ShapeShift to pay $275,000 to settle SEC’s unregistered securities dealer charges

The U.S. Securities and Exchange Commission announced Tuesday that it filed a cease-and-desist against cryptocurrency firm ShapeShift, alleging that it operated as an unregistered securities dealer.

“The crypto assets offered by ShapeShift included those that were offered and sold as investment contracts and, therefore, securities,” the SEC wrote in the Tuesday filing, citing a 1946 court case that brought forth the Howey test. 

The agency said it has determined to accept an offer from ShapeShift to settle the charges by paying a civil penalty of $275,000, on top of the agreement to keep away from any future violations of the securities regulation, according to the filing.

ShapeShift, founded by Erik Voorhees, previously operated out of Colorado from October 2017 to February 2020 before winding down its direct crypto asset exchange platform in 2021, according to the SEC filing. The company is incorporated in Switzerland.

Securities debate

The issue of whether sales of crypto assets should be classified as securities transactions has been at the center of legal disputes between the SEC and several cryptocurrency entities, including Ripple, Coinbase and Kraken exchange. 

Last week, a U.S. court ruled that the trading of certain crypto assets on secondary markets, such as crypto exchanges, are securities transactions, which clashes with the view of the wider crypto industry. 

The SEC said in a notice that it intended to utilize the default judgment in its lawsuit against Coinbase to support its claims that the exchange operated as an unregistered securities broker. Coinbase has since challenged the agency on the latest claim, saying in a filing that the judgment “should be afforded no weight.”