SEC & CFTC Join in Charging Austria Based Dealer Using Bitcoin for Swaps for Violating US Law

The Securities and Exchange Commission (SEC) announced an enforcement action today against an Austria based international securities dealer with providing securities swaps funded by Bitcoin. The SEC charges Patrick Brunner, CEO of 1pool Ltd. a/k/a 1Broker – registered in the Marshall Islands, with violations of US securities law.

According to the SEC complaint, investors, including ones based in the US, could open accounts by simply providing an email address and a user name without any additional information. These investors could fund their account only with Bitcoin.

The SEC states that the Federal Bureau of Investigation (FBI) provided evidence by having a Special Agent, acting in an undercover basis, purchases swaps on the 1Broker’s platform.

The SEC alleges that Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer, according to US law.

Simultaneously, the Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. against 1pool Ltd., and Brunner.

The CFTC’s Complaint charges the Defendants with engaging in unlawful retail commodity transactions, failing to register as a Futures Commission Merchant (FCM), and supervisory violations for failing to implement procedures to prevent money laundering as required under federal laws and regulations.

The CFTC alleges that the Defendants offered or engaged in unlawful retail commodity transactions in the form of “contracts for difference” (CFDs) that had as underlying assets commodities such as gold and West Texas Intermediate crude oil.

These transactions did not take place on or subject to the rules of any board of trade that has been designated or registered by the CFTC as a contract market, as required by the Commodity Exchange Act (CEA).

The CFTC echoed the SEC stating the defendants failed to diligently supervise by failing to implement an adequate know-your-customer and customer identification program (KYC/CIP).

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, made a specific point that the SEC protects US investors across a variety of platforms and variety of currencies.

“International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.”

James McDonald, CFTC Director of Enforcement, said this action shows the determination of the CFTC to pursue intermediaries “within our jurisdiction register with the CFTC and implement policies and procedures necessary to prevent money laundering and other illicit transactions.”

“These requirements serve to preserve market integrity and protect customers,” said McDonald. “This action also reflects the CFTC’s commitment to coordinate closely with our fellow regulators to ensure that we uncover and prosecute the entire scope of any misconduct.”

The enforcement action is indicative of the intent of US regulators to pursue violations pertaining to Bitcoin, or other types of crypto, regardless of jurisdiction or location.

The SEC Complaint

The CFTC Complaint

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