On August 9th, 2021, the United States Securities and Exchange Commission announced that Poloniex LLC would pay $10.4 million to settle charges that they were operating an unlicensed exchange that facilitated the purchasing of digital asset securities. The SEC found that Poloniex failed to register as an exchange, nor did it apply for an exemption, which violated Section 5 of the Securities and Exchange Act of 1934.
The SEC claimed in its August 9th statement that Poloniex employees stated their intention in August 2017 to sell digital assets that might be considered securities to increase their market presence. The SEC further claimed that in July 2018, Poloniex decided to continue allowing its users to trade medium-risk digital assets to generate more profit for the company.
Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit said: “Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange. Poloniex attempted 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.”
Thoughts on the Settlement
If you are a cryptocurrency trader and you can’t figure out why the exchange you want to use isn’t listed in the United States, this is why. Nobody wants to deal with the SEC or any other alphabet soup organization that infests Washington DC. Most of these regulatory agencies have no business existing, and the SEC is one of them.
The SEC was formed after the Wall Street Crash to prevent market manipulation and facilitate market efficiency (something they’ve failed at miserably, i.e. Big Tech). But they’ve evolved to where they manage relationships between people. When you agree to buy securities, whether digital or not, you have decided to enter into a relationship with someone else. What the SEC does is interpose itself between you and the other person and place numerous arbitrary burdens on both of you. It’s the equivalent of me sticking my nose into your purchase at the local grocery and telling the cashier what he can sell and how to sell it.
Most of the burden is on the exchange. If you are a public company and want to register with the SEC, you have to submit mountains of paperwork to them. Quarterly, annual, and periodic reports; annual financial reports and narrative accounts called Management Discussion and Analysis. All of this takes time away from conducting the daily operations necessary to running a business. Which of you reading this wants to be responsible for filling out and sending all of this crap no one will ever read anyway? Well, neither did anyone at Poloniex.
One of the objectives of the SEC is to protect investors from fraud, but this is something people used to do themselves. It shouldn’t be up to some bureaucrats somewhere to protect you from your own bad judgment. People should take responsibility for themselves. That’s what happens in a free society. Sometimes people suffer when you give them responsibility for themselves, and that is indeed one of the drawbacks of living in a free society. But the alternative is letting a bureaucratic agency micromanage every aspect of your financial dealings.
If this were a free society, institutions and investors would perform due diligence before entering contractual relationships with one another, and if one party was defrauded, it could petition a magistrate for relief. But in this society where bureaucrats govern and create laws out of thin air, everything becomes regulated, everything is a crime, and everything can be fined or punished. Things that used to be parts of everyday life become regulated or illegal.
As long as the SEC can exercise this kind of control over businesses, cryptocurrency exchanges will continue to avoid offering their services to American citizens.