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Online trading platform Poloniex has agreed to settle with the US SEC for more than $10m for its operation of an unregistered digital asset exchange that facilitated the trading of digital asset securities.
The firm neither admitted to or denied the Securities and Exchange Commission’s (SEC) findings but has nonetheless agreed to a cease-and-desist order and to pay disgorgement — a punishment designed to deter future violations of securities laws and to deprive defendants of the proceeds of their wrongful conduct.
That figure — $8,484,313 with a prejudgment interest of $403,995 and a civil penalty of $1.5 million — comes to a total of $10,388,309. The SEC order also established a Fair Fund for the victims of the firm’s misconduct.
The SEC found that for over two years from July 2017, Poloniex operated a web-based trading platform that allowed users to buy and sell digital assets including investment contracts considered securities. Poloniex sold the platform in November 2019.
The SEC investigation — conducted by Pamela Sawhney and Daphna Waxman of the Cyber Unit and David Tutor of the Asset Management Unit — determined that the Poloniex trading platform met the criteria of an ‘exchange’ as defined by US securities laws. As Poloniex did not register as a national securities exchange and it was not exempt from registration, its subsequent failure to do so was a violation of Section 5 of the Exchange Act.
The investigation also uncovered ”aggressive” strategies designed to increase market share through making available for trading new digital assets on the Poloniex platform, including digital assets that might be considered securities. Additionally, a year later, in or around July 2018, Poloniex intended to provide users the ability to trade digital assets, considered securities, that it characterised as “medium risk”.
SEC Enforcement Division Cyber Unit chief Kristina Littman says: “Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange.
“Poloniex attempted to circumvent the SEC’s regulatory regime, which applies to any marketplace for bringing together buyers and sellers of securities regardless of the applied technology.”
