Sam Bankman-Fried and his legal team have put many arguments to work in a failed effort to keep him out of custody. At least until his trial begins next month.
But on Thursday afternoon, his long run of bad luck stretched still further. A federal appeals court ruled he must remain behind bars at least for the time being.
Sam Bankman-Fried Still in Jail Facing Fraud Charges
The founder of the crypto exchange FTX, whose November 2022 implosion sent tremors through the crypto industry, lived with his parents in California prior to his incarceration.
On August 11, US District Judge Lewis Kaplan made the decision to revoke Bankman-Fried’s $250 million bail. He did so on the grounds that Bankman-Fried had tampered with witnesses, Reuters noted.
Then, on September 6, the 2nd United States Circuit Court of Appeals in Manhattan denied Bankman-Fried immediate release from the Brooklyn facility. Even as it did so, the court gave Bankman-Fried a tiny sliver of hope that a subsequent panel would take up his plea for release and rule favorably.
Now, Thursday afternoon’s ruling means that Bankman-Fried’s lawyers have failed in their effort to reverse either decision.
Learn more about the long and winding legal saga of FTX’s troubled founder.
Sam Bankman-Fried’s FTX had a presence so many markets that his malfeasance and the exchange’s implosion all but assured he would end up in jail. Source: FinTelegram
Claims and Counter-Claims Swirl as Bankman-Fried Trial Looms
Things might well have gone differently. But Bankman-Fried shared diary entries of his former girlfriend, Caroline Ellison, with a New York Times reporter.
In doing so, he gave ammunition, figuratively speaking, to the prosecution, which calls his act an attempt at witness intimidation.
Besides seeking release, Bankman-Fried has vehemently protested the conditions of his confinement. Not to mention his jailers’ failure to accommodate his dietary needs as a vegan. By some accounts, he has lived on bread and water in jail.
His legal team has also raised the issue of granting him adequate access and time to review evidence that will come into play once his trial gets underway.
As India reels from a number of high-profile cases of crypto fraud and theft, including a scam that enlisted a Bollywood star as an influencer, the nation’s government is developing a special digital tool to spot and thwart crypto crime.
The Cryptocurrency Intelligence and Analysis Tool (CIAT) is a pet project of the Ministry of Home Affairs and its Indian Cyber Crime Coordination Center.
India’s Government Seeks to Root Out the Scourge of Cyber Crime
According to a CNBC report, the CIAT will monitor the dark net, a region of the online world that criminals bent on anonymity exploit daily. It will also identify crypto wallet addresses that come into play in dark net transactions. Upon detecting suspicious activity, it will send out alerts.
Moreover, the CIAT will gather records of the transactions in keeps an eye on. Noting down such things as dates, timestamps, addresses, and the nature of the transactions, the report said. Unusually high transaction volumes will be a red flag and will trigger an alert, it added.
Ultimately, the data that CIAT culls will provide the basis for a master database of all known crypto exchanges in the world, and their contact details, the report continued.
A Nation Struggles to Stem Crypto Fraud
CNBC’s report describes the CIAT as a response to the appalling statistics on crypto crime in India. According to these figures, the citizens of India have lost roughly 953 crore, or about $10.2 billion, to crypto scams.
Learn more about the efforts at the highest levels of India’s government to compel action against crypto crime.
What the report leaves out is that many Indians must have reacted bitterly to high-profile scams. These often involve influencers and other celebrities who misled them into making what they thought were safe investments.
On Monday, a Times of India article noted that police were on the way to question Bollywood star Govinda over his role in a crypto scam. Govinda had lent his talents as an influencer to a marketing campaign by Solar Techno Alliance. He appeared in ads and at an event in Goa in July.
Then, in August, police began arresting Solar Techno Alliance executives. The firm’s lavish promotions were, without question, highly successful. They brought in about 30 crore, or more than $320 million, from all over India.
The only problem is that Solar Techno Alliance was a Ponzi scheme, according to India’s police. Instead of making legitimate investments, its executives did as they pleased with the money.
India’s government hopes that sophisticated analytics will spot and disrupt crypto scam websites. Source: Chainalysis
Romance Scams Continue to Wreak Havoc
Earlier this month, another high-profile scam may have driven widespread revulsion against the excesses of the crypto space. An Indian software engineer reportedly lost more than $120,500. A woman he met online persuaded him to invest in a token called Banocoin.
Thinking that his new romantic interest had turned him on to a lucrative opportunity, the engineer invested funds in 18 separate transactions from July 20 to August 31, according to the Times of India. He even made a modest return, which boosted his confidence.
But then, as so often happens in crypto investment scams, the victim found himself unable to withdraw the funds.
With scams of this kind so prevalent in India, the Ministry of Home Affairs is not acting a minute too soon in its rollout of CIAT. Many hope that here at last is a resource that can thwart bad actors and spare ordinary traders and investors the trauma and devastation that crypto scams inflict.
