On November 8, the Securities and Exchange Commission (“SEC“) announced that it has settled charges against Zachary Coburn, the founder of EtherDelta, a digital token trading platform. Significantly, this is the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange. The SEC has previously brought enforcement actions relating to unregistered broker-dealers and unregistered Initial Coin Offerings (“ICOs“), including some of the tokens traded on EtherDelta.

According to the SEC’s order, EtherDelta is an online platform for secondary market trading of ERC20 tokens, a type of blockchain-based token commonly issued in ICOs. The order found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.

As stated in the Press Release and Order, EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” run on the Ethereum blockchain. Most notably, over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities law. Notably, the SEC did not identify the specific tokens it found to be securities or the salient characteristics thereof.

Therefore, EtherDelta acted as an online national securities exchange and was required to register with the SEC or qualify for an exemption.

The SEC’s investigation is ongoing.