New York City: A U.S. agency that probes allegations of deceptive conduct confirmed on Monday that it had investigations open into several cryptocurrency firms for “possible misconduct” following the agency’s crackdown this year on firms selling cryptocurrency-related investments.
The Financial Industry Regulatory Authority, or Finra, in its annual report, commented for the first time at a minimum on investigations into several companies.
“Firna is investigating a number of firms for possibly engaging in misconduct relating to the sale of digital assets,” the agency said. Finra issued dozens of complaints related to cryptocurrency-related investment offerings and has opened others in the past year. The lawsuits currently under investigation have not been announced publicly, Finra said. Finra, which takes the lead on investigations into the industry, has filed securities suits against several cryptocurrency firms in recent months, alleging fraud.
In fresh legal moves, lawyers representing investors in cryptocurrency-related investments have sued Coinbase and Bitconnect, which collapsed after being accused of operating a Ponzi scheme. The agency’s moves followed decisions this year by the Securities and Exchange Commission and Commodity Futures Trading Commission, which have brought regulatory scrutiny to bear on the industry. It is still unclear whether the SEC and CFTC are pursuing individual company investigations, or broader probes of the industry.
A Finra spokesman was not immediately available for comment on whether the agency was investigating specific companies, or the companies named. The agencies declined to comment. Finra itself petitioned the SEC this year for more authority to regulate exchanges, which have largely escaped its scrutiny. Finra’s annual report to the SEC represented the agency’s first public comment on the cryptocurrency industry since its enforcement division ramped up its activity earlier this year, according to legal experts.
“The fact that they have disclosed investigations is a good thing, and shows they are serious about doing enforcement and taking alleged bad actor out of the industry,” said lawyer and bitcoin investor Barry Silbert, chief executive of Digital Currency Group. The regulator has sued 20 cryptocurrency companies in federal courts in the first seven months of 2019, raising its activity around cryptocurrency-related investments.
“Firna is clearly responding to public pressure from the SEC and others,” said John Reed Stark, an adviser to blockchain firms and a Finra director. “The industry needs to be held to a much higher standard. It’s the same things that regulators look for in other industries, like cybersecurity, anti-money-laundering, and investor protection.”
The enforcement team’s activity has spurred increased interest in Finra membership from companies and advisers, according to people familiar with the matter. The regulator’s enforcement division said it had opened 437 cases in 2019 by July, up 38% from the year-ago period, according to its latest quarterly enforcement report.
The regulator filed more investigations during the quarter compared than at any time since 2008.
