Bankrupt Bittrex settles with SEC for $24M

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Crypto exchange Bittrex has agreed to pay $24 million to settle a case with the U.S. Securities and Exchange Commission (SEC), as announced by the financial regulator on Thursday.

In May, the SEC filed a lawsuit against Bittrex, alleging that the company had operated as an unregistered securities exchange, broker and clearinghouse. The SEC also accused Bittrex of instructing crypto issuers to delete public statements that could hint at their tokens potentially violating securities laws. It claimed that Bittrex had generated at least $1.3 billion in unauthorized revenue from 2017 to 2022.

According to the court filing, Bittrex will neither confirm nor deny the allegations and is restricted from making any public statements that can imply the SEC’s allegations lacked a factual basis. The $24 million fine encompasses $14.4 million in disgorgement, $4 million in prejudgment interest and $5.6 million in penalties.

Bittrex has 90 days after its liquidation plan goes into effect to pay the fine. The regulator may pursue a court judgment if the company hasn’t paid its fees and penalties by March 1 of next year.

“Today’s settlement makes clear that you cannot escape liability by simply changing labels or altering descriptions because what matters is the economic realities of those offerings,” SEC Enforcement Director Gurbir Grewal said in a statement.

Grewal also conveyed gratitude to the SEC staff for their efforts in addressing non-compliance within the crypto industry, resolving this issue and providing further assistance to affected investors.

The SEC executive noted that Bittrex had tried to help token issuers remove any indications from their online statements that they were investment contracts, aiming to avoid federal securities laws. However, these attempts were unsuccessful.

Bittrex recognized that the initial sale of certain crypto assets might be seen as securities contracts. However, Bittrex argued that assets traded on secondary markets should be treated as commodities or different types of digital assets.

Although Bittrex is one of the smaller crypto exchanges in the U.S., it has faced regulatory scrutiny from American authorities since the previous year. In 2022, the exchange consented to a $29 million fine to resolve enforcement cases with U.S. authorities due to “apparent violations” of sanctions involving countries like Iran and Syria.

Bankruptcy case

Bittrex declared bankruptcy in the State of Delaware in May, shortly after announcing it would wind down its U.S. operations. The exchange claims to have over 100,000 creditors, with estimated liabilities and assets ranging between $500 million and $1 billion, per a court filing.

Bittrex co-chief restructuring officer Evan Hengel assured customers would receive a “100 percent like-kind cryptocurrency distribution” as part of the liquidation plan. This arrangement would allow them to use the Bittrex platform and withdraw their assets.

Hengel explained the unclear crypto regulations in the U.S. had led to overlapping rules and rising costs for the company, making it challenging to continue the business.

Richie Lai, the co-founder and CEO of Bittrex, posted on Twitter that the bankruptcy filing was the “cleanest way to bury the baby.” He assured the exchange retained “100% of all customer funds.”

Bittrex has become the latest crypto entity to start bankruptcy proceedings, joining more prominent players in the crypto sector, such as FTX, Celsius and BlockFi. Bittrex’s U.S. division let go of 80 employees in February. It ceased all operations in the country on April 30.