Shuttered Crypto Exchange ShapeShift And SEC Reach Settlement Agreement

Shuttered Crypto Exchange ShapeShift And SEC Reach Settlement Agreement

The US Securities and Exchange Commission (SEC) and crypto platform ShapeShift have reached a settlement.

The platform, which shut down its operations in 2021, has agreed to a fine of $275,000 and a cease-and desist order.

The securities regulator had accused the platform of allowing its users to trade digital tokens without registering as an exchange, or a broker.

The case

The SEC had been investigating ShapeShift for several years to determine how the platform had violated federal securities laws and it has now ended with the settlement.

The case of the SEC focused on the operations of the platform between July 2017 and November 2019.

During this time, ShapeShift had facilitated the sale and purchase of digital tokens classified as investment contracts.

Since ShapeShift had not been registered to sell securities, the regulator said that it should not have offered these tokens on its platform.

According to the Commission, the platform had not bothered registering as a dealer and had not been exempted from registration.

Even though the platform is now defunct, the SEC said that there was a time when the platform had been very active in the crypto industry.

The federal regulator said that at its peak, ShapeShift had enabled its clients to exchange about 79 crypto assets.

It said that since it served as a counterparty to every transaction, it functioned as a market-maker and referred to itself as a crypto vending machine.

The platform

ShapeShift was founded back in 2014 by Erik Voorhees, who also served as its CEO. While it was incorporated in Switzerland, it was operating from Denver, Colorado.

Initially, the exchange had permitted customers to purchase and sell digital assets without setting up an account, or providing any personal information.

This meant a no-KYC (Know-Your-Customer) policy, which is part of the standard measures for Anti-Money Laundering (AML) in the financial industry.

The problems

This approach of the platform had drawn scrutiny. The Wall Street Journal conducted a broader investigation into the criminal use of crypto back in November 2018.

It had reported that almost $9 million worth of crypto had been processed by ShapeShift over a two-year period, which was suspected to be associated with criminal entities.

This was higher than any other crypto exchange that had offices in the United States. The same month saw the exchange delist privacy tokens like Zcash, Dash and Monero.

ShapeShift acknowledged that regulatory pressure had led to the move and it also went ahead and launched its own token.

This was after the exchange had already upended its business model in the same year. It had become a decentralized service that favored open source principles.

According to the SEC, the exchange’s announcement on July 14th, 2021 that it was dissolving its corporate entity was confirmation that it did not have any full-time employees, or revenues.

Even though it is no longer functional, ShapeShift had been mentioned last year in the national policy debate involving crypto tokens by Senator Elizabeth Warren.

She had been promoting a bill aimed at introducing tighter regulations for overseeing the digital asset space.