SEC settles charges against EtherDelta founder
Zachary Coburn has agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.
The United States Securities and Exchange Commission (SEC) today announced it had settled charges against Zachary Coburn, the founder of digital “token” trading platform EtherDelta. This marks the SEC’s first enforcement action based on findings that a digital token trading platform has operated as an unregistered national securities exchange.
As per the SEC’s order, EtherDelta is an online platform for secondary market trading of ERC20 tokens, a type of blockchain-based token commonly issued in Initial Coin Offerings (ICOs). The order found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.
EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” run on the Ethereum blockchain. EtherDelta’s smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade.
During a period of 18 months, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws. Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption. EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption.
Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.
The settlement is announced as US authorities step up their efforts to put an end to cryptocurrency fraud. In late August, the North American Securities Administrators Association (NASAA) said that over 200 active investigations of Initial Coin Offerings (ICOs) and cryptocurrency-related investment products were underway by regulators in the United States and Canada as part of “Operation Cryptosweep.” Since its launch in May, this campaign has led to 47 enforcement actions involving ICOs or cryptocurrency-related investment products. In the end of May, the number of such actions was 35.