The founder of crypto token exchange EtherDelta, Zachary Caburn, has found himself in the sights of the the U.S. Securities Exchange Commission (SEC) for operating an unregulated securities exchange, and is looking at a $400,000 fine.
The SEC’s Co-Director of the Enforcement Division, Stephanie Avakian, released in a statement on November 8, 2018, concerning the matter:
“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. We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” added Steven Peikin. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”
Caburn has not confirmed the realities of the SEC accusations concerning EtherDelta’s business practices, however, he did agree to pay $300,000 as a remedy for illegal or wrongful acts to give up any profits as well as $13,000 in prejudgment and an additional $75,000 penalty.
The SEC discovered that EtherDelta had been providing a marketplace for people to trade ERC-20 tokens, and under the current regulations these tokens are categorized as digital asset securities under the federal law. The marketplace resulted in clients carrying out at around 3.6 million ERC-20 token transactions, some of which are considered securities, over the last year and a half.
The commission found out that the exchange – which provides a platform for trading Ethereum-based tokens – had been acting as a marketplace for people to trade ERC-20 tokens that the commission considered to be ‘digital asset securities under the federal law’. The platform uses a smart contract to manage the trading of tokens.
During the last 18 months, EtherDelta’s customers have carried out at least 3.6 million ERC-20 token transactions, including those that the SEC deems to be securities.
The commission has been increasing their penalty enforcement within the sector, where they’ve garnered at least $3.9 billion in penalties and disgorgement, despite the multitude of resistance from various firms. According to a press release, the SEC has been delving deeper into cybercrime in 2018, and has been investigating a number of cases some including cryptocurrencies.