Seattle-based cryptocurrency exchange Bittrex has settled charges of operating an unregistered securities exchange with a $24 million fine.
Bittrex announced the decision on Friday, saying under the settlement with the Securities and Exchange Commission it would neither admit nor deny the charges, which were first brought in April.
The settlement is the latest development in a difficult few months for Bittrex, which included filing for Chapter 11 bankruptcy in May, closing its U.S. operations at the end of April and disclosing in February it was laying off 83 employees.
"The company determined that it was in its best interest to avoid costly and protracted litigation that could cause significant delay to the conclusion of the Chapter 11 bankruptcy process," Bittrex said in a news release. "Notably, the SEC’s complaint did not allege that any Bittrex customer suffered financial harm, and we expect all remaining customer claims to be paid fully in the Chapter 11 process."
The SEC alleged Bittrex facilitated the buying and selling of crypto assets that were sold as securities and generated at least $1.3 billion in revenue between 2017 and 2022 without registering with the SEC. The securities regulator also alleged Bittrex and co-founder and former CEO Bill Shihara tried to eliminate public statements that could lead a regulator to investigate the company's crypto assets as securities, such as “price prediction(s),” “expectation of profit” and other “investment-related terms,” according to the SEC.
Bittrex is paying disgorgement of $14.4 million, prejudgement interest of $4 million and a civil penalty of $5.6 million, according to the SEC.
Bittrex was founded in 2014 by Shihara and fellow Amazon cybersecurity engineers Rami Kawach and Richie Lai, the company's current CEO. Consumers can use Bittrex to buy and sell cryptocurrencies like bitcoin and ethereum, and Bittrex allows consumers to trade on a mobile device.
In its release, Bittrex said the $24 million fine was a fraction of what the SEC initially demanded before filing its case. The company is still operating Bittrex Global, which serves non-U.S. customers and is regulated in Bermuda and Lichtenstein. The company said Bittrex Global can now operate without interruption.
"We are delighted to have reached a settlement agreement with the SEC so quickly following the submission of our motion to dismiss. The agreement has now been submitted to the court for approval, and we will be able to comment further once that process is complete," Bittrex said in a statement to the Business Journal.
In its own release, the SEC continued to suggest that Bittrex tried to scrub any evidence of investment contracts to evade federal securities laws.
“Today’s settlement makes clear that you cannot escape liability by simply changing labels or altering descriptions because what matters is the economic realities of those offerings," Gurbir Grewal, director of the SEC's Division of Enforcement, said.
Bittrex called the SEC's release "contrary to the spirit of the settlement." Crypto leaders in general have criticized the SEC for a flood of legal disputes and the U.S. government for a lack of regulatory clarity. SEC Chair Gary Gensler has pushed back against these claims.
"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 in an opinion piece for The Hill in March. "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."
