Bittrex’s customer-repayment plan meets U.S. government objection

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On April 17, 2023, the Securities and Exchange Commission filed charges in the U.S. District Court for the Western District of Washington against Bittrex, Inc., a cryptocurrency trading platform, and its co-founder and former CEO, William Shihara.

The charges include allegations of running an unregistered national securities exchange, acting as a broker, and operating a clearing agency without proper registration. Additionally, the SEC has charged Bittrex Global GmbH, a foreign affiliate of Bittrex, Inc., for failing to register as a national securities exchange while operating a shared order book in conjunction with Bittrex.

According to the complaint filed by the SEC, Bittrex has been operating as a platform for trading crypto assets that the SEC considers to be securities since 2014. During the period from 2017 to 2022, Bittrex generated over $1.3 billion in revenue, primarily from transaction fees charged to investors, including those from the United States. Despite providing services as a broker, exchange, and clearing agency, Bittrex failed to register any of these activities with the SEC.

Bittrex has denied the SEC’s allegations, saying the crypto assets on its platform were not securities or investment contracts.

Cryptocurrency trading platform Bittrex Inc. filed for bankruptcy protection on May 8, 2023, three weeks after the Securities Exchange Commission filed charges in the U.S. District Court for the Western District of Washington against Bittrex for running an unregistered securities exchange.

Bittrex, a company headquartered in Seattle, decided to stop its operations within the United States on April 30. However, this bankruptcy filing will not affect Bittrex Global, which continues to cater to customers outside the United States. Bittrex Global operates from Liechtenstein, focusing on its international operations.

Bittrex’s assets and liabilities were both between $500 million and $1 billion, according to a bankruptcy petition filed in Wilmington, Delaware.

Bittrex has announced that it retains the crypto assets belonging to its U.S. customers who failed to withdraw their funds before April 30. The company assures that these assets are protected and secure. Bittrex plans to request the bankruptcy court’s partial reopening of customer accounts in order to distribute the crypto assets back to the respective customers.

Although the lawsuit filed by the SEC against Bittrex is still unresolved, the company had previously reached an agreement to pay a fine of $29 million to the U.S. Treasury Department. This penalty was imposed due to “apparent violations” of sanctions related to specific countries and laws pertaining to anti-money laundering.

The U.S. has raised a legal objection to a proposal put forward by Bittrex, a bankrupt cryptocurrency exchange, regarding the return of customer funds and cryptocurrencies. The objection is based on the fact that the U.S. is still owed a significant amount of money due to violations of sanctions. This challenge was mentioned in a court filing on June 7, 2023.

Bittrex, the company in question, has requested court approval to allow its customers to withdraw their holdings without the need for costly and time-consuming legal proceedings. However, the U.S. government, specifically its Financial Crimes Enforcement Network (FinCEN), which is owed $5 million, argues against giving preferential treatment to certain parties. They assert that it would be unfair to prioritize specific individuals or entities in this matter.

“Siloing creditors into subordinated classes outside of the confirmation hearing is improper,” the government’s filing said. The Bittrex companies have not provided sufficient justification for why matters concerning the ownership of cryptocurrency assets should be resolved before the bankruptcy plan can be officially confirmed.

Bittrex’s U.S. division currently possesses $50 million in customer cash and $250 million in customer cryptocurrencies. Additionally, the Maltese operating company, which has also filed for bankruptcy, holds $120 million in customer cash and cryptocurrencies. Lawyers representing the company have informed the Delaware court that both entities possess sufficient assets to fulfill customer withdrawal requests.

A hearing on Bittrex’s plan to allow withdrawals will be held on June 14,2023.

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