The SEC sued market maker Cumberland DRW. More market makers may be next.
US markets watchdog's lawsuit against trading firm Cumberland DRW is “a warning shot” to crypto market players aligned with traditional finance, regulatory expert says.
The Securities and Exchange Commission charged Chicago-based Cumberland DRW with operating as an unregistered dealer in crypto markets. Some $2 billion worth of transactions in the issue were securities trades, the regulator said.
“I would be surprised if this is the only case where the SEC has it in the hopper, and firms like this should probably consider it a warning shot,” said regulatory expert Sean Tuffy. News.
The Cumberland DRW suit is consistent with the SEC's crackdown on a range of other crypto-dominant businesses, Tuffy said, based on chair Gary Gensler's contention that most crypto tokens are securities.
Open cases include claims against major exchanges Binance, Coinbase and Kraken.
TradFi Bridge
Still, there is something surprising about the regulator suing a company with a relatively traditional pedigree and not a retail-focused one. Cumberland is the crypto trading arm of DRW, a commodities trading firm founded in Chicago in 1992.
Although it is a crypto-native business entity, it bridges the gap between crypto and traditional finance. Its clients include the investing stalwart Credibility.
Cumberland DRW plays a variety of roles in the crypto markets, including “A market maker” — a firm that offers 24/7 liquidity to sophisticated investors.
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The company is the main issuer of Tether's stablecoin and a customer of all major crypto exchanges, including Binance, Coinbase and Kraken.
Tuffy said the Cumberland DRW lawsuit is “perhaps a natural consequence of the SEC's war on crypto, where it starts looking hard at traditional-esque elements of the crypto ecosystem.”
B2C2 is another crypto market maker. B2C2 declined to comment on the case.
Defiant response
Tuffy said the latest move will “fuel” the industry's complaints that the SEC “regulates by regulation” — or uses lawsuits that companies don't comply with rather than providing clear rules.
In fact, in a defiant response to the lawsuit, Cumberland DRW said it had been engaging with the agency for years and was only just learning that these particular transactions were a problem.
The company said it would change its business operations as a result of the lawsuit. “We believe in our strong compliance framework and disciplined adherence to all known rules and regulations – even if they are a moving target,” it said.
In a post about the Cumberland DRW lawsuit, former SEC attorney John Reed Stark Said What the industry calls regulation is enforcement, “what the rest of us just call enforcement.”
Crypto tokens are not laundromat tokens, but investments, he wrote — and trading in them is subject to rules and regulations.
Crypto market movers
Bitcoin is up 2.8% in the past 24 hours, trading at $67,400 at the time of writing. Ethereum rose 0.5% to trade at $2,620.
What are we studying?
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