The Securities and Exchange Commission (SEC) charged Chicago-based cryptocurrency market maker Cumberland DRW with allegedly operating as an unregistered securities broker-dealer on October 10.
According to the SEC complaint, Cumberland has traded more than $2 billion in cryptocurrencies classified as securities since at least March 2018.
The agency alleges that these activities, conducted through Cumberland’s Marea trading platform and by telephone, violated federal securities laws designed to protect investors.
Jorge G. Tenreiro, Acting Head of the SEC’s Crypto Assets and Cyber Unit, said:
“Federal securities laws require all securities dealers to register with the Commission, and those operating in crypto asset markets are no exception.”
Tenreiro also responded to claims from the crypto community that tokens should be treated as commodities, arguing that Cumberland’s actions treated the sale and offering of crypto as securities, requiring registration to ensure investor protection.
Additionally, the complaint points out that the company’s self-proclaimed role as the leading liquidity provider in the crypto market adds weight to these claims.
As a result of the alleged violations, the SEC is seeking a permanent injunction to stop these activities, disgorgement of profits Cumberland allegedly earned illegally, as well as prejudgment interest and civil penalties.
According to Cumberland’s website, the company offers liquidity for over-the-counter (OTC) markets for different cryptocurrencies, including stablecoins, as well as crypto derivatives and bilateral crypto futures trading.
Cumberland responds
In a statement published on X, Cumberland claimed that the SEC was trying to stifle innovation and prevent companies from engaging in crypto.
The market maker said it would not change its operations following the enforcement actions taken by the US regulator. Cumberland added:
“We are confident in our strong compliance framework and disciplined adherence to all known rules and regulations, even though they have been a moving target (not long ago, ETH was considered a security) .”
The document also highlights that Cumberland acquired a broker registration in 2019 through Advice from SEC Chairman Gary Gensler. It further states that the market maker was warned that the license is only valid for trading Bitcoin (BTC) and Ethereum (ETH).
Additionally, Cumberland said it has been in discussions with the regulator for the past five years about its operations, which includes sharing written summaries and statements, as well as interviews with company staff .
According to Cumberland:
“Today’s complaint is the first time the SEC has described the specific transactions at issue.”
Notably, the document also cited market manipulation charges levied by the Commodity Futures Trading Commission (CFTC) against DRW in November 2013, when Gensler was its chairman.
The case ended in December 2018, with Circuit Judge Richard Sullivan ruling that the CFTC had failed to prove that DRW had manipulated the market and that its claims were “based on little more than belief “the Earth is flat” type.
Cumberland said the SEC’s latest action shows that registering as a digital asset broker in the United States is “just a mirage” and reaffirmed his intention to fight the lawsuit.
Nearly $100 million in assets
Cumberland currently holds more than $81.5 million in crypto, with most of the funds – $44.2 million – held in Bitcoin, based on data from Arkham Intelligence.
The market maker also holds nearly $24 million in ETH and over $12 million in stablecoins split between Tether USD (USDT) and USD Coin (USDC).
Additionally, Cumberland holds $6.3 million in AAVE and nearly $9 million in cUNI, which are UNI tokens staked on the Compound Money Market, based on Nansen data.
