Circle Financial lost over $156 million on its blockbuster buyout and subsequent jettison of the crypto exchange Poloniex, the payments company revealed Thursday.
The company is still dealing with Poloniex’s legal woes despite cutting business ties in late 2019, it said in a regulatory filing published in support of Circle’s move to go public via a special purpose acquisition company (SPAC). Circle has also lined up millions of dollars to settle a previously undisclosed case brought by the U.S. Securities and Exchange Commission (SEC) as well as sanctions violations investigated by the Office of Foreign Assets Control (OFAC) and an “Iranian government agency”.
It estimates it will have to pay $1.1 million to $2.8 million to OFAC. Further, Circle has prepared $10.4 million for a settlement offer to the SEC. It does not appear that the SEC has brought any formal charges.
It was not immediately clear what the SEC investigated Poloniex for in December 2017, the height of that year’s bull market. The Thursday documents describe a complaint tied to the “trading of cryptocurrencies that may be characterized as securities” but there were no further details available.
The revelation adds another asterisk to one of the crypto industry’s big fizzles. Circle bought Poloniex for $400 million in early 2018 as part of founder Jeremy Allaire’s grand vision to build Circle into a one-stop-shop for crypto. Less than two years later, it spun out Poloniex as part of a wider effort to restructure that plan.
Poloniex became an independent entity but Thursday’s filings show Circle was left holding the legal bags.
Circle acquired Poloniex in early 2018 for some $400 million, but sold it to an Asian consortium of unidentified investors just 18 months later. The move was among the first in Circle’s efforts to pivot to a stablecoin-focused business model.
According to Thursday’s filing, Circle retained $26 million in customer funds after spinning Poloniex out. These were primarily funds belonging to U.S. customers or customers that were “sanctioned.”
While U.S.-based Poloniex customers couldn’t trade their cryptocurrencies, Circle said it will let them withdraw in USDC.