On 27 September 2018, the United States Securities and Exchange Commission (SEC) filed charges against 1Broker, a popular crypto investment site headquartered in the Marshall Islands. Its website was seized by the Federal Bureau of Investigations (FBI), leaving no way for customers to access funds.
An FBI agent purchased products on 1Broker that could be considered security-based swaps, and found that only an email address and username was needed to open an account. 1Broker says that it had a statement in its terms of service that users were responsible for making sure it was legal to buy products on 1Broker, but the SEC and FBI clearly disagrees. The SEC says 1Broker failed to register as a security-based swap dealer, and failed to transact the security-based swaps on a registered exchange.
Criticism has been that it is counter-intuitive for the SEC to perform an action like this, which hurts the up to 50,000 traders and investors that use 1Broker, since the goal of the SEC is to protect investors. It is important to note that 1Broker is not even based in the United States, it is in the Marshall Islands which is a sovereign nation.
A simple fix for this would have been to ban US IP addresses. Optimally, 1Broker should have verified customer identities to prevent US customers from using its platform. 1Broker launched in 2012, during a time when regulations were lacking, and it stuck with a policy of practically total anonymity for customers up to the present day.
Since 1Broker customers were able to maintain anonymity, receiving funds back may be a lengthy process at best, and impossible at worst. The SEC, FBI, and possibly the Commodities Futures Trading Commission (CFTC) who is also filing charges, are in charge of the refund process. This will likely lead to demands for full verification of customers before refunds are processed. Most customers will likely be unable to comply for multiple reasons, such as tax liability, maintaining anonymity, or using 1Broker in a country like the United States where it is considered illegal.
Therefore, this is not only a shutdown of 1Broker but will end up being a total loss for most of its users. This is the sort of treatment users usually receive on darknet markets like the Silk Road, where drugs and other illegal goods are being transacted. It bears consideration that traders and investors using a platform with a strong reputation should lose their investment due to government action, especially the action of a foreign government.
The reality is that 1Broker posed no threat or risk to investors, and the SEC, FBI, and CFTC appear to be the ones damaging investors in this case, which is the opposite of their mandated mission to protect investors.
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