The Securities and Exchange Commission (SEC) has stepped up its legal war on affinity fraud with charges against the alleged operators of a Ponzi scheme targeting members of the Hispanic community in the southwestern United States.
On Thursday, the SEC announced charges against Aras Investment Business Group and its CEO, Armando Gutierrez Rosas, along with four associates.
The SEC Alleges Affinity Fraud via a Ponzi Scheme
According to the SEC’s announcement, Rosas and associates went about raising at least $15 million from US-based retail investors. The pretext was to invest in mining and real estate ventures in Mexico. Rosas allegedly promised these would provide returns of up to ten percent.
The SEC filed its complaint in federal court in the Western District of Texas. The complaint charges Rosas with running a classic Ponzi scheme. Rather than put the money to work as promised, the regulator claims, Rosas used the funds for private expenses. Among them, a $2.5 million mansion.
Besides the elements of a classic Ponzi scheme, where funds from some investors go to satiate others in the scheme and buy time for the orchestrator to raise even more money, the case stands out (if indeed the allegations are true) as an example of affinity fraud.
Learn more about recent guidance from the SEC as the agency steps up its efforts against fraud and other malfeasance.
Authorities Double Down on Prosecution of Affinity Fraud
US regulators have been especially tough on affinity fraud in recent months. In May, the Commodity Futures Trading Commission (CFTC) said it took action against five people accused of defrauding 170 investors through a California-based Ponzi scheme.
This latter was was a digital asset commodity trading scheme. It, too, targeted members of the Spanish-speaking population. Many of whom knew each other and thought that the scheme’s masterminds had their best interests at heart.
Earlier this very week, the SEC announced charges against a California resident for an alleged Ponzi scheme. One that solicited investments from the Tongan communities of America, Australia, and New Zealand.
This $11.8 million swindle was so serious that the Justice Department has pursued criminal charges separately from the SEC’s civil action.
Still more people have come forth with complaints about JPEX, a crypto exchange that authorities in Hong Kong have charged with operating without a license, and local police continue to make arrests.
As in the cases of other crypto exchanges, Dubai-headquartered JPEX enjoyed the support of influencers with wide social media followings. But now they too face potential prosecution as the full scale of the fraud JPEX perpetrated comes to light.
JPEX Fraud Triggers Website Blocking
According to a Thursday report in the Hong Kong Free Press, some telecom firms have received, and obeyed, requests from the police to block JPEX from appearing on their websites.
At present, telecom operators Three, CSL mobile, and SmarTone no longer facilitate online access to JPEX trading.
In addition, the official tally of victims of JPEX’s malfeasance continues to rise. An earlier report said that authorities had received 1,408 complaints concerning fraud on the part of JPEX.
But the Hong Kong Free Press divulges that the number of victims now stands at 2,086. And that the total amount lost to JPEX’s unlicensed activities is HK$1.3 billion. A figure that may well continue to climb as the scam unravels and more victims come forward.
Learn more about Hong Kong regulators’ efforts to promote transparency and integrity in the DeFi market.
Hong Kong is poised to adopt comprehensive stablecoin guidelines, and take advantage of stablecoin’s popularity, in spite of the unfolding JPEX scandal. Source: CryptoQuant
JPEX Still Bullish as Police Continue to Make Arrests
So far, Hong Kong police have arrested six people in connection with the case. Prominent among them are influencers Chan Wing-yee and Joseph Lam Chok. Only time will tell how many more people fall into the police dragnet as the scandal unfolds.
The dramatic events come in the midst of what was shaping up as a positive moment for cryptocurrency in Hong Kong. A prominent lawmaker, Duncan Chiu, said he expects the territory to codify official rules for stablecoin issuers by next year.
In spite of the scandal and the arrests, JPEX continues to promote itself as a dependable trading platform, with no public acknowledgment of all its woes.
On its website, JPEX promotes itself as a reputable exchange that traders and investors should have no reservations about using.
The website is highly selective about what it tells prospective customers. One would not know, from reading the language on the site, the JPEX had operated without a license in Hong Kong. Or that it is the target of an aggressve probe that has already netted several arrests.
“JP – EX Crypto Asset Platform Party Ltd is a licensed and recognized platform to facilitate the trading of digital asset and virtual currency. JPEX aims to provide a safe and reliable international currency buying platform,” the website states.
The exchange also proudly describes its plans “to promote the JPEX virtual currency platform to all parts of the world.” With plans to apply for more licenses, including crypto asset digital licenses from US financial institutions.
BlackRock, the world’s largest asset manager with $9.4 trillion in assets, has dramatically reversed its pro-China stance in recent days, closing a fund and issuing dire forecasts about China stocks.
The asset manager may be pulling back from China out of well-grounded macroeconomic concerns. But, given the considerable fear, uncertainty, and doubt (FUD) that its engagement with China stoked in recent weeks, more cynical observers may view the pivot as a face-saving effort.
BlackRock Adjusts Its Rating of China Stocks
On Monday, the asset manager downgraded its rating of China stocks from “neutral” to “overweight.”
