The Florida Office of Financial Regulation (OFR) said it issued a three-count complaint against Bittrex in late April, days before the troubled cryptocurrency exchange filed for bankruptcy protection in May. In the complaint, OFR accused Bittrex of failing to segregate its customer’s assets from its own operating capital and not maintaining a surety bond in the correct amount at all times.

Florida Reveals Case against Bittrex

Brandon Greenberg, an Assistant General Counsel at the OFR, disclosed the details in a court declaration filed yesterday (Wednesday) before the bankruptcy court in the District of Delaware. Greenberg filed the statement in support of the state regulator’s objection to Bittrex’s motion for an 'automatic stay', which is a court order that stops creditors from taking certain actions against a bankrupt firm's estate. According to the court filing, the complaint sent to Bittrex was the product of a multi-state investigation that includes financial regulators from Texas, Maryland and Michigan.

On March 31, Riche Lai, the Co-Founder and CEO of Bittrex, announced that the cryptocurrency exchange had begun winding down its services in the country as “operating in the US is no longer feasible.” OFR said its received Bittrex’s notice about the move, plus the exchange’s intention to surrender its license “on or before April 30, 2023.”

Reacting to OFR’s complaint, Bittrex’s counsel expressed 'disappointment' at the regulator’s decision to take enforcement action rather than let the firm exit the state. The state agency said it gave Bittrex a deadline of May 15 to initiate a petition for settlement negotiations. During this period, OFR pointed out, Bittrex did not disclose its financial condition or bankruptcy plans.

In a further engagement with Bittrex on June 1, 2023, the exchange’s counsel ‘stridently asserted’ that OFR’s violation claims against the firm were 'older' with no recent violations alleged. The watchdog said the exchange made the claim despite its possession of evidence that Bittrex continued to violate Florida laws “on an ongoing basis.”

“In response, I [Greenberg] explained how the OFR’s examination findings revealed recent conduct by Bittrex Inc. that violated several provisions of Chapter 560, Florida Statutes, which indicated an ongoing pattern of noncompliance with our money services business laws, and that it was within our administrative discretion in deciding which legal violations to charge and not charge in our Administrative Complaint,” Greenberg explained.

Bittrex vs. SEC

OFR’s revelation comes over two months after the US Securities and Exchange Commission (SEC) sued Bittrex and its Co-Founder and the former CEO, William Shihara, over allegations that the digital asset exchange operated as a national securities exchange, broker and clearing agency without registration.

In the latest development on the case, the bankruptcy court in Delaware recently authorized Bittrex to start paying its customers despite objection by the United States government.

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