The Securities and Exchange Commission (“SEC”) brought three enforcement actions concerning digital assets in rapid succession in a week, underlining that the Division of Enforcement is as committed to crypto enforcement under SEC Chair Gary Gensler as it was under former Chair Jay Clayton. These actions come on the heels of Gensler’s August 3, 2021, speech before the Aspen Security Forum. Gensler’s views were clear: “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.” Expressing concerns about investor protection, Gensler stated his view that many digital tokens are unregistered securities because they are investment contracts under the so-called “Howey Test” and that securities that trade on crypto trading platforms (including “decentralized finance” or “DeFi” platforms), and the platforms themselves, must be registered with the SEC. The three recent enforcement actions include:
A summary of each of these actions follows the takeaways.
SEC v. Uulala, Inc., et al. (August 4, 2021)
The day after Gensler’s speech, the SEC announced settled charges against Uulala, Inc. and two of its founders. The SEC alleged that the defendants raised more than $9 million between December 2017 and January 2019 from investors through an unregistered offering of digital assets called “UULA tokens.” As it has in other crypto enforcement actions, the SEC alleged that the UULA tokens were investment contracts and, therefore, securities, but that Uulala neither registered the securities with the SEC nor qualified for a registration exemption. The SEC also charged the defendants with fraud, alleging that they made material misrepresentations regarding the company’s supposedly “proprietary” and “patent pending” decentralized database technology, algorithms, and financial performance. The defendants settled to violations of Sections 5 and 17(a) of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Exchange Act. They paid a collective $542,768 in civil penalties, including individual penalties assessed at around $193,000 and $50,000 for each individual defendant, and were ordered to permanently disable all UULA tokens in their possession or control, publicly disclose the judgment on social media channels, and issue requests to remove the tokens from any further trading on digital asset platforms, among other relief.
In the Matter of Blockchain Credit Partners, et al. (August 6, 2021)
Two days later, the SEC announced a $13 million settlement in its first enforcement action in the realm of decentralized finance against Blockchain Credit Partners and two individuals. According to the SEC, between February 2020 and February 2021, the defendants raised more than $30 million by selling digital tokens using smart contracts built on a blockchain (a DeFi platform). The defendants issued two types of tokens: one that purported to pay 6.25% interest and one that would give holders certain voting rights, a share of surplus profits, and the ability to profit from secondary market token sales. The SEC alleged that the tokens were investment contracts under the Howey Test and that the issuer therefore sold unregistered securities without a registration exemption. The SEC also alleged that the defendants misled investors about the operations and financial performance of their business, DeFi Money Market. They claimed that DeFi Money Market would pay the interest and profits by using investors’ assets to buy income-generating “real world” assets, like car loans. In reality, the price volatility in digital asset markets created risk that DeFi Money Market’s income from “real world” assets would be insufficient to cover the appreciation of investors’ digital assets. Instead of disclosing this fact to investors, defendants misrepresented that DeFi Money Market held “overcollateralized” car loans while using their personal assets and another company’s funds to redeem token investors. The defendants settled to violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act; agreed to pay almost $13 million in disgorgement and $125,000 in individual civil penalties for each defendant; and undertook that they would not participate in digital offerings for at least five years, maintain the assets currently held in the smart contracts, and allow investors to redeem their tokens at will.
In the Matter of Poloniex, LLC (August 9, 2021)
Last week, the SEC announced a $10 million settlement with Poloniex LLC in connection with the operation of its digital asset trading platform called Poloniex Trading Platform. Alleging that the Platform was an “exchange” as defined in Section 3(a)(1) of the Exchange Act, and that certain of the digital assets that traded on the platform were investment contracts and, therefore, securities, the SEC charged Poloniex for failing to register as a national securities exchange or to operate pursuant to an exemption from such registration. The SEC alleged that Poloniex’s “aggressive” approach to expansion and the promise of business rewards resulted in their decision to offer trading of digital assets that were at “medium risk” of being considered securities under the Howey Test. Poloniex settled to violations of Section 5 of the Exchange Act, and agreed to pay almost $9 million in disgorgement and a civil penalty of $1.5 million. In a public dissent following the settlement, Commissioner Peirce expressed sympathy for market participants who may be surprised by the SEC’s “guns blazing” approach for registration violations, given what she believes to be a nascent and narrow regulatory framework for registered exchanges to hold and transact digital assets.
Ms. Marlier is a partner in Morrison & Foerster LLP’s New York office and is a former SEC Senior Trial Counsel. Nitesh Daryanani is an associate in Morrison & Foerster LLP’s San Francisco office.
 Gary Gensler, Chair, U.S. Sec. and Exch. Comm’n, Remarks Before the Aspen Security Forum (August 3, 2021), available at: https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03.
 SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (an investment contract exists when money is invested in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others).
 SEC v. Uulala, Inc., et al., No. 5:21-cv-01307 (C.D. Cal.), available at: https://www.sec.gov/litigation/litreleases/2021/lr25157.htm.
 In the Matter of Blockchain Credit Partners d/b/a DeFi Money Market, Gregory Keough, and Derek Acree, AP File No. 3-20453 (August 6, 2021), available at: https://www.sec.gov/litigation/admin/2021/33-10961.pdf.
