The United States Securities and Exchange Commission announced a historic $8.2 billion in penalties for the 2024 fiscal year, underscoring a transformation in its enforcement tactics. Whereas the agency sees this as a victory for protecting investors, those in the cryptocurrency sector view it as a harbinger of better things to come, especially with Chair Gary Gensler departing in the new year.
Terraform Labs Settlement Accounts for Nearly Half
A substantial slice of the annual penalties, $4.5 billion, stemmed from the SEC’s ongoing dispute with Terraform Labs and founder Do Kwon related to the catastrophic downfall of the Terra blockchain network. Fueled by its algorithmic stablecoin TerraUSD and sister token LUNA, the ecosystem imploded in May 2022, wiping out $60 billion and devastating untold investors.
The SEC has since accused Kwon of deception, one of crypto’s highest-profile legal showdowns. Without this settlement, the agency’s total would have dipped to its lowest point in over a decade at a mere $3.72 billion.
Aggressive Approach Yields Mixed Results
Despite record-setting penalties, the SEC saw enforcement actions decline 26% to 583 cases. Yet financial penalties swelled dramatically by 65.5%, signalling the regulator’s hardline tactics towards prominent cryptocurrency cases, a double-edged strategy. While punishment grew, targeting fewer overall incidents, the crypto community perceives this as a positive sign of changing winds.
While the SEC’s enforcement actions against cryptocurrency companies were promoted as protecting retail investors, the heavy-handed penalties sparked outrage across the digital asset industry. Many viewed the punishments as arbitrary rather than prudent regulatory oversight.
Stuart Alderoty, Chief Legal Officer at Ripple Labs, criticized the SEC’s self-congratulatory tone on imposing record fines, comparing it to an educator boasting about a high failure rate among students. According to Alderoty, the enormous penalties illustrate a dysfunctional system plagued by lax supervision and misaligned goals.
Gary Gensler’s forthcoming exit as SEC chairman has been seen by the crypto sector as a potential turning point for the way digital currencies will be regulated going forward. Known for his unyielding stance, Gensler announced his resignation following the 2024 presidential election, with his last day in office on January 20, 2025.
This comes as former President Donald Trump, who has emphasized wanting a more hands-off regulatory approach to the industry, appears poised to return to the White House after winning a second term. Trump has stated his intention to nominate a successor more amicable to the needs of cryptocurrency entrepreneurs, a change that the burgeoning sector anticipates will foster innovation rather than stifle it.
Gensler’s term in office has drawn criticism for an authoritarian crusade that quashed companies through aggressive legal action, according to some of his detractors like Alderoty at Ripple. The digital asset community hopes the incoming leadership will strike a fairer balance.
The SEC’s Targeted Crackdown
Under Gensler’s leadership, the SEC has aimed enforcement at some of the most prominent players in the crypto space. Entities like Silvergate Bank, which came under scrutiny for its ties to the now dissolved FTX exchange, were slapped with a hefty $90 million penalty for misleading investors about its anti-money laundering protocols.
Similarly, Barnbridge DAO was fined $7 million for peddling unregistered securities, while NovaTech Ltd found itself at the epicentre of a $650 million Ponzi scheme that fleeced over 200,000 investors worldwide. These high-profile actions have constituted a notable part of the SEC’s crackdown, but they signify just a fraction of the regulatory push that has typified Gensler’s term.
Will Crypto Find Regulatory Relief?
As Gensler’s departure looms, the crypto industry is watching intently to see how the new SEC leadership will mould the future of digital asset regulation. With a changing political landscape and growing calls for clearer, more transparent guidelines, the crypto world is optimistic about the possibility of a more balanced and less punitive method to regulation.
For now, the SEC’s record-setting penalties stand as a reminder of the regulatory pressures confronting the crypto industry. However, as the SEC transitions into a new era, many hope it will mark the beginning of a more collaborative regulatory environment where innovation and oversight can coexist.
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