Bittrex, previously one of the largest US-based crypto platforms, announced earlier this month that it will stop its domestic operations next month and allow users to withdraw their digital assets and US dollars.
The firm’s counsel later revealed that the Securities and Exchange Commission’s (SEC) enforcement staff informed the crypto firm in March that it would suggest that the agency prosecute the company for suspected violations of investor-protection laws through a Wells notice.
Today, the SEC formally announced that it would be charging Bittrex and its former CEO William Shihara for operating an unregistered exchange, broker, and clearing agency. Its foreign affiliate, Bittrex Global GmbH, was also charged for failing to register as a national securities exchange.
“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,” commented the regulator.
“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.'”
The Wells Notice
When Bittrex received the Wells Notice notification, it was already planning to close its U.S. operations, according to David Maria, the company’s general counsel, citing the difficulty of cooperating with US regulators who have launched enforcement action against over 100 crypto defendants in the last six years.
Bittrex, which agreed to pay $29 million in fines for anti-money laundering and sanctions offenses last year, blamed the move on “continued regulatory uncertainty,” adding that American regulators are unwilling to advance “sensible policies that will foster innovation and enhance the American economy.”
The crypto exit demonstrates how strong regulatory enforcement could drive some of the business overseas, as well as how regulators are now targeting crypto exchanges, such as Coinbase Global, after years of targeting companies that issued digital currency listed on those platforms.
The SEC also recently ordered Kraken, the second-largest digital-asset exchange in the United States, to discontinue services that allowed users to receive a dividend on certain tokens.
According to SEC Chair Gary Gensler, much of the crypto business has ignored investor protection standards that his agency enforces. He has stated that exchanges such as Bittrex should register with the SEC in order to dismantle their operations, remove conflicts of interest, and appear more like traditional stock exchanges.
The SEC has been looking at Bittrex since 2017, when it launched a broad inquiry into what was then a fledgling sector. The agency served Bittrex with many subpoenas over the years, mostly to learn how it makes money and determines which assets to disclose.
Maria stated that Bittrex engaged with SEC staff late last year how it could register its business. It discovered that option was not feasible without effectively discontinuing all revenue-generating activities in the United States, he added.
“The lack of regulatory clarity here results in substantial costs and no certainty as to what can and can’t be offered,” Maria said.
Bittrex prior to being charged was unsure whether the SEC would bring a case given that the company is closing down in the United States. Maria stated that his company will sue unless regulators make “a reasonable settlement offer.”
Bittrex, which was formed in 2014 by software developers from Amazon.com Inc. and Microsoft Inc, was previously the world’s third-largest exchange in 2017, according to digital-asset data provider CCData.
According to Kaiko, daily trading volume peaked in December 2017 at $3.1 billion. In 2019, Bittrex divided its US and foreign operations, removing considerable volume from its American exchange.
In a settlement with FinCEN, the exchange temporarily ceased accepting new customers in late 2017 to improve its compliance with anti-money-laundering rules.
Information for this briefing was found via The Wall Street Journal and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.