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The Securities and Exchange Commission today announced that eToro USA LLC has agreed to pay $1.5 million to settle charges that it operated an unregistered broker and unregistered clearing agency in connection with its trading platform that facilitated buying and selling certain crypto assets as securities. eToro has agreed to cease and desist from violating the applicable federal securities laws and will make only a limited set of crypto assets available for trading.
The SEC’s order finds that, since at least 2020, eToro operated as a broker and clearing agency by providing U.S. customers the ability, through eToro’s online trading platform, to trade crypto assets being offered and sold as securities, but eToro did not comply with the registration provisions of the federal securities laws.
The company “has agreed to cease and desist from violating the applicable federal securities laws and will make only a limited set of crypto assets available for trading,” the statement said, though eToro pointed out the restrictions affect only an estimated 3% of customer’s cryptocurrencies by dollar value.
Source: SEC
US Customers Now Restricted to BTC, BCH, and ETH
Going forward the only crypto assets available for U.S. customers to trade on the company’s platform will be Bitcoin (BTC), Bitcoin Cash (BCH) and Ether (ETH), the SEC statement said.
However, “in most cases U.S. users don’t have to do anything,” an eToro spokesperson said. “Only positions that cannot be transferred to the eToro crypto wallet are impacted.”
Positions in coins which are redeemable to the eToro crypto wallet can remain as open positions, so no action is required for these assets, the spokesperson added.
“This settlement allows us to move forward and focus on providing innovative and relevant products across our diversified U.S. business,” Yoni Assia, eToro’s Co-founder and CEO told CoinDesk in an earlier press release.
The SEC’s order found that since at least 2020, eToro – which didn’t admit or deny wrongdoing in agreeing to the settlement – let U.S. customers trade crypto assets being offered and sold as securities and “did not comply with the registration provisions of the federal securities laws,” the release said.
The eToro case notably doesn’t specify what tokens the company was handling that it considers securities. The agency has done so in several past matters, but it hasn’t offered a formal, crypto-specific definition for what tokens stray into the SEC’s jurisdiction – the primary point of legal contention between the regulator and the industry.
The SEC has been clamping down on crypto firms that it argues have violated securities laws. It recently was granted a limited win in its several-years-long case against crypto platform Ripple that dates back to 2020.
In August, a federal judge ruled that Ripple should pay $125 million after finding that the company violated federal securities laws with its direct sales of XRP to institutional clients. But this was a fraction of the $2 billion that the SEC initially sought.
The SEC also brought an enforcement action against crypto exchange Coinbase Inc. (COIN) for “alleging that Coinbase intermediated transactions in crypto-asset securities on its trading platform and through related services, all in violation of the federal securities laws.” The court sided with the SEC, according to a filing in March.
In 2023 the SEC also sued another large exchange, Binance, for violating securities laws, and the decision led to Changpeng “CZ” Zhao stepping down after pleading guilty to criminal charges and Richard Teng replacing him.
ETH remains a point of dispute, with the Commodity Futures Trading Commission and most of the crypto industry arguing it’s a commodity while the SEC declines to say either way, though at least one SEC-registered broker dealer has begun a custody operation that treats it as a security.
“We now have a clear regulatory framework for crypto assets in our home markets of the U.K. and Europe and we believe we will see similar in the U.S. in the near future,” Assia added. “Once this is in place, we will look to enable trading in the crypto assets that meet this framework.