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ShapeShift Fine Epitomizes SEC ' s Crypto Policy , And Its Flaws
By Keith Blackman ( March 29 , 2024 , 5:11 PM EDT )
On March 5 , ShapeShift AG , a former cryptocurrency exchange , agreed to pay a fine imposed by the U . S . Securities and Exchange Commission for failing to register as a securities dealer .
The settlement could have passed unnoticed : The $ 275,000 penalty was relatively minor , and ShapeShift ' s founder , Erik Voorhees , remained relatively quiet . But the case gained attention when two SEC commissioners issued a scathing dissent , accusing their fellow commissioners of purposely adopting an arbitrary , opaque and ultimately untenable crypto strategy designed to sandbag — if not destroy completely — the U . S . crypto industry .
Whether or not the dissenting commissioners correctly interpret the SEC ' s motives , it cannot be denied that the agency ' s refusal to promulgate clear-cut rules governing crypto , coupled with its checkered courtroom record , deprives crypto-asset markets of desperately needed clarity .
A " Crypto Vending Machine "
In 2014 , a lifetime ago in crypto terms , Voorhees , an early crypto entrepreneur , founded the Swiss cryptocurrency exchange ShapeShift .
Operating in the U . S . between 2014 and 2021 , the company had a simple business model : It maintained an online platform that allowed customers to trade one type of crypto-asset for another . Marketing itself as a " crypto vending machine ," ShapeShift generated revenue off the spread — the difference between the price at which it sold crypto-assets and the price at which it bought those assets .
At its peak , ShapeShift allowed its customers to exchange at least 79 crypto-assets , engaging in as many as 20,000 transactions per day . During the course of its six-year run , ShapeShift was not alleged to have harmed its customers , nor were there allegations that ShapeShift defrauded anyone or failed to execute customer transactions .
The SEC ' s Order
Despite the lack of any alleged customer harm , the SEC brought an enforcement action against ShapeShift on March 5 , alleging that the exchange failed to register as a securities dealer before transacting in crypto-assets . In an agreed cease-and-desist order ,[ 1 ] ShapeShift consented to the imposition of a $ 275,000 fine .
Keith Blackman