As per recent reports, the US Securities and Exchange Commission (SEC) has imposed an unprecedented $4.7 billion in fines on cryptocurrency companies this year.
This figure represented a massive increase of over 3,000% compared to the amount collected in 2023.
While this development reflected the SEC’s growing focus on regulating the crypto industry and enforcing compliance with federal laws, the sharp rise in fines is also in indication of the SEC’s commitment to holding digital asset companies accountable for breaking regulations.
Focus on crypto regulation
Since the SEC began regulating cryptocurrencies in 2013, the agency has collected more than $7.42 billion in fines from the industry. Surprisingly, 68% of this total comes from fines issued just this year.
The largest contributor to this record figure is a $4.47 billion settlement with Terraform Labs and its former CEO, Do Kwon, in June 2024. Terraform Labs is the company behind the Terra cryptocurrency.
This settlement with Terraform Labs is the SEC’s biggest enforcement action to date, surpassing the $4.3 billion agreement reached in 2023 between the US Department of Justice and Binance, the world’s largest cryptocurrency exchange.
Although the SEC filed fewer lawsuits this year compared to 2023, the financial penalties imposed have skyrocketed. So far in 2024, the regulator has taken action in 11 cases, compared to 30 cases last year.
Despite this drop in the number of lawsuits, the value of fines has jumped dramatically, marking a 3,018% increase over 2023’s total of $150.3 million in fines. This trend suggested the SEC is shifting its focus to larger, more impactful cases.
Strategic shift toward larger fines
Under the leadership of its current chair, Gary Gensler, the SEC has made clear its intent to regulate the crypto industry more aggressively.
Gensler has repeatedly stated that many digital assets should be classified as securities, meaning they must follow the same rules as traditional financial products.
This year’s record-breaking fines reflect a clear strategic shift by the SEC toward targeting bigger cases and imposing higher penalties.
The agency is focusing on setting legal precedents that will affect the entire cryptocurrency industry.
However, the SEC’s approach of going after larger cases isn’t new. In 2019, the regulator imposed a $1.24 billion fine on the messaging app Telegram’s cryptocurrency project, TON.
That penalty included $18.5 million in civil fines and $1.2 billion in refunds to investors. The size of this action helped push the average fine for crypto cases that year up by nearly 2,000%.
After that, average fines ranged from $5 million to $35.2 million over the next few years. However, in 2024, the Terraform Labs case boosted the average fine to more than $420 million.
Other major enforcement actions in recent years have included fines against companies such as Ripple Labs, GTV Media Group, and individuals like John and Tina Barksdale, who were involved in fraudulent crypto schemes.
Despite these high-profile cases, 46% of the fines imposed by the SEC since 2020 have been for amounts below $1 million.
Meanwhile, 30% of fines have ranged between $1 million and $10 million. This trend highlights the SEC’s approach of imposing smaller fines in most cases but taking tough action in a few significant cases to send a message to the industry.
Stance on crypto custody services
Along with issuing large fines, the SEC is also tightening its regulations on crypto custody services. These are services provided by financial institutions to safeguard digital assets on behalf of clients.
The SEC’s position on this issue is outlined in its Staff Accounting Bulletin No. 121 (SAB 121), which sets accounting guidelines for institutions looking to offer crypto custody services.
In a September 2024 speech, SEC Chief Accountant, Paul Munter, confirmed that the agency’s stance on SAB 121 hasn’t changed.
Under this rule, financial institutions holding crypto assets for clients must record a liability on their balance sheets to reflect their responsibility for safeguarding these assets.
This requirement has made it difficult for many banks and other financial firms to offer crypto custody services.
The rule has been controversial, with some in the industry arguing that it unfairly limits financial institutions’ ability to handle cryptocurrencies.
SEC Commissioner, Hester Peirce, has been one of the most vocal critics of SAB 121, expressing concerns about the rule’s substance and how it was implemented.
While the US House of Representatives voted to overturn SAB 121 earlier this year, President Joe Biden vetoed the repeal, leaving the rule in place.
