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Global crypto trading platform Bittrex was charged by the US Security and Exchange Commission (SEC) on Monday, 17 April, for operating an unregistered national securities exchange, broker, and clearing agency.
The SEC has also laid charges against Bittrex Global, a foreign affiliate of Bittrex, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.
The SEC alleges that Bittrex earned $1.3 billion between 2017 and 2022 by providing crypto trading services without registering with the SEC.
Bittrex was founded in 2014 by three cybersecurity engineers. One of whom was former CEO Bill Shihara, who has also been charged by the SEC.
Bittrex Inc., which only served customers in the United States, announced last month that the company would be winding down its operations. Customers had until 14 April 2023 to make trades on the platform and must withdraw funds by the end of April.
Co-founder and current CEO of Bittrex, Richie Lai, said that this decision came as it was no longer economically viable to operate in the US due to the “current US regulatory and economic environment”.
Lai said the leadership team would now focus on helping Bittrex Global operate outside of the US.
There is to be no clean break from the company’s US operations, though, as the SEC is coming after Bittrex with claims that the company was not properly registered when it was operating.
The charges
Essentially the SEC is arguing that Brittex dodged regulatory oversight by playing down the fact that the assets traded on its platform were securities.
Bittrex and Shihara, “chose profits over investor protection,” by taking measures to deliberately avoid SEC oversight, said the SEC.
They claimed that “circumventing the registration requirements of the federal securities laws” was one of the pillars on which the Bittrex business model was based.
In defence of this claim, the SEC said that Bittrex and Shihara took measures to ‘scrub ‘the products listed on the platform of information indicating that certain crypto assets were securities.
Sihara “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.”
To do this, the SEC said that Bittrex and Sihara instructed issuer-applicants to delete statements related to investment-related terms such as “price prediction[s],” and “expectation of profit”. The SEC alleges that these were “cosmetic alterations” that did nothing to change the economic reality of the products made available on Bittrex.
The mandate of the SEC is to protect investors and promote fairness in the security industry.
It said avoiding classifying the crypto assets traded on the platform as securities was a means of skirting regulation.
Bittrex Global, which does not operate within the US and has avoided serving US clients, was dragged into this case by the SEC as the company used a single shared order book together with Bittrex.
Bittrex Global responds
Bittex Global released a statement in the aftermath of the SEC announcing the charges saying they will see the regulator in court.
“Bittrex Global was willing to work productively with the SEC – as we do with all regulators – to explain our position. It has become clear that the SEC is not interested in such discussions. As a result, Bittrex Global will instead make those explanations – which we anticipate will be compelling – to a court, as we vigorously defend these allegations in the US,” it said.
For one, Bittrex Global said that it has never operated in the US or with US persons and said that it is operationally distinct from Bittrex.
The statement also challenged the SEC’s process as Bittrex Global said the company was approached for the first time with a ‘preliminary view’ from the SEC under a month ago. The company said that no documentation had been requested by the SEC before the lawsuit was filed.
“The Commission authorised filing the lawsuit without ever hearing from us in writing.”
Bittrex responds
Bittrex said that none of the digital assets offered on its platform were securities.
Bittrex said that on multiple occasions, it requested the SEC to disclose which assets on the platform were viewed as securities so that these assets could be reviewed and potentially delisted. It claims the SEC refused to respond to these enquiries.
“Bittrex operated within the parameters of the law at all times, and we look forward to vindicating our position in court.”
The SEC’s enforcement action against Bittrex forms part of “Chairman Gensler’s larger crusade to drive cryptocurrency out of the United States,” the company said.
It said the SEC’s position on crypto regulation would have a “chilling effect” on the adoption of blockchain technology and innovation in general.
Crypto clampdown
The SEC took the opportunity to fire shots across the bow at other crypto companies.
“Today’s action not only holds Bittrex accountable for misconduct that we allege put investors at risk, but should also send a message to other non-compliant crypto market intermediaries to follow the federal securities laws or be held accountable for their violations.”
The charges against Bittrex and Bittrex Global form part of a broader clampdown on the crypto industry in the US.
In March last year, the SEC announced charges against crypto asset platform Beaxy for failing to register as a national securities exchange, broker, and clearing agency.
Also in March, the SEC laid charges against crypto entrepreneur Justin Sun and the companies he is affiliated with for the unregistered offer and sale of crypto asset securities.
Earlier in the year, the SEC charged Gemini and Genesis for allegedly offering an unregistered crypto product that provided investors interest on cryptocurrency deposits by lending it out through Genesis.
Genesis’ lending business filed for bankruptcy in January.
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