According to Bloomberg’s report, the adjustment has to do largely with the lack of solvency in China’s commercial real estate industry.
US lawmakers have devoted increasing attention in recent months to instability in China’s heavily credit-based real estate sector. And also to what they see as the questionable accounting practices of Evergrande and other conglomerates with massive debt.
Yesterday, police in China took the drastic step of detaining some members of Evergrande’s staff after many missed payments on the conglomerate’s debt. And many efforts to kick the can down the road.
The instability in the sector cannot have made a favorable impression on BlackRock’s analysts. Their adjustment of the rating comes on the heels of BlackRock’s decision earlier this month to close its China Flexible Equity Fund as of November 7.
The fund was a flop, garnering a mere $22.3 million in assets since it formed in October 2017.
Learn more about BlackRock’s recent initiatives and struggles on the PR front.
BlackRock belatedly joins other investors in adopting a skeptical stance toward China. Source: Statista
Is BlackRock Feeling the Political Blowback?
The asset manager may have explained its recent decisions in terms of a pure economic calculus. But there can be little doubt that recent moves by US lawmakers have stirred considerable alarm over BlackRock’s ties to Chinese firms and assets.
At the start of August, BlackRock came under intense scrutiny from a US Congressional committee for playing a role in the investment of Americans’ funds in firms with ties to China’s military and spy programs.
Both BlackRock and MSCI receive notice from the House Select Committee on the Chinese Communist Party that it held serious concerns. Namely about the more than 60 Chinese firms with possible or known ties to China’s police and military that received inflows of funds through investments the two asset managers had endorsed.
Given China’s human rights record, such revelations are undoubtedly embarrassing. BlackRock may now be in full damage control mode. With the adjustment of its ratings of China stocks, and its closure of the China fund, BlackRock cannot be called a cheerleader for Beijing.
In an effort to strengthen investor protections and curb misleading practices on the part of registered funds, the Securities and Exchange Commission (SEC) has upgraded its “Names Rule.”
The change is likely to affect many funds active in the cryptocurrency space. It will undoubtedly expand the SEC’s purview and ability to bring enforcement actions.
The SEC Demands “Truth in Advertising” Through Names Rule
The Names Rule is a clause within the Investment Company Act that, in essence, requires funds to invest money in a manner consistent with the funds’ names. Or at least with how an average person would construe their names.
For example, if a fund includes the term “real estate” in its name, it cannot make a bulk of its investments in firms and assets that have nothing to do with real estate. Under the rule, such a fund needs to make at least 80% of its investments in a way that people seeing “real estate” in the name would logically assume.
Per the upgraded rule, the SEC said in its announcement, more funds will be subject to this requirement. Though it did not say how many more or what the expanded criteria entail. And, funds must review the allocation of their assets at least quarterly.
“Today’s final rules will help ensure that a fund’s portfolio aligns with a fund’s name. Such truth in advertising promotes fund integrity on behalf of fund investors,” said SEC Chair Gary Gensler.
Learn more about Gary Gensler’s regulatory vendetta against crypto funds and exchanges.
The New Rule Requires Larger Funds to Comply Faster
In addition, the upgraded rule lays down a maximum timeframe, which the SEC gave as “generally 90 days,” for fixing any discrepancies between name and investment strategy.
The amendments will go into effect 60 days after regulators set them down in the Federal Register.
If you are one of the bigger asset managers, you had better get your act together faster. The SEC gives funds of a $1 billion or more in value 24 months to comply. Funds with smaller values get up to 30 months.
The Commodity Futures Trading Commission (CFTC) has brought a tough enforcement action against swap dealer StoneX. The CFTC alleges violations of its Business Conduct Standards.
Under the terms of the CFTC’s order, the respondent will have to a $650,000 penalty. StoneX will also submit regular reports on its progress on the compliance front.
The CFTC Alleges Compliance and Reporting Violations Over Years
The enforcement action against StoneX illustrates just how far the regulator’s hand extends into the minutiae of day-to-day trading and business.
StoneX has chosen not to challenge the CFTC’s charges. Namely, that it failed to oversee its Pre-Trade Mid-Market Marks (PTMMM) reporting in accordance with CFTC standards between 2016 and 2022. Not only were there problems with the accuracy of the PTMMMs, but the firm did not get employees fully up to speed on the process.
Moreover, the company did not send PTMMMs to counterparties in a timely enough manner, the CFTC believes.
The CFTC demands broad oversight over daily swap trading activity. Source: Blockchain.com
StoneX Ventures Into Crypto Transactions
The enforcement action and steep fine come just a bit more than a year after StoneX announced its first foray into crypto dealing.
On May 17, 2022, the firm executed its first Bitcoin swap settled with cash, for institutional client Liquidity Solutions Global. Earlier the same month, StoneX offered institutional clients the ability to trade crypto swaps settled with USD.
