The Securities and Exchange Commission’s settlement with EtherDelta’s Zachary Coburn is the first time the regulator has targeted a cryptocurrency exchange.

The Securities and Exchange Commission’s settlement with EtherDelta’s Zachary Coburn is the first time the regulator has targeted a cryptocurrency exchange.


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jonathan ernst/Reuters

The Securities and Exchange Commission said Thursday it reached a settlement with the founder of digital-token trading platform for operating an unregistered exchange.

The regulator reached a settlement with the founder of EtherDelta, Zachary Coburn. Mr. Coburn launched the EtherDelta website in 2016 as a platform for trading blockchain-based tokens—known as ERC20 tokens—the SEC said. ERC20 is a standard coding protocol often used in initial coin offerings.

This is the first time the SEC has targeted a cryptocurrency exchange, and what is known in the crypto sector as a “decentralized” exchange.

Mr. Coburn couldn’t immediately be reached for comment.

Essentially, EtherDelta was a piece of software that allowed users to trade with each other directly, as opposed to a centralized business like a traditional stock market that facilitates trading.

The enforcement action is another indication that the commission is focused more on the impact a business has, not how it is organized or how its operators describe it. It also shows that the commission will target individuals. A common argument against regulation in the cryptocurrency space is that coders are just writing software, and aren’t responsible for the effects of the software. The action against Mr. Coburn illustrates that the commission rejects that line of thinking.

The SEC said that it had issued a report last year that said platforms that trade these types of tokens, among other assets, had to be registered. Over 3.6 million orders for ERC20 tokens were carried out by EtherDelta users over 18 months, which also included tokens that are considered securities, the SEC said.

Mr. Coburn, without admitting or denying the SEC’s accusations, will pay $300,000 in disgorgement, a $75,000 penalty and $13,000 in prejudgment interest, the SEC said. The regulator said it took Mr. Coburn’s cooperation into consideration when deciding on his penalty.

Write to Allison Prang at allison.prang@wsj.com and Paul Vigna at paul.vigna@wsj.com



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