tZERO settles with SEC over late filings under ATS rules


The Securities and Exchange Commission is fining tZERO, a leading platform for security tokens in the US, for off-market trading.

Per a January 10 order, the SEC says that tZERO made a number of errors in its filing of disclosures. tZERO operates as an alternate trading system, which has different filing requirements than a typical securities exchange.

According to the settlement, tZERO failed to disclose several changes to its operations within the normal timings. These include the use of non-U.S. trading information from Blue Ocean Financial Technology (a Singapore-based firm that tZERO acquired in 2017), a subscribing broker's publication of tZERO's security token pricing on its platform, and the way it was vetting user access to the platform itself. 

The order requires tZERO to pay $800,000 in penalties to the US securities regulator, without admitting or denying the findings, and issues a cease and desist against future violations in the future. On the whole, it's a fairly minor fine but may signal heightened expectations for alternative trading systems to keep their reporting in line in the future. 

Despite earlier hype around security token offerings or STOs, the market has been plagued by limited venues for trading. tZERO is one of the largest such platforms but still sees most of its volumes come from its own digitized securities or those of affiliate Overstock. Overstock has faced its own inquiries from the SEC in the past.

Following the 2019 departure of CEO Patrick Byrne, Overstock cut funding to tZERO, which subsequently downsized its operations heavily. The firm's CEO, Saum Noursalehi, stepped down from that position last August.

A representative for tZERO told The Block: "tZERO ATS, LLC, has entered into a settlement with the SEC concerning legacy matters relating to the disclosure on Form ATS and written access standards. tZERO did not admit or deny the SEC’s findings. tZERO ATS agreed to pay a cash fine and the order does not impact current or future activities of the ATS."

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May 5, 2022, 3:17PM UTC