SEC Extends Enforcement Beyond the United States

SEC Extends Enforcement Beyond the United States

On September 27th, the United States Securities and Exchange Commission (SEC) filed charges against and effectively froze the Marshall Islands-based online trading platform 1Broker. Established in 2012, 1Broker accepted deposits in Bitcoin and offered fiat forex pairs and CFDs on stocks, indices, and commodities.

How the SEC Imposes Sanctions Outside U.S. Borders

Typically, the SEC is restricted to enforcement throughout the United States and its territories. As their mission statement reads, they are “the primary overseer and regulator of the U.S. securities markets”.

Last week however, they managed to shutdown 1Broker’s platform, despite its legal founding in the Republic of the Marshall Islands. For clarity’s sake, the Marshall Islands have been a sovereign Republic since 1986— they are not a US territory.

Ultimately, the SEC sought the authority of the FBI who issued a seizure warrant to shut down the 1Broker platform. The warrant entailed violations of ‘money laundering’ and ‘willfully operating as an unregistered broker/dealer of securities’, among others.

The SEC’s formal announcement features charges against 1Broker and its Austria-based CEO, Patrick Brunner. The two were accused of “violating the federal securities laws in connection with security-based swaps” and “[soliciting] investors from the US and around the world”.

In their press release, the SEC discuss the details of how an undercover FBI agent uncovered such infringements.

The SEC alleges that a Special Agent with the Federal Bureau of Investigation, acting in an undercover capacity, successfully purchased several security-based swaps on 1Broker’s platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws.

The justification of international prosecution was also covered by the SEC.

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

1Broker’s Response to the SEC and FBI Seizure

Such a situation undoubtedly caused panic to investors who have utilized the 1Broker platform. After all, every 1Broker account— including all funds within them— were instantly frozen.

The day after the seizure, 1Broker posted the following message on the 1Pool domain homepage:

“On September 28th 2018, our domain was closed by the United States Securities and Exchange Commission (SEC). This means that the trading panel is not accessible anymore – funds, servers, and databases are not affected. Currently, our top priority is to allow customer withdrawals. The company holds enough funds to cover withdrawal requests, of course.”

However, the following sentence failed to provide such intended comfort.

“Before we can take the required steps to [cover withdrawal requests], we have to seek permission from the authorities.”

Since one of the warrant violations includes money laundering, it is unlikely that this type of request will be approved anytime soon.

How will such actions by the SEC affect the overall tokenization of securities? Will these types of occurrences result in a clearer SEC regulatory framework regarding securities tokens? We want to know what you think in the comments below.

Image courtesy of 1Broker.