ShapeShift, a cryptocurrency platform that ceased operations in 2021, has agreed to a cease-and-desist order and a $275,000 fine to resolve claims from the U.S. Securities and Exchange Commission (SEC) that it allowed users to trade digital tokens without registering. Broker or exchange.
The settlement announced Monday resolves a years-long SEC investigation into whether ShapeShift’s conduct violated federal securities laws.
The SEC’s case focused on ShapeShift’s operations from July 2017 to November 2019. At the time, the cryptocurrency exchange reportedly facilitated the purchase and sale of digital assets that were investment contracts and securities that ShapeShift had not properly registered for sale.
The SEC argued that “the cryptocurrency assets offered by ShapeShift are securities because they include assets offered and sold as investment contracts.” “ShapeShift has never registered as a dealer with the Commission and has never operated under a registration exception or exemption.”
Although ShapeShift no longer exists, the SEC says it was once a very active player in the cryptocurrency industry.
“At its highest level, the ShapeShift platform allowed customers to exchange at least 79 cryptocurrency assets,” federal regulators said. “ShapeShift acted as a market maker for these assets by acting as the counterparty to all transactions and marketing itself as a cryptocurrency ‘vending machine.’”
Founded in 2014 by CEO Erik Voorhees, ShapeShift was founded 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 personal information. This is a policy known as “no-KYC”. “(Know Your Customer) is part of the financial industry’s standard anti-money laundering (AML) measures.
However, this approach has come under close scrutiny. In November 2018, as part of a broader investigation into the criminal use of cryptocurrencies. wall street journal ShapeShift reported processing more than $9 million from suspected criminal groups over a two-year period. This is “more than any other transaction with our U.S. office.”
That same month, ShapeShift delisted privacy coins Monero, Dash, and Zcash and launched its own token, admitting the move was due to regulatory pressure. This was after the exchange flipped its business model earlier that year, becoming a decentralized service and not holding digital assets on behalf of its customers in favor of open-source principles.
“To enable swaps in a frictionless manner, ShapeShift was both a market maker and counterparty to users’ transactions,” Voorhees explained in a blog post at the time. “This has resulted in us being classified as a ‘financial institution’ and subject to regulation. This is incompatible with protecting our users’ privacy and security interests and, in my view, clearly amounts to an unreasonable search without probable cause.”
According to the SEC, on July 14, 2021, ShapeShift announced that it was dissolving the corporation. According to the SEC, the company currently has no revenue or full-time employees.
Although it is no longer in operation, ShapeShift re-emerged in the national policy debate over cryptocurrency last year when Senator Elizabeth Warren mentioned its name while pushing legislation to increase regulation of the digital asset space.
“Some in the cryptocurrency industry say anti-money laundering rules could work as long as they exempt so-called decentralized entities. In other words, they want a huge loophole for DeFi written into the law so they can launder money whenever the drug comes out. “Lords and terrorists pay to do that,” Warren said. “That’s exactly what Colorado-based cryptocurrency exchange ShapeShift did when it intentionally restructured itself as a DeFi platform.”
The senator described the announcement as an invitation to “launder money here.”
ShapeShift has been pushed back.
“ShapeShift never processes user funds and therefore has no ability to facilitate this,” the company wrote on Twitter. “ShapeShift is not an exchange.”
On Valentine’s Day, @SenWarren She tried to use ShapeShift as an example to push the latest cryptocurrency bills.
Unfortunately, there were mistakes in the Senator’s analysis, and we would like to take this opportunity to set the record straight 🧵
— ShapeShift 🦊 (@ShapeShift) February 18, 2023
“Ironically, we care about the same things as Senator Warren: user safety (requiring self-custody) (and) access to innovation (DeFi, not CeFi),” ShapeShift continued. “We also care about mutual understanding and believe in creating products that provide financial freedom to all humans around the world.”
Today, ShapeShift is a browser-based cryptocurrency wallet provider that describes itself as the best multichain experience for MetaMask.”
