Pen on hardcopy of document labeled Bankruptcy Chapter 11

Bittrex files for Chapter 11 bankruptcy in the wake of SEC charges

Digital asset exchange Bittrex has filed for Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware, a move which comes only a month after the company announced it was winding down its U.S. operations and a few weeks after the U.S. Securities and Exchange Commission (SEC) accused it of operating an unregistered securities exchange.

According to its bankruptcy petition, Bittrex’s assets and liabilities are between $500 million and $1 billion, which includes its Seattle-based entity Bittrex Inc, two Bittrex entities in Malta, and an affiliated entity Desolation Holdings LLC.

Bittrex Global GmbH, the Liechtenstein-based global entity for the exchange, was not included in the filing, and the company stated that its decision to file for bankruptcy in the U.S. would not affect Bittrex Global, which will continue to operate for customers outside the United States.

The U.S. bankruptcy filing is an escalation of Bittrex’s April 4 announcement that it would be closing its U.S. operations at the end of that month, citing the “continued regulatory uncertainty” in the U.S. as the reason.

In its press release this Monday, the exchange assured customers that funds in the U.S. not withdrawn by April 30 will remain secure, adding that the bankruptcy court will decide on the procedures for distributing the remaining funds.

A costly run-in with the regulators

The “regulatory uncertainty” that led Bittrex to wind down its U.S. operations was compounded by a SEC complaint against the company, filed on April 17, accusing it of operating an unregistered securities exchange.

The complaint stated that Bittrex entities had acted as broker-dealers, exchanges, and clearing agencies since the company’s 2014 launch while failing to register with the SEC as entities offering such services.

Since 2014, the SEC claimed Bittrex had generated “at least $1.3 billion” in revenue from customers, of which a significant portion was U.S.-based, placing these customers “at significant risk” by “servicing them in these unregistered capacities.”

Bittrex has denied the SEC’s allegations, arguing that the digital assets on its platform were not securities or investment contracts, a popular refrain amongst those accused of dealing in unregistered securities and an argument that Coinbase (NASDAQ: COIN) has been trying to make since it received a Wells notice from the SEC last March informing the company that an enforcement could be expected soon.

The SEC’s April complaint against Bittrex was not the first run-in with the authorities that may have contributed to the exchange filing for bankruptcy.

Last October, Bittrex was fined nearly $30 million for “deficiencies related to Bittrex’s sanctions compliance procedures.” Specifically, the company was accused of allowing accounts in countries under U.S. economic sanctions to trade hundreds of millions of dollars’ worth of various digital assets.

This expensive pay-out came amid a general market downturn caused by the FTX collapse, which lasted into the beginning of 2023. Perhaps sensing the regulators circling, Bittrex attempted to abandon ship, but it seems not fast enough to avoid the bankruptcy of its U.S. entities.

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