April 17, 2023 - The U.S. Securities and Exchange Commission (SEC) has taken legal action against cryptocurrency trading platform Bittrex, Inc., its co-founder, and former CEO William Shihara, for operating as an unregistered national securities exchange, broker, and clearing agency. Additionally, Bittrex Global GmbH, Bittrex Inc.'s foreign affiliate, faces charges for not registering as a national securities exchange while operating a single shared order book with Bittrex.
The SEC charges that:
"Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.
The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, coordinated with issuers who sought to have their crypto asset made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate the crypto asset as the offering of a security. For example, in an effort to avoid regulatory scrutiny, before Bittrex would make an asset available on its platform, Bittrex and Shihara instructed issuer-applicants to delete statements related to “price prediction[s],” “expectation of profit,” and other “investment related terms.”
SEC Chair Gary Gensler commented on the case, stating, "Today's action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity." He added that Bittrex and its associated issuers were aware of the rules but evaded them by directing applicants to "scrub" offering materials, as alleged.
Gurbir S. Grewal, Director of the SEC's Division of Enforcement, said, "We allege that Bittrex repeatedly chose profits over investor protection." The SEC's action aims to hold Bittrex accountable for its non-compliance and send a message to other non-compliant crypto market intermediaries to follow federal securities laws or face consequences.
The SEC's complaint, filed in the U.S. District Court for the Western District of Washington, contends that Bittrex and Bittrex Global should have registered as an exchange, clearing agency, and broker due to their activities in facilitating securities transactions for the accounts of others in crypto assets offered and sold as securities.
In response to the charges brought today, Bittrex issued a robust statement defending themselves and claiming that they had tried to cooperate with the SEC to no avail:
"We are disappointed with the SEC’s decision to bring an enforcement action against Bittrex as part of Chairman Gensler’s larger crusade to drive cryptocurrency out of the United States. The impact of the SEC’s approach of regulation by enforcement will have a chilling effect on not just cryptocurrency in the United States, but on blockchain technology and innovation in general. While in operation, Bittrex provided a trading platform for digital assets. Securities were not offered or traded on Bittrex, nor did Bittrex offer any products that were investment contracts. For over five years, and despite multiple, specific requests to do so, the SEC would not provide notice of the specific conduct that it thought violated the federal securities laws. Specifically, on multiple occasions, we asked them to tell us what digital assets on our platform they viewed as securities, so that we could review and potentially delist them. They refused to do so. Bittrex operated within the parameters of the law at all times, and we look forward to vindicating our position in court.
The SEC’s actions will directly and substantially harm U.S. customers and U.S. employees in this industry and will ultimately put our country at a significant disadvantage in the development of blockchain technology, including uses far beyond cryptocurrency, in the future."
In October 2022, Bittrex agreed to pay more than $29 million to settle allegations that the company violated U.S. sanctions law by allowing customers in Syria, Sudan, Iran, Cuba and the Crimea to make transactions worth more than $263 million on its platform from 2014 to 2017
OFAC Director Andrea Gacki said after the settlement, “When virtual currency firms fail to implement effective sanctions compliance controls, including screening customers located in sanctioned jurisdictions, they can become a vehicle for illicit actors that threaten U.S. national security. Virtual currency exchanges operating worldwide should understand both who — and where — their customers are.”
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