The SEC, Fraud, and Cryptocurrencies

The SEC’s Strategic Plan for Fiscal Years 2022–2026 is focused on the impact of the rapidly developing rate of change in new technologies that provide for markets to be more interconnected and interdependent than ever. Because Congress has yet to give the SEC, or any other agency, express authority to regulate cryptocurrency, the SEC has taken a regulation-by-enforcement approach. The SEC’s recent enforcement efforts relating to crypto asset securities were substantial, with enforcement actions addressing a range of alleged misconduct in the crypto asset securities space, including billion-dollar crypto fraud schemes; unregistered crypto asset offerings, platforms, and intermediaries; and illegal celebrity touting. However, with the Supreme Court overturning the Chevron doctrine, thereby limiting agency discretion, enforcement actions may be more tenuous for the SEC moving forward. This Article argues that Congress should expressly authorize the SEC to regulate cryptocurrencies as securities in a manner that will pass the scrutiny of courts. This is especially important in light of Jarkesy, which limits the SEC’s ability to test any new rules through in-house enforcement actions, because this case requires that any agency action that seeks civil money penalties for causes of action ground in the common law, like fraud, must be heard by an Article III court and conform with the defendant’s Seventh Amendment right to a jury trial. Without clear legislative guidance, this Article suggests that the SEC will have to continue its regulation by enforcement scheme, leading to inconsistent decisions and, ultimately, some crypto fraudsters getting away.