SEC Intensifies Scrutiny on Crypto Venture Capital Firms

The US Securities and Exchange Commission (SEC) has intensified its scrutiny of the cryptocurrency sector, now targeting venture capital firms within the industry.

According to DL News, the SEC is investigating these firms for allegedly selling unregistered securities. On the Unchained podcast, Ari Paul, CIO of BlockTower Capital, stated that the SEC’s actions are focused on determining whether these firms are operating as unregistered securities dealers.

Paul noted that these investigations reflect the SEC’s increasing pressure on the digital asset industry under Chairman Gary Gensler. He mentioned that some venture capital firms engage in practices akin to securities dealing by making pre-trading agreements with cryptocurrency projects, thus violating securities laws.

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Paul explained that before a cryptocurrency project launches its token, it often enters agreements with market makers or venture firms, selling tokens at a significant discount in exchange for promotion. He likened these practices to those of securities dealers, describing them as ethically dubious “pump-and-dump” schemes.

Under Gensler’s leadership, the SEC has already taken legal action against major crypto exchanges such as Coinbase, Kraken, and Binance, accusing them of offering unregistered securities. Additionally, the SEC has targeted the DeFi sector, filing a lawsuit against Consensys on June 28 for allegedly conducting unregistered securities sales through its MetaMask staking service.

Alexander Stefanov