Digital Currency Group settles with the SEC for $38 million over misleading statements surrounding Genesis collapse
The Digital Currency Group has agreed to settle with the SEC for $38 million over charges that its Genesis subsidiary misled investors. When the hedge fund Three Arrows Capital blew up and defaulted on a margin call in June 2022, DCG publicly downplayed the fact that their entire business was at risk, and overstated its ability to bail out the Genesis subsidiary by taking on its liabilities and doing some weird accounting maneuvering involving a $1.1 billion promissory note. In November, with further crypto market turmoil, Genesis could no longer meet withdrawal requests and collapsed. The company filed for bankruptcy the following January.
- Order from the SEC
SEC fines Jump Crypto subsidiary $123 million
The SEC has levied a $123 million fine against Jump Crypto subsidiary Tai Mo Shan, which was part of a secret deal with Terraform Labs to help prop up the floundering Terra stablecoin in May 2021. Jump spent $20 million to help the supposedly “self-healing” stablecoin regain its $1 peg, earning about $1.28 billion in the process, and Terraform Labs CEO Do Kwon would later claim that the restoration to a $1 price was thanks to an automatic feature of the Terra project and not some backroom deal. This lie by Terraform Labs and Jump Crypto helped build confidence in the sustainability of the Terra token, which collapsed horrendously a year later.
The SEC also found that Tai Mo Shan had acted as a statuary underwriter for the Terra sister token Luna, which was an unregistered security.
Tai Mo Shan agreed to the fine, and to a prohibition on future violations of securities laws.
- “Tai Mo Shan to Pay $123 Million for Negligently Misleading Investors About Stability of Terra USD”, U.S. Securities and Exchange Commission [archive]
Rari Capital settles with the SEC
The defi lending protocol Rari Capital, and its three co-founders, have settled charges from the SEC that it misled investors and engaged in unregistered broker activity. Rari Capital entities also settled charges that they conducted unregistered offerings of three securities, and engaged in unregistered securities offerings and unregistered broker activity. The SEC alleged that the firm and its co-founders made false statements to investors about supposedly automatic re-balancing of assets into the highest yield opportunities when, in fact, rebalancing was also done manually. The SEC also alleged that the company and its co-founders made misleading statements about the supposedly high yield from the platform, which they said did not account for fees, and which ultimately caused many investors to lose money.
The company and co-founders will pay fines, and the individuals will agree to five-year bans from serving as officers or directors.
The regional SEC director stated, "We will not be deterred by someone labeling a product as 'decentralized' and 'autonomous'," alluding to crypto firms' tendencies to try to skirt securities regulations by claiming to be "decentralized".
Rari has featured on Web3 is Going Just Great before, when they were exploited for around $80 million in April 2022 and when they were exploited for around $15 million in May 2021. The project effectively wound down soon after the second theft.
- "SEC Charges DeFi Platform Rari Capital and its Founders With Misleading Investors and Acting as Unregistered Brokers", U.S. Securities and Exchange Commission [archive]
eToro settles with SEC for $1.5 million, shuts down most crypto trading
The eToro stock and crypto trading platform settled with the U.S. Securities and Exchange Commission on charges that it was operating an unregistered broker and unregistered clearing agency, and facilitating trading certain crypto assets as securities. The platform agreed to pay $1.5 million in fines. As a part of the settlement, the platform will also restrict crypto trading for its U.S.-based customers to only bitcoin, bitcoin cash, and ether.
- “eToro Reaches Settlement with SEC and Will Cease Trading Activity in Nearly All Crypto Assets”, United States Securities and Exchange Commission [archive]
SEC charges Galois Capital, Galois settles
Eighteen months after the crypto-focused algorithmic trading fund Galois Capital shut down, explaining that they had lost around $40 million in the FTX collapse, the SEC has filed a lawsuit against the firm for failing to properly custody their clients' funds. According to the SEC, instead of complying with SEC requirements that investment advisers hold assets with qualified custodians like banks, Galois was keeping assets on crypto exchanges including FTX.
The SEC also charged that Galois Capital had misled some investors into believing they needed five business days of notice to redeem assets, while other investors were allowed to redeem assets more quickly.
Galois agreed to a settlement with the SEC in which they will pay a $225,000 penalty, which will go to investors who lost money.
