Topic: [2018-09-27] SEC Charges Bitcoin-Funded Securities Dealer and CEO (1Broker) (Read 306 times)

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

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.

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?


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.

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.

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.

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

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, 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?

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.

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.

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.

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?

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

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.

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.

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

@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?

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.

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.

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.

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.

@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?

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.

I believe, it is enough that the government of the United States should contact the government that registered the domain and then seize the domain, they are the powerful ones and only find difficulties in countries like russia, china, venezuela and korea of the south that are countries that try to confront them, but without many successes

Bodog.com was registered with a Canadian registrar, a VeriSign subcontractor, but the United States shuttered the site without any intervention from Canadian authorities or companies.

Instead, the feds went straight to VeriSign. It's a powerful company deeply enmeshed in the backbone operations of the internet, including managing the .com infrastructure and operating root name servers. VeriSign has a cozy relationship with the federal government, and has long had a contract from the U.S. government to help manage the internet's "root file" that is key to having a unified internet name system.

The "world police" have arrived.


Of course. Domains are quite easy to seize and the US does what it pleases. Any service that's "doing business" in the United States, the government considers it their jurisdiction. As mentioned above, just look at what happened to BTC-E.

Can it also seize the domains of larger exchanges based on foreign soil like Binance?

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?

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.

SEC Charges Bitcoin-Funded Securities Dealer and CEO

Washington D.C., Sept. 27, 2018 — The Securities and Exchange Commission today filed charges against an international securities dealer and its Austria-based CEO for allegedly violating the federal securities laws in connection with security-based swaps funded with bitcoins.  

According to the SEC’s complaint, 1pool Ltd. a/k/a 1Broker, registered in the Republic of the Marshall Islands, and its CEO Patrick Brunner solicited investors from the United States and around the world to buy and sell security-based swaps.  Investors could open accounts by simply providing an email address and a user name – no additional information was required – and could only fund their account using bitcoins.  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.  The SEC also alleges that Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer.

“The SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.”

The SEC’s complaint, filed in U.S. District Court for the District of Columbia, seeks permanent injunctions, disgorgement plus interest, and penalties.  In a parallel action, the Commodity Futures Trading Commission (CFTC) announced charges against 1Broker arising from similar conduct.  

The SEC’s investigation was conducted by David Hirsch and Morgan Ward Doran, and supervised by Scott Mascianica and Eric R. Werner of the SEC’s Fort Worth Regional Office.  The SEC’s litigation will be led by Chris Davis and supervised by B. David Fraser.  The Enforcement Division’s Cyber Unit assisted in the investigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Columbia, Department of Justice, Federal Bureau of Investigation, and the CFTC.