Expect the SEC to Target More Token Exchanges After EtherDelta

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The Securities and Exchange Commission’s (SEC) settlement with the founder of EtherDelta is likely the first of many enforcement actions to come against crypto token exchanges.

Until recently, the SEC’s scrutiny of the cryptocurrency industry largely focused on projects and teams that raised money through initial coin offerings (ICOs) in possible violation of securities laws. But a person familiar with the SEC’s thinking told CoinDesk Thursday that crypto trading platforms have become a significant priority for the agency’s enforcement division.

As such, the news that the SEC had charged EtherDelta founder Zachary Coburn with operating an unregistered securities exchange can be seen as a shot across the bow of token-trading platforms.

“At this point, if you’re doing an exchange of crypto assets, dealing with U.S. persons, you probably need to get either a no-action letter or get clarity from counsel about whether you are implicating securities laws,” said Andrew Hinkes, an adjunct professor at the New York University School of Law.

And while the EtherDelta action was the SEC’s first against a crypto exchange, Hinkes told CoinDesk:

“I’m surprised it took this long.”

Further, the case shows that even if so-called decentralized exchanges (DEXs) cannot be easily shut down, that does mean no one will be held liable for their activities. Without admitting or denying the charges, Coburn agreed to pay a total of $388,000 in penalties, disgorgement and interest under the settlement.  

“This tells you that an exchange that used a distributed set of nodes instead of a centralized server isn’t going to be treated any differently,” Hinkes said. “Just because you make it and then it gets operated by a decentralized network of others doesn’t mean that any prospective responsibility or liability is gone. It’s just possibly relocated.”

And notably, the action was taken against Coburn even though he left EtherDelta in late 2017. The trades of ethereum-based tokens

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