Securities firm and broker Electronic Transaction Clearing (ETC) was recently announced as a partner of Coinbase for its new Coinbase Custody service, which will provide secure storage arrangements for cryptocurrencies. However, ETC had charges made against them by the Securities and Exchange Commission (SEC) in 2015, which they settled in March 2018, for putting customers assets at risk.

ETC agreed to pay $80,000 for the breach, without admitting or denying the SEC’s findings

Sam McIngvale, who is tasked with the new partnership management, said, according to a report from Bloomberg:

“We sort of have an understanding with the SEC and Finra, and it allows us to execute contracts with clients and take the first deposits. The company didn’t need an official approval, as it partnered for the service with SEC-regulated broker-dealer Electronic Transaction Clearing.”

Coinbase appears to be relying on the firm that faced these recent charges.

As explained in the SEC press release:

“the SEC found that ETC violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails.  It requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities.”

Furthermore:

“ETC put customer securities at risk numerous times in 2015.  ETC improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent.  The order also finds that ETC improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.”

As Coinbase is leveraging the “expertise and system” offered by ETC, they are relying on the firm’s ability to properly handle customer funds. It will be of interest as to whether or not the recent failure on the part of ETC to do just this will deter any institutional investors from utilizing the Coinbase Custody service for holding cryptocurrencies.

Coinbase Custody Has Skeletons in Its Closet – Partner Faced SEC Charges From 2015 was originally found on [blokt] - Blockchain, Bitcoin & Cryptocurrency News.

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