 In the Matter of Poloniex, LLC, AP File No. 3-20455 (August 9, 2021), available at: https://www.sec.gov/litigation/admin/2021/34-92607.pdf.
 SEC v. Telegram Grp. Inc., et al., No. 19 Civ. 9439 (S.D.N.Y.), available at: https://www.sec.gov/litigation/complaints/2019/comp-pr2019-212.pdf; SEC v. Kik Interactive Inc., No. 19-cv-5244 (S.D.N.Y.), available at: https://www.sec.gov/litigation/complaints/2019/comp-pr2019-87.pdf.
 Gensler at Aspen Security Forum, supra note 1.
 Section 5 of the Exchange Act makes it unlawful for any broker, dealer, or exchange, directly or indirectly, to effect any transaction in a security, or to report any such transaction, in interstate commerce, unless the exchange is registered as a national securities exchange under Section 6 of the Exchange Act, or is exempted from such registration. 15 U.S.C. § 78e.
< Gary Gensler, Chair, U.S. Sec. and Exch. Comm’n, Letter to Senator Elizabeth Warren (August 5, 2021), available at: https://www.warren.senate.gov/imo/media/doc/gensler_response_to_warren_-_cryptocurrency_exchanges.pdf.
 Hester M. Peirce and Elad L. Roisman, Commissioners, U.S. Sec. and Exch. Comm’n, Public Statement In the Matter of Coinschedule (July 14, 2021), available at: https://www.sec.gov/news/public-statement/peirce-roisman-coinschedule.
 Gensler at Aspen Security Forum, supra note 1; see also CNBC, SEC Chairman Gary Gensler says more investor protections are needed for bitcoin and crypto markets (May 7, 2021), available at: https://www.cnbc.com/2021/05/07/sec-chairman-gary-gensler-says-more-investor-protections-are-needed-for-bitcoin-and-crypto-markets.html.
 Hester M. Peirce, Commissioner, U.S. Sec. and Exch. Comm’n, Public Statement on SEC Settlement Charging Token Issuer with Violation of Registration Provisions of the Securities Act of 1933 (September 15, 2020), available at: https://www.sec.gov/news/public-statement/peirce-statement-settlement-charging-token-issuer; see also Haimavathi Marlier, Susan Gault-Brown, and Dario de Martino, Taming Unikrns? The SEC’s Recent Digital Asset Offering Enforcement Actions (September 24, 2020), available at: https://www.mofo.com/resources/insights/200924-unikrn-sec-digital-asset-enforcement-actions.html.
 Hester M. Peirce, Commissioner, U.S. Sec. and Exch. Comm’n, Public Statement In the Matter of Poloniex, LLC (August 9, 2021), available at: https://www.sec.gov/news/public-statement/pierce-statement-poloniex-080921.
 Uulala, supra note 4.
 Telegram Grp. Inc. and Kik Interactive Inc., supra note 7.
 Section 5 of the Securities Act provides that all non-exempt securities must be registered with the SEC; Section 17(a) of the Securities Act prohibits fraud in the offer and sale securities; and Section 10(b) of the Exchange Act prohibits fraud in connection with the purchase or sale of any security. 15 U.S.C. § 77e, 77q, 78j.
 Blockchain Credit Partners, supra note 5.
 Smart contracts are programs running on the blockchain than can execute automatically when certain conditions are met. See The Coinbase Blog, A Beginner’s Guide to Decentralized Finance (DeFi) (June 6, 2020), available at: https://blog.coinbase.com/a-beginners-guide-to-decentralized-finance-defi-574c68ff43c4.
 Decentralized finance generally refers to financial infrastructure that is based on blockchain and/or smart contracts, instead of intermediaries and centralized institutions. See Fabian Schär, Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets, Federal Reserve Bank of St. Louis Review, Second Quarter 2021, pp. 153–74, available at: https://doi.org/10.20955/r.103.153-74.
 Poloniex, supra note 6.
 Exchange Act Rule 3b-16(a) provides a functional test to determine whether a trading system meets the definition of an exchange under Section 3(a)(1) of the Exchange Act: if such an organization, association, or group of persons: (1) brings together the orders for securities of multiple buyers and sellers; and (2) uses established, nondiscretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of the trade.
 On August 10, 2021, a day after the Poloniex settlement was announced, the CFTC and FinCEN announced a consent order against five companies charged with operating the BitMEX cryptocurrency derivatives trading platform for failing to register under the Commodity Exchange Act of 1936 and for failing to implement an adequate anti-money laundering program. The CFTC’s action against BitMEX, which culminated in a $100 million civil penalty against the operators of the platform, underscores U.S. regulators’ increased focus on cryptocurrency exchanges. See Commodity Futures Trading Commission, Federal Court Orders BitMEX to Pay $100 Million for Illegally Operating a Cryptocurrency Trading Platform and Anti-Money Laundering Violations (August 10, 2021), available at: https://www.cftc.gov/PressRoom/PressReleases/8412-21.
 Peirce on Poloniex, supra note 14.