SEC’s Latest Sanction on the Cryptocurrency Market Announced: They Won’t Let Go!

The U.S. Securities and Exchange Commission (SEC) has issued at least three crypto para signaled an escalation in its scrutiny of the digital assets sector by issuing a subpoena to a venture capital (VC) firm.

According to a source close to the investigation, the subpoenas were part of an ongoing effort to determine whether federal securities laws were violated in the crypto investment space.

One of the subpoenas was titled “Concerning Certain Crypto-Asset Offering Intermediaries.” The document stated that SEC staff were conducting an investigation to determine whether there had been a violation of federal securities laws.

This latest development suggests that the SEC’s focus is expanding to include the very beginnings of crypto capital flows, the venture capitalists who provide initial funding for most crypto startups. The fact that at least two other crypto VCs have also received similar document requests suggests that the SEC is taking a broad approach in its investigation.

The source said the subpoenas demanded that VCs turn over all contracts related to token deals they were involved in. An attorney representing a crypto VC that was not affected by the subpoenas described the SEC’s actions as an “overly broad investigative tour” and noted the high costs associated with compliance.

Elisha Kobre, an attorney specializing in securities and commodities fraud at Bradley Arant Boult Cummings, suggested the SEC’s increased scrutiny of VCs was a logical next step in its enforcement efforts. “This is a natural additional area of ​​enforcement that the SEC would consider pursuing,” Kobre said.

In July, Ari Paul, Chief Investment Officer of institutional investor BlockTower Capital, mentioned during a podcast that the SEC was investigating crypto VCs.

A source familiar with the SEC’s investigation suggested that the regulator is particularly interested in whether crypto VCs are serving as intermediaries for unregistered securities, effectively releasing them into the retail market under the guise of accredited investor exemptions. Such practices, if proven, could “threaten the initial issuance” of these tokens and complicate the SEC’s regulatory oversight.

*This is not investment advice.