Bittrex files for bankruptcy in U.S. after SEC lawsuit

Updated: 09 May 2023

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Bittrex, a crypto exchange, has filed for bankruptcy a few weeks after the US Securities Exchange Commission (SEC) sued it for running an unregistered exchange. The company filed for Chapter 11 bankruptcy protection for its US arm only, hence users outside the country will continue to receive services from the exchange.

Bittrex CEO Assures Customers Funds Are Safe After Bankruptcy Filing

The decision was made just a few days after the exchange declared its intention to leave the US market. Bittrex announced that it was winding down operations citing regulatory scrutiny. As such, the exchange instructed its users to withdraw their funds by 30 April 2023.

In the filing that was made to the United States Bankruptcy Court for the District of Delaware on May 8, Bittrex noted that it has over 100,000 creditors, assets worth between $500 million and $1 billion, and liabilities worth between $500 million and $1 billion as part of the bankruptcy proceedings.

Bittrex bankruptcy filings list more than $500 million in both assets and liabilities, and more than 100,000 creditors pic.twitter.com/eBn2Q5yiem

— Randall G. Reese (@Chapter11Cases) May 8, 2023

The bankruptcy covered its Seattle-based entity Bittrex, Inc, two Bittrex entities in Malta, and an affiliated entity Desolation Holdings LLC, and excluded Bittrex Global, the global entity for exchange based in Liechtenstein.

The exchange in a statement said that customer’s funds that were not withdrawn by the deadline were safe and it was Bittrex’s priority to ensure its customers are made whole.

In a statement to Cointelegraph, Bittrex Global CEO Oliver Linch, said ”[Customers’] funds remain – safe and secure – on the platform,” adding that “By initiating Chapter 11 proceedings, Bittrex U.S. is able to hand those over to the court, and the court is then responsible for returning them to customers. This is simply an exercise in Bittrex completing the wind-down of operations in the U.S. as previously announced, and using the legal process of Chapter 11 to tie up loose ends.”

In the filing, Bittrex provided a breakdown of 50 of the largest unsecured creditors, excluding insiders. Notably, the Office of Foreign Asset Control of the US Treasury emerged as the top creditor with a sizable claim of over $24 million.

This liability was accrued in October last year when Bittrex agreed to pay US$29 million in fines to the US Treasury Department for failing to prevent customers in Iran, Cuba, and other sanctioned nations from using its platform as well as the violation of anti-money-laundering legislation.

SEC Charges Bittrex For Violating Sanctions

Months later, the SEC went after the exchange’s US division alleging that the exchange violated the regulations of the Commission from 2017 through 2022 while earning at least $1.3 billion in revenue.

The lawsuit against Bittrex stated that the company failed to register as a national security exchange, clearing agency, and broker. The filing also included William Shihara, the co-founder and former CEO of the exchange, who was charged with collaborating with token issuers to delete remarks that would have attracted the SEC’s attention.

According to the SEC, Shihara encouraged issuers to remove statements that would trigger an inquiry by the commission into the nature of the asset class when the asset was being listed on the exchange.

Interestingly, the SEC itself is listed as a creditor despite the fact that the precise amount of the claim is still unknown. This is most likely because of current legal proceedings or possible claims the organization may have made against Bittrex.

Bittrex has become the latest crypto entity to file for bankruptcy, joining fellow exchange FTX and a host of lenders like Celsius, Voyager, and BlockFi. The company had a difficult start to the year 2023 after it laid off 83 workers in February, citing a downturn in the cryptocurrency industry brought on by the failures and insolvencies of other crypto companies.

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