SEC Sues Bittrex Crypto Exchange and Former CEO Regulators allege the company listed assets that required it to register and follow investor-protection rules The Securities and Exchange Commission’s lawsuit accuses Bittrex of operating an illegal securities exchange.PHOTO: FARRAH SKEIKY FOR THE WALL STREET JOURNAL By Dave Michaels Updated April 17, 2023 3:24 pm ET WASHINGTON—Securities regulators sued Bittrex, a crypto exchange that once ranked as the biggest U.S.-based platform for trading digital assets. The Securities and Exchange Commission’s lawsuit, filed in Seattle federal court, accuses Bittrex Inc. of operating an illegal securities exchange, broker-dealer and clearinghouse. The lawsuit hinges on the claim that Bittrex listed digital assets that qualified as securities, which would have required the company to register with the SEC and follow its rules. The SEC also sued Bittrex’s overseas platform, Bittrex Global GmbH, as well as former chief executive William Shihara, who ran the company until November 2019. Bittrex separated its U.S. and overseas operations in 2019, a couple of years after it ranked as the largest U.S.-based crypto exchange by trading volume, according to a December 2017 opinion article in The Wall Street Journal written by former executives Kiran Raj and John Roth. In a statement, Bittrex disputed the SEC’s allegations about its business and said it had repeatedly asked the SEC over a period of five years which assets regulators believed were illegally offered on its platform. Regulators refused to do so, the company said. NEWSLETTER SIGN-UP WSJ Crypto Smart and accessible crypto market analysis for investors. Subscribed The SEC’s lawsuit is part of “a larger crusade to drive cryptocurrency out of the United States,” a Bittrex spokesman said. “The SEC’s actions will directly and substantially harm U.S. customers and U.S. employees.” The SEC said Bittrex earned at least $1.3 billion in revenue from trading fees and other sources from 2017 through 2022.Seattle-based Bittrex Inc. has announced it plans to wind down American operations by the end of the month, citing the difficulty of working with U.S. regulators. Bittrex has been under SEC investigation since 2017 and was told about the likely enforcement action in March, the Journal reported on Sunday. Attorneys for Bittrex Inc. and Bittrex Global didn’t respond to requests for comment. An attorney for Mr. Shihara declined to comment. The SEC’s lawsuit says Bittrex, like many crypto exchanges, combined functions under one roof that are separated in traditional securities markets. The company served as an exchange, broker-dealer and clearinghouse at the same time. On Wall Street, exchanges typically serve to match bids and offers submitted by brokers, which deal directly with customers’ funds and handle their orders. Clearinghouses handle the settlement of trades, meaning funds and ownership of securities is exchanged between buyer and seller. The SEC says separating these core functions reduces conflicts of interests and enables safeguards such as keeping investors’ assets segregated from the broker’s or exchange’s finances. Each type of intermediary—stock exchange, broker and clearinghouse—faces prescriptive disclosure requirements, which the SEC enforces, designed to level the playing field between the business and the customer. Customers of crypto platforms, meanwhile, are “at the whim of the crypto asset platform” to be truthful about how it operates, the SEC said. “Today’s action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity,” SEC Chair Gary Gensler said in a statement. “Bittrex and issuers that it worked with knew the rules that applied to them but went to great lengths to evade them.” Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why. YOU MAY ALSO LIKE Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why.Play video: Crypto’s Crash Has Been Swift but Largely Self-Contained. Here’s Why. Illustration: Mallory Brangan The SEC typically won’t tell crypto exchanges outright which digital assets are securities, counseling the industry to apply a legal test created by a 1946 Supreme Court case that addressed an investment in orange groves. Industry officials say the SEC has been unwilling to provide guidance that would put them on the right path and has chosen instead to score points through enforcement actions. Bittrex employees complained internally about having to tell users about their decisions to remove an asset from the platform, the SEC said. In one email exchange cited by the SEC in its lawsuit, one of Bittrex’s three founders said his preferred way to deal with investors was: “go f*** yourself” or “track down your own damn investment or get a broker to do it for you.” The lawsuit doesn’t identify which founder allegedly made the statement. The SEC says many issuers of digital assets should have treated the tokens as securities. Instead, the token sales were done in an unregulated manner, which allowed the developers to avoid giving investors detailed financial and risk disclosures. Bittrex made more than 300 crypto tokens available for trading since 2014, the SEC said. Those tokens have included ones known as DASH, ALGO, OMG and TKN, the regulator said. ALGO is a digital token that supports Algorand, a blockchain network designed to enable financial applications such as peer-to-peer payments. ALGO’s price declined slightly on Monday after the SEC filed its lawsuit, according to crypto data provider CoinGecko. An Algorand spokesman didn’t respond to a request seeking comment. Mr. Shihara once told Bittrex employees “to roll the dice on the SEC investigation” if a token sale would earn his company enough money, the SEC said in its court complaint. Mr. Shihara, who served on Bittrex’s committee that reviewed listing decisions, received at least $130 million in bonuses and profit distributions from 2017 to 2020, the SEC said. In another instance cited by the SEC, Mr. Shihara told a token issuer to remove terms that might stand out to regulators as hallmarks of an investment. “Scrub the docs of investment related terms,” Mr. Shihara wrote in a May 2017 email, which also asked for a “memo from your legal team on why this isn’t a security.” Write to Dave Michaels at dave.michaels@wsj.com
We know why. IMF refuses to allow any competition with their Unicoin. In due time every crypto exchange will be on their hitlist. Anyone that trades crypto should see the writing on the wall and make preparations. I suspect most will not, expecting the boogeyman will just go away.
