In a newly released cease-and-desist order from the U.S. Securities and Exchange Commission (SEC), Genesis Trading platform and the Bitcoin Investment Trust (BIT) have been ordered to pay a $53K disgorgement to settle with the SEC relating to a share redemption program in 2014.
Genesis Trading, also known as SecondMarket, is owned by Barry Silbert’s Digital Currency Group. Genesis is a bitcoin broker based in New York. The over-the-counter trading system that Genesis employs only deals in large trade quantities for individuals and institutional investors who wish to buy or sell bitcoin. The minimum bitcoin buy or sell size is $25K USD.
According to CoinDesk who discovered disclosures published last year by Grayscale, the redemption program drew the attention of SEC regulators because the repurchases took place as shares were being created by the trust, in violation of Regulation M, the SEC said in its cease-and-desist order.
What is Regulation M?
Morrison & Foerster lawfirm explains that Regulation M is:
[…] intended to protect the trading markets by prohibiting activities by distribution participants that could manipulate the market for a security that is the subject of an offering. Regulation M impacts the activities that may be conducted by issuers, broker, dealers and other distribution participants around the time of a securities offering.
The redemption program was shut down in late October of 2014. According to the SEC order, Genesis and BIT have agreed to pay the $53K disgorgement to the SEC and will cease and desist from committing or causing any future violations.
In a statement issued to CoinDesk who is a subsidiary of Digital Currency Group, which has an ownership stake in Genesis Trading, the two companies said,
“Genesis and BIT are happy to have this matter behind them, and Genesis looks forward to continuing to serve as the authorized participant of the BIT.”