Seattle-area crypto exchange Bittrex responded to a lawsuit filed by the U.S. Securities and Exchange Commission, claiming that the legal move is part of regulators’ “larger crusade to drive cryptocurrency out of the United States.”
The lawsuit, filed Monday in U.S. District Court in Seattle, alleges that Bittrex and its former CEO used deliberate tactics to skirt regulatory oversight and operated as an unregistered broker, national securities exchange, and clearing agency.
“Bittrex has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have over the course of decades constructed for the protection of the national securities markets and investors,” the suit alleges.
In a statement, Bittrex said it did not offer or trade securities on its trading platform, or offer products that were investment contracts.
“For over five years, and despite multiple, specific requests to do so, the SEC would not provide notice of the specific conduct that it thought violated the federal securities laws,” it said.
“Bittrex operated within the parameters of the law at all times, and we look forward to vindicating our position in court” the company said, adding that the lawsuit will put the U.S. at a “significant disadvantage in the development of blockchain technology.”
Bittrex Global, a foreign affiliate of Bittrex, was also charged by the SEC for operating a single shared order book with Bittrex without registering as a national securities exchange. Former CEO and co-founder William Shihara is also named as a defendant.
“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,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement.
The lawsuit alleges that Bittrex instructed issuers of crypto asset securities to remove language in public statements that would attract SEC scrutiny.
The SEC alleges that the company had financial incentive to list more assets on the platform to increase revenue. The charges allege that Bittrex generated more than $1.3 billion in transaction fees from investors between 2017 and 2022, and that Shihara’s compensation totaled at least $130 million from April 2017 to March 2020.
“Today’s action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity,” said SEC Chair Gary Gensler in a statement.
Enforcement staff with the SEC told Bittrex in March that it would recommend a lawsuit against the company, according to a story published on Sunday in The Wall Street Journal, which said the company was under SEC investigation since 2017.
Last month Bittrex announced it was shutting down its U.S. operations, with CEO Richie Lai stating that “it’s just not economically viable for us to continue to operate in the current U.S. regulatory and economic environment.”
The SEC is scrutinizing several other crypto companies and exchanges, including Coinbase.
Bittrex was hit with about $29 million in fines by the U.S. Treasury Department in October. It allegedly allowed people from sanctioned jurisdictions to use its platform and did not meet anti-money laundering requirements.
The company cut 83 jobs in February.
Shihara, a former security leader at Amazon, helped launch Bittrex in 2014 and was its CEO until 2019. He remains chairman. According to his LinkedIn profile, in 2020 he launched Coin Hunt Global, a geolocation game where users can earn cryptocurrencies by answering trivia questions.
