Circle Financial lost over $156 million on its buyout and subsequent jettisoning of the crypto exchange Poloniex, the payments company revealed Thursday.
The company is still dealing with Poloniex’s legal woes despite cutting business ties with Poloniex in late 2019, Circle said in a regulatory filing published in support of its 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.”
Circle estimates it will have to pay $1.1 million to $2.8 million to OFAC. Further, Circle has set aside $10.4 million for a settlement offer to the SEC. It does not appear 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 no further details were 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.
Poloniex became an independent entity, but Thursday’s filings show Circle was left holding the legal bags.
In 2019, Circle sold Poloniex to an Asian consortium of unidentified investors, just 18 months after it bought the company. 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. Those were primarily funds belonging to U.S. customers or customers who were “sanctioned.”
While U.S.-based Poloniex customers couldn’t trade their cryptocurrencies, Circle said it will let them withdraw in USDC.