Cryptocurrency platform ShapeShift — which ended operations in 2021 — agreed to a cease-and-desist order and a $275,000 fine to settle allegations by the U.S. Securities and Exchange Commission (SEC) that it allowed users to trade cryptocurrencies without registering as a cryptocurrency. Broker or exchange.
The settlement, announced Monday, resolves a years-long investigation by the Securities and Exchange Commission into whether ShapeShift's conduct violated federal securities laws.
The SEC's case focuses on ShapeShift's operations between July 2017 and November 2019, when the former cryptocurrency exchange allegedly facilitated the purchase and sale of digital assets that served as investment contracts and thus securities that ShapeShift had not properly registered for sale.
The SEC confirmed that “the cryptocurrency assets offered by ShapeShift include those that were offered and sold as investment contracts, and therefore securities.” “ShapeShift has never been registered as a dealer with the Commission and has not operated pursuant to any exception or exemption from registration.”
Although ShapeShift is no longer in existence, the SEC says it was once a very active player in the cryptocurrency space.
“At its peak, the ShapeShift platform allowed customers to conduct exchanges of at least 79 crypto assets,” the federal regulator confirms. “ShapeShift acted as a market maker for these assets by acting as a counterparty to each transaction, marketing itself as a ‘vending machine’ for cryptocurrencies.”
ShapeShift was founded in 2014 by CEO Eric Voorhees, in Switzerland and operated in Denver, Colorado. The exchange initially allowed customers to buy and sell digital assets without creating an account and without providing personal information – a policy known as “no-KYC” (know your customer) that is part of standard anti-money laundering (AML) measures in the financial industry.
However, this approach has drawn scrutiny. In November 2018, as part of a broader investigation into the criminal use of cryptocurrencies,… Wall Street Journal It reported that ShapeShift processed more than $9 million from suspected criminal entities over two years — “more than any other exchange with U.S. offices.”
In the same month, ShapeShift delisted privacy coins Monero, Dash, and Zcash – acknowledging that the move was due to regulatory pressures – and launched its own token. This was after the exchange turned its business model upside down earlier that year, becoming a decentralized service and favoring open source principles that did not hold digital assets on behalf of its clients.
“To enable swaps in a frictionless way, ShapeShift was both the market maker and counterparty for users’ trades,” Voorhees explained in a blog post at the time. “This led us to be classified as a ‘financial institution’ and were arguably subject to regulations that were inconsistent with While protecting users' privacy and security interests – in my view clearly constitutes an unreasonable search without probable cause.”
On July 14, 2021, ShapeShift announced that it would dissolve its corporate entity, according to the Securities and Exchange Commission, which adds that the company currently has no revenue or full-time employees.
Although it is no longer in operation, ShapeShift resurfaced in the national policy debate over cryptocurrencies last year when Senator Elizabeth Warren cited its name while promoting a bill that would tighten regulations surrounding the digital asset space.
“Some in the cryptocurrency industry say AML rules can work as long as they exempt so-called decentralized entities… In other words, they want a giant DeFi loophole written into the law so they can launder money whenever a drug shows up,” Warren said. “They get a lord or a terrorist in exchange for doing it.” “This is exactly what Colorado-based cryptocurrency exchange ShapeShift did when it deliberately restructured itself as a DeFi platform.”
The senator described the announcement as a call to “launder your money here.”
ShapeShift is pushed back.
“ShapeShift never handles user funds and therefore has no ability to facilitate this,” the company wrote on Twitter. “ShapeShift is not an exchange.”
“Ironically, we care about the same things that Senator Warren does: user safety (self-guardianship required) [and] Access to innovation (DeFi, not CeFi),” continued ShapeShift. “We also care about mutual understanding and believe in building a product that enables financial freedom for all humans around the world.”
Today, ShapeShift is a browser-based cryptocurrency wallet provider that describes itself as the ultimate Multichain experience for MetaMask.
