SEC Accuses Cumberland of Illegal Crypto Trading

The SEC has charged Cumberland DRW, accusing the firm of operating as an unregistered securities dealer in the crypto market since 2018. In response, Cumberland denied the claims, criticizing the SEC’s approach as "enforcement-first" and calling the situation a legal “Catch-22.”

The case revolves around a key regulatory question: whether most crypto transactions fall under securities law. The outcome of this case could have a major impact on the future of crypto regulation.

The SEC claims that Cumberland conducted over $2 billion in unregistered transactions since March 2018. Cumberland countered by stating it registered as a broker-dealer in 2019 but was told it could only trade Bitcoin and Ethereum, which are typically regulated under the CFTC’s jurisdiction. The company argues that the SEC’s demands are contradictory and unfair.

In its statement, Cumberland accused the SEC of trying to suppress innovation and block legitimate businesses from entering the digital asset market. It also referenced a recent Congressional hearing where the SEC was criticized as a “rogue agency,” claiming that the agency overstepped its authority.

Cumberland also highlighted its history of cooperation with the SEC, sharing data and insights over the years. Despite this, the firm now faces charges for what the SEC describes as a six-year period of violations. The company views this as a sudden and unjust shift in the agency’s position.

The case bears similarities to recent conflicts between the SEC and other crypto firms. For example, Crypto.com recently faced a Wells Notice from the SEC and responded by suing the agency preemptively. It accused the SEC of “regulation by enforcement” and argued that the agency’s actions were politically motivated due to a growing bipartisan support for the crypto industry.

SEC Chair Gary Gensler believes that most crypto transactions qualify as securities. However, many in the industry view this as an unworkable standard that threatens to stifle innovation.

The SEC’s case against Cumberland focuses on the classification of digital assets, claiming that the industry wrongly describes most crypto assets as commodities. This legal battle could set a precedent for how the future of crypto regulation will be shaped, with Cumberland’s response suggesting that the SEC’s actions are an overreach of power.