As the U.S. Securities and Exchange Commission (SEC) hints at a softer approach to enforcement under the new administration, particularly in areas like cryptocurrency, state regulators are poised to pick up the slack. While federal priorities evolve, states have the tools and authority to keep policing the securities landscape, potentially ramping up efforts to protect investors where federal action wanes. This shift underscores the dual layers of oversight in the U.S., where state and federal laws work together—and sometimes independently—to regulate financial markets.
The players here include the SEC at the federal level and state securities regulators and attorneys general at the local level, operating under a system of concurrent jurisdiction. This setup stems from the National Securities Markets Improvement Act of 1996, which preserved states’ rights to enforce fraud laws, oversee certain securities offerings, and license industry professionals, even as it streamlined some overlaps with federal rules. State “blue sky” laws complement federal regulations, offering extra investor safeguards. Between 2019 and 2023, state regulators outpaced the SEC, averaging 1,793 enforcement actions annually compared to the SEC’s 764. Examples of state action abound: Massachusetts’ Securities Division, for instance, secured a $7.5 million settlement with Robinhood in 2024 over cybersecurity lapses tied to a 2021 breach, while New York’s Attorney General sued and obtained a settlement from KuCoin in 2023, for failing to register as a securities and commodities broker-dealer and for falsely representing itself as a crypto exchange. These efforts, often driven by robust state laws like California’s consumer protection statutes or New York’s anti-fraud provisions, show states flexing their muscle, especially as federal focus on digital assets may ease. This activity spans statehouses and courtrooms nationwide.
Takeaways
Crypto businesses and investors can’t afford to focus solely on Washington. States are proving they’re not just backups but frontline enforcers, especially in tech-driven fields like crypto or emerging issues like climate-related disclosures. Multistate coalitions, like those through the North American Securities Administrators Association, amplify this trend, pooling resources for big wins—think $100 million from BlockFi in 2022 or $45 million from Nexo in 2023. With the SEC possibly dialing back, companies need to double-check compliance with state laws, which can be stricter than federal ones, particularly in key markets like California or New York. Staying ahead means keeping an eye on both levels of regulation as the enforcement landscape shifts under new leadership.