SEC, CFTC Charge Bitcoin Futures Firm 1Broker With Securities Law Violations

Hacks & Frauds 2 min, 2 sec READ

by Abhimanyu Krishnan

The US SEC and CFTC have both pressed charges against 1Broker in relation to a swap scheme that could only be funded with Bitcoin.

The United States Securities and Exchanges Commission (U.S. SEC) charged 1Broker with securities laws violations on Thursday, September 27, 2018. The company, registered as 1Pool Ltd., is based in the Marshall Islands. CEO Patrick Brunner has been charged with soliciting investors to participate in an alleged swap scheme based on Bitcoin and 1Broker’s website has been seized by the FBI.

To unearth the scheme, the SEC said that an FBI special agent acted undercover to purchase security swaps on 1Broker’s platform, which were offered on the platform despite the fact that it lacked the discretionary investment thresholds mandated by federal law. Investors could also only make the purchase with Bitcoins. The SEC’s press release notes,

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.

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office highlights the fact that international companies must still comply with federal securities law if using cryptocurrency, saying,

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.

As a result, the SEC is seeking permanent injunctions, penalties, and disgorgement plus interest. 

The Commodity Futures Trading Commission is simultaneously pressing charges against 1Broker in relation to a similar product that the platform offered and for failing to meet anti-money laundering and supervisory requirements. 

US Regulatory Bodies are Still Pondering on Cryptocurrency

Both the SEC and the CFTC are ramping up their efforts to tackle fraud and regulatory violations in the cryptocurrency space, including a crypto fraud in self-directed IRAs. They have also issued warnings against celebrities endorsing cryptocurrencies. The Floyd Mayweather backed crypto startup Centra Tech was charged with fraud in May 2018.

Leaders from the crypto space, Wall Street, and VC firms have recently traveled to Washington to implore lawmakers to develop clearer regulations, warning that if they don't, crypto innovation in the US will flock to other countries.