The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC,) which are US-based financial regulators, both charged XBT Corp. for the sale of unregistered swaps for Bitcoin this week. To be more specific, the firm did not register as an FCM, which means futures commission merchant.
Both watchdogs issued press releases explaining the situation. They both stated that the company that did business as First Global Credit (or XBT) incurred in the selling of security-based swaps for BTC whilst failing to register on any exchanges.
Taking Futures Orders from 24 American Clients
The charges explain that the firm solicited or took futures orders from 24 different American clients in a span ranging from March 2016 and July 2017, accepting BTC for margin trades. During the aforementioned timeframe, XBT failed to register as an FCM, incurring in legal foul play.
The legal document explains that the company in question had a minimum of 90 investors, and between them, they processed over 18,000 security-based swaps in a span of five years between 2014 and 2019. The filing also notes that more than $100 million were conducted in transactions based on US-listed securities, with roughly $43.8 million coming in operations performed by American residents.
The settlement dictates that XBT needs to pay over $130,000 in fees and disgorgement. The SEC will be taking custody of those funds sometime in 2020. Another crucial point explained by CFTC in its release observes that the agency “recognizes that FGC’s civil monetary penalty in this matter was substantially reduced in light of FGC’s cooperation and remediation.”
CFD Derivatives Products
First Credit was introduced to the market near the end of 2014 and offered CFD (contract for difference) derivatives products, which let clients deposit BTC for the right of acquiring credits representing shares in high-profile firms around the world, with Apple being a notable example.
SEC’s filing explains that “although First Global Credit used different terminology to describe the investments it offered, including ‘bitcoin Asset Linked Notes,’ investors were able to participate in the price movements of securities, including those listed on U.S. securities exchanges, without owning them.” These types of instruments “are considered security-based swaps under the U.S. federal securities laws. First Global Credit offered these swaps to U.S. investors without complying with the registration and exchange requirements governing security-based swaps, which were enacted as part of the Dodd-Frank Act.”
David Peavler, currently the Regional Director of the SEC’s Fort Worth Regional Office, explains that “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.”
SEC and the CFTC received help from the FBI and the Swiss Financial Market Supervisory Authority, or FINMA, in the investigation, as detailed by both press releases. XBT had not provided any comments regarding the situation at the time of writing this piece.
By Andres Chavez