SEC Charges Bittrex and Former CEO

The SEC on Monday charged crypto exchange Bittrex with operating as an unregistered securities exchange, broker-dealer, and clearinghouse.

The United States Securities and Exchange Commission (SEC) charged cryptocurrency exchange Bittrex and its former CEO, William Shihara, for operating an illegal securities exchange, broker-dealer and clearinghouse, The Wall Street Journal (WSJ) reports.

The agency also charged Bittrex’s foreign affiliate, Bittrex Global GmbH, for “failing to register as a national securities exchange.” The suit comes a day after news broke that the exchange received a Wells Notice from the agency. The notice was issued despite Bittrex preparing to shut down operations in the U.S.

According to Bittrex’s general counsel, David Maria, the exchange received a Wells Notice from the enforcement division of the SEC in March. A Wells Notice is a formal notice issued by the SEC stating the agency is considering legal action against an entity or individual.

The exchange announced last month that it plans to halt services in the U.S. due to economic and regulatory concerns. The firm advised customers to withdraw their funds by April 30, 2023.

Maria said Bittrex discussed with the agency in late 2022 how to register its operations. According to counsel, the exchange could not comply with the SEC’s rules unless it essentially ceased all its revenue-producing services in the U.S.

Bittrex was unable to comply with the SEC’s regulation over the agency’s failure to provide clear guidelines for crypto in the first instance, said Maria.  

The lack of regulatory clarity here results in substantial costs and no certainty as to what can and can’t be offered.

According to Reuters, the SEC alleges that Shihara coordinated with crypto asset issuers wanting to make their tokens available for trading to eliminate “problematic statements” that Shihara thought would lead regulators to investigate those tokens as securities. The agency said:

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 SEC further alleges that from 2017 to 2022, the exchange earned over $1.3 billion in revenue from transaction fees from investors while operating as a broker, exchange and clearinghouse without the necessary registration from the agency.

Chairman of the SEC, Gary Gensler, said in a statement:

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:

As alleged in our complaint, Bittrex and issuers that it worked with knew the rules that applied to them but went to great lengths to evade them by directing issuer-applicants to ‘scrub‘ offering materials of information indicating that certain crypto assets were securities.

Further, Bittrex, as alleged, failed to register and comply with U.S. securities laws as an exchange, broker-dealer, and clearing agency. Cosmetic alterations did nothing to change the underlying economic realities of the offerings and Bittrex’s conduct. Today we’re holding Bittrex accountable for its non-compliance.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.