- Zachary Coburn, the founder of EtherDelta has been charged by the SEC for running an unregistered token exchange
- EtherDelta operated for 18 months and managed 3.6 million orders for ERC20 tokens
- The commission issued the DOA 2017 report which classifies digital tokens as securities and requires exchanges to register
Zachary Coburn, the founder of EtherDelta has been formally charged by the Securities and Exchange Commission for running an unregistered digital token exchange. According to the November 8th press release by the SEC, EtherDelta was not registered with the national securities commission and thus, was unlawful.
Up until now, EtherDelta operated as a decentralized exchange (DEX) for ERC20 tokens. While these activities were going on, Coborn filed to register the exchange.
3.6 million orders
EtherDelta acts as a decentralized marketplace that advertised for both buyers and sellers of digital assets by using an order book which showed existing order and smart contacts. The platform was run on Ethereum.
Trades were facilitated on EtherDelta which managed the messages between buyers and sellers, manging terms and conditions, executed the trades and recorded them on the Blockchain.
It ran for about 18 months and completed 3.6 million orders for ERC20 tokens. Even after the SEC issued the DOA 2017 report which formally classified digital assets and securities and required that platforms that dealt in them be registered, EtherDelta continued to trade in these tokens without registering them.
“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,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
Etherdelta founder has agreed to pay penalties
While the Blockchain industry has great potential and projects based on Blockchain have created many new opportunities for investors, there is still the need for the SEC to regulate these activities and protect investors.
The SEC’s public prosecution of those who violate these regulations sends a clear signal that they are to be taken seriously and will help assure investors that the industry does indeed have some governmental oversight.
Since the charges were filed, Coborn has agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty.
The investigation is still ongoing and will be overseen by Daphna A. Waxman of the Division’s Cyber Unit and Alison R. Levine and Jorge G. Tenreiro of the New York Regional Office with additional supervision by Robert A. Cohen, a Cyber Unit Chief.