Meta Digest

SEC fired up the crypto community after Coinbase notice

Stephen Reynolds Stephen Reynolds on March 23, 2023

SEC – US authorities have started cracking down on the crypto area, which has had a significant impact on the community.

The SEC sent a warning to Coinbase on Wednesday, saying that the company’s staking products are unregistered securities.

Parts of the Coinbase exchange and Coinbase Wallet were also discussed.

The SEC’s moves against Coinbase have sparked outrage in the cryptocurrency world.

As a result, concerns have arisen concerning the implications of the situation for bitcoin in the United States.

Coinbase

According to reports, Coinbase executives are dissatisfied with how the SEC enabled US investors to participate in cryptocurrency for years before abruptly pulling the rug out from under them.

For months, Coinbase allegedly engaged in regulatory and policy discussions with the SEC.

They began immediately after petitioning the SEC in July, asking the authorities to initiate a public rulemaking process to define what would be constituted securities.

Coinbase sent a letter to the SEC on Monday to clarify the rules governing staking.

The SEC subsequently informed the corporation that it would take enforcement action against it.

Coinbase CEO Brian Armstrong discussed how the SEC permitted the business to go public on the Nasdaq in a Twitter thread.

Coinbase informed customers earlier on Wednesday that Algorand staking incentives will be suspended on March 29.

In that afternoon, Paul Grewal wrote a blog post claiming that the Wells Notice did not offer information to which they could reply.

 

Reaction

Caitlin Long, the founder and CEO of Custodia Bank, shared her thoughts on Twitter, writing:

“It should be crystal clear by now that the Biden Administration wants all crypto – even the legit parts of it – run out by the US.”

“See also yesterday’s White House economic report, which dunked on all financial innovation while espousing the “stability” of traditional banks.”

Long and others questioned the SEC’s unexpected issuance of a “Wells Notice.”

For years, they permitted Coinbase, a publicly listed firm, to provide staking incentives, but have just recently threatened to sue the company, saying they issued unregistered securities.

“Over the past 9 months, [Coinbase] has met with the SEC more than 30 times, sharing details of our business to build a path to registration,” wrote Coinbase Chief Legal Officer Paul Grewal.

“During this time, the SEC hasn’t given basically 0 feedback on what to change, or how to register. Instead, today we received a Wells Notice.”

Chris Dixon, general partner at Andreessen Horowitz, chipped in, saying:

“Since day one, @coinbase has invested heavily in being fully compliant with US laws even when it forced them to move slower or lose a competitive edge vs other exchanges that chose to take shortcuts.”

“The US has a strong history of fostering innovation, and regulators have played a key role by establishing clear rules and pursuing bad actors,” he continued.

“We hope the US will take a more constructive approach to collaborating with innovators while protecting consumers.”

Read also: Stablecoins witness change after Circle confirms SVB exposure

Support & criticism

Numerous members of the cryptocurrency community have shown their support for Coinbase, saying they stand with the firm and Adam Cochran, the founder of Cinnemhain Ventures (CEHV).

Although others criticized the SEC, some members of the cryptocurrency community used the occasion to bash Coinbase.

The most outspoken complaints came from the XRP community, many of whom were still irritated by Coinbase’s removal of XRP from the Coinbase Wallet last fall.

Nevertheless, Ripple Labs has been fighting the SEC in court since December 2020.

The corporation was accused of deceiving investors and raising $1.3 billion in unregistered securities, according to the agency.

“I doubt I will ever understand how the SEC can sign off on @coinbase being publicly listed then raise all these issues afterwards,” said attorney Bill Morgan.

“Forget just crypto, how is the SEC protecting shareholders of Coinbase with this dreadful conduct?”

Image source: CryptoSlate

Cryptocurrency lawsuit set to conclude soon

Josh Barter Josh Barter on February 27, 2023

Image source: Analytics Insight

Cryptocurrency is no stranger to trouble, and scams have become a major presence in the crypto space, resulting in lawsuits.

Kim Kardashian and Floyd Mayweather are high-profile names who have been in a legal battle with EthereumMax, the leading Ethereum cryptocurrency.

Lawyers accused them of defrauding cryptocurrency investors.

However, the two will likely win the case.

The ruling

On Monday, US District Judge Michael Fitzgerald issued a court ruling stating that the investor attorneys behaved like the SEC.

Preliminary rulings show how a judge decides on a case before trial.

Earlier this year, investors sued several celebrities.

They claimed that Kim Kardashians and Floyd Mayweather worked to inflate the price of EthereumMax tokens and dump them, leaving others out of their pockets.

Read also: Blockchain industry set to flourish in the Middle East

EthereumMax

Ethereum is the blockchain of the second-largest cryptocurrency in the world, and EthereumMax is its token.

The token made headlines in 2021 when celebrities began to promote it.

