SEC Charges EtherDelta's Founder for Operating an Unregistered Exchange

EtherDelta Founder Charged by SEC For Operating an Unregistered Exchange

The founder of EtherDelta, Zachary Coburn, has been charged by the US SEC with "operating an unregistered exchange", according to a report published today by the Commission.

The US Securities and Exchange Commission's (SEC) move against the decentralized crypto exchange EtherDelta is a significant action by the SEC since it is its first enforcement action ever against an exchange deemed to be operating illegally.

One of the first popular decentralized exchanges, EtherDelta was founded in 2017 and saw extreme popularity throughout 2017 and 2018, being built entirely on an Ethereum smart contract. The exchange's smart contracts validate the order messages, confirm the terms and conditions of orders placed by the users, execute paired orders, as well as updates its ledger to reflect a trade. More than 3.6 million buy and sell orders in ERC20 tokens, including securities, were facilitated by the exchange from 12th July 2016 and 15th December 2017.

The Security and Exchange Commission (SEC) of the USA charged the decentralized exchange (DEX), EtherDelta, for operating an exchange without registering it.

The vast majority of the orders placed through EtherDelta's platform were traded after the SEC had issued its 2017 report, in which the agency concluded that certain digital assets were securities and that exchanges that offered trading in these digital assets would be subject to the SEC's registration rules.

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"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", Stephanie Avakian, Co-Director of the SEC's Enforcement Division, said. "But to protect investors, this innovation necessitates the SEC's thoughtful oversight of digital markets and enforcement of existing laws".

The enforcement action by the SEC comes just a week after it was reported that the agency had initiated a nationwide crackdown in the United States on what it deems to be potential misconduct involving cryptocurrencies. Some of the enforcement actions even include tokens traded on EtherDelta.

Coburn, who has neither admitted or denied the findings of the agency, had cooperated with the agency by agreeing to pay over $300,000 in disgorgement, as well as $13,000 in prejudgment interest and an additional $75,000 fine.

The SEC statement further suggested that the penalty may have been reduced as a result of Coburn's cooperation in the matter.

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