EtherDelta Founder Charged By The SEC for Running a Unregistered Exchange

Zachary Coburn, founder of the decentralized exchange EtherDelta is charged by the U.S. Securities and Exchange Commission (SEC) for running a digital "token" trading platform as an “unregistered national securities exchange”.

In the official press release, the SEC notes that this is the first enforcement by the securities watchdog for a crypto trading platform operating as an unregistered exchange. The SEC order notes that EtherDelta is a DEX exchange based on the Ethereum blockchain network that allows for the secondary market trading of ERC20 tokens.

The platform facilitated token trading through Ethereum-based smart contracts. Moreover, it completely relied on the off-chain infrastructure maintained by its operator. SEC says that in the last 18 months, EtherDelta executed a whopping 3.6 million order for ERC 20 tokens which also include tokens that are classified as securities under the federal securities laws.

Last year in 2017, the SEC issued a DAO Report which states that the crypto assets like the DAO tokens will be classified as securities. As a result, all platforms which allow the trading of such digital assets securities are required to register with the SEC.

The SEC notes that EtherDelta offered trading into such digital asset securities but failed to register as an exchange with the SEC. Stephanie Avakian, Co-Director of the 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”.

On the other hand, EtherDelta founder Zachary Coburn has denied these findings. More importantly, he has “agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.” The SEC has recognized Coburn admission of his fault and decided not to impose additional penalties on the exchange.

Steven Peikin, Co-Director of the SEC's Enforcement Division, commented on this entire episode with a generalized viewpoint. Peikin 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."