SEC sues Cumberland DRW for unregistered crypto dealer activities

The United States Securities and Exchange Commission (SEC) filed suit against Cumberland DRW on Oct. 10, advancing a single charge of operating as an unregistered dealer. Cumberland has allegedly sold more than $2 billion in crypto assets since 2018 in violation of federal registration requirements.

The SEC claims that Cumberland acted as an unregistered dealer in its proprietary trading (trading on its own accounts) and when trading on third-party crypto asset exchanges. The agency is seeking permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest and civil penalties.

Cumberland says it tried to register

The SEC claimed that five of the tokens Cumberland handles are securities. Specifically, they are Polygon (MATIC), Solana (SOL), Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL). The agency identified all of them as securities in the past. According to the complaint:

“Cumberland acted as a securities dealer but failed to register as a securities dealer with the Commission, in violation Section 15(a) of the Securities Exchange Act of 1934 (the ‘Exchange Act’).” 

Cumberland countered in a statement posted on X that it registered as a dealer-broker in 2019, but found out afterward that the registration only applied to Bitcoin (BTC) and Ether (ETH). The company said of the other tokens:

“We have engaged in five years of good-faith discussions with the SEC on this point […] Today’s complaint is the first time the SEC has outlined the specific transactions at issue.”

Related: SEC redefinition of ‘dealer’ would expand its oversight of crypto, DeFi

Responses to the SEC

Noting that it is only “the latest target” of the SEC’s approach to digital assets, Cumberland sounded an audacious note:

“We are not making any changes to our business operations or the assets in which we provide liquidity as a result of this action by the SEC […] We’re ready to defend ourselves again.”

Cumberland is not the only SEC crypto target to respond defiantly. After receiving a Wells notice warning it of upcoming SEC legal action, Crypto.com sued the agency on Oct. 8 seeking declaratory and injunctive relief. It asked a Texas district court to declare, among other things, that Crypto.com is not a securities broker-dealer required to be registered under the Exchange Act. 

Magazine: Godzilla vs. Kong: SEC faces fierce battle against crypto’s legal firepower