ShapeShift AG has reached a settlement with the U.S. Securities and Exchange Commission (SEC) for operating as an unregistered crypto asset securities dealer, agreeing to a cease-and-desist order and a $275,000 fine.
ShapeShift AG, a Swiss-incorporated company previously headquartered in Denver, Colorado, reached an agreement with the U.S. Securities and Exchange Commission (SEC) over operating as an unregistered dealer in cryptocurrency asset securities. The SEC found that between August 2014 and early 2021, ShapeShift’s online platform allowed users to buy and sell certain crypto assets, or securities, offered and sold in investment contracts without registering as dealers with the Commission.
At its peak, ShapeShift’s platform facilitated up to 20,000 trades per day and offered at least 79 cryptocurrency assets, some of which were securities under the Securities Act, according to the SEC’s order. ShapeShift acted as a market maker, acting as the counterparty to every trade and monetizing the spread on each trade.
The SEC has determined that ShapeShift meets the dealer criteria under Section 3(a)(5)(A) of the Securities Exchange Act and must register with the Commission. By failing to do so, ShapeShift violated Section 15(a) of the Exchange Act.
As part of the settlement, ShapeShift agreed to a cease-and-desist order and will pay a $275,000 civil penalty. The Company consented to the entry of the Order without acknowledging or denying the SEC’s findings, except as to the jurisdiction of the Commission and the subject matter of the proceedings.
This enforcement action comes amid heightened SEC scrutiny of cryptocurrency platforms and increased compliance with securities laws. In recent years, the commission has taken similar actions against other cryptocurrency-related companies such as EtherDelta, TokenLot and Bitqyck, which operate as unregistered exchanges or dealers.
The ShapeShift settlement serves as a reminder that cryptocurrency companies must carefully consider whether their activities fall within the scope of securities laws and take the necessary steps to ensure compliance. As the cryptocurrency industry continues to evolve, it is important for businesses to stay informed of regulatory developments and proactively utilize legal counsel to avoid potential enforcement actions.
In January 2021, ShapeShift announced a business model change, discontinuing its direct exchange services and no longer acting as a counterparty for customer transactions. Subsequently, on July 14, 2021, the company announced that it was reorganizing its corporate structure. The SEC order applies only to ShapeShift’s operations as a dealer prior to early 2021 and does not address any other conduct.
As the regulatory environment for cryptocurrencies and digital assets continues to shape, it is important for industry participants to prioritize compliance and work with regulators to establish clear guidance and best practices. By encouraging open dialogue and fostering responsible innovation, the cryptocurrency community can work to create a more stable and sustainable ecosystem that supports the growth of this innovative technology while protecting investors.
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