ShapeShift AG settled with the US Securities and Exchange Commission (SEC) for operating as an unregistered dealer in crypto-asset securities, agreeing to a cease and desist order and a $275,000 penalty.
ShapeShift AG, a Swiss-registered company formerly based in Denver, Colorado, has reached an agreement with the US Securities and Exchange Commission (SEC) to operate as an unregistered securities dealer of crypto assets. The SEC found that from August 2014 until early 2021, ShapeShift’s online platform allowed users to buy and sell certain crypto assets that were offered and sold as investment contracts and therefore securities without registering as a dealer in The Commission.
According to the SEC order, ShapeShift’s platform, at its peak, facilitated up to 20,000 daily transactions and offered at least 79 crypto assets, some of which are securities under the Securities Act. ShapeShift acted as a market maker, serving as the counterparty to each transaction and generating revenue through the spread of each trade.
The SEC determined that ShapeShift met the criteria for a dealer under Section 3(a)(5)(A) of the Securities Exchange Act and was required to register with the Commission. By failing to do so, ShapeShift violated Section 15(a) of the Exchange Act.
As part of the settlement, ShapeShift agreed to a cease-and-desist order and will pay a civil penalty of $275,000. The company agreed to enter the order without admitting or denying the SEC’s findings, except for the Commission’s jurisdiction over it and the subject matter of production.
This enforcement action comes amid increased SEC scrutiny of cryptocurrency platforms and their compliance with securities laws. In recent years, the Commission has brought similar actions against other crypto-related companies, such as EtherDelta, TokenLot and Bitqyck, for operating as unregistered exchanges or dealers.
The ShapeShift settlement serves as a reminder to crypto businesses that they should carefully consider whether their activities fall within the scope of securities laws and take the necessary steps to ensure compliance. As the crypto industry continues to evolve, it is essential for companies to stay informed of regulatory developments and proactively engage with legal counsel to avoid potential enforcement actions.
In January 2021, ShapeShift announced a change in its business model, discontinuing its direct exchange services and no longer acting as a counterparty to customer transactions. Subsequently, on July 14, 2021, the company announced that it was closing its corporate structure. The SEC order applies only to ShapeShift’s operations as a dealer prior to early 2021 and does not address any other conduct.
As the regulatory landscape for cryptocurrencies and digital assets continues to take shape, it is critical for industry players to prioritize compliance and work with regulators to establish clear guidelines and best practices. By encouraging open dialogue and fostering responsible innovation, the crypto community can work to create a more stable and sustainable ecosystem that protects investors while supporting the growth of this transformative technology.
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