By Michael Scott
The statement issued on April 17 by US Securities and Exchange Commission (SEC) revealed the watchdog agency filed a complaint seeking Bittrex to halt the provision of services. The securities watchdog alleges that the Seattle-based exchange violated Federal laws by offering unregistered services to US customers.
SEC Alleges Bittrex of Running Unregistered Operations
SEC accuses the digital assets trading firm and former chief executive William Shihara of running an unregistered trading platform. The suit alleges Bittrex co-founder knowingly ran the unregistered firm to offer securities exchange, brokerage, and clearing agency services in direct contravention of US laws.
The charge borrows a leaf from the suit initiated by the CFTC against Binance and its chief executive, Changpeng Zhao, alleging they contravene Federal laws by offering unregistered commodities. SEC update reveals the agency filed an additional suit accusing Bittrex Global of violating US laws.
The update conveyed by SEC on Monday illustrates that SEC filed four charges citing Exchange Act violations. The submissions made before the Western District court in Washington, DC, revealed that Bittrex Global and its US affiliate firm face similar charges. The move is unsurprising given that both operated from a single shared order.
Grewal argued that Bittrex deployed a business model customized to be laid out to avoid complying with the registration requirements. Also, the model design aimed to circumvent the legal requirements through directives to crypto issuers to alter the offering materials. Lastly, it prioritized assembling several market intermediary functions to optimize profits.
SEC Identifies Tokens Offered by Bittrex as Securities
The lawsuit filed by SEC reveals that Bittrex offered token trading, including OMG (OMG), Dash, Algorand, Monolith (TKN), Naga (NGC), and IHT Real Estate Protocol (IHT), despite being securities that lack a license to operate. The suit raises concerns among crypto enthusiasts fueled by past criticism that the SEC is fond of regulating through enforcement. The critics accuse the SEC of claiming tokens as securities only when filing complaints. The critics question why the watchdog fails to embrace the approach before filing.
The charge sheet reveals that SEC is accusing Shihara of orchestrating the violations. In particular, SEC claims that the former chief directed Bittrex customers to delete the statements considered problematic to avoid attracting regulatory scrutiny.
SEC is petitioning the jury for disgorgement, issuance of permanent injunctions, and penalties imposed against the two defendants. In his statement, SEC head of enforcement Gurbir Grewal revealed that the lawsuit demonstrates devotion by SEC to hold Bittrex accountable for the misconduct that left investors vulnerable.
Also, the suit is serving as a deterrence to the non-compliant intermediaries operating im the crypto market to comply with the federal security laws and accept liability for its violations.
Meanwhile, Bittrex anticipated SEC’s move after receiving the Wells Notice. As such, Bittrex informed its customers of its decision to terminate US operations by April 30, citing an intolerable regulatory environment.
Previously Bittrex confronted charges initiated by the Treasury’s Office of Foreign Assets Control and Financial Crimes Enforcement Network filed in October, citing violation of sanctions and the Bank Secrecy Act. The charges led Bittrex to settle a $30 million fine to the money-laundering watchdog for poor compliance from 2014 to 2017.
Bittrex Considering Settlement with SEC
The move by SEC to charge Bittrex aligns with the previous sentiment when the agency vowed to initiate legal action citing the firm contravened the investor-protection laws.
The Well Notice issued by SEC likely prompted the announcement by Bittrex to inform its community of terminating US operations. The firm had in March indicated uncertainty of SEC action. Nevertheless, Bittrex cited the new regulatory conditions as prompting the exit decision.
Bittrex lead counsel David Maria argued that the firm would pursue the litigation unless SEC required them to pay a reasonable settlement. Meanwhile, the decision by SEC to charge Bittrex replicates the enforcement action it has undertaken against other crypto enterprises.
Recently in February, the watchdog confirmed receiving $30 million from Kraken. The firm indicated it would shut down the staking program for US citizens. The lawsuit could take longer just as the SEC v Ripple thereby casting Bittrex future in US market doubtful.