TL;DR Breakdown
- Poloniex exchange agrees to pay $10m SEC fine.
- Poloniex sold illegal securities to users.
The Securities and Exchange Commission (SEC) has announced that Poloniex exchange has agreed to pay over $10 million to settle charges for operating an unregistered online digital asset.
The fine is also connected with Poloniex exchange, providing a trading platform that facilitates buying and selling digital asset securities.
The SEC had previously discovered that from July 2017 through November 2019, when Poloniex sold using its platform, Poloniex exchange operated a web-based trading platform that facilitated buying and selling digital assets, including digital assets that were investment contracts and therefore securities other than assets.
In an order, the regulators held that Poloniex trading platform met the criteria of an “exchange” as defined by the securities laws.
SEC said this is because the trading platform provided the non-discretionary means for trade orders to interact and execute through the combined use of the Poloniex website, an order book, and the Poloniex trading engine.
The Poloniex exchange violations
However, Poloniex did not register as a national securities exchange, nor did it operate pursuant to an exemption from registration at any time, and its failure to do so was a violation of Section 5 of the Exchange Act.
Also, Poloniex employees stated internally that they wanted Poloniex to be “aggressive” in being available for trading new digital assets on the Poloniex trading platform, including digital assets that might be considered securities under the Howey test, in an effort to increase market share.
Furthermore, the exchange determined that it would continue to provide users of the Poloniex trading platform the ability to trade digital assets characterized as “medium risk” of being considered securities in light of the business rewards that would provide Poloniex.
Poloniex paying price of selfishness
Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, said that Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange.
He noted that the exchange 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.
Without admitting or denying the SEC’s findings, Poloniex agreed to the entry of a cease-and-desist order 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.
