Author: Nancy, PANews
After market makers such as Gotbit were charged by US regulators, Cumberland DRW was also sued by the US SEC. Facing the SEC's regulatory iron fist, Cumberland DRW responded positively that it would not change its business operations and was ready to defend itself again.
Accused of being an unregistered securities dealer and earning more than $27 million in profits
On October 11, the SEC announced charges that Chicago-based Cumberland DRW LLC, alleging that it has been operating as an unregistered securities dealer since March 2018, by buying and selling at least $2 billion in crypto assets for its own accounts, which were issued and sold as securities. At the same time, Cumberland obtained millions of dollars in illegal gains through transactions with investors and deprived investors and the market of the protection provided by the registration provisions of the federal securities law that they should have enjoyed.
The indictment stated that Cumberland has been promoting its popularity and importance in the field of crypto assets, including publicly claiming to be the "world's leading provider of crypto asset liquidity". Since March 2018, Cumberland has traded with counterparties through telephone and its online trading platform Marea, allowing more than 1,500 high-net-worth individuals and entities to join. Cumberland provides counterparties with buy and sell quotes for crypto assets, which are issued and sold as securities. In this regard, the SEC also cited five tokens, MATIC (POL), SOL, ATOM, ALGO and FIL, as examples of securities sales.
The SEC further pointed out that there is usually a large spread between the buy and sell quotes, and it makes profits by earning the buy and sell spread (or difference) or closing positions from positions with increased value. According to the SEC, Cumberland generated more than $400 million in revenue and more than $27 million in profits from its crypto trading business.
At the same time, the SEC also highlighted Cumberland's promotion of crypto assets. The document pointed out that Cumberland has a team of research analysts and relationship managers who mainly publish research reports on the crypto industry and certain crypto assets issued and sold as securities, sometimes suggesting that these values may increase. Cumberland described these crypto assets to counterparties as potential favorable investment opportunities for the success of future crypto asset projects.
In addition, the lawsuit stated that Cumberland also managed risks, captured price differences or looked for arbitrage opportunities by executing various proprietary trading strategies on accounts on third-party trading platforms, including opening accounts on crypto asset trading platforms such as Binance.com, Binance.US, Bittrex, Coinbase, Kraken and Poloniex.
"Federal securities laws require all securities dealers to register with the Commission, and dealers operating in the crypto asset market are no exception." Jorge G. Tenreiro, acting head of the SEC's Crypto Assets and Network Division, said.
The SEC believes that Cumberland engaged in trading activities without registration, violating the legal framework to ensure transparency and protect investors, and requested the court to impose a permanent injunction on Cumberland, return all improper profits obtained through unregistered trading activities, and pay interest accumulated before the judgment and civil penalties.
Cumberland accuses the SEC of curbing innovation and will not change business operations
"Cumberland has become the latest target of the SEC's law enforcement priority approach, which suppresses innovation and hinders the participation of legitimate companies in the digital asset field. In a recent hearing, the SEC was accused of being a 'rogue agency' because it failed to cooperate with Congress and was criticized for abusing its power." Cumberland responded immediately.
Cumberland further pointed out that over the past five years, it has had extensive discussions with the SEC on this issue and provided dozens of written summaries and statements and thousands of pages of materials. To meet the SEC's requirements, it also acquired a registered securities broker in 2019, but was later told that it could only use it to trade BTC or ETH, two "commodities" that are not under the jurisdiction of the SEC. Based on the SEC's actions, Cumberland will not make any changes to its business operations or the assets that provide liquidity.
The court's charges against DRW "are based solely on a 'flat earth'-style conviction." This time, the SEC's approach seems to be a game of "Catch-22," and the ability to "come in and register" is just a mirage. Cumberland is ready to defend itself again.
Regarding the SEC's regulatory actions against crypto market makers, crypto KOL @qinbafrank said, "U.S. regulators are paying more and more attention to the crypto industry, from the earliest regulation of stablecoins and trading platforms to the prosecution of well-known projects. Now, large-scale accusations against market makers can only mean that the gray area will become smaller and smaller in the future, and more projects that used to be considered small and ignored will be increasingly noticed by judicial institutions in the future. Moreover, as market makers are the key to the liquidity of small coins, is it considered a drain on small coins?"
"The current SEC regulatory system is like a parasite, squeezing the interests of honest operators who are trying to establish practical application scenarios for cryptocurrencies. We will regard it as a stain in the history of American technological innovation in the future. Fortunately, the SEC seems to be provoking some battles that will ultimately fail, which makes me optimistic." said @0xLilShah, former head of partnerships at Scroll.
Cody Carbone, chief policy officer of The Digital Chamber, a cryptocurrency advocacy organization, believes that this regulatory action is another act of regulatory overreach and lack of integrity by the SEC. What the crypto industry needs is clear rules, not enforcement through headlines, which is what the industry needs to prosper.
Perhaps affected by this news, Bitcoin once led to a general decline in the crypto market. According to CoinGecko data, in the past 24 hours, the price of Bitcoin once fell below the $60,000 mark to $58,000.
In fact, before this, due to the intensified crackdown on the crypto industry by US regulators, market makers Jane Street and Jump Trading both announced their withdrawal from the US crypto trading market. Judging from the recent prosecution of Cumberland and others by regulators, crypto market makers will face more stringent compliance requirements in the future.
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