SEC strikes again; Founder of Ethereum-based cryptocurrency exchange scrutinized by the commission

The United States Securities and Exchange Commission [SEC] has been constantly warning investors about the risks involved in the cryptocurrency space. Even though the commission has failed to set up a proper regulatory framework for the booming market, they have always taken action against fraudulent ICOs and projects, who are misleading the investors.

The recent crackdown by the commission has set the space ablaze as this would be one of the first cases wherein the Founder of an exchange platform based on Ethereum platform is scrutinized. The exchange which was under the limelight is EtherDelta, a secondary marketplace for ERC20 tokens. The Founder was scrutinized by the SEC as he failed to register the exchange with the commission or operate in accordance with an exemption. The exchange was required to avail the permission of the commission as they were trading tokens which are classified as “securities”.

This has been intact since the SEC published their report on the DAO aka the Decentralized Autonomous Organization on July 2017. The DAO was subjected to a hack in 2016, which resulted in the split of the original Ethereum blockchain, creating Ethereum [ETH] and Ethereum Classic [ETC].

The report stated that issuers of security tokens are required to register with the commission unless a valid exemption applies. It also reinforced that all the exchanges were required to register as a National Securities Exchange unless a valid exemption applies.

Zachary Coburn, the Founder of EtherDelta has agreed to pay the commission the money which was gained by offering trade services for the tokens i.e., $300,000. This will include $13,000 in prejudgment interest and $75,000 as a penalty.

Stephanie Avakian, co-director of SEC’s Enforcement Division said:

“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.”

Steven Peikin, co-director of the SEC’s Enforcement Division said:

“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.”

Moreover, the Chief of SEC’s cyber unite, Rober Cohen believes that the people behind the “code” will always be responsible. In an interview with the Forbes, he said:

“The focus is not on the label you put on something or the technology you’re using. The focus is on the function, and what the platform is doing. Whether it’s decentralized or not, whether it’s on a smart contract or not, what matters is it’s an exchange.”

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