If you believe in unicorns, I have a great story for you. Last week, Circle announced they purchased the crypto exchange Poloniex for $400M. This deal has made a lot of headlines because on one hand you have a VC funded company with a superstar CEO serial entrepreneur, Jeremy Allaire, and on the other you have this crypto exchange working in the shadows of SEC regulations, trading securities without being a broker-dealer and potentially violating a very long list of laws.\n\nSo how did the Circle board approve this deal? After all a company’s board of directors has a fiduciary responsibility to the shareholders and also to make sure the company does not get into regulatory trouble. The Directors and Officers (D&O) insurance is just not enough to protect those parties.\n\nThis is where this story gets even better. It turns out that there is a rumor that Circle received a free pass from the SEC. How? The Poloniex offering document has a section in which they explain that the SEC told them that if they register as a broker-dealer and apply for an Alternative Trading System (ATS), the SEC will give them a clean bill of health for all their past sins. Really?\n\n!(https://hackernoon.com/hn-images/0*rWNGMWljPwz1K1dk.)\n\nThe question is this: does the SEC offer get-out-of-jail-free cards? There is a belief system out there in which if you call the SEC and meet with them, all is good and happy no matter what infraction or fraud scheme you have committed. Nice system if you ask me.\n\nHowever, I do not believe this for a single moment. There is no way the SEC will trade its enforcement right in a conversation or verbal understanding. Investors who trade on Poloniex are protected by the SEC, who has the right to go after the company for trading securities without being registered and for on-boarding investors without proper due diligence, such as anti-money laundering, OFAC check and know your customer reviews.\n\nIf the SEC were truly going to give Poloniex a pass, then they would have given the company a no-action letter. When the European Union’s Markets in Financial Instruments Directive changed requirements for broker-dealers and investment advisers in January 2018, the SEC issued [no-action letters to specific markets](https://www.sidley.com/en/insights/newsupdates/2017/10/sec-issues-no-action-letters-to-address-mifid) last fall to guide affected entities and state specific actions they were allowed to take as they transitioned to operating under new regulation. Have no-action letters been issued to companies in the crypto community as the SEC becomes more vocal about its position? Not a single one.\n\nIt is clear by now that the SEC is no slouch (if this was ever in doubt), and they have unleashed their dogs, first going after ICOs and so far one defunct exchange (low hanging fruit). You think now they have decided to stop? No way.\n\nThe story gets even better this week: the SEC announced that [all crypto exchanges are illegal](https://hackernoon.com/the-sec-kills-crypto-exchanges-3dc9e3e87651) unless they are registered with the SEC. Was Poloniex registered? You guessed it: no.\n\nThis is just the beginning of enforcement action, and anyone who has violated securities laws better pay attention. Sometimes there is no remedy, and prayer is just the right amount of solace needed.\n\nThe Circle board must have been convinced of some hearsay discussion report with the SEC and made a critical acquisition of technology, customers, revenue and major liability. The right thing to do was to get a no-action letter from the SEC prior to the acquisition because that letter is the only protection you can take to the bank. With the SEC’s statement this week, Circle is surely regretting their decision to acquire Poloniex.