SEC Settles First Unregistered Crypto Securities Exchange Case

LAGOS (Capital Markets in Africa) – The founder of cryptocurrency trading platform EtherDelta settled with the SEC for operating an unregistered national securities exchange in the agency’s first case of this kind.

Zachary Coburn will pay $313,000 in disgorgement and interest and a civil fine of $75,000 to settle Securities and Exchange Commission allegations his crypto site acted as an unregistered securities exchange, the agency said Nov. 8.

Coburn created his platform, EtherDelta, in 2016, the SEC said. He previously spent almost five years as a registered representative with a Chicago-based, SEC-registered options trading firm, according to the settlement order. In settling, Coburn neither admitted nor denied wrongdoing.

The platform, which Coburn sold in late 2017, allowed users to buy and sell “digital asset securities,” the SEC said. Some federal judges have said digital tokens can function as securities or commodities in some circumstances, but the issue hasn’t yet made its way to an appellate court.

“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 an agency release.

‘Just Like a Normal Exchange’
Coburn himself described the platform as “function[ing] just like a normal exchange” in a Reddit post quoted in the SEC order.

“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in the release. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”

The platform allowed trading in ERC20 tokens, which are commonly issued in initial coin offerings, according to the SEC. The platform’s users issued over 3.6 million orders in about 18 months, the agency said.

The SEC imposed the $388,000 in penalties against Coburn after considering his prompt “remedial acts” and cooperation, the agency said. “Coburn’s efforts facilitated the staff’s investigation involving an emerging technology,” according to the settlement order.

Source: Bloomberg Business News