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US Regulators Handed Out $2.5 Bln In Crypto-related Fines Since 2014

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US regulators have handed out more than $2.5 billion in penalties against firms and individuals for violations relating to cryptocurrencies such as Bitcoin since 2014, according to a report by blockchain analytics firm Elliptic.

The regulators in the U.S. are increasingly imposing significant financial penalties on crypto businesses, contrary to the widely-held belief that the cryptoasset industry is unregulated.

US regulatory agencies such as the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), The Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) have imposed penalties for fraud, breaches of AML regulations, offering unregistered securities and sanctions violations.

The big chunk of the penalties, amounting to $1.69 billion, were imposed by the SEC, followed by $624 million by the CFTC, $183 million by FinCEN and $606,000 by the OFAC. These include $722 million in civil penalties, $1.62 billion in disgorgements and $161 million in restitutions.

The first major regulatory action came in 2014, with the SEC ordering Trendon Shavers as well as Bitcoin Savings and Trust to pay just over $40 million in penalties for operating a ponzi scheme that defrauded investors out of more than 700,000 bitcoins.

The evolution of Initial Coin Offering (ICO) since 2017 saw a rise in violation of securities laws and/or they were outright fraudulent. The SEC has pursued those who promoted such ICOs. Sartups and projects raised billions of dollars in capital through an ICO, in the form of cryptocurrencies such as Bitcoin or Ether, through crowdfunding.

The largest such action so far came in 2020 when Telegram Group Inc. and its wholly owned subsidiary TON Issuer Inc. settled SEC charges that Telegram's unregistered offering of digital tokens called "Grams" violated federal securities laws. The defendants agreed to return more than $1.2 billion to investors and to pay an $18.5 million civil penalty.

The CFTC has also emerged as a major source of enforcement actions against crypto businesses. In March 2021, UK national Benjamin Reynolds was ordered to pay nearly $143 million in restitution to defrauded customers and a civil monetary penalty of $429 million to settle charges of fraud and misappropriation.

The OFAC has over the past year imposed monetary penalties on two cryptoasset businesses, for sanctions violations. OFAC administers and enforces economic and trade sanctions against foreign states, organizations and individuals deemed to be a threat to US national security.

Regulatory enforcement ensures that bad actors cannot thrive, and brings clarity on how regulations written decades ago are to be applied to new technologies. Regulators have successfully used existing laws to halt and penalize illicit activity that has exploited cryptoassets.

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