- "SEC Charges Crypto-Focused Advisory Firm Galois Capital for Custody Failures", U.S. Securities and Exchange Commission
OpenSea receives SEC Wells notice
OpenSea has announced that they received a Wells notice from the U.S. Securities and Exchange Commission, warning them of a likely lawsuit from the agency. According to CEO Devin Finzer, "they believe NFTs on our platform are securities". Finzer did not provide any more details about the scope of the SEC's notice.
Finzer promised that the company would vigorously fight any impending lawsuit.
The lawsuit echoes previous enforcement actions by the SEC, such as a September 2023 settlement with the celebrity-backed Stoner Cats project, in which the SEC suggested that it may broadly view NFTs as securities if investors "reasonably expect to profit" from the continued efforts of those who release the NFTs.
Brothers charged by SEC for $60 million "crypto bot" Ponzi scheme
Brothers Jonathan and Tanner Adam were charged with violating the antifraud provisions of the federal securities laws with their GCZ Global and Triten Financial Group entities, which the SEC alleges amounted to a $61.5 million Ponzi scheme that impacted more than 80 victims. The brothers claimed to have a crypto arbitrage bot that would pull from investor funds to perform profitable trades that would earn them 8–13.5% returns. They claimed to investors that, short of a complete meltdown in global financial markets, their funds would be safe.
However, $53.9 million of investor funds were used to pay other investors, in classic Ponzi fashion. The brothers also used investor funds to build houses for themselves and their family, purchase vehicles and designer goods, and make payments on a $30 million condo in Miami for Tanner.
One of the brothers, Jonathan, had in 2004 been convicted on felony securities law violations that resulted in a four-year jail sentence and more than $300,000 in restitution.
- "SEC Charges Brothers Jonathan and Tanner Adam with $60 Million Ponzi Scheme", U.S. Securities and Exchange Commission [archive]
Abra crypto lender charged with securities violations, settles
The SEC charged the Abra cryptocurrency lending platform with failing to register the offers and sales of its retail crypto asset lending product, Abra Earn, and with operating as an unregistered investment company. Abra Earn was available to US customers from July 2020 until June 2023.
Abra settled the charges from the SEC by agreeing to an obey-the-law injunction, and agreeing to pay as-yet-undetermined civil penalties.
In January 2024, Abra settled claims from the Texas State Securities Board by agreeing to refund customers. As a part of the complaint, the TSSB had alleged that Abra was "insolvent or nearly insolvent", and had been making misleading statements. In June 2024, Abra settled with 25 state regulatory agencies, agreeing to refund up to $82.1 million to its US customers. Abra had begun winding down operations in the United States in mid-2023, after facing multiple state regulatory actions.
- "SEC Charges Abra with Unregistered Offers and Sales of Crypto Asset Securities", U.S. Securities and Exchange Commission [archive]
- "Crypto firm Abra reaches settlement with US states for operating without licenses", Reuters
SEC charges promoters of NovaTech pyramid scheme
Following a lawsuit from the New York Attorney General in June, the SEC has filed a lawsuit against the promoters of the NovaTech crypto pyramid scheme and affinity fraud. Cynthia and Eddy Petion particularly targeted victims of Haitian descent, promoting their schemes in Creole, leveraging their victims' religion, and promising them "financial freedom" and "freedom from the plantation".
The SEC's lawsuit also targets six other promoters of the NovaTech scheme, all of whom the agency says used "religious overtones" when attracting new investors. Ultimately, the scheme was revealed to be a Ponzi scheme, with new investors' money being used to pay out previous investors, as the promoters also took money for themselves.
- "SEC Charges NovaTech and its Principals and Promoters with $650 Million Crypto Fraud", US Securities and Exchange Commission [archive]
Ripple fined $125 million by the SEC
A judgment has been issued in the long-running case against Ripple by the SEC, and the company has been fined $125 million for violations of securities laws in its institutional sales of its XRP token. The SEC has also obtained an injunction against the company, with the judge in the case opining that there was a "likelihood that [Ripple] will eventually (if it has not already) cross the line" again with respect to securities laws.
Ripple and others in the crypto world have been celebrating the judgment as a victory, in part because it is a substantially smaller penalty than the $1 billion in disgorgement and $900 million in penalties sought by the agency.
The SEC has already signaled throughout the case that they were likely to appeal an eventual outcome, after objecting to the judge's decision that several other types of token sales were not unlawful securities offerings.