U.S. Supreme Court Limits SEC’s Ability to Fine Crypto-Based Scammers

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In a historic ruling by the United States Supreme Court recently, it has limited the powers governed by the United States Securities and Exchange Commission to impose punitive fines on the private cryptocurrency and blockchain-related firms. The historical intervention by the U.S. Supreme Court is unprecedented and has come as a breather in the blockchain sector. While the U.S. Supreme Court has not curtailed the ability to impose punitive fines completely, it has primarily created a threshold on the fines that can be imposed.

The setting for the ruling came from the case of Liu vs. SEC. In the Supreme Court’s ruling, it mentioned that the Securities and Exchange Commission could not impose a punitive fine that exceeds the profits that these companies make from any sort of illicit and illegal activities. The appeal was made in the Supreme Court by a couple based in California, namely Xin Wang and Charles Liu. The couple has been fighting a legal battle with the SEC since 2016. Initially, the SEC sued the California-based couple in the Federal Court. Still, eventually, the case was further pushed down to lower courts to sort out other legal issues associated with the case legally.

As per the case proceedings files, the SEC order Liu and Wang to cough out nearly $27 million in punitive fines for illegally and unethically duping foreign investors. The couple was accused of pocketing the funds that it received from the investors in the name of building a cancer treatment center. The Supreme Court, in its ruling, also mentioned that any fine imposed should solely be calculated and imposed on the basis of benefitting the victims and must not be taken to account for punitive damages. The SC ruling is applicable for all defendants irrespective of whether they belong to the crypto sector or not. The ruling by the Supreme Court is considered a pivotal victory considering SEC has been particularly strict with the crypto firms.

The decision was passed by the Supreme Court after an 8-1 vote and was anchored by Justice Sonia Sotomayor. The only dissenter in the vote was the conservative Justice Clarence Thomas, who claimed that imposing punitive fines is not an authorized solution in such cases.

In the last year itself, the Securities and Exchange Commission has collected nearly $1.5 billion in punitive fines and penalties. Of the fines collected by SEC, over $1.2 billion went to the investors who were duped in such fraudulent operations. The argument made by Liu and Wang circled around the fact that Congress has never authorized the SEC to impose disgorgements, which makes imposing fines is unruly by itself. It is well-known that SEC has been quite strict in the crypto sector. The regulations by SEC have stifled the growth of many crypto-based firms as well as promising Initial Coin Offerings. Many crypto-based investment opportunities have taken a hard hit due to SEC supervision and regulations.

The hard-line approach by SEC to counter and monitor any fraudulent activities in the crypto space has made even the legal activities move slowly. In April, the SEC charged another Houston based couple, who were accused of running a fraudulent operation and defrauding their investors of over $500,000. While the couple, pastor and his wife, ran many fraudulent operations, one of it was a crypto-based offering that was allegedly backed by packaged water business. The amount charged by SEC included not only the amount they collected but also the interest and the civil penalties. The final amount of punitive fines imposed came out to be much higher than the amount of fraudulent operation collected.

It is what is changed in the recent Supreme Court ruling. In other words, the SEC won’t have the authority anymore to impose a fine of more than $500,000 on the couple, which equals the amount they stole from their investors. The collected amount would go back to the investors. Also, the ruling ensures that in case any amount of water has been offered back to the investors for their money, such an amount would be deducted from the sum fined. The court ruling has provided some relief to the crypto space and would certainly help curb the hard-line approach of SEC it has been maintaining for a while now.