The Securities and Exchange Commission (SEC) has charged Chicago-based crypto market maker Cumberland DRW for allegedly operating as an unregistered securities dealer on October 10.
According to the SEC’s complaint, Cumberland has traded more than $2 billion in crypto classified as securities since March 2018.
The agency alleges that these activities, conducted through Cumberland’s Marea trading platform and over the telephone, violated federal securities laws designed to protect investors.
Jorge G. Tenreiro, Acting Head of the SEC’s Crypto Assets and Cyber Unit, stated:
“The federal securities laws require all dealers in all securities to register with the Commission, and those active in the crypto asset markets are no exception.”
Tenreiro also addressed the crypto community’s claims that tokens should be treated as commodities, arguing that Cumberland’s actions treated the sale and offering of crypto as securities, making registration necessary to ensure investor protection.
Furthermore, the complaint highlighted that the company’s self-proclaimed role as the leading liquidity provider in the crypto market lends credence to these claims.
As a result of the alleged violations, the SEC is seeking permanent injunctive relief to halt these activities, as well as disgorge the profits Cumberland allegedly unlawfully earned, plus prejudgment interest and civil penalties.
According to Cumberland’s website, the company provides liquidity for over-the-counter (OTC) markets for various cryptocurrencies, including stablecoins, as well as for crypto derivatives and bilateral crypto forward trading.
Cumberland responds
In a statement on X, Cumberland claimed that the SEC is trying to suppress innovation and prevent companies from getting into crypto.
The market maker stated that it would not change its operations following the US regulator’s enforcement action. Cumberland added:
“We are confident in our strong compliance framework and disciplined adherence to all known rules and regulations, even though they have been a moving target (not long ago, ETH was claimed to be a security).”
The document also highlighted that Cumberland obtained broker-dealer registration in 2019 through Guidance from SEC Chairman Gary Gensler. It goes on to say that the market maker was warned that the license is only valid for trading Bitcoin (BTC) and Ethereum (ETH).
In addition, Cumberland stated that it has spoken with the regulator over the past five years about its activities, including sharing written summaries and statements, as well as interviews with the company’s staff.
According to Cumberland:
“Today’s complaint marks the first time the SEC has outlined the specific transactions at issue.”
Notably, the document also cited market manipulation charges imposed on DRW by the Commodity Futures Trading Commission (CFTC) in November 2013, when Gensler was chairman.
The case concluded in December 2018, with Judge Richard Sullivan ruling that the CFTC failed to prove that DRW manipulated the market and that its claims were “based on little more than a ‘the Earth is flat’ style belief.” .”
Cumberland said the SEC’s latest action shows that registration as a broker-dealer for digital assets in the US is “just a mirage” and reaffirmed his intention to fight the lawsuit.
Nearly $100 million in assets
Cumberland currently owns more than $81.5 million in crypto, with the majority of the money – $44.2 million – held in Bitcoin, based on data from Arkham Intelligence.
The market maker also has nearly $24 million in ETH and over $12 million in stablecoins, split between Tether USD (USDT) and USD Coin (USDC).
In addition, Cumberland has $6.3 million in AAVE and almost $9 million in cUNI, which are UNI tokens staked on the Compound money market, based on Nansen data.
