SEC Subpoenas Venture Capital Firms

Over the past year, the U.S. Securities and Exchange Commission (SEC) subpoenaed at least three venture capital firms, as reported by DL News.

The subpoenas requested “any contract for any token deal the investors have ever done,” according to sources familiar with the situation. One subpoena was titled “in the matter of certain crypto asset offering intermediaries,” based on a first page reviewed by DL News.

The SEC has stated it does not comment on the existence or nonexistence of investigations. The agency has intensified its scrutiny of the crypto industry, bringing charges against major exchanges like Binance, Coinbase, and Kraken following the collapse of FTX in late 2022. SEC Chair Gary Gensler has argued that most cryptocurrencies qualify as securities, necessitating registration by firms, while the crypto industry calls for clearer regulations. Lawmakers are actively working on establishing a federal framework for crypto.

Lawyers indicated that the SEC is focusing on venture capital funds invested in digital assets in light of market fallout. Other regulators, too, are voicing concerns about risks in the industry. Commodity Futures Trading Commission’s Christy Goldsmith Romero mentioned a “trust deficit” among venture capital firms during a January 2023 speech. She noted that there should have been warning signs regarding FTX, reflecting growing concerns from Washington about the industry.

“Questions arise whether these investors turned a blind eye when conducting due diligence to facts that would normally serve as flashing red lights because of the promise of innovation, hype surrounding FTX, and what is now understood to be misplaced trust in FTX and its founder,” Romero stated in her early 2023 speech.