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Charged: Securities Company Fined for Enticing Americans to Buy Bitcoin (BTC) Products

November 01, 2019

US regulators fined Switzerland-based XBT Corp. after the company allegedly offered unregistered security-based Bitcoin swaps and failed to register itself as a futures merchant.

Though it did not admit or deny the accusations, XBT, also known as First Global Credit, consented to a cease-and-desist order and agreed to pay the Securities and Exchange Commission (SEC) a $100,000 penalty, as well as repay $31,687 in ill-gotten gains.

Both the SEC and the Commodity Futures Trading Commission (CFTC) issued press releases describing XBT’s violations.

The US regulators claim XBT targeted Americans and offered them “Bitcoin Asset Linked Notes,” allowing investors to participate in the price movements of securities, including those listed on US securities exchanges, without owning them – an offering US regulations deem a security-based swap. As such, they are subject to registration and exchange requirements enacted by the Dodd-Frank Act, which XBT did not adhere to.

Says David Peavler, regional director of the SEC’s Fort Worth Regional Office,

“Federal securities laws impose specific requirements for offering and selling security-based swaps to retail investors in the U.S. These obligations cannot be avoided merely by describing the swap transaction by a different name or funding it with digital currencies.”

XBT also agreed to pay the CFTC $100,000 in penalty charges, in addition to disgorgement. The Commission claims First Global Credit solicited and accepted orders for futures from American customers, using Bitcoin to margin their trades. Despite conducting these orders from March 2016 to July 2017, the company was never registered as a futures commission merchant.

Says the agency,

 “FGC’s website and trading platform solicited or accepted orders from U.S. customers for the purchase and sale of commodity futures listed on the Chicago Mercantile Exchange Globex trading platform.

According to the order, FGC established a separate page on its website to assist customers by instructing them how to ‘Trade Futures Using bitcoin as collateral margin.’ FGC’s website further stated, ‘Since you retain your bitcoins (and the growth benefit) we arrange a loan to cover the margin needed to place the trade.’ Trades on FGC’s trading platform were settled in bitcoin. FGC violated Section 4d(a)(1) of the CEA  which makes it unlawful for any person to be a FCM without registering with the Commission.”

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