Poloniex LLC, the firm behind the now-defunct trading platform, has agreed to settle over $10.3 million with the U.S. Securities and Exchange Commission (SEC) after the regulator pressed charges against the firm for violations of investor-protection clauses under federal securities laws. The case was initiated by the Commission back in December, 2017.
The Commission claims that Poloniex violated Section 5 of the Exchange Act, having operated a digital assets trading platform that was not registered as a national securities exchange. The SEC also claimed that while the platform was available to U.S. investors, Poloniex did not operate with an exemption from registration. The defunct trading platform facilitated buying and selling of digital assets, including digital assets that were considered as investment contracts, which falls under the securities category.
According to the Commission, the trading platform provided “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 SEC also detailed that in or around August 2017, it found internal statements from Poloniex employees that advocated for an “aggressive” strategy for the firm to make trading new digital assets on the platform, a position that included “digital assets that might be considered securities under the Howey test.” The regulator claims that the internal statements from Poloniex employees revealed how, at the time, Poloniex was pushing to increase its market share, despite operating with an unregistered status.
Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, made the following statements:
“Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange. 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 operations from this platform went on between July 2017 up until November 2019, which was when Poloniex was dropped as a subsidiary of Circle Internet Financial Ltd. Circle is the cryptocurrency firm that issues USD Coin ($USDC), a dollar-pegged stablecoin. In a previous statement, Circle has stated that it will provide resources to pay up on the $10.3 million settlement with the SEC. The divestment of Poloniex as its subsidiary placed a $156.8 million loss on Circle.
The settlement total of $10,388,309 consists of a disgorgement of $8,484,313, a prejudgment interest of $403,995, and a civil penalty of $1.5 million. The settlement provides that Poloniex will not admit or deny any of the SEC’s findings, while the order will establish a Fair Fund for the benefit of the trading platform’s past investors.
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