[2018-09-27] SEC Charges Bitcoin-Funded Securities Dealer and CEO (1Broker)

figmentofmyass

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Quote from: deisik on October 01, 2018, 04:47:43 AM

But where is this underlying spot market located?

Obviously, if it is located within the US boundaries, it kinda makes sense. For example, there's a sugar spot market along with sugar futures, but does it mean that the CFTC has jurisdiction over sugar spot market somewhere in Shanghai, or elsewhere outside the US? This is meaningless as they don't have jurisdiction there by any means possible.

that's not how jurisdiction works. you know that 110 countries will extradite to the USA, right? bitfinex and tether immediately responded to the subpoenas because the USA is in a position to fuck them.

it doesn't matter where the activity occurs if the united states has mutual legal assistance treaties with relevant governments---

Quote from: deisik on October 01, 2018, 04:47:43 AM

If Bitfinex excludes the US residents from trading Bitcoin, it is beyond the jurisdiction of the CFTC. Of course, this doesn't in the least prevent Bitfinex from being seized by the FBI under whatever pretext (as it happened to BTC-e) but then the CFTC would have nothing to do with that. It may oversight Bitcoin markets as well as altcoins but only those in the US as far as I understand it

as pointed out above, that's absolutely not how the CFTC views its mandate. they are not restricted to US markets whatsoever.

in fact, the CFTC is charging 1broker in this case. 1broker is an "international" site with CEO based in austria. the CFTC is not charging them for dealing with US securities/markets. they are charging them for unlawful retail commodity transactions (illegal swaps), failure to register and failure to implement AML procedures:

Quote

On the same day, the CFTC filed a civil enforcement action against 1pool Ltd. and Brunner, stating:

The CFTC’s complaint charges the defendants with engaging in unlawful retail commodity transactions, failing to register as a Futures Commission Merchant (FCM), and supervisory violations for failing to implement procedures to prevent money laundering as required under federal laws and regulations.

deisik

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Quote from: figmentofmyass on September 30, 2018, 01:31:56 PM

Quote from: deisik on September 30, 2018, 09:34:30 AM

Quote from: figmentofmyass on September 29, 2018, 01:09:01 PM

they didn't prohibit US customers until another year after that---they served US customers for like 5 years, transmitting money with no licenses. given that federal agencies take years to build cases, i wouldn't presume they're alright. the CFTC sent new subpoenas to bitfinex and tether last december, and the launch of CBOE/CME futures puts them under CFTC jurisdiction whether or not they prohibited US residents.

What was the outcome of these late 2017 investigations?

i don't think there's been any public news since then. it could be nothing, or they could be building a case against bitfinex or tether. who knows?

Quote from: deisik on September 30, 2018, 09:34:30 AM

Also, what does Bitfinex have to with CBOE/CME futures if these are traded on CME (in Chicago) and not on Bitfinex, when Bitfinex has nothing to do with both Bitcoin futures and US residents probably trading these futures. I don't see a connection here. In short, how does the launch of Bitcoin cash-settled futures traded on a specific exchange (not Bitfinex) put them under CFTC jurisdiction all of a sudden? Care to explain?

the CFTC views the existence of CFTC-regulated futures markets as the basis for jurisdiction over the underlying spot market. it sounds crazy, but that's their historic view, and it's been consistently upheld by federal judges.

But where is this underlying spot market located?

Obviously, if it is located within the US boundaries, it kinda makes sense. For example, there's a sugar spot market along with sugar futures, but does it mean that the CFTC has jurisdiction over sugar spot market somewhere in Shanghai, or elsewhere outside the US? This is meaningless as they don't have jurisdiction there by any means possible. If Bitfinex excludes the US residents from trading Bitcoin, it is beyond the jurisdiction of the CFTC. Of course, this doesn't in the least prevent Bitfinex from being seized by the FBI under whatever pretext (as it happened to BTC-e) but then the CFTC would have nothing to do with that. It may oversight Bitcoin markets as well as altcoins but only those in the US as far as I understand it

squatter

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STOP SNITCHIN'

Quote from: European Central Bank on September 30, 2018, 03:37:44 PM

Quote from: Kprawn on September 30, 2018, 03:02:02 PM

so if the SEC clamp down on this, the rest will follow. Angry

that would be valid if the SEC were seen to be pulling new laws out of their ass. they're not.

they're applying laws that have long existed to a bunch of cocky tech assholes who thought they were somehow magically exempt from them. they seem to be shocked when it proves to not be the case.

To be honest, I always figured brokers like this were a ticking time bomb since they offer CFDs to US residents. US residents are generally prohibited from trading CFDs through traditional brokers because they violate securities law:

Quote

U.S. regulations don’t allow retail Americans to trade CFDs

The CFTC and SEC require retail Americans to trade financial products on-exchange. One exception: retail Americans may trade forex off-exchange in the Interbank market, providing it’s with a U.S. registered counterparty including an NFA-registered domestic or foreign Futures Commission Merchant (FCM) or Forex Dealer Member (FDM), or bank registered with a U.S. regulator.

