It’s Just the Beginning: SEC Takes Action Against an Exchange

Exchange Regulation SEC

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Fredrik Vold

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June 25, 2023

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The US Securities and Exchange Commission’s (SEC) move against the decentralized crypto exchange EtherDelta is a significant action by the SEC since it is its first enforcement action ever against an exchange deemed to be operating illegally.

“If you are trading securities – which most ICOs [initial coin offerings] are – they must be traded on a registered Alternative Trading System or National Exchange. This will likely be the first of many enforcement actions and think the following sentence is interesting,” Dina Ellis Rochkind of the law firm Paul Hastings LLP told Reuters.

However, this time, Zachary Coburn, the founder EtherDelta, has settled charges with the SEC over failing to properly register the exchange, the commission said in a press release on Thursday.

According to the agency, the majority of the trading activity in question has been made on the EtherDelta exchange after the SEC in the “2017 DAO Report” made it clear that some digital assets could be considered “securities,” and that anyone who offers trading in these assets therefore are subject to SEC registration requirements.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” Stephanie Avakian, co-director of the SEC’s Enforcement Division, said in a press statement.

According to the SEC, Coburn has consented, and agreed to pay USD 300,000 in disgorgement, USD 13,000 in prejudgment interest, as well as a penalty of USD 75,000, “without admitting or denying the findings.”

The SEC statement further suggested that the penalty may have been reduced as a result of Coburn’s cooperation in the matter.

In a statement given to Bloomberg, Coburn’s attorneys said that they were “pleased with the result,” and that Coburn “appreciates being able to get this behind him.”

Community reactions:

SEC move follows nationwide crackdown

The enforcement action by the SEC comes just a week after it was reported that the agency had initiated a nationwide crackdown in the US on what it deems to be potential misconduct involving cryptocurrencies.

According to three undisclosed sources who spoke with Politico, the SEC’s Office of Compliance Inspections and Examinations has been asking professional investment advisors, who manages more than USD 100 million, for information about ICOs and cryptocurrencies.

Meanwhile, in September, New York’s attorney general Barbara D. Underwood blasted cryptocurrency exchanges, saying that they lack procedures to ensure “the fairness, integrity, and security” of the platforms.