"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.
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.
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.
Also, I'm not talking about if it's illegal or not, the point that I can't get over is that the ED guy didn't scam or hurt anyone. It was an honest, transparent, open source project.
if it quacks like a duck, looks like a duck, it's probably one in their eyes.
Exchanges that trade securities must also be registered.
You can trade ICOs on an exchange as long as both are registered according to their respective laws...
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.