SEC intensifies investigations into crypto fraud and inadequacies

The SEC’s Crypto Assets and Cyber Unit concluded an investigation against NVIDIA and pressed charges in relation to a “mining packages” fraud.

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The freshly renamed and expanded Crypto Assets and Cyber Unit (CACU), which operates under the SEC Enforcement Division, announced a settlement with the Silicon Valley company NVIDIA. Following an investigation into “inadequate disclosures concerning the impact of cryptomining on the company’s gaming business,” the company agreed to comply with a cease-and-desist order and pay a $5.5m fine “without admitting or denying the SEC’s findings.”

The order concludes that NVIDIA had failed to report that mining had been a “significant” element of the material revenue growth from the sales of NVIDIA’s chips, which were marketed primarily for gaming, but it stops short of alleging scienter fraud.

In the SEC’s view, earnings made from mining should have been disclosed in the report as “related to a volatile business” for investors to be able to make informed decisions.

The investigation did not find that any investor had lost money as a result of NVIDIA’s alleged “negligence.”

One ends, another begins

The same day brought new charges against Mining Capital Coin (MCC), its founders Luiz Carlos Capuci and Emerson Souza Pires, and a few related entities. The SEC had already secured a temporary restraining order for Capuci and Pires. Their assets had been frozen.

This complaint does speak of fraud, claiming that the MCC stole “at least” $8 million dollars from over 60,000 unsuspecting investors who thought they were buying “mining packages” that “guaranteed” 1% daily profit sharing returns, paid weekly. The MCC also milked $3.2m in “initiation fees.”

According to the complaint, the company “crowed” about its mining equipment, traders and a “phalanx of trading robots,” none of which really existed. Instead, the complaint alleges somewhat bitterly, Capuci and Pires spent the money on sports cars, real estate, and a yacht.

Crypto unit in full swing

The CACU, previously known as the Cyber Unit, played a vital part in both investigations. It now employs nearly twice as many investigators as it used to before the name change. The expansion could soon result in even more enforcement actions against companies that deal with digital assets.

The scope of the SEC’s investigations appears to be broadening; the charges the MCC and their founders are facing are quite serious, but in the case of NVIDIA, the chief justification of the SEC’s order is the volatility of the crypto industry.

This heightened scrutiny falls in line with SEC Chair Gary Gensler’s sharp focus on the enforcement of crypto regulations, even though some are still a matter of debate. A recent report by Cornerstone Research suggests that crypto enforecement actions have been on the rise since Gensler took office in April 2021. The same report, which was issued before the SEC supercharged the Crypto Assets and Cyber Unit, suggests that the current year could bring “further scrutiny of certain market participants”, including DeFi platforms.