Violation of Federal Securities Laws
As of Sept. 27, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are suing an international securities dealer and its Austria-based CEO. The company allegedly violated the federal securities laws in connection with security-based swaps funded with bitcoins. The charges include wire fraud, money laundering and operating an unregistered securities exchange.
The 1pool Ltd. (also known as 1Broker) and its CEO, Patrick Brunner, allegedly solicited investors around the world to buy and sell security-based swaps without proper “discretionary investment thresholds” according to the SEC’s complaint. Registered in the Republic of the Marshall Islands, the dealer (whose domain has since been seized by the Federal Bureau of Investigation) enticed investors to open accounts by simply providing an email address and a user name. No additional information was required and the investors could only purchase these swaps and fund their account using bitcoins.
The SEC alleges that a Special Agent with the FBI, 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 properly register as a security-based swaps dealer and also failed to transact its security-based swaps on a registered national exchange. The FBI later seized the 1broker.com domain, according to a report on their site.
The SEC’s complaint, filed in the United States District Court for the District of Columbia, seeks permanent injunctions, penalties, and disgorgement plus interest. In a parallel action, the Commodity Futures Trading Commission (CFTC) announced charges against 1Broker occurring from similar conduct. The SEC has been investigating many companies in the crypto sphere for possible securities violations. In a recent ruling, a judge in a United States federal court ruled that the country’s securities laws cover Initial Coin Offerings.
“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,” said Shamoil T. Shipchandler, the Director of SEC’s Fort Worth Regional Office in the SEC press release.
The investigation was conducted by SEC`s Morgan Ward Doran and David Hirsch, and supervised Eric R. Werner and Scott Mascianica from 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 helped in the investigation.