When it comes to finance, the American government is a lot like Liam Neeson in Taken. You can run, you can hide but in the end, the Securities and Exchange Commission (SEC) will find you and will kill…well maybe not kill you, but certainly take a lot of your money.
One man found that out this Thursday after he was forced to pay several hundred thousand dollars to the SEC for operating an unregistered exchange.
According to the regulator, Zachary Coburn – the founder of cryptocurrency exchange EtherDelta – was illegally operating a securities exchange.
For those of you unfamiliar with the site, EtherDelta, unlike many of its competitors, mostly offers trading in ERC20 tokens – the sort of tokens generally used by firms performing an initial coin offering (ICO).
As a result, people using EtherDelta’s services were effectively trading in equities – even if the exchange didn’t describe it that way.
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It was this that likely aroused the interest of the ever curious and swiftly punishing SEC.
SEC – ICO Tokens are Securities
The regulator had already looked at ICO tokens, publishing a report in July of last year stating that it believed certain tokens to be securities.
SEC regulation means that companies offering trading in securities must either register as an exchange or operate “pursuant to an exemption.”
Stupidly, Coburn not only didn’t apply to register as an exchange; he did the majority of his business after that report had been published and the regulations, which were a corollary of the report, had been made into law.
The exchange operator will not be going to prison, but he will have to pay $300,000 in disgorgement, $13,000 in pre-judgment interest and a $75,000 penalty.
We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”