The U.S. Securities and Exchange Commission (SEC) settled charges against Zachary COBURN, the founder of the decentralized Ethereum exchange (DEX) EtherDelta, a token trading platform. This is the SEC’s first enforcement action against such a platform operating as an unregistered national securities exchange. Specifically, the trading with DAO token was mentioned as a reason for the enforcement action. DAO tokens are considered securities by the U.S. securities was.
EtherDelta is an online platform for secondary market trading of ERC20 tokens. DEX trading was managed by a smart contract, though the exchange relied on off-chain infrastructure maintained by its operator. The SEC found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.
Over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the U.S. federal securities laws. Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that DAO tokens are securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption. EtherDelta failed to register with the SEC.
“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.”
Without admitting or denying the findings, COBURN consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The SEC recognized Coburn’s cooperation, which the agency considered in determining not to impose a greater penalty.
Step by step the U.S. SEC is developing a regulatory framework around cryptocurrencies and the blockchain environment. Looking that the EtherDelta case it has to be pointed out that the SEC acted with a reasonable penalty and recognized the operator’s cooperation in its press release.