SEC Targets Ethereum Developer: Unregistered Securities and Brokerage Charges Unveiled
Oct 28
2 min read
The U.S. Securities and Exchange Commission (SEC) has initiated charges against an Ethereum developer, alleging the unregistered offer and sale of securities through liquid staking services and operating as an unregistered broker via a crypto swaps platform. This action marks a significant escalation in regulatory scrutiny of decentralized finance products.
Key Takeaways
The SEC alleges the developer facilitated unregistered securities offerings for liquid staking tokens like stETH and rETH.
Charges also include operating an unregistered broker-dealer through a crypto asset swaps platform.
This action represents a new frontier in SEC enforcement concerning liquid staking products.
Allegations of Unregistered Securities Offerings
The SEC's complaint, filed on June 28, 2024, asserts that since January 2023, the developer has been involved in the unregistered sale of securities on behalf of liquid staking providers Lido and Rocket Pool. These providers issue liquid staking tokens in exchange for staked assets, allowing users to trade or utilize their staked crypto while earning returns. The SEC contends these tokens are securities because the pools employ technological expertise to generate returns beyond what a typical investor could achieve independently.
Operating as an Unregistered Broker
Furthermore, the SEC alleges that since October 2020, the developer has operated an unregistered broker-dealer through its swaps platform. This platform connects users with third-party liquidity providers for cross-chain and cross-product swaps. The SEC claims the platform engaged in brokerage activities by soliciting investors, providing investment information, recommending trades, processing orders, and handling customer assets, all while receiving transaction-based fees. The SEC considers several crypto assets traded on this platform to be securities, thus violating securities laws.
Regulatory Precedent and Future Implications
This enforcement action follows a Wells Notice sent to the developer in April 2024, indicating the SEC staff's intent to recommend charges. While the developer had previously filed a preemptive lawsuit against the SEC challenging regulatory overreach, the SEC's subsequent complaint suggests a continued focus on products and services built upon Ether, even if Ether itself is not deemed a security. The SEC's action against liquid staking products is a first, potentially signaling increased future enforcement in this area. The allegations concerning the swaps platform also echo previous SEC actions against crypto wallet providers, though judicial outcomes in such cases have varied.
Sources
SEC Charges Ethereum Developer Over Liquid Staking and Swap Programs, Dechert LLP.