The Securities and Exchange Commission has charged Seattle-based cryptocurrency exchange Bittrex with operating an unregistered securities exchange.
The SEC filed the complaint in the U.S. District Court for the Western District of Washington and announced the complaint on Monday. The charges come just weeks after Bittrex announced it would shut down its U.S. operations this month.
"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 news release. "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."
The SEC alleges Bittrex facilitated the buying and selling of crypto assets that were sold as securities, and Bittrex generated at least $1.3 billion in revenue between 2017 and 2022 without registering with the SEC. The SEC also alleges Bittrex and co-founder and former CEO Bill Shihara tried to eliminate public statements that could lead a regulator to investigate Bittrex's crypto assets as securities. These terms, according to the SEC, included “price prediction(s),” “expectation of profit,” and other “investment related terms.”
In a statement, a Bittrex spokesperson said the company had asked the SEC what assets the agency viewed as securities, and the SEC did not tell the company. The spokesperson added the company "operated within the parameters of the law at all times, and we look forward to vindicating our position in court."
"We are disappointed with the SEC’s decision to bring an enforcement action against Bittrex as part of Chairman Gensler’s larger crusade to drive cryptocurrency out of the United States," the spokesperson said in the statement. "The impact of the SEC’s approach of regulation by enforcement will have a chilling effect on not just cryptocurrency in the United States, but on blockchain technology and innovation in general. While in operation, Bittrex provided a trading platform for digital assets. Securities were not offered or traded on Bittrex, nor did Bittrex offer any products that were investment contracts."
Bittrex was founded in 2014 by Shihara and fellow Amazon cybersecurity engineers Rami Kawach and Richie Lai, the company's current CEO. Bittrex allows consumers to buy and sell cryptocurrencies like Bitcoin and Ethereum, and it allows consumers to trade on a mobile device.
Bittrex is officially closing its U.S. operations on April 30, which Lai in a news release attributed to "a direct result of continued regulatory uncertainty and a lack of interest from U.S. regulators regarding sensible policies that will foster innovation and enhance the American economy."
The company will continue operating Bittrex Global, which serves non-U.S. customers and is regulated in Bermuda and Lichtenstein. Bittrex in February disclosed it was laying off 83 employees.
The crypto industry has faced turmoil recently, most notably with crypto exchange FTX, once valued at $32 billion, filing for bankruptcy in November. Crypto exchange Crypto.com in January said it was laying off about 20% of its staff, adding to layoffs in July.
Many crypto leaders, meanwhile, have criticized the SEC for a flood of legal disputes and the U.S. government for a lack of regulatory clarity. Gensler, however, defended the agency in a recent opinion piece for The Hill.
"Crypto entrepreneurs might claim, in their own marketing materials, that they’re transparent and regulated. But make no mistake: Very few, if any, are actually registered with the SEC and fully compliant with the federal securities laws," Gensler wrote. "The lack of compliance puts investors’ hard-earned assets at risk. Investors lack fundamental disclosures about the crypto assets themselves and the firms who execute their trades and custody their assets."
