The Securities and Exchange Commission settled charges against the founder of a digital token trading platform.
This is the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange.
Zachary Coburn, a former registered representative with Chicago-based options trading firm Optiver, founded the digital token trading platform EtherDelta in July 2016. According to the SEC’s order, EtherDelta is an online platform for secondary market trading of ERC20 tokens, which is a type of blockchain-based token commonly issued in Initial Coin Offerings (ICOs).
The order found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.
Over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws.
Almost all of the orders placed through EtherDelta’s platform happened after the SEC issued its so-called DAO Report, the investigative report notifying market participants that digital assets are subject to federal securities laws. The report was issued July 25, 2017.
According to this report, platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption.
However, EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption, the SEC says.