The US SEC Says Poloniex Operated Illegally, The Exchange Pays $10.4 Million Fine

On 9th August, The US Securities and Exchange commissions announced that it’s charging the Poloniex crypto exchange for conducting illegal operations. Immediately, the Poloniex network agreed to settle the amount of $10.4 million in fine.

Recently, the US has been very focused on the regulatory front, and there is a bill to regulate crypto vastly. 

Poloniex Operated Illegally

According to a release posted on the SEC page, the watchdog charged Poloniex with illegal exchange activities within the country. The release vastly shows how the exchange conducted trading activities deemed as exchanges in the county between 2017 and 2019. 

In the investigation, Poloniex was found to operate a web-based trading network that allowed users to buy and sell crypto assets deemed as investment contracts or securities. In addition, it had tools that provided non-discretionary execution of orders by leveraging an order book, website, and a trading engine. Using such tools and providing digital assets deemed securities is the SEC’s definition of an exchange platform. 

However, the network did not register as a national exchange platform even while operating as an exchange. It continuously added more digital assets deemed securities for its customers to increase its market share and gain more. Kristina Littman of the SEC said; 

“Poloniex chose increased profits over compliance with the federal securities laws by including digital asset securities on its unregistered exchange… As a result, Poloniex attempted to circumvent the SEC’s regulatory regime, which applies to any marketplace for bringing together buyers and sellers of securities regardless of the applied technology.”

The network, therefore, totally ignored the SEC set regulations and continued doing illegal operations within the country. 

Poloniex Agrees To Pay The Fine

Due to Poloniex’s circumvention of the laid down laws on trade and exchanges, the SEC fined the Poloniex network about $10.4 million. In the same release, Poloniex agreed to pay the total sum. To break down the numbers, $8.4 million was charged as a disgorgement fine, $400 thousand is the prejudgment interest, and $1.5 million civil penalties. 

Poloniex stopped offering its services in the US in late 2019, citing the regulatory hurdles in the country. This network agreed to pay the 10 million fine but did not formally accept or deny the charges raised against them.

Circle, a company that acquired Poloniex in 2018 and dropped them in 2019, noted in June 2021 that it lost over $156 million in legal woes surrounding its involvement with Poloniex. In fact, in the same statement, they noted that they already set aside around $10 million as settlement for SEC, which had not yet brought formal charges. 

The US Regulatory Could Be Harsh

Poloniex is not the only crypto exchange to be under investigation for illegal trading in the US. For example, Binance exchange, the largest crypto exchange by trading volume, has faced similar charges in the past and is currently banned in the US. 

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The recently proposed bill on crypto regulation could be even worse for crypto all entities. However, proposed amendments on the same bill could help protect other platforms connected to crypto from the harsh IRS taxations.

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