
SEC settles with EtherDelta founder for running an unlicensed exchange [pdf] - miohtama
https://www.sec.gov/litigation/admin/2018/34-84553.pdf
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TrainedMonkey
"Respondent Coburn shall pay disgorgementof $300,000 and prejudgment interest
of $13,000, for a total of $313,000 ,to the Securities and Exchange Commission
for transfer to the United States Treasury subject to Exchange Act Section
21F(g)(3)."

"Respondent Coburn shall, within 10 days of this Order, pay a civil money
penalty of $75,000 to the Securities and Exchange Commission for transfer to
the United States Treasury subject to Exchange Act Section 21F(g)(3)."

Total fine is under $400,000k. I am curious whether the enterprise was net
positive factoring the fine into account.

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shawnz
Why would the SEC want them to not be net positive? Are they trying to
dismantle the business or just ensure that they get their dues?

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crazypyro
This was a fine imposed against the founder individually, not against
EtherDelta, the company, which is owned by Asian investors.

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alistproducer2
During the boom, I was really glad that ED was around when I wanted to make
large buys because it eliminated counter-party risk. With regular exchanges it
was common to have withdrawals halted or have deposits not show up for hours
with no support, if they showed up t all. Eventually they couldn't handle the
volume and it fell apart but when it worked it was a godsend

~~~
dangero
Except it does not eliminate counterparty risk because it still has central
points of failure it even got hacked and people lost money.

[https://www.ccn.com/cryptocurrency-exchange-etherdelta-
hacke...](https://www.ccn.com/cryptocurrency-exchange-etherdelta-hacked-in-
dns-hijacking-scheme/)

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zaroth
This is a great read and not overly long. For a legal filing from the SEC
about a cryptocoin marketplace, it doesn’t get much better than this.

The size of the fine strongly indicates (in my totally non-expert opinion)
that the SEC was actually deeply grateful to the EtherDelta founder for
educating them about how his operation functioned and how this marketplace
even worked. I wouldn’t be surprised if he helped write the document we just
read.

This is not even a slap on the wrist, this is practically them saying “job
well done, sir!”

The point of filing in the first place and ultimately reaching this agreement
was clearly a learning experience for the SEC and a practice run for starting
to better regulate this new technology.

They learned the ropes with a defendant who didn’t even own the company
anymore, and basically hired him to consult for them. The plea lets the SEC
put a feather in their hat and try to better establish that they want to
regulate even smart-contract based non-custodial trading engines.

Which really kind of sucks because a truly non-custodial smart contract
trading engine carries none of the risks that the national exchange
regulations were designed to protect against, does it?

Maybe there is still manipulation of the order book that could occur.

And also, which specifically comes up in TFA, the fact that EtherDelta picked
which securities were displayed in the book was a key aspect of them being an
exchange. If you’re going to, even implicitly, endorse specific tokens, you
are going to be subject to these regulations.

It would be great to know specifically how far back you would have to walk
from the EtherDelta “line” before the SEC would not pursue enforcement. Is any
centralization at all fatal?

I’m going to guess you need a fully decentralize trading book, and users need
to explicitly identify the token they want to trade (i.e. by selecting the
correct book) before there is no longer an individual person they could target
as an exchange.

Basically, I am guessing, you have to get to a point where you aren’t even
capable of collecting transaction fees beyond what the miners require to
include the transaction in a block.

Overall a very interesting post.

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miguelmota
When the exchange was launched, the SEC didn't mention that ether was a
security or tokens for that matter. How can they came back years later and
back-charge for things that were not illegal at the time? Seems largely unfair
and plain greedy. Are 0x protocol relayers next to be charged by the SEC?

~~~
arthurcolle
almost certainly yes

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anonu
This is why coinbase bought a broker dealer. And this is why you'll see a lot
more BDs being setup to properly clear crypto trading.

~~~
xrd
BDs? What does that mean?

~~~
fomojola
Broker Dealer: [https://en.wikipedia.org/wiki/Broker-
dealer](https://en.wikipedia.org/wiki/Broker-dealer)

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vvpan
I am no libertarian, but this feels thoroughly unfair on a human level.
EtherDelta was a noble pursuit in my book - it was useful, entrepreneurial and
did not exploit anybody.

~~~
elliekelly
There's no doubt EtherDelta's system addressed many of the reasons traditional
markets required regulation but EtherDelta is still a clear violation of the
Exchange Act. All securities exchanges must be registered, most tokens are
securities and EtherDelta was running an unregistered exchange selling those
securities.

That being said, this is a classic example of the law failing to keep pace
with technology. Up until a few years ago it was a given that exchanges
required a neutral third party to facilitate transactions and that, in the
interest of fairness and full disclosure, those market makers needed to be
registered and regulated. The law simply does not contemplate a self-regulated
exchange governed by smart contracts and a decentralized ledger.

U.S. regulators also tend to focus on compliance with black-letter law without
giving much credence to compliance with the spirit of the law. In my opinion,
this all-or-nothing approach stymies innovation because regulators and
innovators become adversaries when they could and _should_ be allies.

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xrd
Does anyone have a good high level summary of the complaint the SEC made? How
does one avoid those type of accusations while being involved in the crypto
space?

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vvpan
The "Summary" section in the PDF gives a pretty concise and straight-forward
overview.

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xrd
I'll read that. I was assuming the SEC report wouldn't have the backstory but
maybe that is just the gossip hound in me.

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gcbw2
Isn't etherDelta an etherium app/token/contract?

How is that different than running an etherium miner? Actually, didn't it run
on an etherium miner? can you get a fee from a contract someone else mined
because you are the author? well I guess so otherwise why would the creator be
being fined? ...etherium is weird.

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leetbulb
Sure it's just a contract, but the company still takes a cut (written in to
the contract) when traders execute against orders. I'd assume that's what SEC
wants their share of.

