Poloniex will reportedly pay over $10 million as settlement charges of operating an unregistered online digital asset exchange to the Securities and exchange commission.
Poloniex LLC has agreed to pay more than $10 million to settle charges of operating an unregistered online digital asset exchange in connection with its operation of a trading platform that facilitated the buying and selling of digital asset securities, according to the Securities and Exchange Commission.
Poloniex ran a web-based trading platform that allowed buying and selling digital assets, including digital assets that were investment contracts and thus securities, from July 2017 until November 2019, when Poloniex sold its platform, according to the SEC’s ruling.
The Poloniex trading platform, according to the SEC’s ruling, met the criteria of an “exchange” as defined by securities laws since it provided a non-discretionary way for trade orders to interact and execute through the use of the Poloniex website, an order book, and the Poloniex trading engine.
Poloniex did not register as a national securities exchange or operate under an exemption from registration at any time during its operation of the Poloniex trading platform, which was available to U.S. investors, according to the order, and its failure to do so was a violation of Section 5 of the Exchange Act.
According to the SEC’s order, Poloniex employees stated internally in or around August 2017 that they wanted Poloniex to be “aggressive” in making new digital assets available for trading on the Poloniex trading platform, including digital assets that might be considered securities under the Howey test, in order to increase market share.
In addition, according to the SEC’s order, Poloniex determined in or around July 2018 that it would continue to allow users of the Poloniex trading platform to trade digital assets that are characterized as having a “medium risk” of being considered securities in light of the business benefits that would provide to Poloniex.
“By adding digital asset securities on its unregistered exchange, Poloniex chose higher profits over compliance with federal securities laws,” stated Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit.
“Poloniex attempted to get around the SEC’s regulatory regime, which applies to any marketplace that brings buyers and sellers of securities together, regardless of the technology used.”
Poloniex agreed to a cease-and-desist order without admitting or rejecting the SEC’s findings and agreed to pay disgorgement of $8,484,313, prejudgment interest of $403,995, and a civil penalty of $1.5 million for a total of $10,388,309. The ruling establishes a Fair Fund for victims’ compensation.
Pamela Sawhney and Daphna Waxman of the Cyber Unit and David H. Tutor of the Asset Management Unit of the SEC conducted the investigation, with assistance from Market Abuse Unit Trading Specialist Ainsley Kerr. Ms. Littman and John O. Enright of the Cyber Unit oversaw the case.