The Securities and Exchange Commission has shut down two online virtual currency trading platforms that were creating markets in Bitcoin and Litecoin. The sites were cited as operating without registering as broker-dealers or stock exchanges. The sites were actually turned off in late 2013 by programmer Ethan Burnside.
The SEC stated that Burnside “significantly cooperated” with the SEC’s investigation and agreed to settle the case by paying a penalty of over $68,000. The amount was a derivative of his profits plus interest and a penalty. Burnside has been barred from the securities industry.
The SEC sates that BTC Virtual Stock Exchange and LTC Global Virtual Stock Exchange operated from August 2o12 until October 2013. Users of the two sites could buy, sell and trade securities listed on the sites. The platforms were not registered as broker-dealers nor stock exchanges “despite soliciting the public to open accounts and trade securities”. Thus falling afoul of federal securities laws.
“Burnside operated two online enterprises that weren’t properly registered to engage in the securities business they were conducting,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “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 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 stated 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.
The SEC’s order finds that Burnside “willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933, and that Burnside and BTC Trading Corp. willfully violated Sections 5 and 15(a) of the Securities Exchange Act of 1934”.
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. The penalty amount reflects prompt remedial acts taken by Burnside as he cooperated with the SEC’s investigation.