Company Agrees to Stop Offering Unregistered Crypto Trading, Brokerage and Clearing Services
Commentary by Andrew Lom and Rachael Hashmall
A company settled SEC charges for acting as an unregistered broker and clearing agency in connection with its crypto asset trading platform.
According to the Order, the company provided US customers the ability to trade crypto assets, including crypto asset securities, without being registered as a broker-dealer. The SEC said that the company's trading platform facilitated these transactions by displaying bids and offers for crypto assets and executing orders on behalf of customers, while collecting fees. The SEC found that the company held customer funds in omnibus accounts and controlled the private keys to aggregated crypto wallets that stored customers' crypto assets. The SEC charged that the company acted as an unregistered clearing agency by handling the custody, settlement and bookkeeping of crypto asset securities on its platform.
In response to the SEC charges, the company took remedial actions, including limiting its US platform to only Bitcoin, Bitcoin Cash and Ether. The SEC also acknowledged that the company provided customers with a 180-day window to sell other unsupported crypto assets, after which any remaining assets would be liquidated, with proceeds returned to the respective customers.
The SEC found that the company violated SEA Section 15(a) ("Registration and regulation of brokers and dealers") and Section 17A ("National system for clearance and settlement of securities transactions").
To settle the charges, the company agreed to (i) cease and desist from further violations, (ii) liquidate unsupported crypto assets after 180 days and (iii) pay a $1.5 million civil money penalty.
Commentary
The SEC's agreement to settle on these particular terms strongly implies that Bitcoin, Bitcoin Cash and Ether are not securities. Of course, this reiterates the SEC's position that everything else on the company's platform is a security. This settlement does not provide a clear or useful pathway for brokers, dealers and clearing agencies to register with the SEC to provide services in the crypto space, despite there being clear market demand for such services. Merely keeping participants out of a market is not the only, and often not the best, way to protect them from potential downside and risks of that market.
Commentary
This is yet another example of the SEC bringing an enforcement action for violations related to "crypto asset securities" without actually specifying which tokens the company was handling that constitute "crypto asset securities." The industry has been looking for guidance on how to define these assets, but once again, are left with the vague notion that "just about everything" could be included.