The US Sec goes after EtherDelta, Ethereum token trading platform

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  • The SEC charges Zachary Coburn with iperating unregistered exchange.
  • EtherDelta has features typical to traditional exchanges.

The US Securities and Exchanges Commission charged Zachary Coburn, the founder of EtherDelta, with operating unregistered securities exchange. EtherDelta is a decentralized trading platform and a secondary market for ERC-20 tokens, issued for crowdfunding purposes via initial coin offering (ICO), which are considered as securities under the existing SEC’s ruling.

EtherDelta served as a marketplace for buyers and sellers for the security-like digital asset securities. They were able to settle deals via a dedicated order book, while orders were displayed on the website. The EtherDelta’s smart contract used to execute the orders was coded to validate the order messages, confirm their terms and conditions and update the distributed ledger.

“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,” Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, commented in the official press release.

The regulator stressed that the overwhelming majority of EtherDelta orders were executed after the notice of 2107, where the SEC determined that tokens as securities. However, the exchange was not registered with the SEC and never applied for a waiver under the Federal securities laws. 

“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.”

Zachary Coburn neither accepted nor denied his guild, but consented to pay $300,000 in disgorgement, $13,000 in prejudgment interest, and a $75,000 penalty. The SEC confirmed that Coburn had cooperated with the regulator and thus avoided greater penalties. This case has become the first precedent of charges towards the platform that has never dealt with fiat currencies. Also, it means that the SEC places all Ethereum-based tokens on one shelf with securities.

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