Poloniex to Settle SEC Charges in the US — A Fresh Look at the Situation

A Progressing Crypto Exchange

Despite its lack of services like Binance, Poloniex still offers the standard quality service expected from a centralized exchange. The platform’s ownership change in 2019 is one of the reasons why it is progressing more and offering better services than before.

Currently, it supports the trade of over 60 cryptocurrencies at low fees. It also comes with advanced trading options for experienced traders.

It has further developed its decentralized exchange (Poloni DEX) and initial exchange offering launchpad, presenting exciting projects for investments.

However, it still falls short in a few areas, including customer support, questionable security, and lack of regulations.

SEC’s Charges Against The Exchange

On August 9, the SEC published a press release stating its charges against Poloniex for operating an unregistered online trading platform for digital securities. The web-based platform allegedly ran from July 2017 to November 2019, providing digital asset securities sales through investment contracts.

The SEC Chairman, Gary Gensler, announced the commission’s wish to better oversee the crypto sector. He expressed this stand at the Aspen Security Forum, further requesting the US Congress to direct more funds into its mission.

The SEC further stated that it ranked as an exchange under the securities laws allowing trade through a combination of the website, order books, and its trading engine. Poloniex violated Section 5 of the Exchange Act for not pursuing registration with the SEC or seeking an exemption during that period.

As per the order released by the securities commission, the exchange’s employees suggested aggressively providing new digital assets for its users around August 2017. It included assets that could stand as securities under the Howey test and those placed at ‘medium risk’ about being ranked as securities.

The SEC Enforcement Division Cyber Unit’s Chief Kristina Littman addressed the exchange’s choice of profits over-regulation. She further mentioned that Poloniex hoped to avoid the proper channels to support a trading platform operating within the country.

Poloniex seems to have been on the wrong side of the law more than once. Earlier in May, the exchange faced accusations of disregarding Ontario’s securities law. The Ontario Securities Commission had the exact charges against the exchange, expressing its lack of registration as an exchange. Furthermore, the trading platform failed to file a prospectus with the securities commission, prompting Poloniex to halt its services.

According to the report released by the OCS, it had notified crypto trading platforms to get in line with the regulations in place or face legal action. The press release published on March 29 this year had placed the deadline for the start of compliance discussions on April 19. Additionally, the commission followed the regulations set by the Canadian Securities Administrators and Canada’s Investment Industry Regulatory Organization.

The exchange violated several sections of the Ontario Securities Act for providing trading services to Ontario’s residents without registration. Besides, the platform distributed securities without a prospectus and did not file an exemption from the stated requirements. Its recommendations were for Poloniex to stop all trading services within Ontario and pay a penalty fee for its lack of compliance.

Should Securities Commissions Offer More Guidance Around Securities?

Gary Gensler’s statement shows that there will be more legal actions to follow within the crypto space. However, some may argue that the commission has not provided the best guidance surrounding securities. A good example is a regulatory action against Ripple Labs for issuing its token, XRP. This action led to top exchanges delisting the coin and XRP’s value dropping drastically.

Nonetheless, whether the SEC considers Bitcoin, Ethereum, and XRP as securities is still unclear. The court allowed the commission to delay its findings on the three top coins until August 31.

Arguably, the SEC is yet to regulate the crypto sector, supported by SEC Commissioner Hester Pierce. According to her public statement, the regulatory bodies walked on eggshells concerning crypto assets from 2017 to 2019. In her opinion, Poloniex and other exchanges waited for an allowance to handle crypto assets as per FINRA’s regulations.

Since July 2019, the crypto community keeps experiencing more progress as far as regulations are concerned. However, it still has a long way to go, and the weight lies in SEC’s hands.

Pierce hopes that the commission will find a way around the issues that might cause confusion within crypto for better governance.

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