However, it doesn’t seem to be of any use.

Judge Fitzgerald noted that Kardashian and Mayweather did not want to call EthereumMax a security “for obvious reasons.”

Read also: Aave CEO Stani Kulechov dismisses Web3 integration anytime soon

Kim Kardashian

Last month, Kim Kardashian agreed to pay the SEC $ 1.26 million to settle charges against her accusing her of going down EMAX.

The TV celebrity teased a big announcement with an Instagram story in which she talked about EMAX tokenomics.

While they reached a deal, Kim Kardashian neither acknowledged nor denied the regulator’s allegations.

SEC President Gary Gensler said the government agency took over the high-profile case.

The case fell on them because Kardashian’s post didn’t mention how much she was paid to promote EMAX, a necessary step in promoting the titles.

Charles Randell, the chairman of the UK’s Financial Conduct Authority, labeled the stardom’s stance as “the financial promotion with the single biggest audience reach in history.”

Reference:

Kim Kardashian, Floyd Mayweather set to win Ethereum Max lawsuit

Elizabeth Warren urges more support for SEC

Josh Barter Josh Barter on January 26, 2023

Image source: Coincu News

Elizabeth Warren: The US Securities and Exchange Commission and the cryptocurrency business have never gotten along.

Elizabeth Warren, a senator from Massachusetts, is poised to scrutinize it further.

The news

Elizabeth Warren issued a warning to the cryptocurrency industry and encouraged the US SEC to take stronger action against cryptocurrency fraud.

In prepared remarks for the American Economic Liberties Project, Warren claimed that the sector would be afraid of a more powerful SEC.

“The SEC has brought enforcement actions against celebrity crypto promoters for not disclosing their compensation to the public,” said Warren.

“It has gone after the employees at exchanges like Coinbase for insider trading. It has charged crypto crooks for defrauding ordinary investors out of millions of dollars.”

The senator hinted that the agency is just getting started despite its activities.

The agency and allies

Other US government entities, outside the SEC, have dabbled in cryptocurrencies, including:

  • The Commodity Futures Trading Commission (CFTC)
  • The Federal Trade Commission (FTC)
  • The Federal Deposit Insurance Corporation (FDIC)
  • The Department of Justice (DOJ)

Elizabeth Warren thinks the SEC and chairman Gary Gensler are the ideal candidates for the job, despite the fact that companies in the cryptocurrency business would prefer to cooperate with the CFTC.

The agency’s decision to prevent Bitcoin exchange-traded funds from coming live on the market was praised by Warren as well.

“The commission has been loud and clear that crypto doesn’t get a pass for long-standing security laws that protect investors and ensure the integrity of our financial markets,” the senator said.

“This is the right approach – the SEC has the right rules, and the right experience, and Gary Gensler is demonstrating that he is the right leader to get the job done.”

Doubts

Elizabeth Warren has applauded Gensler’s development, while some others, including Warren’s coworkers, have concerns about his capacity to carry out his responsibilities.

Gary Gensler received criticism for being too lenient with FTX and Sam Bankman-Fried.

Others accused him of choosing particular crypto players to target for prosecution, a practice known as regulation by enforcement.

Gensler has furthermore come under fire for driving cryptocurrency companies out of business.

A necessity

Elizabeth Warren emphasized the need for the Congress to assist the agency more and said that both power and funding were required.

The combination of the two elements would guarantee that it has the necessary tools to engage the crypto business at full force.

“The SEC needs to do even more and use the full force of its regulatory powers across the entirety of the crypto market,” she explained.

Warren continued by implying that the SEC and other regulatory bodies were forced to act when a number of cryptocurrency players collapsed in 2022.

The companies include:

  • Celsius
  • FTX
  • Three Arrow Capital
  • Voyager Digital

Read also: DOJ shuts down platform for criminal affairs

Environmental aspect

Elizabeth Warren also asked environmental organizations to concentrate more on cryptocurrency miners.

She described how mining increased energy costs and harmed the environment.

Since cryptocurrencies have grown so popular, regulators frequently raise the environmental impact of cryptocurrency mining.

A cryptocurrency prohibition has previously been demanded by many due to its harmful effects on the environment.

Presidential intervention

Elizabeth Warren also attributes the booming cryptocurrency market to the previous government of President Donald Trump.

She accused its officials of hastily approving the cryptocurrency market.

According to Warren, the market is crowded with the following:

  • Junk tokens and unregistered securities
  • Rug poles
  • Ponzi schemes
  • Pumps and dumps
  • Money laundering
  • Sanctions eviction

“The consequences of Trump’s regulator’s weaknesses were no surprise – by 2017, nearly 80% of all initial coin offerings are scams,” she said.

“The following year, investors lost about $9 million each day to crypto scams.”

