SEC Charges EtherDelta Founder For Illegally Operating Unregistered Exchange
The United States Securities and Exchange Commission (SEC) has recently announced that it would charge Zachary Coburn, the founder of EtherDelta, for illegally operating an unregistered exchange within the U. S.
SEC Charges EtherDelta Founder With Operating an Unregistered Exchange https://t.co/KYRBmn2UHw
— SEC_News (@SEC_News) November 8, 2018
According to the announcement, EtherDelta was acting like a national securities exchange in an illegal way because the company was not regulated with the SEC. This was one of the first enforcement actions from the SEC at this subject. EtherDelta was an online platform for the secondary market of ERC20 tokens like the ones created by Initial Coin Offerings (ICOs).
The main problem is that the exchange was operating as a national securities exchange because it brought together buyers and sellers for digital assets via an order book and smart contracts. The company directly executed the trades and, during a period of 18 months, the exchange was able to execute more than 3.6 million orders.
Most of the tokens that the company exchanges could be considered securities by the federal laws of the United States. Also, most of the exchanges were made after the 2017 DAO Report which determined that many of the products were, in fact, securities and they continued to be sold at the exchange.
The company has failed for months to register as an exchange or to even pursue any way of legalizing its business.
The co-director of the SEC’s Enforcement Division, Stephanie Avakian, has affirmed that EtherDelta was operating just like a national securities exchange and it had many chances to comply but it chooses not to do it. Because of this, the company was prosecuted to protect the investors and the innovation in the market, as the company represented a liability in the market.
Coburn has not confirmed or denied the accusations and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.
By enforcing actions against illegal broker-dealers, the SEC hopes to clear the market from illegal exchanges and to create a more protected market for investors, the entity affirms.
Steven Peikin the Co-Director of the SEC's Enforcement Division said:
“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology.”
“But to protect investors, this innovation necessitates the SEC's thoughtful oversight of digital markets and enforcement of existing laws.”
This seems to be a hot topic on Twitter right now. Here are a few reactions to the news:
what strikes me most about the @SEC_News action against @EtherDelta is:
– small disgorgement of $300k
– only $75k penalty for operating unregistered exchange w >3M trades
– co-operation listed as reason for not penalizing further
overall, seems very … positive? pic.twitter.com/ypmdOGSO6N
— Meltem Demirors (@Melt_Dem) November 8, 2018
The SEC just charged the founder of EtherDelta with operating an unregistered securities exchange.
There will be many more enforcements like this to come.
“Move fast and break things” only works if you’re not breaking US securities law.
— Pomp 🌪 (@APompliano) November 8, 2018
Here is the simple take SEC Etherdelta order: if it looks like a duck, and quacks like a duck — it's a duck. If you're an exchange or a security and you call yourself a decentralized yada yada, good luck when the law comes calling.
— Pally (@stephendpalley) November 8, 2018
The Regulation Story Arc is pushing toward a climax. The SEC and its laws are mutable compared to immutable #Bitcoin, from which EtherDelta is indirectly derived, so the SEC must attack the edges.
Had Coburn been anon like Satoshi, would he be a point of failure?
— notsofast (@notsofast) November 8, 2018
A really good lawyer would have told these ICO business clients – EtherDelta included – not what they wanted to hear, but what they needed to hear, allowing the client to structure and work keep the offering or service out of the USA.
There's a lesson there.
— Preston Byrne (@prestonjbyrne) November 8, 2018
This is pretty big news with a large potential impact for quite a few "DEX" projects. https://t.co/WTSpyMCrJ3
— WhalePanda (@WhalePanda) November 8, 2018