SEC Files Suit Against Cumberland DRW for Unregistered Crypto Dealing

The U.S. Securities and Exchange Commission (SEC) has taken legal action against Chicago-based crypto market maker Cumberland DRW, alleging that the firm operated as an unregistered dealer in cryptocurrency transactions. The lawsuit, filed on October 10, 2024, claims that Cumberland bought and sold over $2 billion worth of crypto assets that were offered and sold as securities since March 2018, without proper registration.

According to the SEC’s complaint, Cumberland publicly marketed itself as “one of the world’s leading liquidity providers” in crypto assets, operating 24/7 through its online trading platform, Marea, and via telephone. The regulator alleges that Cumberland engaged in trading crypto assets on third-party exchanges as part of its regular business, which the SEC considers to be securities transactions.

The lawsuit specifically mentions five cryptocurrencies that the SEC claims are securities: Polygon (MATIC), Solana (SOL), Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL). However, the agency notes that this is a “non-exhaustive list” of such assets.

Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, stated, “Despite frequent protestations by the industry that sales of crypto assets are all akin to sales of commodities, our complaint alleges that Cumberland, the respective issuers, and objective investors treated the offer and sale of the crypto assets at issue in this case as investments in securities.”

The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties against Cumberland. The regulator emphasizes that federal securities laws require all dealers in all securities to register with the Commission, regardless of whether they deal in traditional securities or crypto assets.

In response to the lawsuit, Cumberland released a statement on social media platform X (formerly Twitter), asserting that it would not be “making any changes to our business operations or the assets in which we provide liquidity” as a result of the SEC’s action. The company claims it has been in discussions with the SEC for five years and has shared materials with the agency.

Cumberland also expressed confidence in its compliance framework, stating, “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.”

This latest legal action is part of the SEC’s ongoing crackdown on the cryptocurrency industry under the leadership of Chair Gary Gensler. The agency has filed similar suits against major crypto exchanges and firms, alleging violations of securities laws. However, the approach has faced criticism from industry participants and some U.S. politicians, who argue that the SEC is engaging in “regulation by enforcement” rather than providing clear guidelines for the crypto sector.