Etherdelta Founder Fined $400K for Operating Unregistered Securities Exchange

Neutral Etherdelta Founder Fined $400K for Operating Unregistered Securities Exchange

The U.S. Securities and Exchange Commission has published details of a cease and desist order it has taken against Zachary Coburn, the operator of Etherdelta. The decentralized ER20 token exchange was the leading Ethereum DEX during its peak, executing more than 3.6 million orders. According to the SEC, many of those orders were for unregistered security tokens. Also read: Huobi Opens Office in Russia, Plans Startup Accelerator and Mining Hotels

Zachary Coburn Settles With SEC

Zachary Coburn is almost $400,000 out of pocket after settling with the SEC for having operated Etherdelta as an unlicensed exchange where security tokens were traded. In total, Coburn has been ordered to pay $300,000 in disgorgement with an additional $88,000 in penalties on top. While the news, published in an SEC document today, has come as a surprise, it has been evident for some time that DEXs operating within the U.S. are going to have to change their business model. IDEX, which has replaced Etherdelta and its Forkdelta spin-off as the most popular platform of its kind, announced earlier this week that it would introduce KYC. It's also barred residents of New York and a handful of other states from accessing the site.

In a 12-page ruling, the SEC lays bare the facts of the case, citing its report into the collapse of the DAO in which "the Commission advised that a platform that offers trading of digital assets that are securities and operates as an 'exchange,' as defined by the federal securities laws, must register with the Commission as a national securities exchange or be exempt from registration." The document also explains how Coburn operated Etherdelta from July 2016 until November 2017, when he sold it to "foreign buyers." The report chastises:

Coburn founded Etherdelta, wrote and deployed the Etherdelta smart contract to the Ethereum blockchain, and exercised complete and sole control over Etherdelta's operations, including over the operations constituting the violations described above. Coburn should have known that his actions would contribute to Etherdelta's violations.

A Hefty Fine But No Further Action Taken

Despite the severity of the fine Coburn was forced to pay, the founder could have fared worse. The SEC appears to have gone relatively easy on him due to his cooperation and willingness to pay any penalties levied. "The Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff," acknowledges the report . "Coburn's efforts facilitated the staff's investigation involving an emerging technology."

While Etherdelta was a small exchange in the cryptocurrency landscape even at its peak, the ramifications of the SEC's actions are sure to resonate far and wide. Exchanges, both centralized and decentralized, will be carefully examining their KYC and token listing policies in light of today's report to ensure they aren't next in the line of fire.

What are your thoughts on the SEC's ruling? Let us know in the comments section below. Images courtesy of Shutterstock. Need to calculate your bitcoin holdings? Check our tools section.

Kai's been playing with words for a living since 2009 and bought his first bitcoin at $19. It's long gone. He's previously written white papers for blockchain startups and is especially interested in P2P exchanges and DNMs.

11/08/2018 / 16:40:00 Source: bitcoin.com

Exchanges | DEX | ERC20 | etherdelta | Ethereum | Fine | N-Featured | SEC | security token | | Exchange|ETH|Regulation|BTC|ICO
BTC
1 BTC=$5,586.41
XRP
1 XRP=$0.5129
ETH
1 ETH=$175.37
XUC
1 XUC=$3.50
BCH
1 BCH=$367.02
EOS
1 EOS=$4.61

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Latest comments:

4 min
Hey Sam, how is it going? But I must explain to you how all this mistaken idea of denouncing of a pleasure and praising pain was born
3 min
Pretty good. Doing my homework.. No one rejects, dislikes, or avoids pleasure itself, because it is pleasure, but because
2 min
Any chance to go out? To take a trivial example, which of us ever undertakes laborious physical exercise, except to obtain some advantage
2 min
.. Maybe 40-50 mins. I don't know exactly. On the other hand, we denounce with righteous indignation and dislike men who are so beguiled
1 min
Anyway sounds great! These cases are perfectly simple and easy to distinguish.