The Securities and Exchange Commission (SEC) of the United States has reached an agreement with tZERO, a blockchain-based alternative trading system (ATS) startup accused of breaking federal disclosure laws. tZERO, according to the SEC’s decision, violated multiple federal rules, including failing to disclose essential information to authorities. This includes exchanging order data with Blue Ocean Technologies, a Singaporean broker-dealer that tZERO ultimately purchased.
tZERO, a subsidiary of Overstock, an American online furniture retailer, also failed to disclose information about operational changes.
“The display of order information from its after-hours NMS stock order book was a material change to the operation of the ATS, for which Respondent was required to file an amendment on Form ATS at least 20 calendar days prior to implementation,” the SEC claimed, claiming that tZERO only began filing this information two years after it started sharing order information with Blue Ocean Technologies.
The SEC also claimed that tZERO failed to provide the Commission with all necessary disclosures “regarding its subscriber’s display of order book information for certain Digitally Enhanced Securities.
tZERO has been ordered to halt and desist from violating the Exchange Act in any way. The SEC also fined the ATS business $800,000 in civil penalties, notwithstanding the ATS firm’s refusal to confirm or dispute the SEC’s allegations.
Patrick Byrne, the founder, and CEO of Overstock established tZERO. tZERO, as an alternative trading system, provides trading and settlement for equities in the United States’ national marketing system (NMS), although it is governed differently than a traditional stock exchange. It had also made a name for itself as a major participant in the trading of security tokens based on blockchain networks and digital currency trading.
Despite receiving widespread attention and positioning itself as the go-to marketplace for security tokens, tZERO did not take off as expected. It had only managed to list two tokens a year into its operations, one of which was its own, and the other was linked to its parent business, Overstock. Due to its poor results, it was obliged to lay off some of its employees, with top executives receiving salary cuts of up to 50%.