EtherDelta Founder Charged by SEC for Operating Unregistered Exchange

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Total News – Atlanta, GA 11/09/2018. Zachary Coburn, co-founder of cryptocurrency exchange EtherDelta, was charged by the US Securities and Exchange Commission with Operating an Unregistered Exchange.

EtherDelta is a decentralized exchange that uses Ethereum-based smart contracts to execute trades.

According to the statement, EtherDelta has been distributing unregistered securities by allowing users to trade under its platform.

"EtherDelta is an online platform for secondary market trading of ERC20 tokens, 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.

EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a "smart contract" run on the Ethereum blockchain. EtherDelta's smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade."

Over the 18-month period, the exchange's users executed more than 3.6 million orders for ERC20 tokens, including tokens that are considered securities under the federal securities law.

Coburn did not admit or deny the findings but agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The SEC did not impose a greater penalty as it recognized the founder's cooperation.

The press release also noted that the SEC has previously brought enforcement actions to multiple unregistered broker-dealers and unregistered ICOs.

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