Crypto Crackdown Means Mounting Headaches for Venture Firms — The Information

The U.S. Securities and Exchange Commission’s probes into crypto trading pose a mounting headache for venture firms that have backed crypto startups.

The SEC is expected to press crypto-focused venture capital firms for information as it investigates whether U.S. crypto exchanges broke securities laws by improperly listing digital tokens, securities lawyers told The Information. The most prolific of these investors, such as Andreessen Horowitz and Paradigm, would be the likeliest to get requests for information from the SEC, lawyers said. Both VC firms invested in Coinbase, one exchange the SEC is reportedly investigating for listing unregistered securities.

Such queries, while less serious than being the target of an SEC investigation, could force VC firms to disclose communication they’d rather keep private. Those kinds of requests could simply be expensive distractions for the VCs, but they could also drag the firms into SEC enforcement actions should any potential securities rule–related behavior come to light.

“Worst-case scenario, the SEC finds that the [venture capitalist] has violated a rule and pursues them or involves them in the overall action,” said Perrie Weiner, chair of law firm Baker McKenzie’s North America securities litigation group. “I haven’t seen yet any [venture capitalists] being formally named in enforcement action, but that’s not to say that it couldn’t happen under the right set of circumstances.”