How did the Securities and Exchange Commission under Gary Gensler come to be synonymous with a crackdown on crypto? The agency, from April 2021 through January 2025, pursued an enforcement-first posture that reframed digital asset oversight around existing securities laws, prioritizing investor protection amid pronounced market volatility. Rather than promulgate new rules, the Commission leaned on litigation and enforcement precedents to draw legal lines, signaling to market participants that compliance would be judged against familiar securities jurisprudence. This orientation was deliberate: construe token offerings through the Howey Test’s prism and pursue remedies where registration and disclosure obligations appeared unmet. The SEC’s efforts produced substantial monetary penalties and actions, totaling $6.05 billion in enforcement remedies between 2021 and 2024. Central to this strategy was the application of the Howey Test, which evaluates an investment of money, a common enterprise, an expectation of profits, and the efforts of others. Under Gensler, the SEC argued that most tokens satisfy these elements, particularly when marketing materials and token economics conveyed profit expectations tied to managerial or development efforts. These enforcement actions also highlighted common exit scam patterns where projects failed to comply with basic transparency and operational standards. The result was a cascade of enforcement actions against initial coin offerings and token sales deemed unregistered securities offerings, creating substantial legal risk for entrepreneurs and investors who had conceived of tokens as commodities or utility instruments.
Under Gensler, the SEC prioritized enforcement—treating many tokens as securities under Howey and pressuring registration.
To execute this approach, the SEC expanded its Cyber and Crypto Unit, scaling staffing and resources to investigate fraud and unregistered offerings. By mid-2022 the unit had increased its attorney ranks and investigative capacity, which facilitated a marked uptick in cases and public enforcement initiatives. High-profile prosecutions, including suits against major projects, reinforced the message that noncompliant token ventures would face sustained regulatory scrutiny. The unit’s efforts also aimed to combat the psychological tactics scammers use, such as artificial hype and false promises, which have historically led to large investor losses.
The enforcement-heavy era materially affected market behavior: token launches slowed, some projects pivoted toward registration or jurisdictional relocation, while others exited the space. Critics argued that regulation by enforcement chilled innovation and fostered uncertainty, prompting calls for clearer guidance. With Gensler’s departure, the SEC signaled a strategic pivot; the incoming acting chair instituted a crypto task force aimed at greater regulatory clarity and practical registration pathways, reflecting an institutional debate over the balance between innovation support and investor protection. Uncertainties remain about how precedent, market responses, and evolving policy will reconcile in the years ahead.