The pro-crypto stance of the firm may have piqued the interest of Washington’s increasingly innovation-averse regulators. Tensions have run high between the fintech sector and the CFTC for many months.
Learn more about the CFTC’s increasingly aggressive efforts to enforce compliance in the crypto space.
Just last week, Coinbase CEO Brian Armstrong spoke out against the CFTC’s targeting of decentralized finance (DeFi) platforms. Armstrong urged companies and exchanges to challenge the CFTC in court rather than submit blindly to its dictates.
In Armstrong’s view, it is highly questionable whether DeFi platforms operate in a way that makes them subject to the Commodity Exchange Act. Armstrong wants players in the DeFi space to know their rights, and he is far from the only one.
StoneX may have opted to accept the charges hurled at it and settle with the regulators. But time will tell how many DeFi and crypto-oriented firms choose that path rather than a legal showdown.
As romance and pig butchering scams continue to fleece unsophisticated investors and lonely people who hoped to find companionship online, the latest US state to recognize the scope of the crisis is Delaware.
The Delaware Department of Justice has taken action after a senior citizen reached out to law enforcement claiming to have lost $275,000 to a fake crypto investment website.
Delaware Authorities Step in After Massive Crypto Fraud
According to a local news report, the senior citizen invested the $275,000 in a website whose name, bybit.us, was highly similar to that of a real crypto investment site, bybit.com.
The scam originated as many do. A stranger contacted the victim and gained the victim’s trust over time. Ultimately presenting what sounded like a lucrative investment opportunity. An easy way to double or triple one’s wealth.
When the site turned out to be bogus, the victim contacted law enforcement. According to the local report, Delaware officials enlisted the help of a digital analytics firm to figure out the location of the person or persons controlling the receiving wallets.
The officials took the further step of blocking the wallets from receiving assets from Delaware residents. A tactic that might prove useful for regulators and law enforcement in other jurisdictions grappling with the same problem.
Delaware is one of many states and jurisdictions grappling with skyrocketing online and crypto fraud. Source: Statista
Feds and Local Law Enforcement Face the Crisis
Authorities cannot ill afford to ignore the scope and severity of the problem. Not with more than 53,000 people having reported the loss of assets in crypto scams in 2022 alone. Total losses came to $1.4 billion, according to FTC figures. The targeting of senior citizens is so common that the AARP has issued an official warning.
In tandem with the efforts of local officials, federal agencies are treating the prevalence of romance and pig butchering scams with increasing gravity. In April, the Department of Justice seized $112 million worth of crypto that bad actors had taken from victims in such scams.
One of the largest of the six accounts in that case was in California. A place where the problem is so acute that the state government has set up a crypto scam tracker.
The tracker lists details of a wide variety of scams that have come to the attention of law enforcement.
A common denominator, in many cases, is an element of romance and/or the diversion of the unsuspecting victims to what looked like a real website. But was really a front for fraud.
Of all the investment scams and unregistered offerings that the Securities and Exchange Commission (SEC) pursues, few arouse as much vehemence as “affinity fraud” schemes that exploit the trust of members of a community.
The SEC on Tuesday afternoon announced it had charged a resident of Richmond, California, for a bogus securities offering aimed at members of the state’s Tongan population. The alleged scam is so serious it has also incurred federal criminal charges that could result in decades of jail time for its mastermind.
The SEC Pursues Enforcement Action for Securities Fraud
According to an SEC statement, Tilla Walker Sumchai of Richmond wooed retail investors over a period stretching from January 2021 to October 2021. She persuaded them to buy shares of what she dubbed “Tongi Tupe.” Many believed her claims that she had devised an algorithm that would offer high returns very fast, the regulators charge.
In one instance, the SEC alleges, the orchestrator of the scheme went so far as to promise a $146,000 return on a $3,000 investment—in a mere 16 weeks.
But rather than provide returns anywhere close to that level, “Tongi Tupe” turned out to be a classic Ponzi scheme, the SEC believes. Money from one investor went to pay another. And also to pay for the orchestrator’s travel, shopping, and trips to a casino.
In all, Sumchai raised $11.8 million from more than a thousand investors in the Tongan community.
Federal law enforcement also took an interest in Sumchai’s alleged doings. Besides the SEC’s civil action, Sumchai faces criminal charges. On Sept. 14, a federal grand jury handed down a 30-count indictment. The charges include securities fraud, wire fraud, mail fraud, and unregistered securities offerings.
Learn more about the direction of the SEC under its hyper-vigilant chair, Gary Gensler.
Exploiting Ties of Kinship to Commit Fraud
It is clear that the SEC believes that Sumchai relied on intimate ties among members of the Tongan population to foster trust and lure investors. But the scope of the scam reportedly went much further.
According to the US Justice Department, investors roped into the scam resided in Australia and New Zealand as well as the United States.
But despite their geographical dispersion, the victims of the scam had strong affinities as members of the Tongan community. Here, in the eyes of law enforcement, is what makes the purported scam especially insidious.
