NEW YORK (InsideBitcoins) — A bitcoin exchange abruptly shut down a little over one year ago has been sanctioned by the Securities and Exchange Commission for trading unregistered securities and operating unregistered broker-dealer venues or stock exchanges.
Ethan Burnside, former operator of the bitcoin exchange BTC Trading Corp and the litecoin-based LTC Global Virtual Stock Exchange, cooperated with the SEC’s investigation and has agreed to settle the case by paying more than $68,000 — an amount equal to his profits, plus interest and a penalty.
The online businesses operated from August 2012 to October 2013, providing users the ability to use bitcoin or litecoin to buy, sell, and trade securities of businesses (primarily virtual currency-related entities) listed on the exchanges’ websites.
“The registration rules are vitally important investor protection provisions, and no exemption applies simply because an entity is operating on the Internet or using a virtual currency in securities transactions.”
“The venues weren’t registered as broker-dealers despite soliciting the public to open accounts and trade securities,” an SEC statement says. “The venues weren’t registered as stock exchanges despite enlisting issuers to offer securities for the public to buy and sell. The SEC’s order also finds that Burnside conducted separate transactions in which he offered investors the opportunity to use virtual currencies to buy or sell shares in the LTC-Global exchange itself and a separate litecoin mining venture he owned and operated. These offerings were not registered with the SEC as required under the federal securities laws.”
“The registration rules are vitally important investor protection provisions, and no exemption applies simply because an entity is operating on the Internet or using a virtual currency in securities transactions,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
According to the SEC’s order, Burnside and BTC Trading Corp. actively solicited the public to open accounts by advertising the websites for both of his stock exchanges on the Bitcoin Forum and other websites dedicated to virtual currency. The solicitation efforts resulted in approximately 2,655 users opening online accounts with LTC-Global exchange and executing approximately 60,496 trades through the website, paying a total of 12,081 litecoins in transaction-based compensation. Approximately 7,959 users opened online accounts with the BTC exchange and executed approximately 366,490 trades through the website, paying a total of 2,141 bitcoins in transaction-based compensation. The SEC’s order finds that in this line of business, Burnside and BTC Trading Corp. were required to register their online enterprises with the SEC as brokers or dealers.
The SEC’s order further finds that Burnside and BTC Trading Corp. failed to register the LTC-Global exchange or the BTC exchange as exchanges despite providing issuers a platform to create and list initial and secondary offerings of securities in exchange for a listing fee. A total of 52 issuers paid BTC Trading Corp. 11,450 litecoins in listing fees to list their shares with the LTC-Global exchange, and 69 issuers paid 210 bitcoins in listing fees to list their shares with the BTC exchange.
Without admitting or denying the SEC’s findings, Burnside and BTC Trading Corp. consented to cease and desist from committing or causing any future violations of the registration provisions. Burnside agreed to be barred from the securities industry with the right to reapply after two years, and he must pay $58,387.07 in disgorgement and prejudgment interest, plus a penalty of $10,000.