Regulation
SEC Now Going After Crypto VCs, Says BlockTower Capital Founder – DL News
- BlockTower’s Ari Paul offered a provocative commentary on the Unchained podcast.
- An SEC action against VCs would mean the agency is broadening its crackdown on cryptocurrencies.
The U.S. Securities and Exchange Commission is targeting cryptocurrency venture capital firms in a series of new investigations, according to an institutional investor.
Speaking on the Unchained podcast on Wednesday, Ari Paul, chief investment officer at BlockTower Capital, She said The SEC has launched a “series of investigations into VCs for acting as unregistered securities dealers.”
The discounted token deals that some VCs strike with crypto projects put them in violation of the regulator’s strict securities laws, Paul said.
Latest escalation
The development would mark the latest escalation in the SEC’s crackdown on the digital assets sector.
Led by its stern chairman, Gary Gensler, the agency has filed lawsuits against Coinbase, Kraken, and Binance, accusing them of illegally offering unregistered securities to investors.
The agency has also targeted several DeFi apps that it says violate long-standing U.S. securities laws.
The SEC did not immediately respond to a request for comment on Thursday, a national holiday in the United States.
In the podcast, Paul posed a hypothetical situation to illustrate how some VCs might violate securities laws.
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Before a crypto project launches a token, its team often enters into agreements with market makers or venture capital firms.
In these deals, the crypto project promises to sell the VC tokens at a significantly discounted price from where they expect them to trade in the future. In return, the VC is expected to promote the token.
“It’s about hiring the VC as a marketer,” said Paul, a former derivatives trader and portfolio manager at the University of Chicago.
“That’s acting like a stock trader. And from an ethical perspective, you’re acting like a pump-and-dumper very explicitly.”
SEC Battle
For the past three years, the SEC has argued that cryptocurrencies fall under the purview of Depression-era laws that govern stocks and bonds.
The cryptocurrency industry has responded, arguing that digital assets are so new that they should be regulated by new statutes and rules.
While a final ruling on the debate is still pending due to ongoing litigation, the agency is expanding its crackdown on the industry.
In May, Robinhood, a low-cost online brokerage firm, received a notice from the SEC informing it of a potential lawsuit alleging violations of securities laws in its cryptocurrency business.
Even DeFi app developers have not escaped the SEC’s crackdown.
On June 28, the SEC loaded Consensys for unregistered sales of securities through its MetaMask staking service. Consensys denies the allegations.
Also in May, the SEC found DeFi exchange Uniswap to be an unregistered exchange controlled by Uniswap Labs.
Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.