People tend to trust members of the same community and to look to them for guidance and advice. The SEC and Justice Department believe that Sumchai exploited this tendency for her own gain and betrayed the trust of people who genuinely thought she had their interests at heart.
In May, the Commodity Futures Trading Commission (CFTC) went after a similar Ponzi scheme in California. One difference, here, was that the victims were members of the state’s large Hispanic community.
How bad hasthe problem of cryptocurrency fraud and scams has gotten in the Philippines? The nation’s financial regulators have looked abroad for expert help.
The Philippines’ Securities and Exchange Commission (SEC) has undertaken joint training with the US SEC, according to a new report in The Asset. The Asian Development Bank (ADB) was also part of the training workshop.
The Philippines SEC and the US SEC Have Common Goals
The workshop reportedly took place last month under the auspices of the International Organization of Securities Commissions (IOSCO). The Filipino SEC has also reportedly signed IOSCO’s Multilateral Memorandum of Understanding with regard to crypto scams.
It is not hard to understand the regulators’ motives for expanding their efforts to combat crypto fraud. Just look at the sheer scale of the crisis. Not to mention the lurid stories that have drawn international attention in recent months.
At the beginning of May, Filipino police conducted raids aimed at breaking up human trafficking networks. In total, they reportedly rescued more than a thousand victims. The captives hailed from at least nine nations in Asia. The traffickers had put them to work against their will as callers and texters in crypto scams.
The traffickers forced their captives into a compound two hours outside Manila. There, the hapless victims had no choice but to reach out to strangers via social media and WhatsApp.
The goal? To commit romance and pig butchering scams. The strangers contacted would think they had a new love interest. Flush with excitement, they would invest their funds in a fake crypto platform.
Filipino officials reportedly learned of the atrocious scam after Indonesian victims managed to get in touch with the police in their own country. The Indonesian police duly shared the information.
Learn more about the human trafficking and crypto scam that made headlines around the world.
The Philippines SEC seeks help in fighting crypto fraud, a prevalent type of cyber scam even before the human trafficking scandal of May 2023. Source: Statista
The Philippines Borrows a Page From Gary Gensler
For all the crypto community’s dislike of US SEC Chair Gary Gensler—a feeling he reciprocates—his tough approach to enforcement just might be in order here.
In an interview on Bloomberg Daybreak Podcast in July, Gensler voiced his disappointment in the judicial ruling favoring Ripple in its legal battle with the SEC.
He also directed a number of slurs at the crypto industry. Gensler called it “a field rife with fraud, rife with hucksters.” Then he went on to call for greater resources or, as he put it, “more cops on the beat” to police the industry.
Expert training is well and good, of course. But Gensler’s advice, so ominous to the ears of many crypto players, may be wise counsel in a context where crime really does run rampant.
Gensler may have expressed a one-sided view of crypto. But more cops on the beat may be just what the Philippines needs.
Namely, to break up human trafficking rings. And to eliminate scams that continue to harm the image and reputation of crypto and make people associate it with fraud.
While China’s regime harbors a fierce hostility toward cryptocurrency, the government of Hong Kong appears to be going in the other direction, if the views of local politician Duncan Chiu are any indicator.
Chiu, a member of Hong Kong’s Legislative Council, said at a recent gathering that he expects the territory to roll out guidelines for stablecoin issuers by the middle of 2024, according reports from local media cited by The Block.
Hong Kong May Codify Stablecoin Issuer Guidelines by Next Year
According to the reports, Chiu said that significant progress toward the finalizing of guidelines is underway. At present, lawmakers are in the midst of a second round of consultations on the issue, he said.
Chiu has taken a bold stand at odds with that of Chinese officials. The latter tend to vacillate between hostility and grudging acceptance of crypto. In September 2021, China’s central bank issued a blanket ban on the digital currency.
In more recent months, the regime’s stance has proven inconsistent at best. At the end of August, Chinese officials came out with a surprising ruling recognizing crypto as legal property.
But whatever hope this may have given pro-crypto citizens in China and Hong Kong may have faded amid a crackdown on people engaging in crypto transactions. Including a life sentence for a former senior official in Jiangxi province who had ties to crypto mining firms.
The regime accused the former official of taking bribes, but this may have been only a pretext for the harsh sentence.
Learn more about asset managers’ dilemma about doing business in China’s complex regulatory environment.
Hong Kong heeds the call of stablecoin’s lucrative potential even in the face of draconian mainland Chinese opposition. Source: Statista
Hong Kong Cracks Down on Unlicensed Operations
If Chiu’s predictions are correct, it is, obviously, good news for firms and exchanges. Many of them see opportunities in Hong Kong’s burgeoning fintech and crypto markets.
But the progress toward a framework for stablecoin issuance does not signify a laissez-faire approach. On the contrary, the Hong Kong Monetary Authority (HKMA) just last week issued a stern warning about unlicensed businesses.
