SEC Sues Bittrex for Operating Unregistered Exchange ... Who is Next?

SEC Charges Crypto Asset Trading Platform Bittrex and its Former CEO for Operating an Unregistered Exchange, Broker, and Clearing Agency

The Securities and Exchange Commission today charged crypto asset trading platform Bittrex, Inc. and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Bittrex, Inc.’s foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.

Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.

SEC Chair Gensler to Defend Climate, Crypto Plans Before GOP-Led Panel 

Securities and Exchange Commission Chair Gary Gensler is set to defend his regulatory agenda Tuesday before a House panel that has grown hostile to his plans under Republican leadership of the committee.

“The SEC is the cop on the beat watching out for your constituents,” Mr. Gensler said in prepared remarks for the hearing before the House Financial Services Committee. He framed his plans as necessary to protect investors and markets in an era of rapid technological change and emerging risks.

Coinbase Could Move Away From U.S. if No Regulatory Clarity: CEO Brian Armstrong

Coinbase (COIN) CEO Brian Armstrong indicated that the crypto exchange would consider moving away from the U.S. if the regulatory environment for the industry does not become clearer.

“Anything is on the table, including relocating or whatever is necessary” he said after former U.K. Chancellor George Osbourne asked whether he could see Coinbase leaving the U.S. at Fintech Week in London.

“I think the U.S. has the potential to be an important market for crypto, but right now we are not seeing that regulatory clarity that we need,” he said. “I think in a number of years if we don’t see that regulatory clarity emerge in the U.S. we may have to consider investing more elsewhere in the world.”

2023 Inspections to Prioritize Audit Risks Related to Fraud, the Financial Services Sector, CryptoPublic Company Accounting Oversight Board (PCAOB) inspectors outlined their priorities for 2023 inspections in a new PCAOB staff report(PDF) out today. The report outlines plans to increase the focus on fraud-related audit procedures, continue prioritizing risks related to material digital assets, and continue selecting audits in the financial services sector for inspection, among other priorities.

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The complete list of 2023 inspection priorities outlined in today’s report includes:

--Risk of fraud--Auditing and accounting risks--Risk assessment and internal controls--Financial services specific considerations--Broker-dealer specific considerations--M&A, including de-SPAC transactions--Digital assets--Use of the work of other auditors--Quality control (particularly talent retention and its impact on audit quality, and independence)--Other areas of inspection (critical audit matters, cybersecurity, and use of data and technology in the audit)

SEC Lays Its Cards on the Table With Assertion That DeFi Falls Under Securities Rules

The U.S. Securities and Exchange Commission’s (SEC) warning shot last week that decentralized finance (DeFi) could be thrown into its expanding definition of what makes a securities exchange is the latest move to formalize what Chairman Gary Gensler has been saying: Crypto belongs in the securities world and will be regulated that way.

The crypto industry had long pleaded for specific rules or guidance from the SEC that would give digital-assets businesses certainty about how to comply or properly steer clear of the agency’s jurisdiction. The agency’s decision to explicitly fold DeFi into its proposal for a new exchange definition further underlines that the crypto financial movement won’t get tailored regulations. On the contrary, the agency is making targeted adjustments to its rules to ensure crypto will be held to existing securities regulations.

U.S. Supreme Court to hear dispute over Slack’s direct stock listing

The U.S. Supreme Court on Tuesday agreed to hear a bid by Slack Technologies Inc, part of Salesforce Inc (CRM.N), to avoid a lawsuit accusing the workplace communication software company of misstatements in its 2019 direct listing – an alternative to an initial public offering.

The justices took up San Francisco-based Slack’s appeal of a lower court’s ruling last year that an investor named Fiyyaz Pirani could pursue a class action lawsuit against the company and its executives without proving the shares he bought in Slack’s direct listing were registered, rather than unregistered.

FTX celebrity promoters say crypto investors cannot sue over accounts

The proposed class action in Miami alleges that FTX yield-bearing accounts were unregistered securities that were unlawfully sold in the United States, which required the promoters to disclose the compensation they received.

The lawsuit seeks damages from FTX founder Sam Bankman-Fried alongside several celebrities who promoted FTX including David, the creator of TV shows “Seinfeld” and “Curb Your Enthusiasm.” It also seeks damages from a National Basketball Association team that promoted FTX, the Golden State Warriors.

The celebrities and the Warriors said in court papers filed on Friday that they had never pitched the accounts at issue in the case and did not cause the investors’ losses.

They said that under the investors’ theory, “actors in any brokerage ad would be liable for selling any security that an individual user later purchased using the brokerage’s services.”

“That’s nonsense,” the celebrities said.

Cybersecurity-Related Securities Suit Allegations Against Okta Dismissed

As I noted in my year-end round up of D&O related issues (here), plaintiffs’ lawyers have continued to file securities class action lawsuits following cybersecurity incidents, even though the plaintiffs’ track record in these kinds of lawsuits generally has been poor. Among the cybersecurity-related securities lawsuits filed last year was the suit against cloud-based software company Okta relating in part to the cybersecurity incident at the company earlier in the year. Consistent with the general trend, on March 31, 2023, the court presiding over the Okta securities lawsuit granted the defendants’ motion to dismiss the cybersecurity-related allegations, although the court denied the dismissal motion with respect to certain of the plaintiffs’ other unrelated allegations. The court granted the plaintiff leave to amend the dismissed allegations. The court’s March 31, 2023, order can be found here.