Banks

Elizabeth Warren applauded the SEC’s efforts against businesses that provided dangerous, unregulated crypto loan products.

She drew attention to the recently insolvent BlockFi.

Warren criticized Silvergate and other financial institutions for increasing the risk of a crypto collapse, which would impoverish American taxpayers.

“It’s the bank regulators’ job to insulate the banking system and taxpayers from the risk of crypto fraud,” said the senator.

“They have the tools, and they need to use them.”

Warren criticized self-custody wallets last month.

She and Senator Roger Marshall co-signed the Digital Asset Anti-Money Laundering Act in response.

The law requires blockchain infrastructure suppliers and users in the United States to identify their customers.

Decentralized networks, miners, and validators developers are all subject to the requirements.

DOJ shuts down platform for criminal affairs

Clara Emily Clara Emily on January 23, 2023

Image source: CryptoSlate

DOJ: The US government is prepared to demonstrate that it takes cryptocurrency crimes seriously in the wake of the collapse of the crypto exchange site FTX.

The US Department of Justice (DOJ) announced in a cryptic statement last Wednesday that a live news conference would take place in the afternoon.

The “International Cryptocurrency Enforcement Action” was announced at the press briefing.

Coin values also fell as a result of the announcement, which caused fear on crypto Twitter.

A flash collapse happened when the values of Bitcoin and Ethereum fell 5% in a matter of minutes.

A warning shot

Following the announcement, speculation arose as to which significant crypto players the DOJ was referring to.

Many believed it was Binance, and the CEO of Binance, Changpeng Zhao, only stoked the anxieties with the tweet “4.”

He had earlier stated that it would serve as his alert for impending attacks, fake news, and other scenarios.

The following suspects were refuted by the DOJ at the news conference:

  • Binance
  • Blockfi
  • Celsius
  • Voyager

Instead, it was the Russian-owned cryptocurrency exchange Bitzlato, situated in Hong Kong.

The crypto exchange

Bitzlato is one of the less well-known cryptocurrency exchanges. 

Its most recent tweet was sent on February 14, 2022, and it just has over 1,400 followers on Twitter.

The exchange processed more than $700 million in illegal money, including millions in ransomware earnings, according to the DOJ.

A director of operations for Coinbase claims that Bitzlato assigned $11,000 to wallets.

The wallets contained $6 million at its peak.

Read also: DeGods NFT make progress towards Ethereum switch

Charges

The DOJ filed charges against Anatoly Legkodymov, a senior official at Bitzlato, on last Wednesday for operating an unlawful money-transfer company.

He and Blitzlato failed to comply with anti-money laundering standards and other US regulatory measures.

Last Tuesday saw the arrest of Legkodymov.

“Today, the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” said Deputy Attorney General Monaco.

“Overnight, the Department worked with key partners here and abroad to disrupt Bitzlato, the China-based money laundering engine that fueled a high-tech axis of cryptocrime, and to arrest its founder, Russian national Anatoly Legkodymov.”

“Today’s actions send the clear message: whether you break your laws from China or Europe – or abuse our financial system from a tropical island– you can expect to answer for your crimes inside a United States courtroom.”

Legkodymov

Anatoly Legkodymov is the company’s primary stakeholder, according to the DOJ.

The cryptocurrency exchange company promoted itself as just requiring a few pieces of user identification, excluding photos or passports.

Bitzlato permitted users to utilize information from “straw man” registrations when it requested proof of identity from users.

The platform turned into a repository for unlawful activities funding and criminal gain.

Hydro Market, a private online marketplace for the following, was its biggest counterparty for cryptocurrency transactions.

  • Narcotics
  • Stolen financial information
  • Fraudulent identification documents
  • Money laundering

Customers of Bitzlato regularly utilized the customer service page to request assistance with transactions using Hydra, according to the lawsuit.

The actions on the platform were also reported to Anatoly Legkodymov and other management.

Despite Bitzlato’s claims that it didn’t welcome users from the US, it conducted business with US-based clients.

Customers were told they could transfer money from US banking institutions by its customer service representatives.

Between 2022 and 2023, Legkodymov also oversaw the cryptocurrency platform from Miami.

Other investigations

The DOJ has been looking into Binance for longer than it has Bitzlato.

Federal prosecutors have reason to delve further into their Binance probe in light of the FTX crash.

The National Cryptocurrency Enforcement Section, the US Attorney’s Office in Seattle, and the DOJ’s money laundering team are all involved in the investigation.

In addition, following Genesis’ bankruptcy filing, the DOJ is apparently investigating the Digital Currency Group, the company that owns it.

Additionally, the SEC is looking into things on its own.

Genesis and Gemini were charged with breaking securities rules after declaring bankruptcy last week.

The SEC Commissioner, Hester Peirce, was hesitant to predict that the FTX crash would result in further regulation of cryptocurrencies.

