SEC Identifies EtherDelta As An Unregistered Securities Exchange

By Rishma Banerjee

The U.S. Securities and Exchange Commission (SEC), USA’s Federal Government’s independent body, has recently indicted the founder of the crypto token trading platform, EtherDelta, Zachary Coburn, with charges of operating an unregistered securities exchange. The platform connects prospective buyers and sellers, through its decentralised marketplace, where the smart contracts of the exchange legitimise order messages, confirm, mention their terms and conditions, execute paired orders and update its ledger in order to reflect a trade.

As per their press release, they have identified EtherDelta as an “online platform for secondary market trading of ERC20 tokens,” and said that the platform was operating as unregistered due to Mr Coburn’s actions.

Users of this platform, over a span of 18 months has conducted trades of more 3.6 million USD “for ERC20 tokens including tokens that are securities under the federal securities law.” The press release also noted that it was after the SEC issued its reports on DAO, in 2017, that most of EtherDelta’s orders were placed. As per this report, in order to trade certain digital tokens like DAO tokens, it was required by the SEC, of the exchanges to be registered or to operate “pursuant to an exemption.”. However, EtherDelta has not succeeded in being enlisted under either of these categories even though they offered to trade tokens, which were considered to be securities by the  SEC.

The Co-Director of the Enforcement division of the SEC, Stephanie Avakian said,

“Etherdelta has both the iser interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemptions.”

The second Co-Director of the same department, Steven Perkins, has added

“We are witnessing a time of significant innovation in the securities market with the use and application of distributed ledger technology. But to protect investors, this innovation necessitates the SEC’s thoughful oversight of digital markets and enforcement of existing laws.”

The founder of EtherDelta, Mr Coburn has accepted the SEC’s order and has agreed to pay a 75,000 USD penalty, along with a 13,000 USD in prejudgement and 300,000 USD as disgorgement. His propensity towards cooperating with the SEC has significantly lessened his penalty, as per the agency’s order.