by T. GormanPosted on Posted in SECActions

This week the Commission took the extraordinary step of signaling that in the future it will not bring cases based on crypto assets. My comments on this decision were published earlier this week and are available here. Nothing more needs to be said in this space about that decision.

Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed no new civil injunctive actions and no new administrative proceedings. The agency also announced the resolution of two previously filed enforcement cases.

Crypto asset fraud: SEC v. Ajzins, Civil Action No. 21 Civ. 6693 (E.D.N.Y. is a previously filed action which named as defendant Ivars Auzins. In December Defendant was charged with defrauding hundreds of retail investors with two separate offerings. First, he is alleged to have defrauded U.S. and foreign investors through the Denaro initial coin offering of digital assets from January through March 2028. Second, he is also alleged to have defrauded investors through innovamine, an online entity that purportedly offered a cloud mining and digital asset trading platform from April to July 2019. In a parallel criminal action Defendant pleaded guilty. See U.S. v. Auzins, 21 Cr. 357 (E.D.N.Y.). In the Commission’s case he consented to the entry of permanent injunctions prohibiting violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10(b)-5. He also agreed to pay disgorgement and prejudgment interest of $412,201 which is deemed satisfied by the forfeiture order entered in the parallel criminal case. Defendant is also barred from serving as an officer or director for 10 years. In the criminal case he was sentenced to time served which was three months. See Lit. Rel. No. 26279 (March 28, 2025).

Wrongful conduct: In the Matter of Citigroup Alternative Investments LLC Adm. Pro. Proceedings, File Ni, 3-16757 (March 26, 2025). The Order issued this week by the Commission is the concluding segment of a years long proceeding against Citigroup Alternative Investments and Citigroup Global Markets, Inc. It transfers to the Department of Treasury the remaining funds and discharges the fund administrator. According to the Order, the wrongful conduct violated Securities Act Sections 17(a)(2) and (3) and Advisers Act Sections 206(2) & (4) and the related rules. The Order goes on to specify that a plan was adopted which included the creation of a plan of distribution for the funds were collected. Those funds amounted to $184,864,153. While the sum collected and distributed is significant, the description of the wrongful conduct is not with the exception of the initial Order issued years ago. In this regard the current Order only states that “the Commission found that Respondents made material misstatements and omissions between 2002 and 2008 relating to both the offer and sale of securities in the two now defunct hedge funds. The readers that trace the history of the proceedings back years learn, however, learns not just that there were misstatements but that the underlying conduct is based on the repetition of misleading statements and unauthorized investor trades for a period of six years tied in part from deficient internal controls. Those trades resulted in millions of dollars in damages by a well know and leading U.S. financial institution.

Dismissal: SEC v. Payward, Inc., Civil Action No. 3: 23-cv-06003 (N.D. Cal.)(“Kraken”) is an action that alleged multiple violations of the securities law. Earlier this week the Commission stipulated to the dismissal of the Kraken case with no explanation. The initial complaint was a virtual litany of violations of the federal securities laws. According to the press release issued by the agency at the time the complaint was filed, the Kraken platform “Provided a marketplace that brings together the orders for securities of multiple buyers and sellers using established discretionary methods . . . Engages in the business of effecting securities transactions . . .Engages in the business of buying and selling securities for its own account. . . and . . .Serves as an intermediary in settling transactions in crypto asset securities by Kraken customers. . .” all without registration as required by the statutes. SEC Press Release dated Nov. 21, 2023 (issued when the agency filed the complaint dismissed above, “initial complaint”). The complaint presents about 90 pages of detail regarding the wrongful conduct Defendants were alleged to have engaged in that harmed markets and investors. None of the issues cited in the initial complaint are addressed in the stipulation dismissing the Kraken action published by the agency. Rather, that stipulation states only that that “the Commission and the Defendants stipulate that the Litigation be dismissed with prejudice. . .” No other explanation is offered. The Commission’s action yesterday makes it clear that the agency has vacated the space. This action was taken despite years of cases filed, litigated and resolved in favor of the agency based on long standing law applied to crypto assets, not novel ideas. See also SEC v. Consensys Software Inc., No. 24-cv-04578 (E.D.N.Y.)(dismissed on the same basis as above); SEC v. Cumberland DRW LLC, No. 1:24-09842 (N.D. Ill.)(same).

Other Jurisdictions

While typically the Week In Review post published each Monday surveys actions in other jurisdictions, this week it seems appropriate to let the SEC stand alone. We will resume providing details on the activities of other regulators around the globe next week.

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by T. GormanPosted on Posted in SECActions

Crypto assets have for years been a focus of many. Congress has made attempts at times to craft new regulations that would govern the assets. Those efforts failed. The SEC has stepped in, using long-standing court decisions on what constitutes a security, and at times existing regulations, to govern and regulate the assets. As the courts repeatedly recognized, those efforts were based on long standing, traditional notions of what constitutes a security under the federal securities laws. Numerous cases were brought and upheld the approach of the agency. One of those actions is SEC v. Payward, Inc. and Payward Ventures, Inc., Civil Action No. 3: 23-cv-06003 (N.D. Cal.)(“Kraken”) which alleged multiple violations of the securities law.

Yesterday the Commission stipulated to the dismissal of the Kraken case with no explanation. The initial complaint was a virtual litany of violations of the federal securities laws. According to the press release issued by the agency at the time the complaint was filed, the Kraken platform “Provided a marketplace that brings together the orders for securities of multiple buyers and sellers using established discretionary methods . . . Engages in the business of effecting securities transactions . . .Engages in the business of buying and selling securities for its own account. . . and . . .Serves as an intermediary in settling transactions in crypto asset securities by Kraken customers. . .” all without registration as required by the statutes. SEC Press Release dated Nov. 21, 2023 (issued when the agency filed the complaint dismissed above, “initial complaint”). The complaint goes on for about 90 pages detailing the wrongful conduct Defendants were alleged to have engaged in that harmed market and investors.

None of the issues cited in the initial complaint are addressed in the stipulation dismissing the Kraken action published yesterday by the agency. Rather, that stipulation states only that that “the Commission and the Defendants stipulate that the Litigation be dismissed with prejudice. . .” No other explanation is offered.

The Commission’s action yesterday makes it clear that the agency has vacated the space. This action was taken despite years of cases filed, litigated and resolved in favor of the agency based on long standing law applied to crypto assets, not novel ideas. Yet now the agency has vacated the space. Now the agency has left investors with no explanation for its actions and more importantly no protection. Now it has disregarded its obligation to protect investors without explanation. If this is the approach of the agency – leaving investors to fend for themselves – what is its purpose?

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