The U.S. Securities and Exchange Commission (SEC) has charged the founder of crypto token trading platform EtherDelta, Zachary Coburn, with operating an unregistered securities exchange.

On November 8, the Commission announced that EtherDelta, which acts as a secondary market for trading ERC-20 tokens, had been providing a marketplace for buyers and sellers to trade the ethereum tokens using an order book, an order display website and a smart contract built on ethereum.

“EtherDelta’s smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade,” – the press release said.

Users of EtherDelta conducted more than 3.6 million trades over an 18-month period for ERC-20 tokens, including tokens that are securities under the federal securities law, according to the release.

“Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption”, – it added.

The platform did not register as an exchange or file for an exemption.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” – said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission’s order recognizes Coburn’s cooperation, which the Commission considered in determining not to impose a greater penalty.

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