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States Taking Action on Crypto Enforcement

S.J. Steinhardt
Published Date:
Sep 21, 2022


As federal regulators grapple with, and tussle over who is responsible for, the crypto market, states are stepping up their enforcement, the Washington Post reported.

The Post story highlights Alabama Securities Commission Director Joe Borg, who has led efforts to  file cease-and-desist orders against crypto lender Celsius and crypto broker Voyager before they went bankrupt, as well as crypto lender BlockFi, which settled a $100 million suit for securities law violations.

But other states are stepping up to fill the void, too.

Texas, New Jersey, Kentucky and Vermont were parties to the Celsius and Voyager actions, and are working with Alabama to recover billions of dollars in frozen accounts for their residents. The states’ moves outpaced those of the feds, the Post reported; only after Voyager declared bankruptcy did the Federal Deposit Insurance Corporation take action by writing the company a letter about its “false and misleading” claims.

The states are acting at a time when reports of consumer fraud are mounting, and  the Securities and Exchange Commission and the Commodities Futures Trading Commission are competing over regulatory authority for digital assets—the latter favored by the crypto industry.

Borg attributes the state’s abilities to move to a number of factors. One of them is “a nimbleness not shared by the SEC.” Another is the monitoring of the markets that allows them to spot emerging threats in digital assets.

“Chances are, from the retail market, we’re going to see it first,” he told the Post.

Borg would not criticize federal regulators, but one of his counterparts is not so recalcitrant.

“I didn’t anticipate we would end up in the driver’s seat,” Joe Rotunda, the enforcement director at the Texas State Securities Board, told the Post. “There’s a lot of money on the table, these are very complex cases, and it would be the job of the national regulator. I don’t know why the SEC isn’t out there in these areas right now.”

Despite the differing approaches and attitudes, there is still some agreement.

Borg noted that BlockFi was not registered as an investment company or a bank, but it offered retail customers annual yields as high 9.25 percent on deposited crypto, then lent to institutional traders willing to pay a premium for it.

“That’s no different from a security,” he said—an argument that SEC Chair Gary Gensler makes when insisting that his agency should be the federal regulator of choice for the industry.

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