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US SEC's Crypto Crackdown Continues; UpToken Under the Scanner

Without admitting or denying wrongdoing, Coinme and Up Global will pay a combined $3.77 million for conducting an unregistered and misleading offering of a crypto asset called UpToken.

Photo by Kanchanara / Unsplash

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Since 2021, when Gary Gensler became the chairman of the US Securities and Exchange Commission (SEC), the agency has been clamping down on the cryptocurrency industry.

Gensler testified before the House Financial Services Committee on April 18 that crypto marketplaces were "rife with noncompliance," which endangered investors and eroded confidence in the capital markets.

The SEC chairman's testimony was in response to a question about whether or not cryptocurrencies should be regulated.

The latest target of the SEC is Coinme, located in Seattle.

The securities watchdog fined Coinme's Up Global unit and Neil Bergquist approximately US$4 million for unregistered and deceptive marketing of a cryptocurrency called UpToken.

Claims that Coinme's Up Global division and its CEO, Neil Bergquist, deceived investors in an ICO for UpToken, an Ethereum-based token, were resolved in a settlement announced on Friday.

According to the SEC, investors were encouraged to think that Up Global would control the issuance of UpTokens.

But, at the same time, Coinme would maintain a consistent demand for them by using them to support a Bitcoin ATM rewards programme.

The authority found the representations deceptive because Up Global had secretly made transactions that diminished Coinme's requirement for UpToken.

Additionally, the complaint alleged that Up Global and Bergquist misled investors by stating that the offering had raised $10 million to $18.9 million when it had only raised $3.65 million.

Coinme and Up Global will pay $3.77 million, while Bergquist will pay $150,000; neither company has admitted nor denied wrongdoing.

The 35-year-old Bergquist was also barred from serving as an officer or director of a publicly traded company for three years.

Debate: Is the SEC Out of Bounds?

The SEC has already filed suit against one exchange (Bittrex) and given notice that it plans to take action against Coinbase, the largest exchange in the United States.

Aggressive enforcement has the potential to effectively shut down cryptocurrency, cutting off the main ways through which Americans bring in and take out money.

But crypto firms have maintained that digital tokens do not constitute securities.

There have been broader calls for the SEC to develop new regulations clarifying the application of securities laws to digital assets and complaints that the SEC isn't doing enough to interact with the sector.

But the SEC has stepped up its crypto crackdown a notch further even as crypto businesses argue the extended scrutiny is an illegitimate attempt by the SEC to control cryptocurrencies using outdated rules, given that neither Congress nor the executive branch nor the SEC itself can agree on what constitutes a "security."

Looking to Greener Pastures Outside the US

After last year's market volatility, which led to the demise of numerous enterprises, including Sam Bankman-Fried's FTX, the SEC has upped its scrutiny of Coinbase and other crypto companies.

Earlier this year, Kraken settled with the government about its staking service and agreed to discontinue offering the programme within the United States.

Recently, Bittrex was sued on the grounds that it is acting as a securities exchange, broker, and clearing agency without proper registration.

Many exchanges, including Coinbase, have stated that they are considering and hastening international expansion plans in light of the regulatory crackdown.

In light of its deteriorating relationship with US authorities, Coinbase Global announced on Tuesday the creation of a global derivatives exchange catering to institutional crypto traders outside the United States.

After receiving a licence from the Bermuda Monetary Authority last month, the new platform Coinbase International Exchange will begin listing Bitcoin and Ether perpetual futures this week.

Coinbase stated on its blog that it is "committed to the US" but that it finds the current trend of "regulation by enforcement" in the United States to be "disappointing."

Last year, the United States accounted for 84% of Coinbase's total revenue.

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