The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today brought and settled enforcement actions against Switzerland-headquartered First Global Credit (FGC). The US watchdogs charge the international dealer, aka XBT Corp, for offering bitcoin-backed securities on a platform that violates US regulatory compliance.
The SEC also charged the company for selling securities on an unregistered exchange and that it failed to register as a futures commission merchant (FCM).
“The order requires FGC to pay a $100,000 civil monetary penalty and disgorge gains received in connection with its violations, and to cease and desist from future violations,” the CFTC said.
First Global Credit’s service allows investors to fund a margin account with bitcoins and to then open leveraged positions in stocks, several global stock market indexes, and ETFs. The scheme had been running from March 2016 to July 2017 and allegedly had violated federal securities laws in connection with the sale of securities-based swaps funded with Bitcoin.
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Only Bitcoin was used to fund FGC accounts. Once funded, individuals could then trade on derivatives of stocks, commodities or forex pairs.
Regulators seize the FGC domain
Absent certain exceptions, which do not apply to FGC, the US laws require that offerings in security-based swaps be registered with the SEC and that the transactions be executed on a registered national exchange.
Likewise, FGC acted as a dealer in the CFDs, and because the transactions were not executed on a national exchange, the company violated the federal securities laws.
US regulators have seized the FGC domain, Firstglobalcredit.com. Before that, the CFTC explains that the company had dedicated a separate page on its website to enable investors to “Trade Futures Using bitcoin as collateral margin.” FGC’s website further stated, “Since you retain your bitcoins (and the growth benefit) we arrange a loan to cover the margin needed to place the trade.” Trades on FGC’s trading platform were also settled in bitcoin.
The SEC also accused FGC of running a hidden dealing desk as the firm, either directly or through its wholly-owned subsidiary, was the counterparty for each transaction with its account holders.