SEC Sues Crypto Trading Platform for Unregistered Offers and Sales of Securities
Commentary by Rachael Hashmall
The SEC sued a trading platform for illegally raising over $250 million through the unregistered offering and selling of a crypto asset security and failing to register as a broker.
In the Complaint, filed in the District Court for the Eastern District of New York, the SEC alleged that the trading platform facilitated the sales of tens of thousands of securities for two issuers offering a new crypto asset ("stETH" or "rETH"), as investment contracts. The SEC stated that the trading platform "inserted itself into the U.S. securities markets" by "soliciting investors to participate" in liquid staking programs and by "acting as an intermediary" between the two issuers. The SEC said that the trading platform performed brokerage functions, but did not register as a broker with the SEC.
The SEC charged the platform with violating and continuing to violate Exchange Act Section 15(a) ("Registration and regulation of brokers and dealers"); and Sections 5(a) ("Sale or delivery after sale of unregistered securities") and 5(c) ("Necessity of filing registration statement") of the Securities Act.
The SEC requested, among other relief, that the Court (i) enjoin the defendants from committing further violations and (ii) order the defendant to pay civil monetary penalties.
Commentary
This lawsuit follows a series of interactions between the company and the SEC. The SEC originally sent the company a notice that it was opening an investigation related to the classification of Ethereum. The company then sued the agency arguing that the SEC was seeking to regulate ETH as a security. A few weeks ago, the company announced that the SEC notified it that they were closing the investigation into Ethereum and would not pursue an enforcement action against the company.
Meanwhile, the SEC decided to pursue an enforcement action regarding the company's wallet service, claiming that the company is acting as an unregistered broker-dealer. This case could have significant implications for the industry, particularly concerning staking and where certain software and technology services are in use.
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