Earlier this month, the United States Securities and Exchange Commission (SEC) announced settled charges against the founder of a digital token trading platform, EtherDelta, Zachary Coburn with operating an unregistered national securities exchange.

This is the SEC’s first enforcement order against such a platform operating as an unregistered national securities exchange.

In its investigation, the SEC found that EtherDelta is an online platform for secondary market trading of ERC20 tokens, a type of blockchain-based token commonly issued in Initial Coin Offerings (ICOs). The SEC found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.

Without admitting or denying the SEC’s findings, Coburn consented to the SEC’s enforcement order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission’s order recognizes Coburn’s cooperation, which the Commission considered in determining not to impose a greater penalty.


EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” run on the Ethereum blockchain. EtherDelta’s smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade.

Over an 18-month period, the SEC found that EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws. Almost all of the orders placed through EtherDelta’s platform were traded after the SEC issued its 2017 report which found that certain digital assets such as DAO (Decentralized Autonomous Organization) tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption. This became the basis of the SEC’s subsequent finding that EtherDelta offered trading of various digital asset securities but failed to register as an exchange or operate pursuant to an exemption.

The SEC has previously bought enforcement actions to unregistered broker-dealers and unregistered ICOs, including some of the tokens traded on EtherDelta.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

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