Cryptocurrency platform Poloniex has agreed to pay more than US$10 million to settle charges for operating an unregistered online digital asset exchange, according to an announcement by the U.S. Securities and Exchange Commission (SEC).

Fast facts

  • According to the SEC’s order, Poloniex violated securities laws from July 2017 to November 2019 as the company did not register as a national securities exchange despite operating a trading platform for U.S. investors and offering digital assets that were considered securities under the Howey test.
  • “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 in a statement. “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.”
  • In a public statement, SEC Commissioner Hester Peirce said that the Poloniex action “doubles down on the Commission’s enforcement-centric approach to crypto” and pointed out the SEC had adopted a cautious approach in interacting with crypto assets during the period at issue. “Given how slow we have been in determining how regulated entities can interact with crypto, market participants may understandably be surprised to see us to come onto the scene now with our enforcement guns blazing and argue that Poloniex was not registered or operating under an exemption as it should have been,” Peirce said. Peirce previously called for more regulatory clarity around crypto assets and said that enforcement was never a good way to provide clarity.
  • Delaware-incorporated Poloniex LLC was the wholly-owned subsidiary of Pluto Holdings, a wholly-owned subsidiary of Circle, issuer of the stablecoin USD Coin (USDC). In November 2019, Pluto sold Poloniex to Polo Digital Assets — an investment consortium that included Justin Sun, founder of crypto plaform Tron — a year after acquiring it.
  • Circle announced in July that it planned to go public via a merger with special purpose acquisition company Concord Acquisition Corp in a deal valuing Circle at US$4.5 billion. According to its recent SEC filing, Circle incurred a loss of US$156.8 million from its sale of Poloniex and had set aside US$10.4 million as a contingent liability for a settlement with the SEC.
  • The Poloniex settlement comes amid calls for greater regulatory oversight over cryptocurrency exchanges in the United States. In a letter to SEC Chair Gary Gensler in July, U.S. Senator Elizabeth Warren questioned the SEC’s authority to properly regulate cryptocurrency exchanges and called for more regulation on cryptocurrency exchanges so as to protect consumers and investors.
  • More U.S. enforcement actions against crypto companies may be on the way. Gensler has said that the agency would enforce crypto rules “aggressively and consistently.” In a speech on Aug. 3 before the Aspen Security Forum, Gensler said: “Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption.”
  • Separately in Canada, Poloniex (Polo Digital Assets) is facing enforcement action for allegedly violating securities laws in Ontario by operating an unregistered crypto asset trading platform, according to the Ontario Securities Commission.