- eToro has settled its legal case with the US SEC, agreeing to pay a US$1.5 million (AU$2.2m) penalty and limit its crypto offerings to just three tokens — Bitcoin, Bitcoin Cash and Ether.
- The SEC had alleged eToro had been operating as an unregistered broker and clearing agency since at least 2020 by offering crypto assets as securities.
- The SEC has been accused of mischaracterising the settlement — the regulator has claimed that by limiting their crypto offerings eToro has become compliant, when in fact it was the exchange’s securitisation of cryptocurrency tokens, not the tokens themselves that was illegal.
Another day, another SEC anti-crypto legal case gets settled. This time it was eToro’s turn. The trading platform has agreed to pay a penalty of US$1.5 million (AU$2.2m) and to cut back its crypto offerings to just three coins — Bitcoin, Bitcoin Cash and Ether.
Much like its cases against other crypto exchanges, the SEC had alleged that eToro was functioning as an unregistered broker and clearing agency and that it allowed trading of some crypto assets as securities.
Despite eToro being a relatively minor player in the US crypto exchange landscape, market watchers believe this settlement may provide some clues as to which cryptocurrencies the SEC will eventually decide are non-securities.
Related: Coinbase Challenges SEC’s Proposal on DEX Regulation, Citing ‘Irrational’ Analysis and Threat to Innovation
SEC Says Settlement an Example to Other Crypto Exchanges
According to a statement from the SEC, eToro had been illegally “providing U.S. customers the ability” to buy and sell crypto assets as securities while unregistered to do so, since at least 2020.
In addition to the fine, the terms of the settlement mean that eToro can allow its customers to sell all current cryptocurrency offerings for the next 180 days. After that, buying and selling will be restricted to Bitcoin, Bitcoin Cash and Ether.
The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said the settlement will enhance investor protections in the US and shows other crypto exchanges how they can operate in a compliant way:
By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework. This resolution not only enhances investor protection, but also offers a pathway for other crypto intermediaries.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement As part of the settlement, eToro neither admitted nor denied wrongdoing.
The settlement has also been interpreted as a signal from the SEC that Bitcoin, Bitcoin Cash and Ether will not be considered securities moving forward, despite a lack of any official guidance from the regulator. Speaking with CoinDesk, Joseph Tully, securities litigation lawyer at Tully & Weiss said:
It appears that the SEC has officially sanctioned BTC, BCH, and ETH so we know that the SEC considers at least those three to be commodities and not securities. The key words here [are] at ‘at least.’ There may be others, but there is no legal guidance based upon this settlement.
Joseph Tully, Securities litigation lawyer at Tully & Weiss SEC’s Version of Events Is Misleading, Says Cochrane
Partner at Web3 venture capital firm, Adam Cochrane, says the SEC’s portrayal of this settlement is misleading. On X / Twitter, Cochrane analysed the settlement, highlighting that unlike other prominent crypto exchanges, such as Coinbase, eToro doesn’t allow direct spot trading of crypto — instead it bundles crypto as securities and trades them much like contracts-for-difference (CFDs).
According to Cochrane, it’s this securitisation of the underlying cryptocurrencies that’s the issue here, not the cryptocurrencies themselves — and the SEC has intentionally misrepresented this settlement by claiming that the token removals brought eToro into compliance.
He said the SEC’s mischaracterisation was “dirty”, because it suggests that there were cryptocurrencies offered as investment contracts, but that was never the case. Cochrane argues they were instead “securities *based on the price of tokens* offered as securities”.
Removing the securities based on the tokens is what made eToro compliant — as Cochrane posted: “eToro’s structure was an issue, the assets they offered were not.”
Related: Ripple’s Stu Alderoty “Not Surprised” If SEC Launches Appeal
Cochrane said the SEC has been guilty of using this tactic — finding an unrelated breach, then forcing an exchange to limit its crypto offerings as part of the settlement — numerous times in the past:
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