Lender's promise to pay interest. According to the SEC press release, the Lender "exercised its discretion in how to use investors' crypto assets to generate revenue and pay interest." The press release notes that withdrawals by investors from the program have been halted since November 2022 due to lack of liquidity and further notes that as of November 2022, the Lender "held approximately $900 million in investor assets from 340,000 ... investors."

The interest-based program, which began in February 2021, had the Exchange acting as agent for the Lender in order to facilitate transactions, and the Exchange purportedly deducted an agent fee from returns paid by the Lender to the customers, according to the SEC press release. Regarding the charges, SEC Chair Gary Gensler stated, "We allege that [the defendant firms] offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors," and that the charges "build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in markets. It's not optional. It's the law." Relief sought in the complaint includes permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

For more information, please refer to the following links:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More