The SEC claims that Cumberland violated securities laws by trading assets like Solana and Polygon without complying with federal requirements. Cumberland responded by saying it tried to comply but faced regulatory ambiguity. This lawsuit was filed amid broader criticism of the SEC's approach to crypto regulation, including remarks from SEC Commissioner Mark Uyeda. He even labeled the agency’s handling of the industry as a "disaster." Ripple and other crypto firms also started to push back against the regulator in their ongoing legal battles with the SEC.
Cumberland Faces SEC Lawsuit
The US Securities and Exchange Commission (SEC) filed a lawsuit against Cumberland DRW, and accused the company of operating as an unregistered dealer. According to the SEC, Cumberland allegedly sold more than $2 billion in cryptocurrency assets since 2018 without complying with federal registration requirements.
The lawsuit states that Cumberland engaged in proprietary trading and trading on third-party crypto exchanges while acting as an unregistered dealer, which the SEC claims is in violation of Section 15(a) of the Securities Exchange Act of 1934. The SEC is asking for permanent injunctive relief, the return of ill-gotten gains, prejudgment interest, and civil penalties.
The SEC identified five cryptocurrencies handled by Cumberland as securities. These cryptos include Polygon (MATIC), Solana (SOL), Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL).
In response to the lawsuit, Cumberland stated that it tried to comply with registration requirements. The company registered as a dealer-broker in 2019 but later discovered that the registration only applied to Bitcoin (BTC) and Ethereum (ETH). Cumberland also claimed that it engaged in good-faith discussions with the SEC for five years and that the lawsuit is the first time the agency detailed the specific transactions in question.
Cumberland called itself the latest target of the agency’s enforcement-first approach to digital assets. The company also stated it will not alter its business operations or the assets it provides liquidity for as a result of the SEC’s lawsuit and is prepared to defend its position.
Cumberland’s stance is very similar to that of other companies facing SEC scrutiny. Crypto.com recently filed its own lawsuit against the SEC after receiving a Wells notice.
Crypto Regulation a “Disaster”
SEC commissioner Mark Uyeda recently criticized the agency’s handling of crypto regulation. He even called it a “disaster” and claimed that the SEC failed to provide clear rules for the industry.
Uyeda spoke on an Oct. 10 Fox Business panel, and specifically pointed out that SEC Chair Gary Gensler has been enforcing crypto policies without offering any guidance for firms to follow, which led to confusion and inconsistency in court rulings. Uyeda is very frustrated that the SEC has relied on enforcement actions rather than setting clear regulatory frameworks, which has resulted in a fragmented legal landscape for the crypto industry.
Mark Uyeda on Fox Business panel (Source: Fox Business)
Uyeda’s comments came just one day after Crypto.com sued the SEC. The Singapore-based crypto exchange alleged that the SEC overstepped its authority and challenged the regulator’s opinion that almost all cryptocurrencies should be classified as securities. This lawsuit is just the latest in a whole lineup of conflicts between the SEC and the crypto industry, and many companies criticized Gary Gensler’s approach as unclear and overly harsh.
Gensler has consistently maintained that crypto firms have to comply with securities laws, but industry players have pushed back a bit by arguing that the existing regulatory framework does not suit digital assets. Uyeda acknowledged these concerns, and stated that the SEC’s current approach seems to be misguided.
While Uyeda did not speculate on Gensler’s personal motivations for his enforcement-driven strategy, he mentioned that Gensler has a very distinct perspective on how to regulate the crypto industry. Uyeda, along with fellow commissioner Hester Peirce, has often voted for more progressive crypto policies, but the SEC’s agenda ultimately reflects Gensler’s views. The commissioner also made sure to mention that the agency’s staff mainly just follows Gensler’s lead.
Ripple Files Cross-Appeal in Ongoing SEC Legal Battle
Ripple Labs is also pushing back against the SEC as it filed a notice of cross-appeal in its ongoing legal battle with the regulator, taking the case to the Court of Appeals for the Second Circuit. This step happened after the SEC’s own appeal notice was filed on Oct. 2.
Both appeals were made to address legal or procedural errors in the decision from Aug. 7. In this decision, a federal judge ordered Ripple to pay a $125 million civil penalty for violating securities laws. The SEC initially wanted Ripple to pay a $2 billion fine, while Ripple argued the penalty should not be more than $10 million.
The legal dispute started in 2020 when the SEC accused Ripple of conducting an unregistered securities offering through its sale of XRP tokens. Then, in July of 2023, Judge Analisa Torres determined that Ripple’s XRP sales to institutional investors violated securities laws, but its programmatic sales to the general public and distributions to employees and developers did not constitute securities transactions.
Ripple’s chief legal officer, Stuart Alderoty, shared that the company filed the cross-appeal to make sure that all arguments are addressed, including the claim that an “investment contract” cannot exist without essential rights and obligations in a contract. This argument centers around the Howey test, which is used to determine if a transaction qualifies as an investment contract under US securities law. The test considers whether there is an investment of money, a common enterprise, and an expectation of profits derived primarily from the efforts of others.
Alderoty also clarified that the SEC is not appealing the ruling that XRP itself is not a security. He pointed out that the SEC even apologized in another case for suggesting a token could be a security on its own.
Both Ripple and the SEC are expected to continue presenting their arguments in the coming weeks, though the timeline for the appeals is still uncertain. It is also unclear if the SEC’s appeal will focus only on the fines imposed on Ripple or if it will continue to challenge the broader ruling with regards to XRP’s status.
Rimar Capital Settles SEC Fraud Charges
Meanwhile, Rimar Capital LLC, Rimar Capital USA, and their executives Itai Liptz and Clifford Boro settled fraud-related charges with the SEC. They ended up paying a total of $310,000 in civil penalties.
The charges stemmed from accusations that the firm misled investors by falsely claiming to have artificial intelligence-driven trading capabilities and raised close to $4 million based on these false claims. The SEC stated that Liptz and Boro used AI "buzzwords" to promote a non-existent AI trading platform for cryptocurrencies, equities, and futures to try and secure funding from investors.
The SEC also alleged that the company had no actual trading platform at the time of fundraising and that the duo exaggerated Rimar LLC's assets under management as they claimed it held between $16 million and $20 million, while it actually had less than $2 million. Additionally, they falsely reported a 46% compounded annual growth rate for their client accounts.
Liptz was also accused of using some of the raised funds for personal expenses, rather than for marketing and developing a promised "Hedge Fund for everyone" app. Without admitting or denying the allegations, Liptz and Boro consented to the SEC's findings. Liptz agreed to pay $213,600 in disgorgement and prejudgment interest, along with a $250,000 civil penalty. He has also been barred from the industry for five years. Rimar LLC consented to being censured as part of the settlement.
