Crypto Exchange Poloniex To Pay $10.4 Mln To Settle SEC Charges

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Crypto asset exchange Poloniex LLC has reached a $10.4 million settlement with the U.S. Securities and Exchange Commission to resolve charges for operating an unregistered online digital asset exchange to enable buying and selling of digital asset securities.

The SEC charged Poloniex for attempting to circumvent the SEC's regulatory regime, which applies to any marketplace for bringing together buyers and sellers of securities regardless of the applied technology.

"Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange," said Kristina Littman, Chief of the SEC Enforcement Division's Cyber Unit.

Without admitting or denying the SEC's findings, Poloniex agreed to the entry of a cease-and-desist order and agreed to pay disgorgement of $8.48 million, prejudgment interest of $403,995, and a civil penalty of $1.5 million. The order establishes a Fair Fund for the benefit of victims.

According to the SEC charges, Poloniex operated a web-based trading platform that facilitated buying and selling digital assets, including digital assets that were investment contracts and therefore securities from July 2017 through November 2019, when Poloniex sold its platform.

Poloniex did not register as a national securities exchange nor did it operate pursuant to an exemption from registration at any time, and its failure to do so was a violation of Section 5 of the Exchange Act. The Poloniex trading platform was available to U.S. investors.

The SEC's order noted that in or around August 2017, Poloniex enabled trading of new digital assets on the Poloniex trading platform, including digital assets that might be considered securities under the Howey test, in an effort to increase market share.

Further, the SEC order revealed that in or around July 2018, Poloniex determined that it would continue to provide users of the Poloniex trading platform the ability to trade digital assets that it characterized as "medium risk" of being considered securities in light of the business rewards that would provide to Poloniex.

In late 2020, Poloniex spun out from Circle into a new company, Polo Digital Assets, Ltd., with the backing of a major investment group and no longer supported US customers.

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