The Securities and Exchange Commission announced Thursday it has settled charges against Zachary Coburn that his EtherDelta digital token platform was operating as an unregistered national securities exchange.

It is the SEC’s first such enforcement action, the agency said in a press release, although the SEC has taken action against unregistered broker dealers and unregistered ICOs, including tokens traded on EtherDelta.

Coburn did not admit or deny the findings but consented to the order and will pay $375,000 in penalties, plus $13,000 in prejudgment interest. Coburn could have faced harsher penalties but cooperated with the SEC.

EtherDelta is an online platform for secondary market trading of ERC-20 tokens, which are commonly used for initial coin offerings and are designed to be used on the Ethereum blockchain. It enabled buyers and sellers to execute and record transactions via an order book, a website displaying orders and a smart contract on the Ethereum network.

The SEC said that over an 18-month period, the exchange was responsible for executing more than 3.6 million orders for ERC-20 tokens, “including tokens that are securities according to federal securities laws.” Almost all the orders occurred after a 2017 SEC report that tokens from decentralized autonomous organizations (DOA) and other digital assets were securities and that platforms for trading them had to register with the SEC or file for an exemption. DeltaEther did neither, the SEC alleged.

Coding on EtherDelta’s smart contracts validated order messages, confirmed the terms and conditions and updated the distributed ledger to record the trade.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.

James Rubin
James Rubin has covered a range of business topics for such publications as the Economist Intelligence Unit, Forbes Insights and Adweek. His papers have been presented at World Economic Forum events. He was an associate editor at TheStreet and is the author of the "Urban Cyclist's Survival Guide."