The U.S. Securities and Exchange Commission (SEC) has initiated legal action against Touzi Capital, accusing the investment firm of defrauding investors by misrepresenting the liquidity and profitability of its cryptocurrency mining fund.
$95 Million Raised Under False Pretenses
In a statement issued on November 29, the SEC disclosed that Touzi Capital raised approximately $95 million from over 1,200 investors, promising exclusive utilization of the funds for crypto mining operations.
However, the SEC alleges that the firm:
- Diverted funds to unrelated ventures through its subsidiaries.
- Misled investors about the risks and returns, falsely comparing the investment to stable, high-yield money market accounts.
- Continued soliciting new investments even as its ventures faltered.
Regulatory Crackdown on Crypto Misconduct
This lawsuit adds to the SEC’s ongoing crackdown on fraudulent practices within the cryptocurrency industry.
Notably, the SEC recently secured a win against Kristoffer Krohn, who was accused of promoting an $18 million fraudulent crypto mining scheme. A U.S. federal judge dismissed Krohn’s appeal, affirming that the Green Boxes offered in his scheme constituted securities under U.S. law.
SEC Faces Industry Criticism for “Regulation-by-Enforcement”
The SEC’s strategy of regulating through enforcement has sparked significant criticism.
- Hester Peirce, an SEC Commissioner, has openly criticized the agency for operating in an “enforcement-only mode” regarding crypto regulation.
- A coalition of seven U.S. states, led by Iowa Attorney General Brenna Bird, has filed an amicus brief challenging the SEC’s crypto regulation as a “power grab” that stifles innovation.
The coalition includes states such as Arkansas, Indiana, Kansas, Montana, Nebraska, and Oklahoma, emphasizing the need for clear, innovation-friendly regulatory frameworks.
Political Changes May Shift Crypto Regulatory Landscape
With Donald Trump set to return as President in January 2025, the crypto industry anticipates significant changes.
- Trump is reportedly considering Paul Atkins, a pro-crypto former SEC commissioner, to chair the SEC.
- Atkins’ expertise and crypto-friendly stance are expected to pave the way for regulatory clarity and reduced litigation.
- Trump has also expressed a commitment to enacting crypto-friendly regulations through his family-backed platform, World Liberty Financial.
Joe Lubin, CEO of Consensys, echoed this optimism during DevCon 2024, stating that a Trump administration could alleviate the financial strain on the crypto sector by reducing regulatory lawsuits.
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