After market makers such as Gotbit were accused by US regulators, Cumberland DRW was also sued by the US SEC. Facing the SEC's regulatory iron fist, Cumberland DRW responded positively that it would not change its business operations and was ready to defend itself again.

Written by: Nancy, PANews

After market makers such as Gotbit were accused by US regulators, Cumberland DRW was also sued by the US SEC. Facing the SEC's regulatory iron fist, Cumberland DRW responded positively that it would not change its business operations and was ready to defend itself again.

Alleged to be an unregistered securities dealer, earning more than $27 million in profits

On October 11, the SEC announced charges against Chicago-based Cumberland DRW LLC, alleging that it had been operating as an unregistered securities dealer from March 2018 to date, buying and selling at least $2 billion in crypto assets for its own accounts, which were issued and sold as securities. At the same time, Cumberland obtained millions of dollars in illegal gains through transactions with investors and deprived investors and the market of the protections provided by the registration provisions of the federal securities laws.

The indictment stated that Cumberland has been promoting its popularity and importance in the field of crypto assets, including publicly claiming to be the "world's leading provider of crypto asset liquidity." Since March 2018, Cumberland has traded with counterparties via telephone and its online trading platform Marea, allowing more than 1,500 high-net-worth individuals and entities to join. Cumberland provides counterparties with buy and sell quotes for crypto assets, which are issued and sold as securities. In response, the SEC also cited five tokens, MATIC (POL), SOL, ATOM, ALGO and FIL, as examples of securities sales.

The SEC further pointed out that there is usually a large spread between the bid and ask prices, and it makes profits by earning the bid-ask spread (or difference) or closing positions that increase in value. According to the SEC, Cumberland generated more than $400 million in revenue and more than $27 million in profits from its crypto trading business.

At the same time, the SEC also highlighted Cumberland's promotion of crypto assets. The document pointed out that Cumberland has a team of research analysts and relationship managers who mainly publish research reports on the crypto industry and certain crypto assets issued and sold as securities, sometimes suggesting that these values ​​may increase. Cumberland describes these crypto assets to counterparties as potential favorable investment opportunities for the success of future crypto asset projects.

In addition, the lawsuit stated that Cumberland also managed risks, captured price differences or sought arbitrage opportunities by executing various proprietary trading strategies on accounts on third-party trading platforms, including opening accounts on cryptocurrency trading platforms such as Binance.com, Binance.US, Bittrex, Coinbase, Kraken and Poloniex.

“Federal securities laws require all dealers in securities to register with the Commission, and dealers operating in the cryptoasset markets are no exception,” said Jorge G. Tenreiro, acting chief of the SEC’s CryptoAssets and Cyberspace Unit.

The SEC believes that Cumberland engaged in trading activities without registration, violating the legal framework for ensuring transparency and protecting investors. It asked the court to impose a permanent injunction on Cumberland, return all improper profits obtained through unregistered trading activities, and pay interest accumulated before the judgment and civil penalties.

Cumberland accuses SEC of stifling innovation, won't change business operations

“Cumberland becomes the latest target of the SEC’s enforcement priorities, which suppress innovation and hinder legitimate companies’ participation in the digital asset space. In recent hearings, the SEC was accused of being a ‘rogue agency’ for failing to cooperate with Congress and criticized for abusing its power.” Cumberland responded immediately.

Cumberland further pointed out that over the past five years, it has had extensive discussions with the SEC on this issue and provided dozens of written summaries and statements and thousands of pages of materials. In order to meet the requirements of the SEC, it also acquired a registered securities broker in 2019, but was later told that it could only use it to trade BTC or ETH, two "commodities" that are not under the jurisdiction of the SEC. Based on the SEC's actions, Cumberland will not make any changes to its business operations or the assets that provide liquidity.

The court’s case against DRW was “based solely on a ‘flat earth’ type conviction.” This time, the SEC’s approach appears to be a game of Catch-22, with the ability to “come in and register” being a mirage. Cumberland is ready to defend himself once again.

Regarding the SEC's regulatory actions against crypto market makers, crypto KOL @qinbafrank said, "U.S. regulators are paying more and more attention to the crypto industry, from the earliest regulation of stablecoins and trading platforms to the prosecution of well-known projects. Now, large-scale accusations against market makers can only mean that the gray area will become smaller and smaller in the future, and more projects that used to be considered small and ignored will be paid more attention by judicial institutions in the future. Moreover, market makers are the key to the liquidity of small coins. Is it considered a ditching of the source of income for small coins?"

“The current SEC regulatory regime is like a parasite that is squeezing the interests of honest operators who are trying to build real-world use cases for cryptocurrencies. We will look back on it as a stain on the history of American technological innovation. Fortunately, the SEC seems to be picking some fights that will ultimately fail, which makes me optimistic,” said @0xLilShah, former head of partnerships at Scroll.

Cody Carbone, chief policy officer of cryptocurrency advocacy organization The Digital Chamber, believes that this regulatory action is another act of regulatory overreach and lack of integrity by the SEC. What the crypto industry needs is clear rules, not enforcement through headlines, which is what the industry needs to prosper.

Perhaps affected by this news, Bitcoin once led to a general decline in the crypto market. According to CoinGecko data, in the past 24 hours, the price of Bitcoin once fell below the $60,000 mark to $58,000.

In fact, before this, due to the intensified crackdown on the crypto industry by US regulators, market makers Jane Street and Jump Trading both announced their withdrawal from the US crypto trading market. Judging from the recent prosecution of Cumberland and others by regulators, crypto market makers will face more stringent compliance requirements in the future.