Such bad actors, the regulator warned, may promote themselves as banks or even in some cases as crypto banks. To adopt any such moniker, without proper registration and licensing, violates Section 97 of the territory’s Banking Ordinance, the HKMA said.
“Under the Banking Ordinance, only licensed banks, restricted license banks and deposit-taking companies (collectively known as authorized institutions), which have been granted a license by the HKMA can carry out banking or deposit-taking business in Hong Kong,” stated the regulator.
If you place any funds in the accounts of crypto firms purporting to be banks, be aware of the risks, the HKMA added. Your money will not enjoy any protections under the Hong Kong Deposit Protection Scheme.
As banks and their cryptocurrency divisions compete hard to curry favor with institutional investors, Standard Chartered-owned Zodia Custody has announced a staking option for crypto holdings stored on its platform.
The firm has rolled out “Zodia Custody Yield” in collaboration with DeFi platform OpenEden. The service offers returns on stablecoins and purports to adhere to high cybersecurity standards. Although the announcement is somewhat vague on the details of the latter.
Zodia Custody Woos Stablecoin Holders
When it comes to crypto, Standard Chartered has positioned itself as one of the most bullish financial institutions in the world. In June, the UK bank predicted that Bitcoin (BTC) could well hit $50,000 in 2023. And that it might hit $120,000 next year.
Standard Chartered and Northern Trust, an asset servicing firm, rolled out Zodia Custody in 2021. The new venture has enjoyed modest success. It raised $36 million from investors and partnered with SBI Digital Asset Holdings to expand into the Japanese market.
The latter choice is not a random one. Japan has emerged as one of the most fintech- and crypto-friendly jurisdictions. Notably with a new law that permits startups to issue cryptocurrency instead of stock. In June, new legislation vastly expanded the domain for stablecoin transactions, allowing banks and some companies to issue stablecoin.
In a statement accompanying the announcement, Jeremy Ng, co-founder of OpenEden, stressed what he saw as the potential of crypto to bring in significant passive income for its holders.
“There are billions of dollars worth of stablecoins sitting on the sidelines when they could easily be generating yields for investors,” Ng stated.
Banks are far from unanimous about whether to adopt digital assets, but Zodia Custody seeks to woo institutional investors with yield on stablecoin. Source: Statista
Taking After Other Financial Institutions
Zodia’s announcement is part of a gathering trend. It comes just a day after another leading US bank made its pitch to wealthy investors interested in blockchain.
Citi Treasury and Trade Solutions said it had partnered with Maersk to make services available that convert funds to digital assets. The idea is for customers of the bank to be able to send payments almost instantaneously. And without regard for business hours.
Meanwhile, a number of the most prominent asset managers await a ruling on their application to launch a spot Bitcoin ETF.
BlackRock, Invesco, WisdomTree, ARK Invest, Valkyrie, and Franklin Templeton all await decisions from the Securities and Exchange Commission (SEC). But clearly the trend-setter here was BlackRock, which filed for approval of its spot Bitcoin ETF on June 16.
Learn more about the newest entrant in the intensifying race for spot Bitcoin ETF approval.
Blockchain- and crypto-based products that some once considered fringe now figure prominently in the financial strategies of all these players. But even though many see approval of BlackRock’s ETF as a fait accompli, the firm’s efforts to obtain approval for, and market, its ETF face considerable hurdles.
BlackRock has been the target of hostile scrutiny from US regulators who have concerns about its links to China. Not to mention from politicians who fault the asset manager for placing ESG criteria over returns for investors.
The Securities and Exchange Commission (SEC) has upped the ante in its lawsuit against BAM Trading Services, which does business in the United States as Binance, with a court filing demanding the release of documents that the exchange has tried to keep hidden from the regulator.
The regulators view the release of the documents as a necessary and appropriate good-faith step on the part of BAM. But the exchange’s lawyers hotly deny the relevance and fairness of the SEC’s requests.
The SEC Seeks More Disclosures From Binance
The financial watchdog has a keen interest in service providers that Binance may have turned to for wallet custody software and other help.
In the SEC’s view, BAM has been unresponsive when regulators have come forward with requests for information. For its part, Binance believes it is looking out for customers’ interests, and its own, by refusing to comply.
To the SEC’s frustration, crucial documents that might have cast light on this recalcitrance were sealed. Hence, it was hard to prove that Binance was not cooperating.
At the end of last week, the SEC finally got a federal judge to rule in its favor. Judge Zia M. Faruqui’s Sept. 15 court order required the unsealing of 16 documents and the partial unsealing of nine others.
The unsealed documents cast light on the legal maneuvers with which BAM has tried to keep its internal matters secret. And out of reach of the media, the public, and, above all, the regulators who would like to close down Binance for good.
Read more about the SEC’s long-running legal war against Binance and Changpeng Zhao here.
