In what could prove to be a groundbreaking case, the US Securities and Exchange Commission has charged the founder of cryptocurrency trading platform EtherDelta, Zachary Coburn, with running an “unregistered national securities exchange.”
The order claims EtherDelta facilitated more than 3.6 million orders for ERC20 tokens (a popular Ethereum-based token protocol), many of which purportedly fall under local federal securities laws. “EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption,” the order reads.
The filing further notes that EtherDelta purportedly brokered most of these transactions after the SEC issued a report warning that cryptocurrency exchange platforms are required to register or operate pursuant to an exemption. It appears EtherDelta didn’t get the memo though.
“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,” said SEC co-director of enforcement, Stephanie Avakian.
The SEC says that Coburn has already consented to the order and agreed to pay over $300,000 in fines and penalties. For the record, the investigation is still ongoing, and Coburn has neither admitted or denied the findings of SEC’s report.
While regulators are finally starting to pay attention to blockchain and cryptocurrency tech, the legal status of such digital assets remains mostly a grey area. Earlier this year, the SEC suggested that Ethereum is “too decentralized” to be considered a security. But this ruling implies this might not necessarily be the case for Ethereum-based tokens.