LUCKNOW (CoinChapter.com) — ShapeShift has agreed to pay $275,000 to settle charges brought by the US Securities and Exchange Commission (SEC) that it operated as an unregistered securities dealer.
In a cease-and-desist order issued Tuesday, the SEC alleged that ShapeShift facilitated trades of crypto assets that qualified as securities under the Howey test established by a 1946 Supreme Court case.
“The crypto assets offered by ShapeShift included those that were offered and sold as investment contracts and, therefore, securities,”
SEC wrote in the filing.
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The SEC’s order contends that ShapeShift operated as an unregistered securities dealer in the United States from 2014 through 2021. During this period, the firm provided its customers with trading access to a minimum of 79 different crypto assets.
The SEC alleges that some of these digital assets should have been classified as investment contracts, and therefore securities under U.S. securities laws. This allegation mirrors the SEC’s charges against several other major U.S. crypto trading platforms like Coinbase, Kraken, and Binance.US.
According to the filing:
ShapeShift regularly bought and sold crypto assets for its own accounts, maintaining an inventory in – and marketing itself to customers as willing to buy and sell – the crypto assets available on ShapeShift.io.
Under the settlement terms, ShapeShift neither admitted nor denied the SEC’s findings. However, the firm agreed to pay the $275,000 civil penalty and not to violate securities regulations going forward.
The crackdown reflects an ongoing debate over whether certain crypto asset transactions should be classified as securities subject to SEC oversight. Recent court rulings have contradicted the crypto industry’s stance that digital asset trading doesn’t constitute securities transactions.
Last week, a U.S. judge ruled some crypto trading on exchanges qualifies as securities dealings. This ruling strengthened the SEC’s position in an alleged unregistered securities case against Coinbase. The exchange pushed back, arguing the ruling merits “no weight.”
ShapeShift’s Controversial “No-KYC” Approach Draws Regulatory Scrutiny
Founded in 2014 by CEO Erik Voorhees, ShapeShift was originally incorporated in Switzerland but operated out of Denver, Colorado. The exchange distinguished itself by allowing customers to trade digital assets without creating accounts or providing personal information – a “no-KYC” (Know Your Customer) approach that bypassed standard Anti-Money Laundering measures.
This policy soon drew scrutiny. In 2018, ShapeShift had reportedly processed over $9 million over two years from suspected criminal entities, more than any other U.S.-based exchange. That same year, facing regulatory pressure, ShapeShift delisted privacy coins like Monero and launched its token.
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In July 2021, the SEC stated that ShapeShift dissolved its corporate entity, adding it now has no revenue or full-time staff. Even though ShapeShift is no longer operating an exchange, it came into the spotlight last year during the national crypto regulation debate. Senator Elizabeth Warren mentioned ShapeShift by name when pushing for a bill to increase regulations on the digital asset industry.
Some in the crypto industry say that anti-money laundering rules can work so long as they exempt so called decentralized entities… in other words, they want a giant loophole for DeFi written into the law so they can launder money whenever a drug lord or a terrorist pays them to do so. That is exactly what Colorado based-crypto exchange ShapeShift did when it deliberately restructured itself as a DeFi platform.
Warren said.
In response to the Warren statement, the firm took to X and wrote:
ShapeShift never handles user funds, therefore has no ability to facilitate this. ShapeShift is not an exchange.
Today, ShapeShift provides a browser-based crypto wallet, billing itself as “The best Multichain experience for MetaMask.”
