eToro Settles With SEC for $1.5M, Agrees to Remove Token Securities From Its Platform

By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework.

Social trading platform eToro has agreed to pay $1.5 million to settle charges put forth by the Securities and Exchange Commission, which claimed the company operated an unregistered broker and unregistered clearing agency in connection with its trading platform that facilitated buying and selling certain crypto assets as securities.

As part of the settlement, eToro agreed to “cease and desist from violating the applicable federal securities laws and will make only a limited set of crypto assets available for trading.”

The SEC’s order highlights ongoing issues between crypto companies and the agency, particularly regarding the regulatory status of digital assets. The lack of clear guidelines has resulted in several high-profile lawsuits, with the SEC targeting various exchanges and cryptocurrencies.

One of the most notable cases, SEC v. Ripple Labs, centered around whether XRP was a security. The outcome of the lawsuit left the legal status of many crypto assets in a grey area, with the court ruling that XRP sales to institutional investors violated securities laws, but retail sales did not.

The regulatory ambiguity extends back to the 2018 Hinman speech, in which then-SEC Director William Hinman stated that Ether, despite being launched through an initial coin offering (ICO), was not considered a security. This speech gave hope to many crypto projects but failed to provide a comprehensive framework, with the SEC later hinting that it might still pursue enforcement actions against certain issuers and promoters of digital assets.

According to the SEC, eToro operated as a broker and clearing agency since 2020 by providing U.S. customers the ability, through its online trading platform, to trade crypto assets being offered and sold as securities. However, eToro did not comply with the registration provisions of the federal securities laws.

The SEC stated in its order that eToro customers were able to trade crypto assets such as XRP, Stellar Lumens (XLM), EOS, Chainlink (LINK), Uniswap (UNI), PancakeSwap (CAKE), and Immutable X (IMX), among others, which were listed on the platform as early as 2020. Many of these crypto assets have faced regulatory scrutiny, with XRP being at the center of a heated legal battle.

The SEC highlighted that eToro’s status as an unregistered broker and clearing agency deprived U.S. customers of critical investor protections, including the agency’s oversight, examinations, and enforcement authority.

“By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. This resolution not only enhances investor protection, but also offers a pathway for other crypto intermediaries. The $1.5 million penalty reflects eToro’s agreement to cease violating applicable federal securities laws as it continues its U.S. operations.”

The settlement marks a significant development in the ongoing regulatory saga involving crypto assets and trading platforms in the United States. As eToro now only offers Bitcoin, Bitcoin Cash, and Ether for US customers, it will be interesting to see how other platforms adjust their offerings and whether the SEC provides further guidance on the matter.