Poloniex Hit with $10 Million SEC Fine

Continuing the US authorities’ campaign to build registration and regulation of the crypto industry in that jurisdiction, the Securities and Exchange Commission (SEC) says that Poloniex has agreed to pay just shy of $10.4 million for operating an unregistered crypto exchange in the US.

The SEC’s order finds that from July 2017 through November 2019, when Poloniex sold its platform, the company operated a web-based trading platform that facilitated buying and selling digital assets, including digital assets that were investment contracts and therefore securities.

According to the SEC’s order, 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 US investors, Poloniex did not register as a national securities exchange nor did it operate pursuant to an exemption from registration at any time.

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 new digital assets available for trading 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 SEC also says that 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 characterised 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,” says 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.”