Isnt BTC alone at a 550 billion dollar market cap? In your mind,what do you see happening to this product? Alcohol and cigarettes,two of the most destructive products in the world,may at most have a government tax.That is the best they can do. I dont know enough about the US gun economy and legalities to comment but I'll say this:any politician that spends any time,energy and influence on 'fixing' the crypto issue should be run out of town.And I hope that thats evident to everyone.It shouldnt be at the top of the list for anyone in a government that serves the people while those other issues exist(among a plethora others of course).Get your fckn priorities in order. Mike,youve latched onto this Unicoin or whatever it is somehow.Its no boogeyman.It makes no sense.Please explain your reasoning.
Short term time table I think advocates and investors who make a living from crypto will not blink an eye to these SEC lawsuits. Long term I think eventually crypto, especially BTC is going to collapse after too many exchanges close shop after Gov't intervention. Bitcoin needs Exchanges to survive. TPTB are going to shut them down. Just my opinion.
Thanks for the response mate. Interesting to hear the other side. Call me cynical,but I would more expect a government to want a slice of the pie than to extinguish the money.Then I would expect them to take note of who was invested-not all drug dealers anymore.You dont want to upset the wrong power broker or lose a critical political donation. If you are correct,it will be incredibly insightful.I just can't see it.
I would put it a little differently but I think the gist of this is right. For now crypto seems to think it can just thumb its nose at things like know your customer requirements. Long term this will not be accepted. They're not going to say, it's okay for you to facilitate transfers to somewhere like Iran because you're using Bitcoin. They won't ban Bitcoin outright, but they might demand compliance with things like suspicious activity reporting, etc. If your system does not comply with those requirements it will be a defacto ban.
[/QUOTE]it's okay for you to facilitate transfers to somewhere like Iran because you're using Bitcoin.[/QUOTE] I actually didn't identify that sort of thing as one of their fears.Interesting point.
Bringing in @johnarb on this one if he checks in and has the time. Thoughts on "Bitcoin needs Exchanges to survive.".Short term,long term.What level of peer to peer could potentially be achieved do you think? Also,re Engos point re money flow to undesirable areas.Has the control of fiat made it easier to control some regimes(almost rhetorical)? What could a peer to peer system do to have the same sort of power in its toolbox?
it's okay for you to facilitate transfers to somewhere like Iran because you're using Bitcoin.[/QUOTE] I actually didn't identify that sort of thing as one of their fears.Interesting point.[/QUOTE] This is an old fud from over 10 years ago. You have to remember that it is already a crime for Americans to interact with sanctioned entities and countries If your Bitcoin and crypto wallet has interacted with addresses that are banned and the minute you interact with a centralized company, your account with be suspended or shutdown and you will get reported and expect a visit from the MIB's. Good luck https://sanctionssearch.ofac.treas.gov/Details.aspx?id=33151 It's 2023 already, a nocoiner bringing this up, means has never used Bitcoin or cryptos. In 2013, everyone knew not to send coins to the darkweb to buy drugs with bitcoin you get from Coinbase or you lose your account
It is convenient for Bitcoin and cryptos to have an onramp/offramp to local fiat currencies, but it is not a requirement Bitcoin and crypto assets, especially stablecoins, are being used as money (moe) in many places outside of the US Bitcoin and crypto assets will survive and thrive outside of the US. The US is not at the top in the global adoption of cryptos and the US will most likely continue to fall ------------------------ Imo, the US will continue to restrict the onramps and offramps via Operation Chokepoint 2.0, similar tactics and effects to porn, Cannabis, Online poker/gambling banking difficulties This is a form of capital controls as the US banks cannot afford to lose more deposits to Bitcoin and cryptos ecosystem at the time that they are becoming insolvent as deposits leave for money markets and UST's The US is not worried about losing potential revenues from Bitcoin and crypto assets industry, they can just print the $, the biggest export of the US is monetary inflation, a real nice benefit of being the global reserve currency and the BRICS nations are waking up and trying to minimize or end it Heck even the allies are tired of this, Saudi Arabia, France, Mexico... No offense to anyone, but if you're worried about the US making it difficult for you to convert your bitcoins and crypto assets to fiat cuckbuck$, then you are still a prisoner of the fiat debt-based slavery monetary system The more financial restrictions on Bitcoin and cryptos are implemented in the US financial system, the better it is, imho. Uncertainties are a nuisance Bitcoin and cryptos will not die because of US restrictions. China already tried this many times