In a bid to protect U.S. investors across various platforms, the SEC has filed charges against the Republic of Marshall Island-based securities dealer, 1Broker, along with its CEO. The SEC claimed that 1Broker and its CEO violated federal securities laws with their bitcoin funded security-based swaps.
CEO solicited US investors
The core issue with 1Broker and its CEO, Patrick Brunner, appears to stem from the fact that they did not comply with the relevant laws when dealing with US-based investors. The SEC detailed that Patrick Brunner solicited U.S. investors, asking them to buy and sell security-based swaps. The investors were told they only needed to open an account with the dealer by simply providing an email address and username, and by funding their accounts with bitcoins.
Investigations by the FBI
According to the SEC, a special agent from Federal Bureau of Investigations (FBI), acting as undercover agent, successfully registered an account and purchased a number of security-based swaps on the platform despite not meeting the required investment threshold as stipulated by the federal securities law.
Failing to register with a national exchange
The SEC also accused 1Broker and Brunner for failing to handle their security-based swaps through a registered national exchange. Speaking on the matter, the Director of the SEC’s Fort Worth regional office, Shamoil T. Schipchandler, said:
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.
SEC seeks permanent injunctions and penalties
Filed in the U.S. District for the District of Columbia, the notice by SEC seeks disgorgement plus interest, permanent injunctions, and penalties imposed on 1Broker and its CEO.
In a similar action, the Commodity Futures Trading Commission (CFTC) also declared charges against 1Broker for similar reasons.
Clear warning for international exchanges?
The action by the SEC to file charges against 1Broker and its CEO is a clear warning sign to other international cryptocurrency exchanges, particularly those operating in futures markets and allow US investors. To avoid potential charges, they have to adhere strictly to the federal securities laws or stop operating with US investors altogether, as is the case with BitMEX.