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SEC’s Crypto Assets and Cyber Unit Expands Its Reach to Cryptomining

As recently discussed in FinTech Nostradamus, the SEC recently doubled the size of its Crypto Assets and Cyber Unit. Since its inception in 2017, the SEC’s Crypto Assets and Cyber Unit has launched more than 80 investigations resulting in over $2 billion in monetary penalties. With more dedicated investigative attorneys, trial counsel, and fraud analysts, the SEC’s cryptocurrency-related investigations are expected to substantially rise in the months and years ahead.

The tip of the spear will include the areas that the SEC said would be its focus moving forward:

  • Crypto asset offerings

  • Crypto asset exchanges

  • Crypto asset lending and staking products

  • Decentralized finance (DeFi) platforms

  • Non-fungible tokens (NFTs); and 

  • Stablecoins

Given the heightened scrutiny, however, even companies outside of the traditional cryptocurrency industry may find themselves subject to enforcement actions and penalties. For example, the SEC recently announced that it reached a $5.5 million settlement with technology company NVIDIA Corporation for the company’s alleged failure to disclose on its Form 10-Q for fiscal year 2018 that cryptomining was a significant element of its revenue growth. 

NVIDIA is not a cryptocurrency-related company, but rather is a technology company that markets and sells accelerated computing technologies, including graphics processing units (GPUs) for PC gaming, the company’s largest specialized market. The SEC alleged that, as interest in cryptocurrencies began to increase in 2017, NVIDIA customers increasingly began using gaming GPUs for cryptomining of Ether (ETH), which rose in price from under $10 to nearly $800 between 2017 and 2018.

In its Form 10-Q for fiscal year 2018, despite knowledge (discerned by the SEC from internal company documents and communications) of cryptomining as a significant driver of its GPU sales growth in its gaming division, the SEC alleged that NVIDIA failed to disclose that this growth was largely driven by demand for gaming GPUs to use in cryptomining. The SEC further alleged that this failure to disclose misled investors about the growth of NVIDIA’s gaming business in violation of Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934.

As the SEC steps up its cryptocurrency related investigation and enforcement actions, publicly traded companies must exercise increased diligence in disclosure of activities that touch cryptocurrency assets. Even internal dialogue about revenues or other disclosable material that touches cryptocurrencies, as happened to NVIDIA, could subject companies to increased scrutiny and significant monetary penalties.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XII, Number 132
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About this Author

Matthew E. Brown Boston Complex Litigation Attorney Nelson Mullins
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Matthew focuses on complex litigation and legal risk assessments and strategy.

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Following is a selected sampling of matters and is provided for informational purposes only. Past success does not indicate the likelihood of success in any future matter.

  • For more than a decade, Matthew has represented numerous Fortune 50 and 500 companies in complex product and commercial litigation in areas including false claims act and unfair trade practices act claims, government...

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Matthew B. Lerner Atlanta Tort Lawyer Nelson Mullins Law Firm
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Matthew has a national practice that focuses on the representation and defense of manufacturers in products liability litigation, with an emphasis on medical device and pharmaceutical litigation. He routinely litigates matters in state and federal courts across the country, including multi-district litigation. Matthew has been part of numerous trial teams over the last few years, including for cases that were tried in courts in Arizona, California, Florida, Nevada, Oregon, Texas, and Wisconsin. He also has extensive experience managing electronic discovery issues in mass...

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Matthew G. Lindenbaum Financial Litigation Attorney Nelson Mullins
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Matthew represents companies in high-stakes litigation with an emphasis on class action defense in the automotive and financial services industries, including the emerging crypto-currency industry. He also defends companies and individuals in government investigations and enforcement actions involving the United States Department of Justice, the Securities and Exchange Commission, and conducts internal investigations for companies and special board committees.

Matthew is the leader of Nelson Mullins’ Boston Litigation Team and has been...

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Robert L. Lindholm White Collar Defense Lawyer Nelson Mullins
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Rob focuses his practice on government investigations and white collar defense, high stakes business litigation and class action defense, and e-discovery and litigation readiness. He represents financial institutions, Fortune 500 companies, private equity firms, hedge funds, and companies/individuals involved in the cryptocurrency industry in a wide array of internal/government investigations and commercial litigation.

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