CFDs pose two problems for retail Americans: CFDs are not forex, so the one exception to trading off-exchange products above doesn’t apply, and retail Americans don’t trade CFDs with U.S. registered counterparties. The CFTC considers a CFD contract based on the underlying price of forex, to be a CFD and not a forex contract.

The Dodd-Frank Act requires clearing of swap contracts for retail investors on U.S. exchanges, which means it’s not an off-exchange financial instrument. For example, security-based swaps on Apple equity for retail investors clear on a U.S. securities exchange.

1Broker brokered off-exchange financial instruments to US retail investors. They also never registered as a broker-dealer even though they were arguably dealing in unregistered securities. The government's case is strong.

European Central Bank

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Quote from: Kprawn on September 30, 2018, 03:02:02 PM

so if the SEC clamp down on this, the rest will follow. Angry

that would be valid if the SEC were seen to be pulling new laws out of their ass. they're not.

they're applying laws that have long existed to a bunch of cocky tech assholes who thought they were somehow magically exempt from them. they seem to be shocked when it proves to not be the case.

Kprawn

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The SEC is slowly but surely closing all the little loopholes for services like 1Broker to exist. The US government want their

piece of the pie and they want to be in control. This is why I think they are playing games with the Bitcoin Futures applications

too. Bitcoin is like the hot potato game, it gets passed on from one country to the next, to see what are people do with it. The

US are one of the key players in the global economy, so if the SEC clamp down on this, the rest will follow. Angry

figmentofmyass

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Quote from: deisik on September 30, 2018, 09:34:30 AM

Quote from: figmentofmyass on September 29, 2018, 01:09:01 PM

they didn't prohibit US customers until another year after that---they served US customers for like 5 years, transmitting money with no licenses. given that federal agencies take years to build cases, i wouldn't presume they're alright. the CFTC sent new subpoenas to bitfinex and tether last december, and the launch of CBOE/CME futures puts them under CFTC jurisdiction whether or not they prohibited US residents.

What was the outcome of these late 2017 investigations?

i don't think there's been any public news since then. it could be nothing, or they could be building a case against bitfinex or tether. who knows?

Quote from: deisik on September 30, 2018, 09:34:30 AM

Also, what does Bitfinex have to with CBOE/CME futures if these are traded on CME (in Chicago) and not on Bitfinex, when Bitfinex has nothing to do with both Bitcoin futures and US residents probably trading these futures. I don't see a connection here. In short, how does the launch of Bitcoin cash-settled futures traded on a specific exchange (not Bitfinex) put them under CFTC jurisdiction all of a sudden? Care to explain?

the CFTC views the existence of CFTC-regulated futures markets as the basis for jurisdiction over the underlying spot market. it sounds crazy, but that's their historic view, and it's been consistently upheld by federal judges.

in fact, the courts just established much more far-reaching precedent:

Quote

Crater’s lawyers moved to dismiss the case, arguing that the CFTC had no authority over the virtual currency because it is neither a tangible good nor a service on which future contracts are being traded - the agency’s typical enforcement purview.

U.S. District Judge Rya Zobel in Boston said on Wednesday that My Big Coin did meet the Commodity Exchange Act’s definition of a commodity, because the law defines commodities in broad categories rather than specific types or brands.

Since both My Big Coin and bitcoin can both be broadly categorized as virtual currencies, and bitcoin futures currently trade on U.S. exchanges, by extension the CFTC has oversight of other virtual currencies including My Big Coin, Zobel found.

apparently regulated bitcoin futures not only means CFTC oversight of the bitcoin market, but altcoins as well! Shocked

deisik

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Quote from: figmentofmyass on September 29, 2018, 01:09:01 PM

they didn't prohibit US customers until another year after that---they served US customers for like 5 years, transmitting money with no licenses. given that federal agencies take years to build cases, i wouldn't presume they're alright. the CFTC sent new subpoenas to bitfinex and tether last december, and the launch of CBOE/CME futures puts them under CFTC jurisdiction whether or not they prohibited US residents.

What was the outcome of these late 2017 investigations?

Also, what does Bitfinex have to with CBOE/CME futures if these are traded on CME (in Chicago) and not on Bitfinex (who knows where but definitely outside the US territory), when Bitfinex has nothing to do with both Bitcoin futures and US residents probably trading these futures. I don't see a connection here. In short, how does the launch of Bitcoin cash-settled futures traded on a specific exchange (not Bitfinex) put them under CFTC jurisdiction all of a sudden? Care to explain?

figmentofmyass

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Quote from: gentlemand on September 29, 2018, 10:15:44 AM

Quote from: deisik on September 29, 2018, 10:01:20 AM

What about Bitfinex?

