In a surprise announcement yesterday, the SEC decided to shut down cryptocurrencyexchange 1Broker. Users lost millions of dollars in funds, but the next shutdown could be even worse: some analysts claim major crypto exchanges Binance and BitMEX will be shut down next.
Yesterday, the SEC and CFTC announced that they were suing Marshall Islands-based securities dealer 1Broker for allegedly violating federal law through a bitcoin-based security swap scheme.
The SEC announced the news in a press release. The company is registered under the name 1pool Ltd., although it was doing business as 1Broker. The SEC and CFTC claim that 1Broker and its CEO Patrick Brunner were selling security-based swaps to investors in the United States and elsewhere without following proper “discretionary investment thresholds.”
1Broker allegedly only allowed investors to purchase those swaps with bitcoin.
The SEC claims an undercover Special Agent with the FBI
Quote“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.”
Soon after the SEC issued the press release, 1Broker disappeared from the internet. The website and its domain have reportedly been seized by the FBI.
1Broker has also been accused of violating CFTC regulations. The CFTC filed charges against 1Broker for similarly violating federal laws for failing to implement anti-money laundering (AML) and supervisory features.
The FBI, meanwhile, has seized 1Broker.com because it claims the organization has violated money laundering and wire fraud laws while also “operating as an unregistered broker/dealer of securities” and “operating as an unregistered futures commission merchant.”
It’s unclear what will happen with customer funds that were stored on 1Broker. However, the exchange is facing serious charges from the SEC, the CFTC, and the FBI.
Could Binance And BitMEX Be Next?
Cryptocurrency exchanges that accept US investors need to comply with US securities laws. Crypto exchanges that do not comply with US securities laws will face consequences. We saw this with 1Broker this past week: the exchange was allegedly violating numerous regulations and laws in the United States. That’s not a problem if the exchange exclusively deals with non-American users. However, it is a problem as soon as a single American investor uses that exchange. That’s why some members of the crypto community believe Binance and BitMEX could be next.
Neither Binance or BitMEX officially allow US investors. However, both exchanges seem to turn a blind eye to American users on their platform. They generate significant revenue from American crypto users.
Here’s what @BTC_Macro had to say about the issue on Twitter:
Quote“The more I read about the 1Broker news, the more I’m convinced that Bitmex and Binance will be shut down next. People who don’t at least acknowledge that this is a possiblity are in complete and utter denial.”
BTC_Macro refutes the idea that Binance and Bitmex cannot be shut down by American regulators because they don’t allow US citizens.
Quote“[This is] wrong. Bitmex doesn’t enforce this policy and is knowingly profiting from US citizens trading on its platform. Hence, the SEC could shut Bitmex down.”
Again, an exchange can violate US regulations and laws without issue when it’s dealing exclusively with citizens of other countries. As soon as the exchange accepts American citizens, however, it needs to comply with US laws and regulations – even if the exchange doesn’t “officially” accept them.
Are Binance and BitMEX any different from 1Broker? 1Broker seemed to have a particularly loose set of rules regarding American citizens and their trading activity. Binance and BitMEX, however, at least maintain a semblance of banning American users. Users with American IP addresses are often prohibited from participating in the platform, for example.
That’s why one crypto analyst claims the SEC, CFTC, and FBI went after a crypto exchangelike 1Broker first: it was a low-hanging fruit that sends a signal to other exchanges.
Here’s how I Am Nomad explained the issue on Twitter:
Quote“The three letter agencies chose what they perceived to be low hanging fruit in 1broker as an easy win to cite later. Make no mistake about that. They want to show the use of crypto currency in of itself isnt a free pass to whatever you want.”
1Broker was an easy target because the exchange was brash enough to trade straight-up common stock securities – something no major cryptocurrency exchange would think of doing.
Nevertheless, a number of people think Binance and BitMEX will be next. These people are recommending users withdraw their money from Binance and BitMEX as soon as possible.
Whalepool Recommended Trading On 1Broker
Whalepool is a controversial community of crypto traders. The admins of Whalepool have used their online presence to promote 1Broker as a safe and easy way to trade crypto.
As spotted by Bitfinex’ed and mentioned on Twitter, Whalepool “promotes a lot of scams”. On August 25, for example, Whalepool sent a tweet recommending followers to use 1Broker for FX/CFDs. Just a few weeks later, those followers have lost everything.
Whalepool continues to defend 1Broker today. In a tweet earlier today, Whalepool admins wrote:
Quote“1Broker, Binance, BitMEX – all operate honest businesses to facilitate free trade. No fractional reserve, no scam.”
1Broker Responds, Claims User Withdrawals Will Be Re-Enabled Shortly
1Broker has responded to the domain seizure on Twitter:
Quote“All funds are currently secure and we will fully cooperate with the authorities,” wrote 1Broker in a statement. “If approved by the SEC, we will enable withdrawals for US customers as soon as possible.”
1Broker added that all open positions were closed at the current market prices, and that market price movements will not affect trades from this point forward.
1Broker’s domain was seized earlier this week in a surprise move by the SEC, the CFTC, and the FBI. 1Broker is facing charges from all three agencies for violating various laws.
Some members of the crypto community believe Binance and BitMEX – two of the world’s largest and most controversial crypto exchanges – are violating the law in a similar way. These people claim the FBI, CFTC, and SEC will inevitably come for Binance and BitMEX next.
Will America’s three-letter agencies eventually go after the world’s largest cryptocurrency exchanges?
It’s certainly possible.
If that’s true, then 1Broker’s seizure could be an early warning sign that the SEC, CFTC, and FBI will take down cryptocurrency exchanges wherever they’re headquartered.