The Crypto Crackdown is Finally Underway

After remaining hands-off as cryptocurrency firms sold their nebulous digital currencies and an assortment of derivative products, regulators are now beginning to assert control over an industry that has operated without regard to any investor protections.

New York State has ordered a shutdown of a major “stablecoin” called BUSD—a cryptocurrency that is supposed to be pegged one-to-one to the U.S. dollar. The coin is jointly issued by the world’s largest crypto exchange, Binance, and Paxos Trust Co. which has failed to comply with risk assessment and due diligence requirements, according to the state. The Securities and Exchange Commission has warned Paxos that it has violated investor protection rules.

The SEC also has also forced Kraken, a leading cryptocurrency exchange, to end its “staking” program in which investors lock up—or “stake”—their crypto holdings for a set period of time to help support the operation of a blockchain. In return, Kraken had advertised annual investment returns of as much as 21 percent. The SEC said Kraken had failed to register the investment offering with the regulator and that it required investors to lose control of their crypto tokens and assume risks with “very little protection.”

“In case after case, we’ve seen the consequences when individuals and businesses tout and offer crypto investments outside of the protections provided by the federal securities laws: investors lack the disclosures they deserve and are harmed when they don’t receive them,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

The SEC has also sued Genesis Global Capital, a crypto lending firm, and its partner Gemini Trust Co, charging that they violated securities law by paying interest to investors who lend out their crypto tokens.