“I think we would all be on the lookout for regulatory frameworks that are developed in the context of enforcement action, because it’s a very tempting thing for regulators to do that,” she said.

“And it just cuts everybody else out of the process.”

Coinbase stock price jumps after settlement

Josh Barter Josh Barter on January 4, 2023

Image source: Fintech Magazine

Coinbase: The cryptocurrency exchange site Coinbase had a sharp increase on Wednesday.

Following a $100 million settlement with the New York Department of Financial Services, the exchange’s stock price rose.

Following the agreement, COIN, which is listed on the Nasdaq Composite, was up more than 12% and was trading at $37.34 per share.

The settlement

Issues with the company’s compliance programs were settled between the company and the New York Department of Financial Services.

The cryptocurrency exchange must therefore pay a $50 million fine as a result.

Coinbase must also invest an additional $50 million to improve its capacity to adhere to financial regulations, such as transaction monitoring and KYC requirements.

The New York Banking Law and state rules surrounding the following were broken by the company, according to the Department of Financial Services, which said it failed to comply with a program.

  • Cybersecurity
  • Money transmitting
  • Transaction monitoring
  • Virtual currencies

Company vulnerability

The NYDFS claimed that Coinbase’s compliance program had issues that left it open to the following risks:

  • Activities related to narcotics trafficking or child sexual abuse material
  • Fraud
  • Money laundering

The Superintendent of Financial Services, Adrienne A. Harris, stated:

“It is critical that all financial institutions safeguard their systems from bad actors.”

“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth.”

The NYDFS asserted that the business has already begun to enhance its practices.

KYC

Coinbase’s treatment of the KYC rule and customer due diligence requirements was deemed by New York regulators to be a “check-the-box” activity.

The exercise was also deemed to be insufficient.

The department also learned the company has a sizable backlog for keeping an eye on suspicious transactions.

By the end of 2021, there were more than 100,000 unreviewed alerts.

As a result, some of the transactions that Coinbase highlighted weren’t examined for several months.

The NYDFS installed an independent monitor at the beginning of 2022 as a result of the company’s failure.

In order to resolve concerns with the company’s procedures, the monitor assessed the company’s compliance program.

The monitor will continue to work with Coinbase for an additional year as part of the settlement.

Read also: Jon Tester, US Senator, still dismissive of crypto

Price jump

Investors who now have a good understanding of the company’s regulatory issues are likely to have contributed to the surge in Coinbase stock’s (COIN) price.

The NYDFS inquiry was first mentioned by the cryptocurrency exchange platform in a late 2021 SEC report as a potential risk to its business operations.

But the regulator’s most recent statement effectively put an end to the matter.

SEC investigation

Despite the good news, an SEC inquiry against Coinbase is still imminent.

A probe into whether the SEC should permit Americans to trade digital assets that ought to have been registered as securities was launched against the corporation in July 2022.

A past insider trading case involving a former Coinbase employee who was suspected of breaking the company’s insider trading policies provides the basis for the current investigation.

The former worker allegedly told his brother and a friend about impending token listings, according to the accusation.

The agency discovered that the accused traded the following tokens:

  • AMP (AMP)
  • Rally (RLLY)
  • DerivaDEX (DDX)
  • XYO (XYO)
  • Rari Governance Token (RGT)
  • LCX (LCX)
  • Powerledger (POWR)
  • DFX Finance (DFC)
  • Kromatika (KROM)

Coinbase

In April 2021, the exchange platform for cryptocurrencies first went public.

It joined the US stock exchange as the country’s first significant cryptocurrency startup.

At the time, the cryptocurrency market was booming, with trades for Bitcoin reaching $63,000.

People consequently developed an interest in investing in cryptocurrencies.

COIN made its debut for an incredible $381, which was 52% more expensive than its $250 reference price.

But a sudden crypto and stock market collapse occurred in 2022.

Crypto ventures, businesses, and almost every coin’s price on the market were decimated by the severe bear market.

Since that time, COIN’s value has decreased considerably, plummeting 90% from the time it was first launched.

References:

Coinbase stock price jumps 12% following $100M NYDSF settlement

Coinbase reaches $100 million settlement with New York regulator over compliance programs

SEC launches probe into Coinbase over alleged securities listing: report

SEC claims Coinbase currently lists nine crypto assets that are securities

Caroline Ellison’s statements implicates SBF

Hector Andrews Hector Andrews on December 27, 2022

Image source: New York Post

Caroline Ellison: Alameda’s previous CEO admitted in court that she had misled lenders about their financial information.

Caroline Ellison and Sam Bankman-Fried came to an agreement to deliver “materially misleading financial statements” to Alameda’s lenders.

The news

Caroline Ellison’s transcript was made public three days after she spoke in court on December 19.

