The U.S. arm of crypto exchange Bittrex is set to open for customer withdrawals Thursday following a ruling by a Delaware bankruptcy court. After receiving a lawsuit from the SEC for running an unregistered securities exchange, the exchange filed for Chapter 11 bankruptcy in May.
On May 8, Bittrex filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court in Wilmington, Delaware.
The Chapter 11 petition only applies to the Seattle, Washington-based U.S. affiliate. According to the company, Bittrex Global, which serves customers outside the U.S., will continue to operate normally.
The bankruptcy filing came three weeks after the U.S. Securities and Exchange Commission (SEC) accused Bittrex of operating an unregistered securities exchange.
The SEC alleged that former CEO William Shihara encouraged crypto asset issuers seeking to list their tokens on the company’s platform to delete public statements that could lead regulators to investigate the token offerings as securities.
Bittrex has denied the SEC’s allegations, saying the crypto assets on its platform were not securities or investment contracts.
The U.S. branch of Bittrex has had a rough 2023 so far, laying off 80 people in February and announcing in March that it would cease all operations by the end of April.
These changes have not affected Bittrex Global, the non-U.S. crypto exchange. As of May 10, the company said it held $300 million in customer cash and crypto in the U.S. arm.
While bankruptcy proceedings usually include a freeze on transactions, the company argued it wanted customers to have access to their funds without protracted litigation.
Customer Claims
In a Tuesday ruling, Judge Brendan Shannon authorized Bittrex U.S. and its affiliates to permit their customers holding undisputed, noncontingent, and liquidated claims to withdraw cryptocurrency assets and fiat currency from the Debtors’ trading platform to the extent of such claims.
The ruling added that the judgment does not determine who legally owns these assets, whether customer claims are favored over government claims, and whether future clawbacks are possible.
Bittrex stated that it still held the crypto assets of U.S. customers who still needed to withdraw funds before April 30.
These assets are “safe and secure,” and Bittrex intends to petition the bankruptcy court for a limited re-opening of customer accounts so the crypto could be distributed back to customers.
Bittrex listed 16 anonymous consumers with at least $1 million in their accounts. According to the petition, Bittrex’s largest remaining customer account has $14.6 million in assets.
Bittrex’s petition identified the Office of Foreign Asset Control as the company largest unsecured creditor, owing the agency more than $24 million.
The company had previously agreed to pay $29 million in fines to the U.S. Treasury Department for “apparent violations” of sanctions on certain countries and anti-money laundering law.
Future Outlook
Bittrex’s bankruptcy filing is one of several cases involving crypto platforms that have faced regulatory scrutiny or legal troubles in recent months.
The SEC has also sued Ripple Labs, Coinbase, and FTX for allegedly violating securities laws or offering unregistered products.
Several other crypto exchanges have also gone bankrupt or shut down due to hacking, fraud, or operational issues.
The fate of Bittrex’s U.S. customers will depend on how the bankruptcy court handles their claims and whether the SEC or other creditors challenge them.
Customers who wish to extract their funds should refer to Bittrex’s website for withdrawal instructions or contact its customer support team for assistance.
