Market Making and Crypto Trading Firms Face Renewed Regulatory Storm as SEC Targets Cumberland DRW
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Market Making and Crypto Trading Firms Face Renewed Regulatory Storm as SEC Targets Cumberland DRW
Following the U.S. regulatory charges against market makers such as Gotbit, Cumberland DRW has also been sued by the U.S. SEC.
Navigating Web3 tides with focused insightsBy Nancy, PANews
Following the U.S. regulatory authorities' charges against market makers such as Gotbit, Cumberland DRW has also been sued by the SEC. In response to the SEC's strict enforcement actions, Cumberland DRW has firmly responded that it will not change its business operations and is prepared to defend itself once again.
Accused of Operating as an Unregistered Securities Dealer, Earning Over $27 Million in Profits
On October 11, the SEC announced charges against Chicago-based Cumberland DRW LLC, alleging that since March 2018, the firm has operated as an unregistered securities dealer by buying and selling at least $2 billion worth of crypto assets for its own account—assets that were issued and sold as securities. Additionally, Cumberland allegedly earned millions of dollars in illicit profits through transactions with investors, depriving both investors and the market of protections provided under federal securities registration requirements.
The lawsuit states that Cumberland has heavily promoted its prominence and significance within the crypto space, publicly branding itself as a "global leading provider of crypto asset liquidity." Since March 2018, Cumberland has conducted trades via phone and its online trading platform Marea, allowing more than 1,500 high-net-worth individuals and entities to participate. Cumberland provided bid and ask prices on crypto assets that were issued and sold as securities. The SEC specifically cited five tokens—MATIC (POL), SOL, ATOM, ALGO, and FIL—as examples of securities.
The SEC further noted that there was typically a significant spread between buy and sell prices, and that Cumberland profited primarily from bid-ask spreads or by closing out positions that had appreciated in value. According to the SEC, Cumberland generated over $400 million in revenue and more than $27 million in profit from its crypto trading activities.
In addition, the SEC highlighted Cumberland’s promotional activities around crypto assets. The complaint stated that Cumberland maintains a team of research analysts and relationship managers who publish reports on the crypto industry and certain crypto assets issued and sold as securities, sometimes implying these assets could increase in value. Cumberland described these crypto assets to counterparties as potentially lucrative investment opportunities tied to the future success of crypto projects.
Moreover, the complaint alleges that Cumberland also executed various proprietary trading strategies through accounts on third-party platforms to manage risk, capture spreads, or seek arbitrage opportunities, including maintaining accounts on exchanges such as Binance.com, Binance.US, Bittrex, Coinbase, Kraken, and Poloniex.
"Federal securities laws require every dealer in securities to register with the Commission, and dealers operating in the crypto asset market are no exception," said Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit.
The SEC argues that Cumberland’s unregistered trading activities violated the legal framework designed to ensure transparency and protect investors. It is seeking a permanent injunction against Cumberland, disgorgement of all ill-gotten gains from unregistered trading activities plus pre-judgment interest, and civil penalties.
Cumberland Accuses SEC of Stifling Innovation, Says It Won’t Alter Operations
"Cumberland is the latest target of the SEC’s enforcement-first approach—one that suppresses innovation and discourages legitimate companies from participating in the digital asset space. In recent hearings, the SEC has been labeled a 'rogue agency' for failing to cooperate with Congress and criticized for abusing its authority," Cumberland responded promptly.
Cumberland added that over the past five years, it has engaged in extensive discussions with the SEC on this matter, submitting dozens of written summaries and statements along with thousands of pages of documentation. To comply with SEC demands, Cumberland even acquired a registered securities broker-dealer in 2019—but was subsequently told it could only use the entity to trade BTC or ETH, two assets deemed 'commodities' outside the SEC’s jurisdiction. Given the SEC’s conduct, Cumberland stated it will make no changes to its business operations or the assets for which it provides liquidity.
The court’s allegations against DRW are “based merely on a ‘flat-earth’ theory of guilt.” This time, the SEC appears to be playing a “Catch-22” game, where the ability to “come in and register” is nothing but a mirage. Cumberland is ready to defend itself once again.
Regarding the SEC’s regulatory move against crypto market makers, crypto KOL @qinbafrank commented: “U.S. regulators are intensifying their scrutiny of the crypto industry—from stablecoins and exchanges to high-profile projects—and now large-scale actions against market makers. It shows that gray areas will continue shrinking. Projects that previously thought they were too small to attract attention will increasingly face legal scrutiny. And targeting market makers—the key source of liquidity for smaller tokens—is essentially cutting off the lifeline for these altcoins.”
"The current SEC regulatory regime acts like a parasite, draining the efforts of honest operators trying to build real-world applications for cryptocurrency. We’ll likely look back on this era as a stain on American technological innovation. Fortunately, the SEC seems to be picking fights that will ultimately fail, and that gives me hope," said @0xLilShah, former Head of Partnerships at Scroll.
Cody Carbone, Chief Policy Officer at advocacy group The Digital Chamber, argued that this enforcement action reflects yet another instance of SEC overreach and bad faith. The crypto industry needs clear rules, not enforcement-by-headline—the kind of clarity essential for long-term growth.
Perhaps influenced by this news, Bitcoin led a broad downturn across the crypto market. According to CoinGecko data, Bitcoin briefly dropped below the $60,000 mark, falling to $58,000 within the past 24 hours.
Prior to this, amid increasing pressure from U.S. regulators, market makers such as Jane Street and Jump Trading have already announced their exit from the U.S. crypto trading market. With Cumberland and others now facing successive regulatory lawsuits, crypto market makers can expect even stricter compliance demands ahead.
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