Until SBF’s $250 million bond release three days later, it was kept sealed.

The former CEO of Alameda testified before Judge Ronnie Abrams of the US District Court, saying: “I am truly sorry for what I did – I knew that it was wrong.”

“Did you also know that it was illegal?” the court asked her to clarify.

“Yes,” Ellison answered.

Federal charges

The co-founder of FTX, Gary Wang, and Caroline Ellison also confirmed last week that they engaged in the frauds that resulted in the collapse of the company.

On Wednesday, the attorneys for the Southern District of New York filed charges against the two.

They were charged with participating in a fraud to mislead equity investors, said the Securities and Exchange Commission.

A revision was made to its fraud case, according to the Commodities Futures Trading Commission (CFTC).

According to US Attorney Damian Williams, Ellison and Wang filed guilty pleas.

Williams also expressed gratitude for the help of the Bahamas, the US Embassy there, and the Justice Department’s Office of International Affairs.

Gary Wang and Caroline Ellison are now cooperating with the Southern District of New York.

They remained tightlipped about their plea bargains until after Sam Bankman-Fried had flown from the Bahamas to the US.

Read also: OpenSea imposes ban on Cuban artists

The financial statements

Caroline Ellison confirmed that the misleading financial statements came from “quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions in loans that Alameda had made.”

“I agreed with Mr. Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including Alameda’s credit arrangement,” said Ellison.

The following reported about the transcript:

  • New York Times
  • Reuters
  • Bloomberg

Additionally, Inner City Press’ Matthew Russell Lee tweeted a section of the transcript.

Early reports

According to reports that emerged last week, the workers of FTX and Alameda were either aware of or oblivious of what was going on between the companies.

There was much discussion regarding the uncertainties before Ellison and Wang’s admission of guilt to their charges.

Caroline Ellison’s statements, however, supported accusations that FTX had treated Alameda differently.

Alameda was permitted to withdraw funds from its sister company.

Ellison said:

“I understood that FTX executives had implemented special settings on Alameda’s FTX.com account that permitted Alameda to maintain negative balances in various fiat currencies and crypto currencies.”

“In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having to pay interest on negative balances and without being subject to margin calls or FTX.com’s liquidation protocols.”

Ellison said that she, along with others, were aware of the large debt the company owned, as well as the implications it had.

“I understood that if Alameda’s FTX accounts had significantly negative balances in a particular currency,” she continued.

“It meant that Alameda was borrowing funds that FTX’s customers deposited onto the exchange.”

Read also: Jon Tester, US Senator, still dismissive of crypto

SBF

Caroline Ellison claims that Sam Bankman-Fried and other executives made a number of “large illiquid venture investments” while collecting loans from Alameda.

In order to repay the loans, Ellison said that she and other people had agreed to borrow from FTX in the billions of dollars.

“I understood that FTX would need to use customer funds to finance its loans to Alameda,” Ellison shared.

“Most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion.”

Caroline Ellison also expressed her regrets to the FTX collapse victims, saying:

“I want to apologize for my actions to the affected customers of FTX, lenders to Alameda, and investors in FTX.”

“Since FTX and Alameda collapsed in November 2022, I have worked hard to assist with the recovery of assets for the benefit of customers and to cooperate with the government’s investigation.”

“I am here today to accept my responsibility for my actions by pleading guilty.”

References:

Caroline Ellison ‘knew that it was wrong,’ implicates Sam Bankman-Fried

Caroline Ellison, Gary Wang plead guilty, cooperating in FTX investigation

SEC says Ellison, Wang ‘knew or were reckless in not knowing’ about FTX fraud

Sam Bankman-Fried receives $250 million release bail, ordered to stay with family

Stephen Reynolds Stephen Reynolds on December 23, 2022

Image source: Forbes

Sam Bankman-Fried: A federal judge in New York decided on Thursday to allow the FTX developer to be released on a $250 million bond.

His trial for fraud and other charges is going underway.

The news

Sam Bankman-Fried, his parents, attorney, and court security left the Manhattan US District Court at about 2:00 p.m.

The prosecutors and his attorneys accepted the bail conditions for Bankman-personal Fried’s recognizance.

Judge Ronnie Abrams will conduct the 30-year- old’s subsequent hearing on January 3 in New York City.

He will enter a plea there and respond to the accusations.

Bond

A recognizance bond is a written promise from the defendant to appear in court in response to a summons.

Sam Bankman-Fried won’t be required to offer all of the collateral for the bail release.

The bond was executed by his parents and two other parties with significant stakes and was secured by the equity in his family’s home.

The prosecution billed the $250 million package, which also includes an electronic monitoring bracelet, as the largest ever pretrial bond.

He must agree to get mental health treatment and stay away from the Southern, Eastern, or Northern Districts of California or New York.

