The operator of two unlicensed digital currency exchanges has been ordered to pay more than $68,000 after a lengthy investigation by the US Securities and Exchange Commission (SEC), the country’s top securities regulator.
Ethan Burnside was the sole owner and operator of BTC Trading Corp, parent company of platforms BTCT Co and Litecoin Global Exchange (LTC Global) from August 2012 until trading and account activity ceased in October 2013. The amount Burnside will pay is equal to all profits he made from the exchanges, in addition to the fine.
Burnside cooperated with the SEC investigation and agreed to settle the case by paying $58,307.07 in disgorgement and pre-judgment interest, plus a penalty of $10,000. He is also banned from working in the securities industry for two years, after which he will be able to re-apply to conduct business in the sector.
The SEC claimed BTCT Co had 7,959 registered accounts and had executed approximately 366,490 trades, while LTC Global had 2,655 accounts and processed around 60,496 trades. Further, 52 issuers entered into contracts to list their shares with LTC Global, while 69 issuers entered into contracts to list with BTCT Co.
The filing reads:
“None of the issuers registered a class of securities with the Commission under the Exchange Act, and none of the issuers registered an offering of securities with the Commission under the Securities Act.”
The issuers paid 11,450 LTC and 210 BTC in listing fees, respectively.
At the time LTC Global launched, 1 LTC was worth $0.02, compared to $3.62 at press time. When BTCT Co launched a few months later, the price of bitcoin was $12.56, a substantially lower price than the $365 observed today.
The SEC filing indicated that Burnside cooperated with its investigation, helping translate data and retaining financial audit experts to form reports.
Burnside was represented in the case by law firm Angeli Ungar Law Group of Portland, Oregon, who put out a statement after the conclusion saying they and their client were pleased the SEC had approved the settlement.
That statement said Burnside had advised Angeli Ungar as soon as he learned of the investigation, and stated his intention to do everything possible to protect BTC Trading website users. It also reiterated that he cooperated fully with the SEC.
“Throughout the investigation, Burnside fully cooperated with the Commission staff, providing early and substantial assistance. He made himself available to Commission staff upon request … and he retained financial audit experts to assist in the generation and formatting of reports in order to enable staff to quickly ascertain the scope and operation of his enterprises. Burnside’s efforts facilitated the staff’s investigation involving an emerging technology.”
Since the SEC investigation began, it added, bitcoin-based transactions have become increasingly prominent in the mainstream financial, political and regulatory conversation on virtual currencies. Burnside had “appreciated the opportunity” to share his understanding of bitcoin with the SEC despite the obvious challenge of the investigation.
According to the SEC filing, the two companies were “unregistered, online, virtual currency-denominated securities exchanges and broker-dealers” that sold and traded shares in digital currency companies using only bitcoin and litecoin.
BTC Trading Corp is registered in Belize, and is the owner of both LTC Global and BTCT Co, neither of which was an incorporated entity or registered with the SEC in any capacity.
Also mentioned was Burnside’s litecoin mining business LTC Mining, in which he sold shares between July and September 2012.
“Any individual or group was permitted to open an account and access the websites’ services after completing an online registration form. The only information required for registration was a valid email address, which allowed users of each website to maintain a certain level of anonymity. Registration was free. Once registered, users could view their account history and balance online,” he filing reads.
In addition, the filing accused Burnside of soliciting users of the Bitcoin Talk forum to enroll in the service.
Trial of action
The SEC has for some time now been pursuing digital currency exchanges and investment platforms that have failed to register or comply with the Securities Exchange Act of 1934.
The agency suspended trading of Imogo Mobile Technologies Corp in early 2014, and in a memorable email exchange said it was investigating exchange MPEx owner Mircea Popescu over the sale of popular gambling site SatoshiDICE for over $11.5m in bitcoin.
An SEC investor alert in May 2014 warned that bitcoin-based investments had a “heightened risk of fraud” and posed a risk to inexperienced investors rushing to embrace cutting-edge technologies. A previous warning cautioned investors of potential Ponzi schemes and other investment scams, while a separate bulletin from the Financial Industry Regulatory Authority (FINRA) warned “Bitcoin: More than a Bit Risky”.
Even if investment platforms are not outright scams, the warnings suggested, their unlicensed nature mean their operators do not fulfill the strict disclosure, net worth or income requirements with which ‘traditional’ investment companies needed to comply in order to do business.
SEC image via Wikipedia