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SEC Reaches $10 Million Settlement With Poloniex for Regulatory Violations

Security and Exchange Commission Seal, with crypto stock image
(Image credit: Shutterstock)

The U.S. Securities and Exchange Commission (SEC) today announced that it reached a $10 million settlement with the Poloniex cryptocurrency exchange, which allegedly offered an unregulated platform for trading digital assets between July 2017 and November 2019.

The SEC said that some of the cryptocurrency exchange’s 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,” sometime “in or around August 2017.”

That suggests Poloniex knew it might be violating financial regulations—as does the SEC’s claim that in “July 2018, Poloniex determined that it would continue to provide users of the Poloniex trading platform the ability to trade digital assets that it characterized as ‘medium risk’ of being considered securities in light of the business rewards that would provide to Poloniex.”

In other words, it seems Poloniex employees allegedly repeatedly acknowledged the possibility that enabling the trading of these digital assets without registering as a national securities exchange or seeking an exemption from that requirement. It seems they simply decided the potential upside of supporting the burgeoning digital asset market was worth the risk of later repercussions.

It doesn’t seem like Poloniex was attempting to steal from its users—which is surprisingly common among cryptocurrency exchanges—or defraud them by making boastful claims about how rich they can become on the crypto market. The platform was apparently operating in good faith; it simply wasn’t complying with the regulations that govern securities trading.

The SEC said that “without admitting or denying the SEC’s findings, Poloniex agreed to the entry of a cease-and-desist order” and the $10 million settlement. The exchange was spun out of its parent company, Circle, in December 2019. It also stopped accepting U.S. customers at that time, which is likely why the SEC’s investigation was confined to that particular time frame.

Not that Poloniex’s impact on Circle ended in 2019: CoinDesk reported in July that the company lost $156 million on its acquisition of Poloniex and was still dealing with the SEC’s investigation into these regulatory violations. It’s not clear how this settlement might change the company’s situation; the SEC said that it settled with Poloniex LLC rather than with Circle itself.