Read also: FTX collapse perpetrators plead guilty to charges

In the court

Judge Gabriel Gorenstein stated that after being permitted to return to his parents’ California home, Bankman-Fried would require continued supervision.

SBF’s parents, Stanford law professors, were present in the courtroom.

The FTX founder was surrounded by two US marshals wearing blue coats and brown sneakers.

He exchanged his ankle shackles for an ankle monitor inside the courtroom.

Sam Bankman-Fried didn’t speak until the judge inquired about his knowledge of the consequences of breaking his bail conditions.

“Yes, I do,” said SBF.

Bankman-Fried is also prohibited from opening new credit accounts with a balance of more than $1,000.

Federal regulators at his crypto-empire label him a “brazen” fraud as they wait for the trial to start.

During the court proceedings, Assistant US Attorney Nicolas Roo said that SBF was at the epicenter of “a fraud of epic dimensions.”

SBF, according to Roos, had dramatically reduced his financial holdings, readily entered the US, and had never attempted to elude capture.

Sam Bankman-Fried, a former $32 billion bitcoin tycoon, purportedly stated that he only had $100,000 in his bank account.

The man’s rapid fall from grace was the outcome.

Accusations

According to Sam Bankman-Fried’s accusations, he is guilty of the following:

  • Perpetrating a multibillion-dollar fraud on his investors
  • Using customer funds to purchase properties
  • Funding political donations
  • Backstop trades at his hedge fund Alameda Research

On Monday, the Commodity Futures Trading Commission brought fresh allegations against SBF, FTX, and Alameda Research.

They claimed that FTX mishandled customer monies and that Bankman-Fried violated the Commodities Exchange Act.

According to allegations, Alameda Research had access to more than $8 billion in client funds.

Since the company’s founding in 2019, Alameda has had access to and utilized FTX client monies for its operations and activities, including:

  • Trading
  • Funding
  • Investment
  • Borrowing/lending

The SEC’s accusations that Sam Bankman-Fried operated his empire as a scam from the start were echoed by the CFTC.

FTX sought bankruptcy protection in Delaware on November 11.

John Ray III, Sam Bankman-Fried’s successor as CEO of FTX, said he had never seen such a loss of corporate control.

Read also: Jon Tester, US Senator, still dismissive of crypto

SBF’s lieutenants

On Wednesday, Caroline Ellison, a former co-CEO of Alameda Research, and Gary Wang, a co-founder of FTX, both pleaded guilty to federal charges.

Gary Wang acknowledged the following allegations:

  • Conspiracy to commit wire fraud
  • Wire fraud
  • Conspiracy to commit commodities fraud
  • Conspiracy to commit securities fraud

Caroline Ellison carried out the following actions:

  • Two counts of wire fraud
  • Two counts of conspiracy to commit wire fraud
  • Conspiracy to commit commodities fraud
  • Conspiracy to commit securities fraud
  • Conspiracy to commit money laundering

The public learned about their plea agreements on Wednesday.

SBF

The US Attorney accused Sam Bankman-Fried of eight counts, including securities fraud and money laundering.

He was transported by air from the Bahamas to New York on Wednesday night.

SBF has a substantially greater bond than other federal white-collar defendants.

  • Bernie Madoff obtained a $10 million bail in anticipation of his imminent trial for running a Ponzi scheme.
  • Former Enron CEO Jeff Skilling posted a $5 million bond.
  • Elizabeth Holmes, the Theranos founder, posted a $500,000 bond.

Reference:

FTX founder Sam Bankman-Fried to be released on $250 million bail, will live with his parents

CFTC piles on new charges against Bankman-Fried, FTX and Alameda

FTX’s Gary Wang, Alameda’s Coraline Ellison plead guilty to federal charges, cooperating with prosecutors

FTX collapse perpetrators plead guilty to charges

Josh Barter Josh Barter on December 22, 2022

Image source: The Wall Street Journal

FTX: Gary Wang, a co-founder of FTX, and Caroline Ellison, a former co-CEO of Alameda Research, both pleaded guilty on Wednesday to federal charges.

The charges

US Attorney Damian Williams states that the two FTX associates pleaded guilty in the Southern District of New York.

The following offenses were those to which Gary Wang pleaded guilty:

  • Conspiracy to commit wire fraud
  • Wire fraud
  • Conspiracy to commit commodities fraud
  • Conspiracy to commit securities fraud

However, Caroline Ellison was charged with further offenses, such as the following:

  • Two counts of wire fraud
  • Two counts of conspiracy to commit wire fraud
  • Conspiracy to commit commodities fraud
  • Conspiracy to commit securities fraud
  • Conspiracy to commit money laundering

Their claims were made public the evening before Sam Bankman-Fried, the former CEO of FTX, was due to fly from the Bahamas to New York.

The same federal prosecutors who approved the plea agreements for Ellison and Wang are prosecuting him for eight federal felonies.

