SEC Charges Cumberland for Operating as Unregistered Crypto Dealer
The United States Securities and Exchange Commission charged the Chicago-based crypto market maker Cumberland on Thursday for allegedly operating as an unregistered dealer in crypto asset transactions exceeding $2 billion since 2018. According to the filings with the SEC, it is alleged that Cumberland has habitually traded crypto assets that were regarded as securities without taking prior registration as a dealer – “in violation of the federal securities laws.”
SEC’s Allegations
An SEC complaint filed against it alleged that from March 2018 until today, Cumberland had been purchasing and selling crypto assets that constitute investment contracts. According to the said regulator, such transactions should have been transacted by a registered dealer under U.S. securities law. This fintech company has been accused of under-taking these transactions in the course of its regular business, which included trading for its own accounts.
In this regard, the SEC filing further details that Cumberland operates on a 24/7 basis, executing trades over the phone or its proprietary trading platform, known as Marea. It’s also said to execute trading on other third-party exchanges. According to the SEC, it had been processing transactions with a number of crypto assets that the agency considers securities, including POL-formerly MATIC, SOL, FIL, ALGO, and ATOM.
In failing to sign up as a dealer, the regulator had argued, Cumberland had breached laws put in place for the clear, transparent operation of the financial markets. The regulator’s move was part of its wider effort to bring the crypto industry into compliance with the same securities legislation that exists elsewhere.
Cumberland hit back at the allegations with a withering critique of the commission’s methodology. The firm said it had participated in five years of good-faith negotiations with the SEC, making available “thousands of pages of documents, written summaries, and its senior management for interviews”. Cumberland maintained that at all times it had co-operated with the regulator, but that the complaint was “the first time that the agency has identified any specific transactions about which it expresses concerns”.
It also challenged the SEC’s classification of certain crypto assets as securities on the basis that these digital assets do not constitute investment contracts within the meaning of the law. Cumberland thinks this is part of a larger push by the SEC to regulate the crypto industry through enforcement instead of guidance.
Despite the charges, Cumberland promised to go on doing business roughly as usual, which could mean challenging the SEC’s interpretation of the law in court. It contended that its cryptocurrency transactions fell outside the scope of U.S. securities laws and such an enforcement-first approach was holding innovation back in the still-new crypto market.
Conclusion
The case against Cumberland is the latest in what has been a year filled with key initiatives taken by the agency to bring crypto market participants into the fold. The case, as it unfolds, may have significant implications for how crypto assets are treated under U.S. securities laws, in particular the dealer registration requirement. In opting to fight the charges against it, Cumberland tees up an extended and potentially precedent-setting litigation over the future of crypto regulation.
