Former SEC attorney slams lack of criminal prosecution for ‘mind-boggling’ enforcement

In a critique of the current state of cryptocurrency enforcement, a former insider from the U.S. Securities and Exchange Commission (SEC) has called for a significant shift in the approach towards tackling crypto-related fraud. 

In an X (formerly Twitter) post on September 23, John Stark Reed, who served as an attorney in the SEC Division of Enforcement for nearly two decades, emphasized the need for the U.S. Department of Justice (DOJ) to step in and prosecute crypto-grifters, asserting that prison time is the key to making them take enforcement seriously.

He highlighted the disparity between the actions of the SEC, which primarily deals with civil enforcement, and the lack of criminal prosecutions.

“The stark reality is that the SEC is merely a civil enforcement agency. And until crypto-grifters face the threat of DOJ prosecution (i.e. prison time), they will continue to treat SEC enforcement-related risks (like injunctions, penalties, and disgorgement) as the cost of regulatory arbitrage and just another liability item on their balance sheets,” he said. 

In the post, Reed further highlighted how some crypto entities are not taking SEC actions seriously. For instance, he pointed out that Tyler Winklevoss, co-founder of the Gemini cryptocurrency exchange, had previously criticized SEC allegations against crypto entities as “super lame” and compared them to “manufactured parking tickets.”

Similarly, he pointed out that major crypto exchanges like Coinbase and Binance have seemingly brushed off SEC charges, even using them as marketing tools.

Mind-boggling absence of criminal prosecution

According to Reed, despite many SEC enforcement actions in the crypto space, the absence of crypto-related criminal prosecutions by the DOJ is “mind-boggling.”

The attorney also called on the U.S. DOJ to step up its efforts and bring criminal prosecutions against crypto offenders. He believes that such an approach will make crypto-related offenders take enforcement seriously and prevent further abuse of the system.

Reed’s comments come in the wake of the high-profile case involving Sam Bankman-Fried (SBF), the founder of the FTX cryptocurrency exchange. While SBF himself is facing SEC enforcement actions, Reed expressed his disbelief that SBF’s parents have not been added as defendants in the case. He suggests that they, at the very least, should be named as “relief defendants.”

It is worth noting that Reed has previously questioned the response of crypto players to the SEC’s enforcement of regulations in the sector. As reported by Finbold in July, the former SEC official called on the crypto community to refrain from personal attacks on Chairman Gary Gensler and instead urged them to “challenge the facts and the law.”

Meanwhile, Reed continues to defend the SEC’s approach to managing crypto, emphasizing that the United States’ crackdown on crypto regulation is still in its early stages. He has recommended that investors consider exiting the market. He firmly believes that the SEC’s enforcement actions are accurate and well-targeted.