The U.S. Securities and Exchange Commission (SEC) has charged Bittrex, Inc., its co-founder and former CEO William Shihara, and its foreign affiliate, Bittrex Global GmbH, with operating an unregistered national securities exchange, broker and clearing agency.  Bittrex is a crypto asset trading platform. 

The SEC alleges Bittrex facilitated the buying and selling of crypto assets, including crypto assets that the SEC allege are in fact securities. From 2017 to 2022, the platform earned at least $1.3 billion in revenues from transaction fees while servicing investors (including U.S. investors) without registering with the SEC. The SEC also alleges that Bittrex and CEO Shihara deleted “problematic statements” from public channels that could have lead to SEC investigation of unregulated security offerings. 

SEC Chair Gary Gensler stated that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity. Gensler added that Bittrex and the issuers it worked with knew the rules but evaded them by directing issuer-applicants to “scrub” offering materials of information indicating that certain crypto assets were securities. 

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said: 

“We allege that Bittrex repeatedly chose profits over investor protection. 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. Today’s action not only holds Bittrex accountable for misconduct that we allege put investors at risk, but should also send a message to other non-compliant crypto market intermediaries to follow the federal securities laws or be held accountable for their violations.” 

In response to the charges, Bittrex claimed securities were not offered or traded on its platform, and that it did not offer products that were investment contracts. The lawsuit filed against Bittrex also names six crypto tokens listed on the platform as securities: DASH, ALGO, OMG, TKN, NGC, and IHT. The SEC alleges that token investors had a “reasonable expectation of profits,” meaning the assets should be considered securities. The SEC’s complaint against Bittrex is part of its ongoing efforts to protect investors and ensure compliance in the crypto markets. 

SEC Complaint Against Bittrex  

The SEC accused Bittrex of operating an unregistered trading platform, offering crypto asset securities to U.S. customers without proper registration, since 2014. Bittrex has allegedly violated the Securities Exchange Act of 1934 and evaded regulatory provisions designed to protect investors and investor assets. 

The SEC complaint alleges Bittrex combined the roles of broker-dealers, exchanges, and clearing agencies into a single platform. This move has allowed Bittrex to earn over $1.3 billion in revenues from transaction fees while placing its investors at significant risk. By not registering with the SEC or obtaining any applicable exemptions, Bittrex has defied the regulatory structures that have been carefully constructed to protect national securities markets and investors. 

Bittrex is also accused of operating as an unregistered broker, soliciting potential investors, handling customer funds and assets, and charging fees for these services. Additionally, the company has allegedly acted as an unregistered clearing agency, holding customer assets in Bittrex-controlled wallets and settling transactions through customer debiting and crediting accounts 

At the heart of the SEC’s allegations is Bittrex’s strategy to prioritize revenue and profits over compliance with securities regulations. The SEC complaint alleges the platform knowingly listed crypto asset securities while acknowledging the potential for SEC regulatory scrutiny. To circumvent this, Bittrex led a campaign to direct issuers of crypto assets to “scrub” their public statements of any language that could raise questions about whether the assets were securities. 

The SEC complaint states William Shihara, Bittrex’s former CEO, played a pivotal role in directing the platform’s operations and activities, including the “problematic statement cleanup” campaign. Shihara, who stepped down as CEO in 2019, allegedly prioritized increasing Bittrex’s revenues and his own compensation (at least $130 million) over the interests of the investing public. 

The SEC’s legal complaint highlights the importance of regulated intermediaries in the financial markets, and the need for disclosure and review obligations to protect investors. If Bittrex or Bittrex Global are found guilty of violating the registration provisions of the Exchange Act, they may face severe consequences, including permanent injunctions and financial penalties. As the SEC continues to scrutinize the crypto industry, companies should prioritize investor protection and regulatory compliance to avoid facing similar legal challenges. 

Securities, Consumer Protection and Cryptocurrency Whistleblower Law Firm 

Schneider Wallace is a multi-state law firm representing employees, businesses, consumers and whistleblowers including SEC whistleblowers. To schedule a free and private legal consult with our law firm, contact us at 1-800-689-0024 or info@schneiderwallace.com.