Shapeshift, a cryptocurrency platform that will cease operations in 2021, has been ordered to cease operations and receive a cease-and-desist order to resolve allegations from the U.S. Securities and Exchange Commission (SEC) that it allowed users to trade digital tokens without registering. Agreed to a $5,000 fine. Broker or Exchange.
The settlement, announced Monday, resolves a years-long SEC investigation into whether ShapeShift's actions violated federal securities laws.
The SEC's lawsuit focuses on ShapeShift's operations from July 2017 to November 2019, when the former cryptocurrency exchange was involved in an investment contract in which digital assets were sold by ShapeShift. He is alleged to have facilitated the purchase and sale of securities that were not properly registered.
“The crypto assets offered by ShapeShift included investment contracts, which were offered and sold as securities,” the SEC alleged. “Shapeshift has never registered with the European Commission as a dealer or operated pursuant to any exception or exemption from registration.”
Although ShapeShift is now defunct, the SEC notes that it was once a very active player in the cryptocurrency space.
“At its peak, the ShapeShift platform enabled customers to conduct exchanges in at least 79 cryptoassets,” federal regulators claim. “Shapeshift acted as a market maker for these assets by acting as a counterparty in all transactions and marketing itself as a ‘vending machine’ for cryptocurrencies.”
Founded in 2014 by CEO Erik Voorhees, ShapeShift was incorporated in Switzerland and operated out of Denver, Colorado. The exchange initially allowed customers to buy and sell digital assets without creating an account or providing any personal information. This is a policy known as “non-KYC.” This is part of standard anti-money laundering (AML) measures in the financial industry.
However, this approach has come under scrutiny. In November 2018, as part of a broader investigation into the criminal use of cryptocurrencies. wall street journal Shapeshift has processed more than $9 million from criminal suspects over two years, “more than any other transaction with any U.S. firm,” the report said.
In the same month, ShapeShift delisted its privacy coins Monero, Dash, and Zcash, acknowledged this was due to regulatory pressure, and launched its own token. This came after the exchange changed its business model earlier that year, becoming a decentralized service and favoring open source principles that do not hold digital assets on behalf of its customers.
“To enable swaps in a frictionless manner, ShapeShift became the market maker and counterparty for user trades,” Voorhees explained in a blog post at the time. It is inconsistent with protecting users' privacy and security interests and, in my view, is clearly an unwarranted search without justifiable grounds. ”
On July 14, 2021, ShapeShift announced it was dissolving its legal entity, adding that the company currently has no revenue or full-time employees, according to the SEC.
Although currently defunct, ShapeShift resurfaced in the national policy debate over cryptocurrencies last year when Sen. Elizabeth Warren brought up its name when pushing for legislation to tighten regulations in the digital asset sector.
“Some in the crypto industry argue that anti-money laundering rules are only valid as long as they exempt so-called decentralized entities… In other words, they are They want huge DeFi loopholes written into the law so they can launder money, and the lords and terrorists are paying them to do it,” Warren said. That's exactly what Colorado-based cryptocurrency exchange Shapeshift did when it deliberately reinvented itself as a DeFi platform.”
The senator characterized the announcement as an invitation to “launder money here.”
ShapeShift has been pushed back.
“ShapeShift never handles user funds and therefore does not have the ability to facilitate this,” the company wrote on Twitter. “ShapeShift is not a replacement.”
“Ironically, we care about the same thing as Sen. Warren: user safety (self-custody required).” [and] Access to innovation (DeFi, not CeFi),” continued ShapeShift. “We also value mutual understanding and believe in building products that enable economic freedom for all people around the world.”
Currently, ShapeShift is a browser-based crypto wallet provider that bills itself as the best multi-chain experience for MetaMask. ”