Binance’s troubles have escalated since its legal feud with the SEC took off. Source: Kaiko
BAM Rejected “Oppressive” SEC Demands
One of the most telling items unsealed by Judge Faruqui’s court order is “Exhibit 4.” This Exhibit is a July 5 filing in a Washington, DC, federal court by BAM’s lawyers at the white-shoe law firms of Wilmer Cutler and Milbank.
In the course of this 31-page filing, BAM’s attorneys reject the requests that the SEC has put forward.
The reasons for denying the SEC’s demands vary. But, in essence, BAM accuses the SEC of regulatory overreach. Its lawyers argue that the SEC has overstepped its jurisdiction and made requests that are vague, overbroad, and even “oppressive.”
Reading Exhibit 4, there can be little doubt that the exchange is jealous of its privacy. And does not want the SEC sticking its nose where it has no legal right to do so. In BAM’s view, the SEC has not only asked for documents relevant to its lawsuit. It has made a general request lacking any legal basis.
“BAM objects to the requests as overbroad and unduly burdensome to the extent that they purport to require the production of ‘all’ or ‘any’ documents where a subset of documents would be sufficient to provide the pertinent information,” the filing states.
A bit further down, the lawyers state BAM’s objection to “duplicative” requests. Not to mention, requests for documents that are no longer part of active BAM data systems.
Other documents that the SEC has asked for enjoy attorney-client privilege, the lawyers argue. Still others contain trade secrets, or personal information about present or former BAM employees. Hence, BAM is under no obligation to hand the items over to the SEC.
How Far Apart Are the Two Sides?
BAM and its lawyers do not challenge the SEC merely on procedural grounds. Or on the grounds that the regulators seek documents containing sensitive personal data.
On the contrary, the two sides have serious disagreements over questions of legal and metaphysical truth.
Exhibit 4 makes clear just how far apart the SEC and the respondent are on the issues in the lawsuit. The two sides do not agree on basic matters of fact. As the following passage illuminates, what did or did not happen is subject to dispute.
“BAM objects to the Requests to the extent that they assume the existence of facts that do not exist or the occurrence of events that did not take place,” the filing states.
Will the courts, media, and public lend a sympathetic ear to BAM’s claims of overreach?
After a series of high-profile legal victories against the SEC, time will tell what effect these newly public documents have. Both inside and out of the courtroom.
The latest celebrity influencer to come under scrutiny for promoting an alleged crypto ponzi scheme is the popular Bollywood actor Govinda.
The actor is the target of a probe by the Odisha Economic Offenses Wing (EOW), which seeks to learn more about the exact nature of Govinda’s role as a promoter for Solar Techno Alliance, according to multiple news reports.
Bollywood Star Appeared in Ads for a Crypto Ponzi Scheme
The Solar Techno Alliance scam came to the world’s attention in August, as police in the state of Odisha began making arrests. Now, Bollywood legend Govinda faces suspicion for having appeared in ads that Solar Techno Alliance produced.
Their aim was to lure people to park their money in its crypto investment platform. And also for appearing at an event the firm held in Goa in July.
According to a Times of India report on Monday, these promotions were a huge hit. More than 10,000 people in dozens of cities and states across India made investments. In all, Solar Techno brought in some 30 crore, or more than $320 million.
But the venture turned out to be a crypto ponzi scheme. Its managers did as they pleased with the funds taken from unsophisticated investors who did not know any better.
India’s police were swift to make arrests. Including Nirod Das and Gurtej Singh Sidhu, named as local office heads of the company, on August 7. Authorities have also put out a lookout notice for David Gez, the head of Solar Techno Alliance.
In addition to going after the heads of the crypto ponzi scheme, they arrested investment adviser Ratnakar Palai on August 16 for alleged ties to Sidhu.
But the question looms: how deep did Govinda’s involvement with Solar Techo Alliance Run? And, what should authorities do with him?
Govinda’s Role in the Crypto Ponzi Scheme
In the wake of the probe and the arrests, negative publicity has swirled around the Bollywood star. Including reports of a hot temper on set and even an incident where the actor allegedly slapped director Neeraj Vora.
But such reports, even if true, are immaterial to whether lending one’s prestige to a service or product as an influencer and endorser is illegal.
As of this writing, India’s police have not announced plans to do more than question Govinda. Detectives are reportedly on the way to Mumbai.
Meanwhile, Govinda’s manager, Shashi Sinha, denies any tie at all between her client and the cryptocurrency scam. Sinha raises legitimate questions. Namely, about the liability of actors for any problems or deficiencies with the services or products they have accepted payment to endorse.
Crypto ponzi schemes and other scams were common in India long before the Solar Techno Alliance scam and its Bollywood connection came to light. Source: Chainalysis
Demanding Responsibility on the Part of Influencers
From Govinda’s and Sinha’s point of view, he did nothing more or less than his job. However, regulators in some countries would disagree. Take, for example, France. A country that has wrestled with whether even to allow crypto influencers.
Aware of the degree to which young people rely on influencers to guide their choices, France’s top financial watchdogs earlier this month put out a new training module.
