SEC charges Cumberland DRW for unregistered securities trading in $2B case

The Securities and Exchange Commission (SEC) charged Chicago-based crypto market maker Cumberland DRW for allegedly operating as an unregistered securities dealer on Oct. 10.

According to the SEC’s complaint, Cumberland has traded over $2 billion in crypto classified as securities since at least March 2018.

The agency alleges that these activities, conducted through Cumberland’s trading platform Marea and over the phone, violated federal securities laws intended to protect investors.

Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber Unit, stated:

“The federal securities laws require all dealers in all securities to register with the Commission, and those who operate in the crypto asset markets are no exception.”

Tenreiro also addressed the crypto community’s claims that tokens should be treated as commodities, arguing that Cumberland’s actions treated the sale and offer of crypto as securities, necessitating registration to ensure investor protection.

Moreover, the complaint highlighted that the company’s self-described role as a leading liquidity provider in the crypto market adds weight to these claims.

As a result of the alleged violations, the SEC seeks permanent injunctive relief to halt these activities, the disgorgement of profits Cumberland allegedly gained unlawfully, plus prejudgment interest and civil penalties.

According to Cumberland’s website, the firm offers liquidity for over-the-counter (OTC) markets for different cryptocurrencies, including stablecoins, as well as crypto derivatives and bilateral trading of crypto forwards.

Cumberland responds

In a statement posted on X, Cumberland claimed that the SEC is trying to stifle innovation and prevent companies from engaging in crypto.

The market maker stated that it would not change its operations following the enforcement action by the US regulator. Cumberland added:

“We are confident in our strong compliance framework and disciplined adherence to all known rules and regulations—even as they have been a moving target (it wasn’t long ago ETH was claimed to be a security).”

The document also highlighted that Cumberland acquired a broker-dealer registration in 2019 through SEC Chairman Gary Gensler’s guidance. It further states that the market maker was warned that the license is only valid for Bitcoin (BTC) and Ethereum (ETH) trading.

Additionally, Cumberland stated that it has been in talks with the regulator for the past five years about its operations, which includes sharing written summaries and statements, as well as interviews with the firm’s personnel.

According to Cumberland:

“Today’s complaint is the first time the SEC has outlined the specific transactions at issue.”

Notably, the document also cited the market manipulation charges levied by the Commodity Futures Trading Commission (CFTC) against DRW in November 2013, when Gensler served as its Chair.

The case concluded in December 2018, with Circuit Judge Richard Sullivan ruling that the CFTC failed to prove that DRW manipulated the market and its claims were “based on little more than an ‘earth is flat’-style conviction.”

Cumberland said the SEC’s latest action shows that registering as a broker-dealer for digital assets in the US is “just a mirage” and reaffirmed its intention to fight the lawsuit.

Nearly $100 million in assets

Cumberland currently holds over $81.5 million in crypto, with most of the funds — $44.2 million — held in Bitcoin, based on Arkham Intelligence data.

The market maker also holds nearly $24 million in ETH and over $12 million in stablecoins divided between Tether USD (USDT) and USD Coin (USDC).

Additionally, Cumberland holds $6.3 million in AAVE and nearly $9 million in cUNI, which are UNI tokens staked on the money market Compound, based on Nansen data.

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