SEC and Crypto: Whining, Reality and Stoner Cats

Crypto investors are celebrating Trump's return to office because there is a widely-held view among them that SEC enforcement against them is constant and unfair. As someone who has practiced before the SEC for over twenty years, I agree that the constant part is true. However, the unfair part is not. Crypto firms chronically refuse to comply with basic blocking and tackling requirements even when they are acting in good faith. These are the same requirements that EVERY OTHER ENTITY MUST FOLLOW. The following enforcement against "Stoner Cats 2" is a great and common example:

On September 13, 2023, the SEC issued an order that ultimately led to a $1,000,000 fine plus return of all remaining funds to the investors. The SEC found that on July 27, 2021, Stoner Cats conducted an unregistered offering of crypto assets offered and sold as securities in the form of non-fungible tokens (NFTs) called Stoner Cats. According to the Order:

• Stoner Cats offered and sold to the public, including U.S. investors, 10,320 NFTs for 0.35 EFT (approximately $800) each; and

  
  

• the offering sold out in 35 minutes and generated gross proceeds equal to approximately $8.2 million.

  
  

The SEC found that Stoner Cats was required to, but did not, register the offer and sale of Stoner Cats NFTs with the SEC and no exemption from registration was available.

This is EXACTLY the kind of unlawful sale of securities that the SEC was established to fight in 1933. And this is an all-too-common result in the crypto space. And it is the right result. And without this kind of enforcement, there is every reason to believe that US capital markets, the most robust and successful in the world, will lose market trust ultimately undermining them.

Chronic crypto-whining can be cured by complying.