In a recent development, the U.S. administration has raised objections to a proposal made by Bittrex, a bankrupt crypto exchange, to repay customer funds and crypto assets.
The exchange’s U.S. subsidiary filed for bankruptcy after facing allegations of operating an illegal securities exchange.
Bittrex’s Bankruptcy and Regulatory Issues
Bittrex’s troubles began when its U.S. subsidiary declared bankruptcy in early May amid allegations of running an illegal securities exchange.
This followed the exchange’s agreement to pay $53 million in settlements to the Treasury for unauthorized transactions conducted by customers based in Iran, Cuba, and Crimea.
Seeking to expedite the process of returning customer holdings, Bittrex requested the court’s approval to allow customers to withdraw their assets without undergoing lengthy litigation.
However, the U.S. government has opposed this proposal, contending that prioritizing creditors in this manner is improper. According to the government’s filing, “siloing creditors into subordinated classes outside of the confirmation hearing is wrong.”
Financial Holdings and Withdrawal Assurance
Bittrex’s U.S. division currently holds customer cash and crypto assets valued at $50 million and $250 million, respectively.
Additionally, the exchange’s operational company, also undergoing bankruptcy proceedings, possesses $120 million in customer cash and cryptocurrency. Attorneys representing Bittrex informed the Delaware court that both entities have sufficient assets to honor customer withdrawals.
SEC Charges Against Bittrex
In April, the Securities and Exchange Commission charged Bittrex and its former CEO Bill Shihara with multiple alleged securities violations.
The SEC claimed that Bittrex deliberately violated federal securities laws by instructing crypto asset issuers to remove statements from their offering papers that would indicate their securities nature.
Moreover, the regulators accused Bittrex of earning over $1.3 billion in transaction fees from investors, including U.S. residents, without complying with U.S. securities laws or registering appropriately.