Supreme Court Restricts SEC’s Power To Impose Punitive Fines on Crypto Companies
Impose Punitive Fines on Crypto Companies Restricted by Supreme Court
The United States Securities and Exchange Commission (SEC) got new regulatory restrictions when it comes to punishing defendants such as crypto firms with fines. The ruling would have changed the fines sought in some notable recent cryptocurrency-related cases.
According to a June 23 summary of the U.S. Supreme Court case Liu v. SEC in the National Law Review, the court ruled the SEC can not impose fines — called disgorgements — that exceed the profits obtained from illegal activities. Additionally, such penalties can only be “awarded for the benefit of victims”, not imposed as punitive damages.
The ruling applies to all defendants of course, but for crypto and blockchain companies dealing with possible charges by the SEC, this is effectively a clearer definition of “the punishment must match the crime” when it comes to financial penalties. The commission is already limited in its enforcement by a five-year statute of limitations.
Significant penalties imposed by the SEC
The SEC case against crypto company BitClave included $3.8 million in interest and extra fines. Similarly, in April the SEC charged a former pastor and his wife for stealing $500,000, part of which was get with a bogus crypto offering backed by a bottled water business.
In that case the SEC demanded fines matching all the ill-gotten gains, plus interest and civil penalties, a total which would have easily exceeded the original amount the couple reportedly stole.
However, under the recent ruling, the maximum fine the SEC could impose would be $500,000, which could only be used to refund those who had allegedly been defrauded by the two.
And if the married couple had actually used some of the money to provide the water they were offering, then the funds spent would have to be deducted from the total when the SEC calculated the appropriate fine.
As one of the biggest financial regulators in the United States, the SEC is engaged in the battle against fraudulent activity around digital assets and blockchain.
