1Broker Hit by SEC – Domain Seized by FBI

Exchanges, News

On September 26th, the Securities and Exchange Commission (SEC) announced that it was launching charges against 1Broker, also known as 1Pool Ltd. As per the official SEC press release, the SEC declared that the charges were brought for “allegedly violating the federal securities laws in connection with security-based swaps funded with bitcoins.”

Surprise charges on 1Broker

The news caught many traders off guard. The SEC has previously implied that they will primarily target ICOs and the wide number of crypto-related scams, which are growing rapidly and are a cause for concern. According to Shamoil Shipchandler of the SEC –

“The SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions. International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.”

The SEC is putting forward the case that 1Broker was issuing the swaps fraudulently and did not have the legal capacity to trade security-based swaps on any registered exchange. The Commodities and Futures Trading Commission (CFTC) are also involved in the case.

More investigations to follow?

These surprise crackdowns often leave many traders and blockchain businesses anxious as the legal requirements surrounding cryptocurrencies are still evolving. It can sometimes be difficult to know if a business is legally compliant or not given the hazy nature of cryptocurrency regulation.

On a more worrisome note, crypto-strategist Alex Kruger indicated that the FBI had seized the domain of the charged platform in a coordinated government strike. He also indicated on Twitter the dangers to platforms that offer security tokens and security token derivatives –

“This could happen to crypto exchanges offering trading of security tokens and security token derivatives. If $XRP were to be defined as a security, it would jeopardize exchanges such as Bitmex. Binance is at risk regardless. Lots of security tokens there.”

There may be more to the story than meets the eye. Some are suggesting that the site was seized due to money laundering and wire fraud as well as for acting as an unregistered broker-dealer and an unregistered futures commission merchant. Further, over 40% of the users on the platform are said to be Turkish residents, where crypto usage is surging due to the result of harsh US sanctions on the nation.

On the other hand, this was an offshore company, so other exchanges should be wary of the well-known US regulatory tendency to extend their reach into extrajudicial territory.  According to Blue Protocol, a similar but smaller security token exchange – “1Broker is not the only exchange that is going to see SEC enforcement shortly”. They advise decentralized exchanges as centralized exchanges will always be vulnerable to these attacks. Unfortunately for holders and traders, decentralized exchanges are not fully functional at the present time.

Digital Nomad with an interest in Zen and Blockchain technology.

Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.

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