Securities Dealer Targeted By Two US Regulatory Agencies

September 29, 2018 12:06 AM

Yesterday, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) separately filed complaints against Patrick Bruner and his companies 1pool and 1broker. Bruner, through these companies, is accused of violating US securities and commodities laws through online trading platforms that accepted payments only in bitcoin.

Though these actions are being taken by US regulators, neither Bruner nor the companies are based in the US. Bruner is Austrian, and his companies are headquartered in the Marshall Islands.

According to the SEC complaint, 1broker offered what are called contracts for differences (CFDs), which allow accountholders to purchase a long or a short position on a publicly traded US company. Depending on the fluctuation of the price of the underlying stock, the CFD will increase or decrease in value, though the CFD holder never owns any of the underlying asset. The SEC considers stock-based CFDs to be “securities swaps” and consequently holds they are required to be registered with the commission.

1broker was also selling CFDs that were based on commodities. Consequently, the CFTC, which regulates the trading of commodities, has also gotten involved. In its complaint, the CFTC alleges 1broker sold CFDs based on commodities such as gold and Texas crude oil. The CFTC considers those CFDs to be “commodity futures.” Consequently, 1broker should have registered as a “futures commission merchant,” which it failed to do. Additionally, the complaint alleges these products were sold to those who were not “eligible contract participants,” since certain commodity futures can only legally be sold to corporate entities with net worths in excess of $1 million. 

Earlier reports indicated that the 1pool domain had been seized by the SEC. The website is now back up, though it currently features only a statement from the company about the SEC’s actions and a set of FAQs about what these legal troubles mean for the company and its customers. The announcement states:

“On September 28^th 2018, our domain 1broker.com 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 all withdrawal requests, of course. Before we can take the required steps to do that, we have to seek permission from the authorities. During this whole process, we are supported by our lawyers and we will regularly post updates here.”

The page goes on to say that the exchange was closed because an FBI agent was able to execute trades on the site. The SEC complaint roughly verifies this, asserting that an agent in Houston and another in Washington, DC, were both able to use the site, making trades that were illegal per US law. However, 1pool claims: “Our terms of service explicitly state that customers have to verify that using our service is legal in their country of residence.”

According to the SEC, this disclaimer wasn’t good enough, and 1broker should have restricted access to its site to prevent its use in the US, “as they did with Austrian investors.”

Tim Prentiss is a writer and editor for ETHNews. He has a master’s degree in journalism from the University of Nevada, Reno. He lives in Reno with his daughter. In his spare time he writes songs and disassembles perfectly good electronic devices.

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