They seem to have had some tensions with CFTC in the past over what they incorrectly called currency swaps (or how they were actually called). The exchange had even been penalized, though I don't know if they paid the penalty, but since then they seem to be below the radar of Uncle Same and the US financial authorities like SEC or CFTC. Or we just don't know what's going on there and what's being deliberately kept under wraps. Then, when we finally find out, it may already be too late

Since then they specifically excluded Americans. Since they're happily chugging on I guess it's safe to presume they're alright. I don't really get how or why though.

the story was a bit more eventful than that. in june 2016, the CFTC fined them for violating the commodity exchange act, their primary complaint being that swaps did not result in bitcoins being "delivered" to buyers but rather were being held by bitfinex. in response, bitfinex unrolled its bitgo-powered customer segregated wallets---the thinking being that segregating funds by customers would satisfy the CTFC. as it turned out, their bitgo wallet setup was essentially 100% hot wallet, and it led to 120k BTC being stolen in the august hack.

they didn't prohibit US customers until another year after that---they served US customers for like 5 years, transmitting money with no licenses. given that federal agencies take years to build cases, i wouldn't presume they're alright. the CFTC sent new subpoenas to bitfinex and tether last december, and the launch of CBOE/CME futures puts them under CFTC jurisdiction whether or not they prohibited US residents.

i'd be very careful storing much on bitfinex or holding much USDT. i won't be surprised if they get shut down by the feds too.

Harlot

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Quote from: bbc.reporter on September 27, 2018, 10:42:36 PM

If the United States government, which does not have jurisdiction in Austria, can seize a small exchange's domain name. Can it also seize the domains of larger exchanges based on foreign soil like Binance?

Yeah I guess so domains are part of that company's operations and even though it operates internationally it does not exempt it to still continue running in other regions, if they are still under investigation I doubt that they can still maintain normal operations. Think of it as a temporary confiscation of your cellphone. You cannot use it until your teacher/professor hands it back to you again. Also keep in mind they are in criminal proceedings I doubt that they will be allowed by the court to continue anything why they are under investigation.

gentlemand

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Quote from: deisik on September 29, 2018, 10:01:20 AM

What about Bitfinex?

They seem to have had some tensions with CFTC in the past over what they incorrectly called currency swaps (or how they were actually called). The exchange had even been penalized, though I don't know if they paid the penalty, but since then they seem to be below the radar of Uncle Same and the US financial authorities like SEC or CFTC. Or we just don't know what's going on there and what's being deliberately kept under wraps. Then, when we finally find out, it may already be too late

Since then they specifically excluded Americans. Since they're happily chugging on I guess it's safe to presume they're alright. I don't really get how or why though.

Tether is a much closer equivalent to e-gold than any exchange. Again I don't really get why that hasn't been nailed but perhaps it's because it spends its life sitting doing nothing on exchanges.

deisik

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Quote from: gentlemand on September 29, 2018, 05:52:58 AM

Quote from: buwaytress on September 29, 2018, 05:41:52 AM

This could be the start of a pattern, finally states strike their initial blows against platforms we thought were immune. Keep your funds safe, people.

As long as there's a little fella in an office somewhere to shove a nightstick up, it's going to happen no matter where they are in the world if there's a whiff of America. E-gold's trajectory was fairly predictable.

Places like 1broker and BTC-e didn't give a shit about legal niceties. Other nastier people did.

What about Bitfinex?

They seem to have had some tensions with CFTC in the past over what they incorrectly called currency swaps (or how they were actually called). The exchange had even been penalized, though I don't know if they paid the penalty, but since then they seem to have been below the radar of Uncle Sam and the US financial authorities like SEC or CFTC. Or we just don't know what's going on there and what's being deliberately kept under wraps. Then, when we finally find out, it may be already too late

gentlemand

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Quote from: buwaytress on September 29, 2018, 05:41:52 AM

This could be the start of a pattern, finally states strike their initial blows against platforms we thought were immune. Keep your funds safe, people.

As long as there's a little fella in an office somewhere to shove a nightstick up, it's going to happen no matter where they are in the world if there's a whiff of America. E-gold's trajectory was fairly predictable.

Places like 1broker and BTC-e didn't give a shit about legal niceties. Other nastier people did.

buwaytress

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Seems like a lot of people I am in contact with were also affected, brings me back to a decade ago and how the US government cracked down on e-gold (also it was irrelevant that they were based OUTSIDE of USA), causing me and others like me to lose all our funds (partial claims were entertained but to this day, most people effectively lost almost all their funds). This put me off a good several years from getting into Bitcoin - my fault for not understanding at first its decentralisation.

