News has viewed the first page of the subpoena. The SEC has issued similar subpoenas to at least two other crypto VCs. “It's a natural area of additional enforcement,” the securities attorney said.
The US Securities and Exchange Commission has subpoenaed at least three crypto venture capital firms this year, according to a source familiar with the SEC's investigation.
A subpoena is titled “In the Matter of Intermediaries Offering Certain Crypto Assets,” according to the first page viewed. News.
“Staff of the United States Securities and Exchange Commission are conducting an investigation into the above matter to determine whether violations of federal securities laws may have occurred,” the page read.
News The SEC viewed the subpoena on the condition that it does not disclose who it targets.
The SEC's investigation of crypto VCs indicates that the agency is now looking at the beginnings of the crypto capital funnel — investors from whom most crypto startups get their seed money.
At least two other crypto VCs have received essentially identical document requests, said the person, who declined to be named, citing restrictions on public comment on the matter.
The subpoenas sent to the crypto VCs asked for any agreement for any token deal the investors had ever made, the source added.
“It's too much of a fishing trip and too expensive,” said a lawyer at a crypto VC not affected by the subpoenas.
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The attorney had previously heard about the trial before he spoke NewsThe SEC asked not to be named while speaking publicly.
Elisha Cobre, an attorney at Bradley Arant Boult Cummings who specializes in securities and commodities fraud, said the SEC's scrutiny of VCs is acceptable.
“This is a natural additional area of enforcement that the SEC will consider pursuing,” he said News.
Expanding crypto crackdown
The development follows earlier indications that the SEC crackdown on crypto is widening.
In July, Ari Paul, chief investment officer of institutional investor Blacktower Capital, said in a podcast that the agency was looking into crypto VCs.
Paul, however, did not elaborate on who was targeted or the nature of the investigations.
And he did not respond to a request for comment News.
“The SEC does not comment on the presence or absence of a possible investigation,” an SEC spokesman said News.
After the collapse of crypto exchange FTX in November 2022, the SEC cracked down on the digital assets industry.
It targeted influencers and projects including Tron blockchain founder billionaire Justin Sun and Terraform Labs founder Do Kwon.
In June 2023, it sued Binance and Coinbase and recently told decentralized exchange Uniswap that it is the target of pending litigation.
Statutory underwriters
Paul, a Blacktower Capital executive, speculated that the SEC's investigation was prompted because the agency suspected that VCs were acting as sellers of tokens.
When some investors hype a token, it can be perceived as acting like a securities dealer, Paul said.
A source familiar with the investigation said the financial regulator may be interested in whether crypto VCs are “legitimate underwriters”.
Statutory underwriters are broker dealers who purchase securities with the intention of distributing them to the public.
A lot of crypto startups Submit records Token Fundraising to SEC.
However, startups typically file for an exemption from registration of their securities with the agency because they are only offering the right to future tokens to accredited investors.
The SEC is therefore interested in whether these accredited investors act as proxies for token issuers to issue unregistered securities to the broader retail market, the source said.
“It poisons the initial issuance,” the person added, referring to what happens when investors sell tokens to the public market.
Ben Weiss is the Dubai correspondent News. Got a tip? Email him [email protected].
