SEC Takes Action to Protect Crypto Investors Affirming Importance of Applying Securities Laws to DeFi

The SEC order reiterates the dangers of Senate amendment to carve out DeFi from tax compliance

WASHINGTON — The Securities and Exchange Commission today took action against two individuals and their Cayman Islands company for the unregistered sale of over $30 million of securities through a so-called “decentralized finance” (DeFi) platform, and for misleading investors. The order clarifies that the “governance tokens” sold by this platform were unregistered securities.  

The SEC’s action comes as the Senate is considering an amendment by Senators Ron Wyden, Pat Toomey, and Cynthia Lummis that would exclude DeFi protocols from regular tax compliance.  

As detailed in Open Markets’ earlier factsheet, excluding DeFi from tax reporting not only puts the burden of compliance solely on the individual, it also risks creating a two-tiered crypto market: one that is fully compliant with the law, and one that allows bad actors to avoid basic financial reporting. 

In response, Alexis Goldstein, Financial Policy Director at the Open Markets Institute, issued the following statement: 

“Today’s SEC enforcement action against Blockchain Credit Partners is an important step towards investor protection and a clear signal that the cryptocurrency markets are not exempt from securities laws. Decentralized finance is currently a Wild West where the lack of “Know Your Customer” is often proclaimed as a feature, and scams can proliferate.  

“Congress should reject any attempts, like those in the Wyden, Toomey, and Lummis amendment, to exempt decentralized finance from normal tax compliance and securities and financial disclosure laws.”

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