A court filing revealed that the Department of Justice claims that Bittrex is still owed a significant amount of money resulting from sanctions violations. The legal challenge adds a new dimension to Bittrex’s bankruptcy proceedings and may impact the outcome of the proposed plan for returning funds to customers.
The government, specifically its Financial Crimes Enforcement Network (FinCEN), claims that the exchange is owed $5 million and argues against prioritizing certain creditors over others.
Bittrex filed for Chapter 11 bankruptcy protection in May, nearly four weeks after shuttering its US business following accusations made by the regulators that it was operating an unregistered securities exchange.
The Seattle-based crypto exchange said the bankruptcy filing would not impact its global brand, Bittrex Global, which is based in Liechtenstein and serves non-US customers.
The filing revealed that the exchange’s assets and liabilities were in the range of $500 million to $1 billion. The reason for the bankruptcy filing was not specified, and it is unclear how the move will affect Bittrex’s creditors.
Bittrex stated that the assets of its US-based users are secure and safe, and the exchange plans to request a limited re-opening of their accounts to distribute the remaining balances back to its holders. The exchange had earlier urged its US customers to withdraw their funds before April 30. The request for a limited re-opening would allow the distribution of assets to those who failed to meet the deadline.
Bittrex had reportedly 600,000 active users in the US and another 600,000 unfunded customer accounts. According to a bankruptcy filing, 16 US-based customers still have at least $1 million in their accounts, with the biggest depositor holding $14.6 million in assets.
The government’s objection is seen as an attempt to hamper the industry without effectively protecting investors. The filing argues that the ownership of cryptocurrency assets does not need to be determined before confirming the proposed plan and that siloing creditors into subordinated classes is improper.
The SEC’s complaint alleges that Bittrex was purposefully non-compliant since at least 2014, facilitating the buying and selling of crypto assets that were deemed as securities. The exchange earned over $1.3 billion in revenues, primarily from transaction fees collected between 2017 and 2022, while servicing American investors without registering any of these activities with the financial watchdog.
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