The Founder of EtherDelta, a digital ‘token’ exchange has been hit with huge fines by the U.S SEC after the regulators charged him of selling tokens that had been marked as ‘securities’.
According to a press release by the U.S SEC on Nov 8, Zachary Coburn was guilty of running an “unregistered national securities exchange.” The EtherDelta exchange allowed investors to purchase and sell a variety of ERC-20 tokens offered by ICO projects and inevitably these tokens include those that the SEC regarded as securities.
The regulators alleged that over an 18-month period, EtherDelta users executed more than 3.6 million orders that include the ERC20 security tokens.
EtherDelta’s Offence With Security Tokens
There may have been no case on board if not for the fact that, EtherDelta’s sale of these tokens took place after SEC had published the DAO report in 2017.
In that report, the regulators explained what characterizes an ICO token as a ‘security’ using DAO tokens as a case study. Additionally, it was mentioned that anyone who offered trading facilities for such tokens will have to register with the SEC or prove that they do not need to be registered.
It seems that EtherDelta did not carry out any of these steps and has been made to pay dearly by the U.S SEC who said that it had earlier enforced sanctions on dealers who traded some of the tokens on sale at EtherDelta.
Heavy Penalties For Security Token Trading
Before being acquitted for the SEC, EtherDelta founder, Zachary Coburn, decided to not admit or deny the charges being laid upon his firm. To this respect, the SEC said he “consented and agreed to pay, $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.”
What effect the huge fine would have on the continued existence of EtherDelta is a question only time will answer. However, at press time, the EtherDelta website has not been shut down by the SEC and was still in operation.