SEC sues Cumberland, calls Solana and Polygon securities

The Securities and Exchange Commission (SEC) has filed a lawsuit against crypto liquidity provider Cumberland DRW, accusing the company of acting as an unregistered securities dealer.

Cumberland bought and sold over $2 billion worth of crypto assets since March 2018 without registering with the SEC.

These assets (SOL, MATIC, ATOM, ALGO, and FIL) are apparently securities and Cumberland violated Section 15(a) of the Securities Exchange Act of 1934.

The allegations against Cumberland

The company allegedly ran its business through a trading platform and phone-based transactions. The SEC accuses it of taking advantage of large spreads between bid and ask prices for these securities and making millions in “ill-gotten gains” while sidestepping federal regulations.

The SEC also pointed out that Cumberland employs a team of research analysts and relationship managers who publish reports to promote crypto assets.

These reports, often marketing the future potential of blockchain or the tokens themselves, allegedly enticed investors by promising lower transaction fees, faster blockchain speeds, and more efficient storage networks.

Section 3(a)(5) of the Securities Exchange Act defines a “dealer” as anyone engaged in the business of buying and selling securities for their own account. Cumberland fits this definition, according to the SEC.

But the company never registered. Not with them, or any self-regulatory organization (SRO), like the Financial Industry Regulatory Authority (FINRA).

Under U.S. law, every dealer must register with at least one SRO, and those organizations then set rules and enforce regulations.

Cumberland responds

Cumberland has fired back at the SEC, saying they are being unfairly targeted by the agency’s aggressive stance toward digital assets.

In a strongly worded statement, the company criticized the SEC’s “enforcement-first” approach, claiming it stifles innovation and hurts companies trying to operate within the law.

The company said that they’ve been in constant discussions with the SEC for the last five years, attempting to comply with regulations.

Apparently, they shared written summaries, thousands of pages of documents, and even made their senior management and compliance staff available for interviews.

Yet, despite all this, they claim the SEC has only now outlined the specific transactions they’re being called out for.

Cumberland also pointed out that they registered as a broker-dealer in 2019, but were told they could only use that license to trade Bitcoin or Ethereum—both of which are commodities, not securities.

“This naturally calls into question whether the guidance to come in and register was provided in good faith,” the company stated.

They expressed frustration that the regulatory framework keeps changing, citing how Ethereum was once considered a security but no longer is.

Cumberland insists that the SEC’s case is another example of regulators flexing their power without providing clear guidance, and they’re prepared to defend themselves just like they did in a previous case with the CFTC.