## Facts

- Poloniex, LLC operated an online digital asset trading platform from at least July 2017 through November 2019.
- Users could open accounts, deposit digital assets into platform-controlled wallets, place orders, trade, and withdraw assets.
- The platform displayed a limit order book and matched orders of multiple buyers and sellers using established, non-discretionary methods.
- Some digital assets traded on the platform were treated as securities because they were investment contracts under the Howey test (“digital asset securities”).
- Poloniex charged transaction-based trading fees.
- Poloniex did not register as a national securities exchange and did not operate under an exemption from exchange registration.

## Issues

1. Whether Poloniex operated a facility that met the statutory definition of an “exchange” while bringing together orders in securities.
2. Whether Poloniex violated Exchange Act § 5 by effecting transactions in digital asset securities without registering as a national securities exchange or qualifying for an exemption.

## Decision

- The SEC instituted and resolved an administrative cease-and-desist proceeding based on Poloniex’s accepted offer of settlement, with consent to jurisdiction and without admitting or denying the findings.
- The SEC found the platform met the definition of an exchange because it brought together multiple buyers and sellers and matched orders through non-discretionary methods.
- The SEC determined Poloniex violated Exchange Act § 5 by operating an unregistered exchange for digital asset securities.
- The SEC ordered Poloniex to cease and desist from future violations of Exchange Act § 5.
- The SEC ordered monetary relief: disgorgement of $8,484,313.99, prejudgment interest of $403,995.12, and a civil penalty of $1,500,000, to be placed into a Fair Fund for distribution to harmed investors.

## Legal Principles

- An entity is an “exchange” if it provides a marketplace or facilities for bringing together purchasers and sellers of securities and uses established, non-discretionary methods for orders to interact and result in trades.
- Exchange Act § 5 prohibits an exchange from effecting transactions in securities unless registered as a national securities exchange or operating pursuant to an exemption.
- Digital assets may be securities when they constitute investment contracts under the Howey test; when a platform facilitates trading in such instruments, exchange-registration requirements may apply.

## Conclusion

The SEC concluded that Poloniex operated an exchange for digital asset securities without registration or exemption in violation of Exchange Act § 5, and imposed cease-and-desist relief and substantial monetary remedies to fund investor distribution.


In re Poloniex, LLC, Exchange Act Release No. 92607 (Aug. 9, 2021)