Home > News > Business > SEC pursues Tether’s largest customer Cumberland
Cumberland Global, a popular market maker for Tether, has been targeted by U.S. securities regulators, potentially bringing one of the world’s largest stablecoin issuers closer to being pursued by regulators.
On October 10, the U.S. Securities and Exchange Commission (SEC) announced that it had filed a civil lawsuit against Cumberland DRW LLC in the United States District Court for the Northern District of Illinois. The SEC has accused Cumberland, a spin-off of Chicago-based DRW Trading Group, of “operating as an unregistered dealer in over $2 billion in crypto assets offered and sold as securities” since March 2018. accused of being
The complaint accuses Mr. Cumberland of obtaining “millions of dollars in ill-gotten gains” by buying and selling the unregistered securities without registering as a securities dealer with the SEC. In doing so, Cumberland deprived investors and the market of the “protection of the registration provisions of the federal securities laws.”
Since the platform’s launch in early 2019, Cumberland has allowed “more than 1,500 high-net-worth individuals and entities” to act as counterparties on Cumberland’s Marea online trading platform, according to the SEC. are. These counterparties include “prominent participants in the crypto space, crypto investment companies and funds managed by some now-defunct crypto hedge funds.”
Cumberland supports “discretionary risk-taking” by establishing long or short positions in various tokens, as well as “proprietary Also engaged in strategic trading. . Since 2019, these and other businesses have generated more than $400 million in revenue and more than $27 million in profits for Cumberland.
The SEC cited a “non-exhaustive list” of tokens traded by Cumberland that regulators consider unregistered securities. Solana (SOL); Cosmos (ATOM); Algorand (ALGO); Filecoin (FIL). The SEC alleges that each of these assets “was originally offered and sold as an investment contract.” These tokens represent “at least $2 billion” in Cumberland’s trading volume mentioned in the complaint.
Statements made by the issuers and promoters of these tokens “would have been reasonably considered by an objective investor” to be an “offer to buy or sell an investment contract” in an offer to buy or sell the tokens. It is said that The SEC further provides specific details on how these tokens trigger various planks of the Howey test to identify securities that require registration with the SEC.
The SEC seeks to permanently enjoin Cumberland from further violations of trade laws and to compel Cumberland to forfeit all illegal trading profits (with interest) derived from the illegal activities alleged in the complaint.
Cumberland: “Bring it.”
In response, Cumberland issued a defiant statement claiming it was “the latest target of the SEC’s enforcement-first approach that stifles innovation and prevents legitimate companies from engaging with digital assets.” did.
Mr. Cumberland claimed that he had been “in good faith discussions with the SEC for five years” about whether his company’s transactions involved unregistered securities. However, the complaint is said to be “the first time the SEC has provided a detailed overview of the specific transactions at issue.”
Cumberland “acquired a registered broker-dealer in 2019,” but claims the SEC informed him that “our broker-dealer may only be used to trade BTC or ETH.” They argue that these are products and not subject to SEC jurisdiction.
“We do not intend to make any changes to our business operations or the assets that provide liquidity” in response to the SEC’s allegations, Cumberland said. Cumberland claims it is “confident in our strong compliance framework and disciplined adherence to all known rules and regulations.”
Cumberland recalled the parent company’s successful legal battle with the Commodity Futures Trading Commission (CFTC) when it was led by current SEC Chairman Gary Gensler. Having previously won victories against “overzealous regulators who wield their power in ways that harm markets rather than benefit them,” Cumberland said he is “ready to defend itself again.” “There are.”
tether tie
In 2021, Cumberland also surpassed now-defunct Alameda Research, a corrupt spinoff of Sam Bankman Fried’s FTX digital asset exchange, to become the largest USDT (Tether) issued at the time. It was revealed that he was the recipient.
Given USDT’s status as a whale, Cumberland would be in a great position to confirm or deny Tether’s oft-repeated historical claim that it only issued USDT after receiving an equivalent amount of US dollars. Since then, Tether has introduced some wiggle room to this benchmark, sometimes accepting digital assets such as BTC in place of the dollar, or even allowing Tether to lend USDT to those who believe it will benefit them. are.
For reference, the SEC charges against Cumberland came on the heels of Department of Justice (DOJ) criminal charges against a handful of small market makers for price manipulation of several meme coins (and BTC).
It’s worth remembering that the DOJ’s charges began with an SEC investigation that reportedly found enough criminal evidence to warrant the DOJ’s take. The past is not necessarily prologue, but there are several other harbingers of doom in circulation.
