SEC Collects Record $8.2B in Penalties for 2024, Sparks Debate Over Regulatory Overreach

The U.S. Securities and Exchange Commission (SEC) has reported a record $8.2 billion in penalties for the fiscal year 2024, the highest total in the agency’s history. This surge marks a significant increase compared to previous years, largely driven by high-profile cases, particularly its ongoing legal battle with Terraform Labs and its founder, Do Kwon.

Terraform Labs Fallout Drives Record Penalties

A major contributor to this historic total was the SEC’s action against Terraform Labs, which accounted for over half of the penalties—$4.5 billion. The penalties stem from the collapse of the Terra blockchain ecosystem in May 2022, following the failure of its algorithmic stablecoin, TerraUSD (UST), and its sister token, LUNA. The $60 billion collapse left investors reeling, leading to allegations of fraud against Kwon and subsequent legal scrutiny.

Had the Terraform Labs case not been part of the 2024 settlements, the SEC’s total penalties would have been much lower, totaling $3.72 billion—the lowest figure since 2013.

Declining Enforcement Actions but Rising Financial Impact

While the SEC’s overall number of enforcement actions dropped by 26% in 2024, with only 583 cases filed, the financial penalties associated with those actions grew by 65.5%. This indicates that the agency is pursuing fewer cases but focusing on larger, more impactful settlements.

The SEC touts these results as proof of its commitment to investor protection, but its aggressive stance, particularly toward the cryptocurrency industry, has drawn increasing criticism from sector leaders.

Industry Reactions to SEC’s Record Penalties

SEC Chair Gary Gensler’s tenure has been a point of contention, especially within the crypto industry. His aggressive regulatory stance has been seen by many as an obstacle to the sector’s growth and regulatory clarity. With Gensler set to leave office in January 2025 following an expected re-election of former President Donald Trump, many in the crypto community are hopeful for a shift in regulatory approach under new leadership.

The upcoming leadership change is widely anticipated to bring a more crypto-friendly direction, especially given Trump’s pledge to appoint SEC officials who are more supportive of digital assets.

Criticism of SEC's Enforcement Approach

Critics of Gensler’s leadership have been vocal about the SEC’s approach. Stuart Alderoty, Chief Legal Officer at Ripple Labs, criticized the SEC’s celebration of its record fines, comparing it to a professor boasting about the highest-ever class failure rates. “It’s not a measure of success—it’s an indictment of oversight gone terribly wrong,” Alderoty remarked.

Additional Penalties and Legal Actions

Apart from Terraform Labs, the SEC imposed significant penalties on other crypto-related entities. Silvergate Bank, tied to the collapse of FTX, was fined $90 million for misleading investors about its anti-money laundering practices. Barnbridge DAO faced a $7 million fine for selling unregistered securities, while NovaTech Ltd. was charged with operating a $650 million Ponzi scheme that defrauded over 200,000 investors globally. Other smaller scams, including pre-IPO frauds and pyramid schemes like HyperFund, added to the SEC’s total penalty haul.

Looking Ahead: A Shift in Regulatory Leadership

As Gensler prepares to depart, many within the crypto industry are hopeful that the new SEC leadership will adopt a more balanced regulatory approach—one that fosters innovation in the digital asset space while still ensuring adequate protections for investors. This shift could mark a turning point for the industry, potentially offering more regulatory clarity and stability in the years ahead.