Their plea agreements were finalized on Monday, just in time for SBF’s planned departure for the US following a heated court appearance in the Bahamas.

“As I said last week, this investigation is very much ongoing,” said Williams in a prerecorded message.

“I also said that last week’s announcement would not be our last. And let me be clear, once again, neither is today’s.”

Read also: Core Scientific to join bankrupt crypto companies list

SBF

After being detained in the Bahamas the week prior, Sam Bankman-Fried was charged in the Southern District of New York.

His willingness to be extradited to the US has been the subject of intense judicial proceedings over the past few days.

He was brought to a Bahamas jail following a contentious courtroom meeting held on Monday, during which a reported plan to resist his extradition to the US stalled.

According to media accounts, he instructed his Bahamian attorney to begin the extradition process later that day.

Sam Bankman-Fried will appear in court this week once more.

According to earlier reports, he would agree to extradition, but SBF on Monday offered a different opinion.

He insisted on seeing a copy of his federal indictment before agreeing to return to the United States.

However, Bankman-Fried opted to remain in custody rather than turn himself in to US authorities.

The SEC

The Securities and Exchange Commission and Commodity Futures Trading Commission filed cases against Gary Wang and Caroline Ellison.

According to the SEC, a “multiyear scheme to defraud equity investors” targeted the cryptocurrency trading platform FTX, which Samuel Bankman-Fried and Wang co-founded.

The CFTC’s expanded complaint contains the following accusations:

“Ellison with fraud and material misrepresentations in connection with the sale of digital asset commodities in interstate commerce.”

According to the indictment, Wang is accused of fraud “in connection with the sale of digital asset commodities in interstate commerce.”

According to the CFTC statement, Wang and Ellison reportedly consented to the claims made against them.

Caroline Ellison was singled out for willfully manipulating FTT (FTX’s self-issued token) to increase Alameda Research’s loanable collateral.

Ellison and Wang are cooperating with the investigation, according to the SEC.

Read also: Jon Tester, US Senator, still dismissive of crypto

FTX and Alameda

Alameda Research was linked to numerous loans from well-known crypto companies that filed for bankruptcy, most notably Voyager Digital and BlockFi Lending.

Damian Williams avoided going into specifics on the charges levied against Wang and Ellison.

They allegedly assisted Sam Bankman-Fried in defrauding FTX clients while doing their respective duties at Alameda and FTX, claims the SEC.

Alameda allegedly used a backdoor Wang built into the software to access customer funds through the FTX platform.

Sam Bankman-Fried led Alameda until Caroline Ellison and Sam Trabucco assumed charge in 2021 (Trabucco departed the company in August 2022).

Ellison, 28, and Wang, 29, were the second and third individuals accused in relation to the FTX collapse.

Sam Bankman-Fried, 30, was charged with a federal offense this month.

“Bankman-Fried and Wang thus gave Alameda and Ellison carte blanche to use FTX customer assets for Alameda’s trading operations and for whatever other purposes Bankman-Fried and Ellison saw fit,” said the SEC.

They claimed that Trabucco had no association with any wrongdoing.

Wang’s attorney then made the following statement:

“Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”

References:

FTX’s Gary Wang, Alameda’s Caroline Ellison plead guilty to federal charges, cooperating with prosecutors

FTX founder Bankman-Fried sent back to Bahamas jail in day of courtroom chaos

Sherrod Brown wants cryptocurrency banned in the US

Clara Emily Clara Emily on December 19, 2022

Image source: CNN

Sherrod Brown: Sherrod Brown, a US senator, recently suggested that US government organizations take cryptocurrency prohibition into consideration.

He especially named the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

The news

Despite suggesting the ban, Brown acknowledged that it would be “very difficult” to put into effect during an appearance on “Meet the Press” on NBC.

According to the US senator, the cryptocurrency industry may move overseas.

He also referred to a number of American regulators, saying:

“We want them to do what they need to do at the same time – maybe banning it.”

“Although banning it is very difficult because it will go offshore and who knows how that will work.”

Sherrod Brown used several examples to support his claims, including “the threat to national security from Korean cyber criminals to drug trafficking and human trafficking and financing of terrorism and all things that can come out of crypto,” along with other instances.

The collapse of FTX is yet another good illustration.

The FTX collapse

At the beginning of November, the cryptocurrency exchange FTX failed and declared bankruptcy.

The corporation said it would file for Chapter 11 bankruptcy and then start analyzing and liquidating assets.

A trade company and related corporation named Alameda Research also declared bankruptcy.

The filing, however, excludes a few businesses, including:

  • Ledger X LLC
  • FTX Digital Markets Ltd.
  • FTX Australia Pty Ltd.
  • FTX Express Pay Ltd.

