The Securities and Exchange Commission (SEC) recently charged Chicago-based crypto market maker Cumberland DRW for allegedly operating as an unregistered securities dealer, handling over $2 billion in crypto classified as securities since March 2018. The SEC claims that these activities violate federal securities laws meant to protect investors. In response, Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber Unit, emphasized the importance of all securities dealers, including those in the crypto market, to register with the Commission to ensure investor protection.
Cumberland DRW, known for providing liquidity in the crypto market, responded to the charges by stating that it will not alter its operations despite the SEC’s enforcement action. The firm expressed confidence in its compliance framework and adherence to rules and regulations, even as they evolve. Cumberland also highlighted that it obtained a broker-dealer registration in 2019 under SEC Chairman Gary Gensler’s guidance, although the license was limited to Bitcoin and Ethereum trading. The market maker asserted that it has been in communication with the regulator for five years, sharing information about its operations.
The recent SEC complaint against Cumberland is the first time specific transactions have been outlined by the regulator. The market maker referenced past market manipulation charges brought by the Commodity Futures Trading Commission (CFTC) in 2013, which were ultimately dismissed in 2018. Cumberland criticized the SEC’s actions, suggesting that registering as a broker-dealer for digital assets in the US may not provide the expected protection and vowed to challenge the lawsuit.
Currently, Cumberland holds assets totaling over $81.5 million in crypto, with the majority in Bitcoin, Ethereum, stablecoins like Tether and USD Coin, as well as holdings in AAVE and cUNI tokens. These details shed light on the substantial financial presence of Cumberland DRW in the crypto market.
The case of Cumberland DRW serves as a reminder of the regulatory challenges faced by firms operating in the crypto space. The evolving nature of regulations, combined with enforcement actions, underscores the importance of legal compliance and proactive engagement with regulatory bodies. As the crypto market continues to expand and attract more participants, ensuring adherence to regulatory requirements becomes paramount for sustained operations and investor trust.
