Poloniex Exchange Settles SEC Charges
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Poloniex Exchange Settles SEC Charges

Created 1yr ago, last updated 1yr ago

Since renamed and spun out from owner Circle, the exchange paid $10 million to settle charges that it sold securities without registering.

Poloniex Exchange Settles SEC Charges

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Poloniex may be gone from the U.S. cryptocurrency exchange, but it is not forgotten — at least by the U.S. Securities and Exchange Commission.

The SEC on Monday announced that it had reached a $10 million settlement by Poloniex, which was spun out into a separate company by Circle in October 2019. Circle, which refocused on its very successful USD Coin (USDC) stablecoin, had bought the exchange for $400 million a year earlier.

Poloniex no longer serves U.S. clients.

In filings made public in July when it went public, Circle revealed that it lost nearly $157 million when the exchange was sold to a group of buyers headed by Tron CEO Justin Sun.

The SEC said in an announcement that “Poloniex operated a web-based trading platform that facilitated buying and selling digital assets, including digital assets that were investment contracts and therefore securities.”

But, the agency added, it did not register as a national securities exchange or seek an exemption from registration.

More egregiously, from the SEC’s perspective, Poloniex knew that it needed to register.

“Poloniex employees stated internally that they wanted Poloniex to be ‘aggressive’ in making 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,” the release said. Poloniex classified some of those cryptocurrencies as being at “medium risk” of being found to be securities, the SEC added.

“Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, in the statement. “Poloniex 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.”

Regulation by Enforcement

Aside from the fine — which did not require Poloniex’s new owners, Polo Digital Assets, to admit any wrongdoing — the settlement is another piece in the agency’s goal of seeing almost all cryptocurrencies ruled to be securities. 

The agency has long been criticized by parts of the cryptocurrency industry for pursuing a strategy of “regulation by enforcement” in light of the government’s failure to actually define when cryptocurrencies meet that definition. Most notably — and loudly — it has been criticized by Ripple, which the agency is suing for $1.38 billion it says the company made selling XRP tokens without registering them as securities.

Ripple is fighting back, as opposed to settling like other cryptocurrency firms have done, so the case has a good chance of forcing a court to rule on the issue.

That said, the SEC’s new chairman, Gary Gensler, recently made clear that he agrees with his predecessor that virtually all cryptocurrencies are securities. Many hoped that Gensler, who was intimately familiar with the subject after teaching blockchain and cryptocurrency at MIT until his appointment, would take a different tack. 
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