On September 12, 2024, the Securities and Exchange Commission (SEC) announced that eToro USA LLC has agreed to a settlement of $1.5 million over charges related to operating as an unregistered broker and clearing agency. The settlement stems from eToro’s involvement in facilitating the trading of certain crypto assets classified as securities on its platform. As part of the agreement, eToro has committed to halting operations that violate federal securities laws and will restrict the availability of crypto assets for trading on its platform to a limited selection.
eToro’s Unregistered Operations: A Breach of Federal Securities Law
The SEC’s findings reveal that since at least 2020, eToro provided U.S. customers with the ability to buy and sell crypto assets through its online platform. These assets, considered securities by the SEC, were traded without the necessary registration as a broker or clearing agency. The federal securities laws require entities offering such services to comply with stringent registration provisions, a mandate that eToro failed to meet during the period in question.
eToro’s Commitment to Compliance with the SEC’s Order
Following the SEC’s order, eToro announced significant changes to its operations to align with federal regulations. The company confirmed that Bitcoin (BTC), Bitcoin Cash (BCH), and Ether (ETH) will be the only crypto assets available for U.S. customers to trade moving forward. Additionally, customers will only have a 180-day window to sell any other crypto assets currently available on the platform. After this period, the functionality to trade these tokens will no longer be supported.
SEC’s Stance on eToro’s Settlement and Regulatory Compliance
The SEC’s Division of Enforcement emphasized the importance of eToro’s move toward compliance. Gurbir S. Grewal, Director of the Division, noted that eToro’s decision to remove tokens offered as investment contracts from its platform demonstrates its willingness to adhere to established regulatory standards. This action enhances investor protection and sets an example for other crypto intermediaries navigating the U.S. regulatory landscape.
eToro’s Agreement to Cease Operations Involving Certain Crypto Assets
As part of the settlement, eToro agreed to cease and desist from offering or selling any crypto assets that are considered securities but have not met the necessary regulatory requirements. The SEC’s order mandates that within 187 days, eToro must liquidate any such assets that cannot be transferred to its customers and return the proceeds to the appropriate individuals.
Implications for U.S. Customers and the Future of Crypto Trading
U.S. customers who hold crypto assets on eToro’s platform that do not fall under the SEC’s regulatory framework will have limited time to manage their investments. The company’s move to restrict trading to a few crypto assets—namely Bitcoin, Bitcoin Cash, and Ether—marks a pivotal shift in its operations. This development may prompt customers to reassess their holdings and explore alternative platforms that offer a broader range of crypto assets.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
