The Securities and Exchange Commission (SEC) recently made headlines by charging Chicago-based crypto market maker Cumberland DRW for allegedly operating as an unregistered securities dealer. This enforcement action, which took place on October 10, comes as a result of Cumberland trading over $2 billion in crypto classified as securities since at least March 2018.
The SEC’s complaint alleges that Cumberland’s activities, conducted through its trading platform Marea and over the phone, violated federal securities laws designed to protect investors. Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber Unit, emphasized the importance of all dealers in securities, including those in the crypto asset markets, to register with the Commission.
Despite claims from the crypto community that tokens should be treated as commodities, the SEC argues that Cumberland’s actions treated the sale and offer of crypto as securities, requiring registration to ensure investor protection. The complaint also points out Cumberland’s self-described role as a leading liquidity provider in the crypto market, further supporting these claims.
In response to the SEC’s charges, Cumberland issued a statement asserting that the regulator is attempting to stifle innovation and prevent companies from engaging in crypto. The market maker expressed confidence in its compliance framework and commitment to adhering to all rules and regulations, even as they continue to evolve.
Cumberland noted that it acquired a broker-dealer registration in 2019 under SEC Chairman Gary Gensler’s guidance, with a focus on Bitcoin and Ethereum trading. The firm disclosed ongoing discussions with the regulator over the past five years about its operations, including sharing written summaries and statements and conducting interviews with personnel.
The market maker also highlighted the market manipulation charges brought by the Commodity Futures Trading Commission (CFTC) against DRW in 2013 when Gensler served as its Chair. Cumberland emphasized its intention to fight the SEC’s lawsuit and challenged the notion that registering as a broker-dealer for digital assets in the US is merely a superficial requirement.
As the legal battle unfolds, Cumberland currently holds over $81.5 million in crypto assets, with significant amounts in Bitcoin, Ethereum, and stablecoins like Tether USD and USD Coin. The market maker also maintains positions in assets such as AAVE and cUNI, demonstrating its diverse portfolio in the crypto market.
Overall, Cumberland’s response to the SEC’s charges underscores the complex regulatory landscape facing crypto market participants. The outcome of this case could have significant implications for how digital assets are traded and regulated in the future.