Poloniex was a web-based trading platform for digital assets, some of which the SEC claimed were investment contracts, and therefore securities. The SEC also claimed that the trading platform was an exchange under the securities laws.
The SEC filed charges which Poloniex settled. The order confirming the settlement finds that the Poloniex trading platform met the criteria of an “exchange” as defined by the securities laws 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 order finds that notwithstanding its operation of the Poloniex trading platform, which was available to U.S. investors, 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.
The SEC’s order further finds that in or around August 2017, 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. Further, according to the SEC’s order, in or around 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.
“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. “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.”
The Securities and Exchange Commission today announced that Poloniex LLC has agreed to pay more than $10 million to settle charges for operating an unregistered online digital asset exchange in connection with its operation of a trading platform that facilitated buying and selling of digital asset securities.
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. The order establishes a Fair Fund for the benefit of victims.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
