EtherDelta Founder Pays $388,000 in Fines to Settle SEC Charges
The SEC has penalized the founder of token trading platform EtherDelta for operating an unregistered securities exchange.
The US Securities and Exchange Commission (SEC) announced on Thursday it had settled charges against EtherDelta founder Zachary Coburn, who paid a total of $388,000 in fines. The regulator determined that the trading platform had been operating as an unregistered securities exchange since many of the ERC20-based tokens available there qualify as securities under US law. This is the first enforcement action of its kind, the SEC added.
Coburn did not admit or deny the charges but agreed to pay $300,000 in disgorgement, a $75,000 penalty, and $13,000 in prejudgment interest. Given his cooperation, the SEC did not impose a greater fine.
According to the order, EtherDelta is a platform for secondary market trading of blockchain-based tokens, which are generally launched through initial coin offerings (ICO). Coburn was responsible for the platform operating as an unregistered national securities exchange, the SEC said.
The regulator found that over 18 months, the platform users carried out more than 3.6 million orders for the ERC20 tokens, some of which are viewed as securities as per federal laws. EtherDelta should have known about these conditions given that the SEC issued its 2017 DAO Report, where it outlined the requirements for platform operators.
Stephanie Avakian, co-director of the SEC Enforcement Division, noted:
“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.”
Co-director Steven Peikin added:
“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.”
The SEC has previously penalized unregistered ICO companies and broker-dealers. In September, it charged TokenLot for operating as a broker-dealer without registration.