SEC's Reilly Highlights 18% Rise in Crypto Fraud Complaints

Katherine Reilly has taken over as the Acting Inspector General at the U.S. Securities and Exchange Commission (SEC), succeeding Deborah Jeffrey who retired after more than two years in the role. Reilly, a seasoned professional within the agency’s Office of Inspector General, previously held the positions of Deputy Inspector General and Counsel, and has twice served as Acting Inspector General during previous transitions.

Reilly’s tenure has been marked by oversight, audit, and internal investigations into the agency’s ability to execute its mandate amidst market complexity, including digital assets. Her leadership has consistently highlighted digital asset fraud as a top operational concern. In the most recent “Inspector General’s Statement on the SEC’s Management and Performance Challenges” issued in October 2024, Reilly identified crypto-related fraud as one of the agency’s four central obstacles.

The report referenced FBI statistics indicating that retail investors lost $3.96 billion to crypto scams in 2023, with elderly investors being the most frequently targeted group. It also noted that more investor complaints now involve digital assets than any other category submitted to the SEC’s Office of Investor Education and Advocacy. These tips, complaints, and referrals made up approximately 18% of all incoming reports in the year covered, underscoring the prevalence of crypto-related activity in investor protection issues.

Reilly’s approach emphasizes resource sufficiency and internal vulnerabilities rather than the asset class’s classification or future. She has highlighted the strain on agency resources created by the need to monitor fraud and oversee approved products such as spot Bitcoin and Ethereum exchange-traded products (ETPs). The SEC’s Office of Inspector General (OIG) has repeatedly warned that staffing, analytics, and cybersecurity have not kept pace with the expanded regulatory scope. A prior memorandum issued in 2023 noted that a statutory ban on SEC staff owning digital assets hindered the agency’s ability to recruit qualified candidates, creating internal constraints as the Commission deals with increasingly technical market structures.

One notable incident during Reilly’s tenure involved the compromise of the SEC’s official X (formerly Twitter) account in January 2024. A fake post announcing the approval of a spot Bitcoin ETF was circulated, causing a temporary $1,000 spike in Bitcoin’s price before it was deleted. Reilly’s office, in collaboration with the FBI, launched a joint investigation that resulted in an arrest. The performance report cited the incident as a failure of basic cybersecurity hygiene, criticizing the agency for not enabling multi-factor authentication for the account at the time.

Reilly’s reports have consistently framed digital assets as a domain requiring rapid audit responsiveness rather than interpretive judgment on securities law. The 2021 through 2023 performance reviews listed emerging technologies, including crypto, as areas where the SEC struggled to keep pace operationally. This reflects the statutory role of the Inspector General, which is limited to internal oversight and efficiency review rather than policy formation or enforcement discretion.

While Reilly has not publicly commented on Bitcoin or any specific digital asset in a personal capacity, the institutional posture of her office suggests a consistent view: digital assets are a growing market activity segment that exposes investors and the SEC to new types of operational risk. Her reports do not advocate for or against the legitimacy of crypto markets, nor do they assess the appropriateness of the SEC’s legal theories involving token classification. Instead, they evaluate the Commission’s structural preparedness and resource allocation in the face of digital-market complexity.

As Acting Inspector General, Reilly is expected to continue audits focused on crypto-related fraud detection, internal control modernization, and cybersecurity improvements, particularly those related to agency communication protocols. With continued attention to the balance between innovation oversight and operational risk, Reilly’s tenure aligns with the SEC’s new approach, grounded in institutional resilience rather than regulatory posturing.