Crypto Strategies About to Get More SEC Scrutiny

The Securities and Exchange Commission recently announced plans to crack down on crypto schemes and cyberthreats that could take advantage of investors. Given the growing attention on all things crypto in commercial real estate, that could mean additional attention on related activities.

Cryptocurrencies and blockchain technologies are making their way into CRE in such applications as paying rents, providing collateral for loans, marketing apartments, using NFTs to auction lease rights, or tokenizing fractional building ownership. 

But making it work is complicated. Creating a full solution takes significant effort and expertise and there are potential problems. At the very least is volatility of cryptocurrency assets that could create the perception of shady dealings. The legal issues can also be tricky, leaving investors thinking they bought a metaverse property, for example, when rights are fewer than they assume and contractual issues could expose them to loss.

There’s been pressure in government to increase regulation. The SEC announcement is a clear part of that. The agency is opening 20 positions in the former Cyber Unit, now newly renamed Crypto Assets and Cyber Unit. According to the SEC, since the group’s formation in 2017, it has “brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion.”

The SEC says that the “Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets, with a focus on investigating securities law violations.” These areas include “crypto asset offerings, crypto asset exchanges, crypto asset lending and staking products, decentralized finance (‘DeFi’) platforms, non-fungible tokens (‘NFTs’), and stablecoins.”

The CRE industry could find any or all of these in attempts at financial and business innovation, and with greater intent on finding wrongdoing, there’s no reason to think that many legitimate activities couldn’t fall under suspicion.

And then there was this: “In addition, the unit has brought numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and for failing to appropriately disclose cyber-related risks and incidents. The Crypto Assets and Cyber Unit will continue to tackle the omnipresent cyber-related threats to the nation’s markets.”

Any person or organization in CRE has to assume that greater scrutiny is possible, and further regulation, almost inevitable. Prudence would suggest not running ahead to embrace a new opportunity without ensuring sufficient attention to compliance in advance to avoid becoming a target of some investigation.