The U.S. Securities and Exchange Commission alleged that crypto exchange Bittrex simultaneously operated a national securities exchange, broker and clearing agency in violation of federal statutes. Former CEO Bill Shihara and Bittrex Global GmbH are also facing charges.
Bittrex worked with crypto issuers to "delete ... 'problematic statements'" that the SEC would investigate, the regulator said in a press release Monday, including price predictions and statements implying an "expectation of profit." The SEC also claims Bittrex should have registered as an exchange, clearing agency and broker, as it provided the services of all three types of entities.
SEC Enforcement Director Gurbir Grewal said the lawsuit against Bittrex "should send a message to other non-compliant crypto market intermediaries.
"As laid out in our complaint, Bittrex’s business model was based on three things: circumventing the registration requirements of the federal securities laws; counseling issuers of crypto asset securities to do the same by altering their offering materials; and combining multiple market intermediary functions under one roof to maximize profits," he said.
Bittrex announced last month it planned to exit the U.S. by the end of April, citing "the current U.S. regulatory and economic environment." This past weekend, the company shared more information, when general counsel David Maria told the Wall Street Journal that the company had received a Wells Notice – a statement that the SEC's Enforcement Division found evidence of legal violations – in March. Maria told the Journal that Bittrex would fight the suit unless the SEC provided a "reasonable settlement offer."
The SEC's suit is reminiscent of a recent action against Beaxy, a company that settled similar charges, and is suggestive of the charges it may bring against Coinbase (COIN), the largest exchange in the U.S., which received a Wells Notice last month.
In a statement issued following the publication of this article, Bittrex said the regulator had refused to flag the tokens it thought were securities.
"For over five years, and despite multiple, specific requests to do so, the SEC would not provide notice of the specific conduct that it thought violated the federal securities laws," the statement said. "Specifically, on multiple occasions, we asked them to tell us what digital assets on our platform they viewed as securities, so that we could review and potentially delist them. They refused to do so."
The company said it had operated within the parameters of the law at all times, and will look forward to "vindicating" its position in court.
"The SEC’s actions will directly and substantially harm U.S. customers and U.S. employees in this industry and will ultimately put our country at a significant disadvantage in the development of blockchain technology, including uses far beyond cryptocurrency, in the future," the company said.
UDPATE (April 17, 2023, 14:20 UTC): Adds additional detail.
UPDATE (April 17, 14:30 UTC): Adds quote from SEC Enforcement Director Gurbir Grewal.
UPDATE (April 17, 14:40 UTC): Adds algo price movement.
UPDATE (April 18, 8:02 UTC): Adds comment from Bittrex in the final paragraphs.
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