The US Securities and Exchange Commission (SEC) has brought charges against Zachary Coburn, founder of crypto exchange EtherDelta, for running an unregistered securities exchange, according to a November 8 press release. (The full cease and desist order can be found here.)
EtherDelta is a trading platform where participants buy, sell, and trade ERC20 tokens. Some of these tokens, apparently, qualify as securities as defined in the DAO Report published by the commission in July 2017. The SEC defines a security as an "investment contract…in a common enterprise with the reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others."
Further, Stephanie Avakian, the 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."
According to the press release, Coburn has agreed to pay $300,000 in disgorgement, $13,000 in prejudgment interest, and a $75,000 penalty. Coburn has reportedly been very cooperative, a fact that the SEC says it took into consideration when imposing these fines.
It is unclear if Coburn has since registered the exchange with the SEC or been approved for an exemption. The SEC says that the investigation is still ongoing, but at the time of press release, the exchange website was still up and seemed to be conducting business as usual.
Although the SEC has previously taken action against unregistered broker-dealers and fraudulent initial coin offerings, this is the first time the regulatory body has taken action based on evidence that a platform was operating as an unregistered national securities exchange.
Correction (11/9/2018): The article's summary has been amended to make clear that this is the first time the SEC has taken action against a digital token trading platform for acting as an unregistered national securities exchange.