The SEC announced today that they would be filing charges against Bitcoin/USD exchange 1Broker for running a Bitcoin securities swap scheme.
1Broker is a cryptocurrency exchange registered in the Marshall Islands that has allegedly been selling security-based swaps to the U.S. and international investors without following proper “discretionary investment thresholds.”
The SEC details that 1Broker CEO Patrick Brunner solicited investors from the US and around the world to buy and sell security-based swaps. Investors could open accounts by only providing an email address and a username. They could only fund their account using bitcoins.
“The SEC alleges that a Special Agent with the Federal Bureau of Investigation, acting in an undercover capacity, successfully purchased several security-based swaps on 1Broker’s platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws. The SEC also alleges that Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to register as a security-based swaps dealer properly. “
According to reports on Twitter, the 1Broker domain has also been seized by the FBI due to the companies security swap violations.
Transacting with US investors
The core problem with 1Broker seems to stem from the fact that they were not compliant with securities laws that apply when negotiating with US-based investors. Although they may have met the regulatory compliance standards of other countries, the process by they operated their exchange was apparently in violation with US securities laws according to the SEC.
As Shamoil Shipchandler, director of the SEC’s Fort Worth regional office stated:
“the SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions … International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.
This incident signals a clear warning sign for international exchanges (particularly those in the futures market) who allow US customers to use their platform. To avoid probes and potential charges by the SEC, exchanges like Bitmex choose to restrict access to US investors altogether. If most of these international crypto exchanges aren’t doing so already, limiting access to US investors may be the smart move to make until they can adequately comply with the SEC’s securities laws. Or else, until the SEC decides to make their laws around futures trading more flexible (we can assume the former is a far more likely scenario to occur).