- The SEC has sued market maker Cumberland DRW.
- More market makers could be next.
The US markets watchdog’s lawsuit against trading firm Cumberland DRW is “a warning shot” to crypto market players aligned with traditional finance, says a regulation expert.
The Securities and Exchange Commission has charged Chicago-based Cumberland DRW with operating as an unregistered dealer in crypto markets. At issue are some $2 billion worth of transactions the regulator said were securities trades.
“I would be surprised if this was the only case the SEC had in the hopper, and similar firms should probably consider it a warning shot,” regulation expert Sean Tuffy told DL News.
The Cumberland DRW suit is consistent with the SEC’s crackdown on a range of other crypto-native businesses under Chair Gary Gensler’s assertion that most crypto tokens are securities, Tuffy said.
Open cases include suits against major exchanges Binance, Coinbase, and Kraken.
TradFi bridge
Still, there’s something surprising about the regulator suing an entity that had a relatively traditional pedigree and isn’t retail-focused. Cumberland is the crypto trading arm of DRW, a commodities trading firm established in Chicago in 1992.
While it’s a crypto-native trading firm, it bridges the gap between crypto and traditional finance. Its clients include investing stalwart Fidelity.
Cumberland DRW plays a variety of roles in the crypto markets, including as a “market maker” — a firm that provides 24/7 liquidity to sophisticated investors.
The firm has also been a major issuer of Tether’s stablecoin, and a customer of all the major crypto exchanges, including Binance, Coinbase, and Kraken.
The Cumberland DRW lawsuit is “probably the natural evolution of the SEC’s war on crypto, where it starts looking harder at the more traditional-esque elements of the crypto ecosystem,” Tuffy said.
B2C2 is another crypto market maker. B2C2 declined to comment on the case.
Defiant response
Tuffy said this latest action “will add fuel to the fire” of the industry’s complaints that the SEC is “regulating by enforcement” — or using lawsuits to go after companies deemed non-compliant, rather than providing clear rules.
Indeed, in a defiant response to the lawsuit, Cumberland DRW said it had engaged with the agency for years, and was only now learning that these specific transactions were an issue.
The firm said it would alter its business operations as a result of the lawsuit. “We are confident in our strong compliance framework and disciplined adherence to all known rules and regulations — even as they have been a moving target,” it said.
In a post about the Cumberland DRW suit, former SEC lawyer John Reed Stark said that what the industry calls regulation by enforcement, “the rest of us simply call enforcing the law.”
Crypto tokens aren’t laundromat tokens, but investments, he wrote — and that means trading in them is subject to rules and regulations.
Crypto market movers
- Bitcoin is up 2.8% over the past 24 hours to trade at $67,400 at the time of writing.
- Ethereum is up 0.5% to trade at $2,620.
What we are reading
- Grayscale Files to Convert Multi-Token Crypto Fund Into ETF — Unchained
- Trump’s crypto project World Liberty suffers website crash amid token sales — DL News
- Bitcoin Monthly Trading Volumes Averaged $2 Trillion Year-to-Date — Unchained
- Hong Kong Police Bust Group Running $46M Crypto Investment Scam Using Deepfakes — Coindesk
Reach out to the author at joanna@dlnews.com.