SEC Starts Investigating Venture Capital Firms! At Least Three VC Companies Have Received Subpoenas

According to reports, the U.S. Securities and Exchange Commission (SEC) has subpoenaed three cryptocurrency venture capital firms this year to determine potential violations of federal securities laws.

SEC Shifts Focus from Startups and Exchanges to Venture Capitalists

The Securities and Exchange Commission's (SEC) investigation into cryptocurrency venture capital firms indicates that the agency is scrutinizing the capital sources in the cryptocurrency market, as the majority of cryptocurrency startups receive initial funding from venture capital institutions.

Sources revealed that the SEC has requested three venture capital firms to provide details of token trading contracts they have engaged in. The report also quoted a lawyer from a cryptocurrency venture capital firm not under investigation, stating, "This is an excessive investigation and very costly." The lawyer, who was interviewed, acknowledged awareness of the investigation.

Elisha Kobre, a lawyer specializing in securities and commodities fraud at Bradley Arant Boult Cummings, commented that the SEC's scrutiny of venture capital firms is reasonable, stating, "This is an additional enforcement area that the SEC would naturally consider pursuing."

Ramped-Up Regulatory Measures! Institutional Investors Confirm SEC Investigation

Previous indications suggested that the SEC is intensifying its regulatory efforts in the cryptocurrency space. In July, Ari Paul, the Chief Investment Officer of institutional investor BlockTower Capital, mentioned that the Securities and Exchange Commission is investigating venture capital firms. However, Ari Paul did not specify the targets or nature of the investigation. Following the closure of the cryptocurrency exchange FTX in November 2022, the SEC has ramped up its scrutiny of the cryptocurrency industry. Notable figures and projects targeted include billionaire and Tron blockchain founder Justin Sun and Terraform Labs founder Do Kwon. In June 2023, it filed lawsuits against Binance and Coinbase, with a recent investigation notice issued to decentralized exchange Uniswap.

Uniswap Receives Wells Notice, Founder Vows to Fight SEC to the End

Venture Capitalists Suspected of Acting as Token Marketers

Ari Paul speculated that the SEC's investigation stems from suspicions that venture capital firms may be acting as token marketers. He suggested that when some investors hype a particular token, it could be construed as acting as securities marketers.

Sources familiar with the investigation indicated that financial regulatory authorities may be interested in whether cryptocurrency venture capital firms are "Statutory underwriters." Statutory underwriters are broker-dealers who purchase securities with the intention of public distribution.

Many cryptocurrency startups submit token fundraising records to the SEC. However, startups often apply for securities registration exemptions from the agency as they only offer future token rights to qualified investors. Sources mentioned that the SEC is therefore interested in whether these accredited investors act as agents for token issuers in distributing unregistered securities to a broader retail market.