Zachary Caburn, the founder of crypto token trading platform EtherDelta, will pay about $400,000 to the U.S. Securities Exchange Commission (SEC) for operating an unregulated securities exchange, the agency said in a statement on Thursday.
“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,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
“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 did not admit or deny the SEC’s findings on his exchange’s practices but agreed to pay $300,000 in disgorgement, $13,000 in prejudgment and an additional $75,000 penalty.
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.
SEC intensified enforcement activities this year
The SEC filed 9 percent more enforcement actions in 2018 despite numerous challenges, obtaining at least $3.9 billion in penalties and disgorgement. The commission which has been stepping up its scrutiny of cyber-related illegal activities said on a previous press release that it had handled 20 cyber cases in 2018, including cases involving cryptocurrencies.
The agency has also intensified efforts to crack down on fraudulent ICOs. It has earlier said that such fundraisings must adhere to securities law and has warned investors over the risks of fake ICOs.