SEC Charges Cumberland DRW Over Unregistered Securities Trading
On October 10th, the Securities and Exchange Commission (SEC) took action against Cumberland DRW, a Chicago-based cryptocurrency market maker, for allegedly functioning as an unregistered securities dealer.
Allegations Against Cumberland DRW
The SEC’s complaint indicates that Cumberland has executed trades exceeding $2 billion in digital assets classified as securities since March 2018. The agency contends that these trades, which occurred via Cumberland’s trading platform known as Marea and through phone transactions, breached federal securities laws intended to safeguard investors.
“All dealers in all securities must register with the Commission, including those operating in the crypto market,” stated Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber Unit.
Tenreiro also addressed the ongoing debate within the crypto community on whether certain tokens should be treated as commodities rather than securities. The SEC’s position emphasizes that Cumberland’s activities qualified the tokens as securities, thus necessitating registration for the protection of investors.
Outcome of Alleged Violations
In light of these claims, the SEC is seeking various remedies, including permanent injunctive relief to cease Cumberland’s operations, the recovery of unlawfully obtained profits, as well as civil penalties.
Cumberland’s Business Operations
As stated on Cumberland’s official website, the firm provides liquidity solutions for over-the-counter markets across a range of cryptocurrencies, including stablecoins, crypto derivatives, and bilateral trading of crypto forwards.
Cumberland’s Defense
In a response shared on social media platform X, Cumberland accused the SEC of attempting to hinder innovation within the crypto sector, claiming that the firm will not alter its operations despite the U.S. regulator’s enforcement action. Cumberland asserted:
“We trust our robust compliance framework and our consistent observance of all applicable rules and regulations, even amid their evolving nature.”
The firm noted it received broker-dealer registration in 2019 under the guidance of SEC Chairman Gary Gensler, but emphasized that this registration was limited to Bitcoin (BTC) and Ethereum (ETH) trading. Furthermore, Cumberland underscored its ongoing dialogue with regulators spanning the past five years, inclusive of sharing documentation and facilitating interviews with its staff.
“This complaint marks the first instance where the SEC has articulated the specific transactions in question,” Cumberland remarked.
The SEC’s recent actions also echoed previous market manipulation charges against DRW by the Commodity Futures Trading Commission (CFTC) in November 2013, which concluded with the court ruling that the CFTC could not substantiate its claims.
Cumberland described the SEC’s pursuit as indicative of the illusory nature of achieving broker-dealer registration for digital assets in the U.S., reiterating its commitment to contest the filed lawsuit.
Cumberland’s Current Asset Holdings
As per Arkham Intelligence data, Cumberland holds an impressive crypto asset portfolio worth over $81.5 million. A breakdown of their holdings includes:
- Bitcoin (BTC): $44.2 million
- Ethereum (ETH): $24 million
- Stablecoins (USDT and USDC): Over $12 million
- AAVE: $6.3 million
- cUNI (UNI tokens on Compound): Nearly $9 million