This could be the start of a pattern, finally states strike their initial blows against platforms we thought were immune. Keep your funds safe, people.

gentlemand

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Quote from: deisik on September 29, 2018, 04:15:39 AM

They didn't refund anyone (in full), and they are slowly turning into scam right now

Well, at least they came back and made a nominal effort for long enough to attempt to get the rest back. I certainly never trusted BTC-e. There was no way I'd extend any more to its zombie reincarnation.

figmentofmyass

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Quote from: bbc.reporter on September 28, 2018, 07:48:04 PM

@gentlemand. Would exchanges in American soil be the next targets? I reckon Poloniex might be given a free pass because of their cooperation to be compliant with the SEC after Circle bought it. But what about Bittrex? Bittrex expanded in Malta where regulators are cryptospace friendly. Might that be a move to escape American regulators if they need to?

i think they're just expanding and splitting up their business. it's similar to what they did with upbit in korea---shared order book and commissions. but they're obviously still pushing into the USA market, adding real fiat markets (state by state) on their main exchange while enforcing full KYC.

i guess their legal position is that each partnership exchange operates under the regulatory framework where it's based/registered, in this case the EU and malta. supposedly that means the coin listing process will be easier and faster on the maltese exchange. i wonder whether they'll allow customers from the USA.

deisik

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Quote from: bbc.reporter on September 27, 2018, 09:04:04 PM

That's what you see if you visit the site. Was 1broker based in the USA?

If it was based outside of America, then are we underestimating the power of the United States government? I have always thought that the cryptospace was unstoppable if faced versus the full might of the regulators. But not anymore.

Any government can take away our freedom to trade if they wanted to, I reckon.

It is mostly irrelevant where it was based

BTC-e was hosted somewhere in Eastern Europe (Bulgaria, if I'm not mistaken) but that didn't prevent the FBI from seizing the exchange a little over a year ago and placing the same title page there. Basically, only a few places in the world can be said to get a free pass, i.e. countries like China, Russia, Iran, and their satellite states. But they have their own versions of FBI anyway, so it is all six of one and half a dozen of the other in the end. We need decentralized exchanges but not the ones that are only called such

Quote from: squatter on September 28, 2018, 02:59:43 PM

In the case of BTC-e, the .com domain was seized by the US government, but interestingly the .nz mirror site was not. They refunded customers through the .nz domain.

They didn't refund anyone (in full), and they are slowly turning into scam right now

squatter

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STOP SNITCHIN'

Quote from: gentlemand on September 28, 2018, 07:17:22 PM

Quote from: Slow death on September 28, 2018, 01:34:14 PM

they simply became the owners of the world, in any corner of the world they put their nose and even do not want to know and respect the laws of other countries. The United States government holds in its hands a great power over this world. Something very dangerous.

Why do you think Bitfinex got rid of Americans? As long as companies explicitly reject American customers they should be OK. 1broker didn't bother so they've arrived at this outcome.

That's what it seems like so far, but it's possible they're just been going after the lowest hanging fruit for now -- those that explicitly allow US customers while remaining unregistered as MSB, not doing KYC, etc.

It's really easy to trade on Bitfinex or Bitmex from the US with a VPN. That might be relevant in the future, since these cases often seem to hinge on whether agents can successfully "do business" with the defendants from the US. Take this case, for example:

Quote

The SEC alleges that a Special Agent with the Federal Bureau of Investigation, acting in an undercover capacity, successfully purchased several security-based swaps on 1Broker’s platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws.

dreamhouse

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Isn't this is true for all cryptocurrency exchanges outside US? They do allow US people to open accounts and trade. Will they be seized one day? Sounds scary...

bbc.reporter

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It appears that founders or seed investors of exchanges who have the political connections can use that power to kill their competition starting in smaller exchanges.

Smaller American based exchanges should start forming their own lobby group, I reckon.

gentlemand

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Quote from: bbc.reporter on September 28, 2018, 07:48:04 PM

@gentlemand. Would exchanges in American soil be the next targets? I reckon Poloniex might be given a free pass because of their cooperation to be compliant with the SEC after Circle bought it. But what about Bittrex? Bittrex expanded in Malta where regulators are cryptospace friendly. Might that be a move to escape American regulators if they need to?

It looks like regulators are slowly ironing out what they find acceptable and what isn't. ICOs are clearly toast in the main. Next up is a cast iron definition of which project is a security and which isn't. Once that's sorted I presume there'll be plenty left for Americans to play with.

When you have stuff like Bakkt coming along and futures, both of which are put together by long established finance players, it's clear it's not going anywhere in the US.

Gemini is off to Europe too. I presume Bittex and others want exposure to other markets.

Topic: [2018-09-27] SEC Charges Bitcoin-Funded Securities Dealer and CEO (1Broker) (Read 320 times)