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Poloniex settles charges with SEC for operating unregistered exchange


The US Securities and Exchange Commission (SEC) has issued a ruling ordering the payment of a fine of over $ 10 million by the Poloniex cryptocurrency exchange. This is the result of a lengthy regulatory investigation that lasted from July 2017 to November 2019. The SEC is confident that Poloniex was engaged in the purchase and sale of “digital assets, which are investment contracts, respectively, they can be classified as securities” – and this is prohibited by law without permission.

What’s going on with Poloniex?

The regulator considers securities as investment contracts – assets that give investors the expectation of profit. To sell securities in the United States, you need to have a special license, which Poloniex just does not have. This was the reason for creating problems for the management of the cryptocurrency platform.

Initially, Poloniex informed those wishing to list – that is, add an asset – on its platform that the exchange could not launch trading in tokens; which “are similar in their properties to securities”. In addition, in some cases, the marketplace also resorted to the assistance of lawyers in matters of possible consequences of the listing.

But around August 2017, Poloniex representatives said that the company wants to be more “aggressive” in listing new assets; including those that could be considered securities. Thus, the exchange planned to increase its presence in the market, the sources say. That is, Poloniex chose to increase profits over complying with federal securities laws.

Here is a quote from the SEC representatives’ report on the matter; in which they share their attitude to what is happening:

The coin listing has resulted in Poloniex making digital assets available for trading on its platform; which fall into the Howey category of investment contracts. Accordingly, they can be considered securities.

The Howey Test is a special scoring mechanism developed by the US Supreme Court to determine if certain transactions qualify as “investment contracts”. If the asset test is positive, then it falls under the regulation of the Securities Act of 1933.

Poloniex neither acknowledged nor denied SEC findings

Poloniex did not accept or deny the SEC’s claims, but agreed to pay a $ 10.3 million fine and no longer violate securities regulation requirements. As you can see, financial regulators have enough power to significantly influence the business processes of cryptocurrency companies.

We think that this practice of solving problems with the department is quite amusing. Nevertheless, the leadership of the cryptocurrency platform chose not to deny or confirm the Commission’s accusations; that is, it did not admit its guilt. At the same time, the exchange will pay a fine and continue working without violations. Accordingly, in fact, by its actions the department in the future will not prevent such situations that affect the state of investors. And other companies simply need to be ready to spend money on lawyers and fines if something happens. 

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