The Department of Justice last week announced a $3 billion settlement with TD Bank for bank secrecy and money laundering violations that benefited drug traffickers and other criminals. Over six years, TD Bank failed to properly monitor more than $18 trillion in customer transactions, $670 million of which was transferred through a money laundering network.
In announcing the indictment, U.S. Attorney General Merrick Garland said, “By making its services convenient for criminals, TD Bank became a criminal…TD Bank chose profit over compliance with the law.” That decision now costs the bank billions of dollars in fines.” ”
These words are prophetic for Tether, given USDT’s reputation as the premier “crime coin” used by pig slaughter scammers, money launderers, drug traffickers, terrorists, and other harmful corners of humanity. may prove to be true. While Tether’s executive position may give it wide leeway in the United States, Cumberland does not enjoy that luxury.
Garland said the Justice Department has not yet completed its prosecution in the case. We’ll just have to wait for the other shoe to drop.
Bitnominal is not waiting
Meanwhile, other crypto players aren’t waiting for Gensler to come knocking on their door. On October 10, the Chicago-based Bitnomial “cryptocurrency futures and options” exchange announced that regulators have granted jurisdiction over “digital asset futures contracts,” specifically futures involving the XRP token issued by Ripple Labs. filed a complaint with the SEC alleging that .
Bitnomial’s lawsuit notes that the company, a CFTC-approved designated contract market, notified the CFTC in August of its plans to begin offering XRP USD futures contracts. Bitnomial was soon contacted by the SEC, warning it that XRP futures were securities futures subject to joint CFTC/SEC jurisdiction.
The SEC has been engaged in a long (and ongoing) battle with Ripple over the question of whether XRP represents an investment contract. Bitnomial rejects the SEC’s view that XRP is a security, but also argues that it is impossible to register XRP with the SEC. As a result, the SEC “effectively blocked Bitnomial from listing XRP futures.”
Bitnomial has filed a lawsuit in the United States District Court for the Northern District of Illinois that (a) declares that XRP futures are not securities futures, and (b) “claims jurisdiction over XRP futures with the SEC or with respect to It seeks to prohibit Bitnomial from initiating or pursuing enforcement action against Bitnomial. Listing of XRP futures is being considered. ”
Bitnomial is not the first company to file a preemptive lawsuit against the SEC. Last week, the Crypto.com exchange filed a legal filing after receiving a wells notice from the SEC indicating an impending enforcement action against the exchange.
Ethereum-based blockchain software company ConsenSys attempted to file a similar lawsuit in April, but the suit was dismissed by a federal judge last month, who told ConsenSys that the company still suffered damages at the hands of the SEC. Since it wasn’t, I reminded him to cool down the jet.
I get a call from inside the house
Cumberland’s dismissive view of the SEC’s anti-crypto activities was echoed by SEC Commissioner Mark Ueda, who told FOX Business last week that the SEC’s “policy and our approach over the past several years… It was truly a disaster for the entire (cryptocurrency) industry.” ” Ueda argued that much of the SEC’s cryptocurrency enforcement activity involves “nonmaterial items that do not change the bottom line.”
Ueda asserts that there is “widespread dissatisfaction with the fact that[the SEC]has not provided any interpretive guidance on what can and cannot be done and whether it is involved in certain types of securities offerings.” did. “We need clear guidance and interpretation of what exactly is within and outside the scope of these securities laws,” Ueda said.
However, as others have noted, the SEC’s official position is that existing securities laws are clear enough for “virtual currency” businesses to understand where the line is drawn. be. As Gensler himself recently said, “Just because you don’t like the rules doesn’t mean they don’t exist.”
Mr. Gensler came under fire from law students last week during a “fireside chat” at New York University’s Institute of Corporate Governance and Finance Law. Questioned about whether the 1946 Supreme Court decision that established the Howie test was the best barometer for identifying securities, Gensler said, “Whether we like it or not, “This is the law,” he said.
Gensler also cited a Federal Bureau of Investigation (FBI) report last month that found dollar value lost to cryptocurrency-related fraud increased 45% last year to $5.6 billion, adding, “Many scams “There were many swindlers, swindlers, and criminals,” he pointed out. There is a lot of fraud in this field.” Mr. Gensler concluded with the following poignant statement: “With all due respect, the leading experts in this field… are currently in prison or awaiting extradition.”
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