- The U.S. SEC has reaffirmed that Solana and Polygon are classified as securities.
- This confirmation has triggered a new lawsuit against Cumberland.
- The number of legal actions initiated by the SEC has surged significantly in recent weeks.
The U.S. SEC has intensified its regulatory scrutiny by suing Cumberland DRW, a Chicago-based crypto trading firm. On October 10, 2024, the SEC announced charges against Cumberland DRW for operating as an unregistered securities dealer.
The agency accused the crypto trading firm of handling over $2 Billion in cryptocurrencies without proper registration.
According to the U.S. SEC‘s complaint, Cumberland traded crypto assets classified as investment contracts on third-party exchanges. The regulator reiterated its stance that cryptocurrencies like Solana are considered securities.
The New Securities Tag To Solana and Polygon
The lawsuit specifies several cryptocurrencies, including Solana (SOL) and Polygon (POL), as securities. This has ignited a debate about how these digital assets are categorized and traded in the U.S.
The U.S. SEC‘s action has again brought Solana and Polygon into the limelight, labeling them as securities. This entails significant legal and regulatory implications.
Additionally, the SEC’s suit against Cumberland includes Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL) in its list of securities.
According to the U.S. SEC, these tokens are treated like stocks or bonds. Companies must adhere to stringent guidelines before trading these digital assets.
“Despite frequent protestations by the industry that sales of crypto assets are all akin to sales of commodities, our complaint alleges that Cumberland, the respective issuers, and objective investors treated the offer and sale of the crypto assets at issue in this case as investments in securities,” postulated Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit (CACU), in a statement.
Tenreiro stated that Cumberland DRW made significant profits from trading these assets. The crypto trading firm didn’t adhere to federal securities laws designed to protect investors.
The U.S. SEC highlighted that Cumberland primarily uses an online trading platform called Marea. It was launched in early 2019 for its transactions. The Commission also requests the court to bar the crypto trading firm from further violations of securities laws.
The U.S. SEC Case Versus Cumberland
The SEC’s recent lawsuit against Cumberland DRW highlights several communications from the firm. This included research reports and promotional emails that presented these altcoins as investment opportunities.
SEC argues that statements from the tokens’ founders and developers also encouraged investors to buy them with making profits expectations. According to the SEC, this classifies these assets as investment contracts, subjecting them to federal securities laws.
The U.S. SEC‘s case hinges on proving that Cumberland DRW operated as a securities dealer without the necessary registration. The lawsuit seeks disgorgement of proceeds from Cumberland and aims to impose a permanent injunction to prevent further violations.
Cumberland has vehemently denied the allegations, expressing confidence in its compliance practices via social media.
In a recent post on X, the firm stated that its business operations remain unaffected by the lawsuit. The company also pointed out inconsistencies in crypto regulations, noting the changing classification of Ethereum.
The SEC had previously considered digital assets as investment contracts before approving the spot Ethereum ETF.
Crypto Industry In Strict Surveillance Of US SEC and Crypto Regulation
The U.S. SEC‘s lawsuit against Cumberland is part of a larger initiative to exert more control over the cryptocurrency industry. Critics argue that the industry has long been in a regulatory gray area.
Under the leadership of Chairman Gary Gensler, the SEC has increased its enforcement actions in the crypto space. Gensler believes that many virtual assets should be classified as securities.
They should be subjected to the same regulations as traditional financial products. This includes requirements for registration, transparency, and investor protection.
U.S. SEC‘s approach opponents argue that labeling a broad range of crypto tokens as securities could hinder innovation. This could slow the growth of blockchain technology in the U.S.
The crypto industry has repeatedly called for clearer guidelines and more precise regulations. It emphasizes that many projects prioritize decentralization over fitting into the securities framework.
The lawsuit against Cumberland is happening alongside ongoing legal battles with Crypto.com and Ripple Labs Inc. These cases could set important precedents for how companies balance compliance with innovation in the crypto industry.
Disclaimer
In this article, the views, and opinions stated by the author, or any people named are for informational purposes only, and they don’t establish the investment, financial, or any other advice. Trading or investing in cryptocurrency assets comes with a risk of financial loss.
