Summary: SEC v. Bittrex

On April 17, 2023 the SEC filled a complaint against Bittrex Inc. in the Western District of Washington alleging that Bittrex was operating an unregistered securities exchange. William Shihara, the former CEO of Bittrex, and Bittrex Global GMBH were also named as defendants.

The complaint notes that unregistered and non-compliant trading platforms often “do not adequately disclose the risk that they have the ability and financial incentive” to trade against their own customers. Additionally, according to the complaint, the reason for requiring an exchange to register with the SEC is to ensure that an exchange will provide notice to investors if an asset traded on the exchange is at risk of becoming de-listed.

A private conversation in or around June 2017 between a Bittrex employee and one ofBittrex’s three founders illustrates the type of investor harm that can result from a crypto asset platform failing to follow or even recognize these obligations. The employee complained to the founder: “I hate people bitching that we don’t email them about market removals…I LOST SO MUCH CAUSE I DIDn’T KNOW.” The founder responded that his preferred response to those investors was “go f*** yourself” or at a minimum to tell them to “track your own damn investment or get a broker to do it for you.”

SEC v. Bittrex Complaint, 23-cv-580 (emphasis added)

The complaint also alleges that the Defendants took actions to remove reference to “investments” or any other terms that could lead to the conclusion that Bittrex and Bittrex Global were being used to trade securities. Excerpts from internal e-mails and communication were included as part of the complaint. Each defendant filled a motion to dismiss on June 30, 2023, however, these motions will likely be denied as moot.

According to the terms of the consent judgment, Defendants will pay disgorgement as follows:

• Bittrex – $14,400,000 plus interest of $4,000,000
• Bittrex Global – $14,400,000 plus interest of $4,000,000

Additionally, Bittrex and Bittrex Global will each pay a civil monetary penalty of $5.6 million. These Defendants will be jointly and severally liable for the total amount of the judgment (disgorgement and civil penalties), and must pay within 60 days after the Effective Date of a Chapter 11 Plan of Liquidation in Bittrex’s bankruptcy case.

Notably, Defendants’ consent to judgment also contains the following provision:

Defendants acknowledge that no promise or representation has been made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability.Defendants waive any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein.

SEC v. Bittrex, Consent of Defendants, 23-cv-580, W.D. Wa. Doc. 53-1

In this case, no Defendant appears to have made any statement that could be used against it in a criminal proceeding, however, Bittrex has also filed a bankruptcy petition where it would have made some affirmative statements (23-bk-10598). Relatedly, the the Defendants also agree to assist with SEC investigations and actions related to this proceeding. Although this action appears headed towards resolution, the Bittrex saga is far from over.