In the release, company founder and CEO Sam Bankman-Fried announced his departure.

John J. Ray III took over and said:

“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process.”

Read also: Sam Bankman-Fried said to have donated to lawmakers investigating FTX collapse

What happened

In the world of cryptocurrencies, Sam Bankman-Fried once enjoyed rockstar status but swiftly lost it.

Last year, Binance began selling its holdings of FTT (FTX’s native exchange token) as part of an equity exit from the business.

As the token’s value dropped, investors started withdrawing funds from the FTX, which led the platform to block withdrawals and declare a panic.

Brown’s sentiments

Earlier this month, Sherrod Brown asked that several government organizations collaborate to address the problem of capturing cryptocurrency.

“Single regulatory agencies currently generally do not have a comprehensive view of crypto asset entities’ activities,” he declared in a statement.

In the US government, Brown, a Democrat who has served as the representative for Ohio since 2007, is not the only high official who has advocated for more crypto regulations.

Senator Elizabeth Warren proposed a new bitcoin regulation bill last month.

The proposed legislation is referred to as the Digital Asset Anti-Money Laundering Act.

It attempts to require crypto asset producers to deliver audited financial accounts.

Additionally, the bill wants to put in place capital norms akin to those used by banks and other conventional financial institutions.

Finally, the proposal would grant the SEC greater control over the asset class.

Read also: Jon Tester, US Senator, still dismissive of crypto

Offshore crypto movement

Contrary to what the US Senator indicated, the cryptocurrency industry is already moving operations abroad due to the US government’s uncertain regulatory future.

In a tweet from November, Coinbase CEO Brian Armstrong addressed the problem.

“FTX.com was an offshore exchange not regulated by the SEC.”

“The problem is that the SEC failed to create regulatory clarity here in the US,” he continued.

“So many American investors (and 95% of trading activity) went offshore.”

Armstrong continued by calling the sanctions scenario against US firms ridiculous.

After FTX’s bankruptcy, Brian Armstrong emphasized his desire for US lawmakers to seize the initiative and lead the world’s race toward crypto legislation.

He claimed that Coinbase has been a significant proponent of the regulation of cryptocurrencies and contrasted the tactics of his site with that of a Bahamian-based “offshore exchange.”

References:

Banking committee chair: US regulators should ‘maybe’ ban crypto

FTX files Chapter 11 bankruptcy, SBF steps down as CEO

FTX crisis an ‘opportunity’ for US to clarify crypto regulations: Coinbase CEO

Sam Bankman-Fried ‘not ready’ for US House hearing

Clara Emily Clara Emily on December 5, 2022

Image source: Fox Business

Sam Bankman-Fried responded to the US Representative Maxine Waters’ Twitter invitation to a hearing on Friday.

The former FTX CEO said he wasn’t sure if he was ready to attend the hearing scheduled for December 13 in Washington, DC.

The news

Sam Bankman-Fried has recently been ordered to appear and testify before the US House Financial Services Committee.

Senior Member Maxine Waters tweeted to SBF, saying, “We would welcome your participation in our hearing.”

“We appreciate that you’ve been candid in your discussions about what happened at #FTX,” she wrote.

“Your willingness to talk to the public will help the company’s customers, investors, and others.”

Read also: Sam Bankman-Fried acknowledges screwing up at FTX

Response

On Sunday, Sam Bankman-Fried finally replied to Waters on Twitter, turning it down.

“Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain,” he wrote.

“I’m not sure that will happen by the 13th. But when it does, I will testify.”

Reception to the response

Meanwhile, Crypto Twitter paid special attention to the former FTX CEO, noting a nonchalant attitude towards the invitation.

Chief legal officer of Coinbase, Paul Grewal, did not take too kindly to the attitude SBF displayed.

“Our elected representatives exercise great restraint in communicating their expectations,” he wrote.

“And still this fraudster insults their authority. What a disgrace.”

However, others criticized Maxine Waters’ tone, especially LBRY.

The blockchain-based video streaming platform recently lost a battle with the US SEC over alleged sales of unregistered securities under its LBC token.

Meanwhile, others chimed in to call out Sam Bankman-Fried for fraud.

Read also: Cryptocurrency lawsuit set to conclude soon

After the collapse

Sam Bankman-Fried issued several apologies across different platforms following FTX’s bankruptcy filing last month.

SBF also appeared in high-profile interviews at Good Morning America with George Stephanopoulos, CNBC, and Andrew Ross Sorkin of The New York Times.

During the Sorkin interview, Bankman-Fried revealed that he went against his lawyer’s advice about speaking out.

“I didn’t knowingly commingle funds,” said SBF, referring to the relationship between FTX and his trading firm Alameda Research.

“It was, in effect, tied together substantially more than I would have ever wanted it to be.”

Reference:

SBF publicly punts on the US House Hearing Invitation