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Securities And Exchange Commission Alleges That Crypto Trading Firm Sold Unregistered Securities
10/22/2024On October 10, 2024, the United States Securities and Exchange Commission (“SEC”) filed a complaint in Illinois federal district court, alleging that diversified trading firm (“Company”) has operated as an unregistered securities dealer by buying and selling more than $2 billion worth of crypto assets. SEC v. Cumberland DRW LLC, 24-cv-9842 (N.D. Ill. 2024).
The SEC alleges that the Company, which calls itself “one of the world’s leading liquidity providers” in crypto assets, is operating as an unregistered securities dealer by trading with counterparties via telephone and on “Marea,” an online trading platform the Company developed, in digital assets that constitute securities. The Company’s activities, the SEC alleges, violate Section 15(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”).
In furtherance of the SEC’s characterization of the digital assets at issue as securities, the complaint alleges, among other things, that the Company’s research analysts publish reports on whether certain digital assets are lucrative investment opportunities. The SEC alleges that the research reports promoting crypto assets as investments increase investors’ expectations of potential profit from those assets.
The SEC’s complaint against the Company is the latest example of the agency’s continued pursuit of crypto market participants, based on its often challenged view that many digital assets are securities within the meaning of the Exchange Act, and the sale of these securities amounts to an unregistered sale in violation of Section 15(a). We previously reported on the SEC’s partial loss in Ripple Labs founded upon similar legal theories. The Company has indicated that it intends to fight the lawsuit and believes that it is not required to register under the Exchange Act.