Its purpose? To require all influencers who aspire to a “Responsible Influence Certificate in Financial Advertising” to become familiar with best practices in the promotion of financial products and services.
Those who seek the certificate, and the bona fides it confers, must answer 25 questions and get at least 75% right. And they cannot even apply for the “Responsible Influence” badge without having first obtained a general certificate.
As the probe of Govinda’s activities on behalf of a deeply hurtful scam unfolds, some may wonder. Would Govinda have passed such a test?
Citi Treasury and Trade Solutions has partnered with Maersk to make a range of blockchain-based digital services available for institutional clients, the bank said Monday.
Financial institutions, aware of the significant victories in the battle against regulators over digital assets and how to classify them, are overcoming the stigma of an asset class that many in government still despise. And, they are experimenting with increasing boldness in the digital assets space.
Citi to Implement Tokenized Deposits and Payments
According to Bloomberg and other sources, the bank will expand its suite of offerings to allow clients to make tokenized cross-border deposits. Although, Citi is not pitching these new offerings to all clients, but to powerful institutional ones.
The new offerings are the fruit of a partnership with Maersk. The two partners worked together to devise a solution. It deploys smart contracts to send tokenized payments to service providers, among others.
Ideally, the new system will slash transaction times that might have dragged over days into the work of a few minutes or seconds. Moreover, it purports to be a boon for customers engaging in trading and payments across time zones.
Citi Treasury and Trade Solutions has joined financial institutions worldwide in making blockchain-based tokenized solutions available. Source: Deloitte
Citi Has Been Circling the Crypto Wagons for Months
Monday’s news may be a shock to some. But, actually, Citi has been testing the waters of the digital asset space for some time.
For those who have followed Citi’s activities in recent months, Monday’s news is no surprise. It offers confirmation that the bank does not wish rivals to overtake it in the race to meet growing crypto demand.
Click here to learn more about the struggle between regulators and banks over crypto services and offerings.
In June, reports emerged that Citi had engaged in talks with crypto custodian Metaco, which Ripple recently acquired. Moreover, back in June 2022, Metaco had made its Harmonize platform available to Citi so the latter could test out the tokenization of assets.
The ultimate goal? To facilitate the conversion of funds into tokenized assets that can transmit instantly and outside of business hours.
Metaco aims to keep assets safe from hacking and theft by using multi-key wallets. And, by storing the wallets offline and out of reach of bad actors.
And, in October 2022, Citigroup took the lead in a funding round granting $6 million in seed funding to Xalts. The latter is a Hong Kong-based asset manager active in the digital assets and exchange-traded funds (ETF) space.
The Commodity Futures Trading Commission (CFTC) should follow the same regulatory approach to the cryptocurrency market that it has applied to other emerging asset classes, and exercise much tighter oversight.
That’s the view of Commissioner Caroline D. Pham, who told a gathering at the Cato Institute think tank on Thursday of the need for “responsible innovation” and a “compliant” digital asset market.
CFTC Commissioner Urges Tighter Controls on Innovation
Pham’s remarks implied that the current cryptocurrency market is the Wild West. Pham advocated a dialogue with the industry. At the same time, she was vague on how much of a voice crypto firms should really have.
In her pitch for bringing the unruly crypto sector into line, Pham cited her broad experience as a sponsor of the CFTC’s Global Markets Advisory Committee. She recounted an international tour that brought her into contact with many regulators, finance ministries, and central banks.
In Pham’s view, those who make policy in other jurisdictions show a high degree of unity around the need to foster economic growth in a responsible way. Pham contrasted this robust approach with what she sees as a tendency in America to rest on laurels. This is particularly the case, she argued, in the blockchain and digital assets space.
“A ‘wait and see’ approach in the US towards the potential opportunities of blockchain technology and digital assets falls short of the proactive measures needed in this rapidly evolving industry,” Pham argued.
According to Pham, “regulatory clarity” and “robust guardrails” are missing when it comes to crypto regulation
This belief explains Pham’s repeated calls for the CFTC to adopt a much tougher stance on crypto, she said. To act, in other words, like Gary Gensler’s SEC, which has effectively declared war on the industry.
In a Bloomberg interview in July, Gensler’s rhetoric reached new levels of vitriol. He called the crypto sector “a field rife with fraud, rife with hucksters.” Gensler also called for “more cops on the beat.”
CFTC Commissioner Caroline Pham would like to see a crypto market with markedly less risk, volatility, and liquidation of positions. Source: Glassnode
Pham Praises Track Record of Pilot Programs
In Pham’s view, pilot programs have proven highly useful to regulators in the past. For example, in 1995, the CFTC undertook a three-year pilot program. Its goal was to test out innovative trading methods and products.
The regulators in that 1995 program set forth trading rules as well as requirements with regard to registration, reporting, and risk disclosure.
On the heels of this successful experiment came another, in April 1998. This new pilot program weighed allowing the purchase and sale of agricultural trade options on some commodities. It, too, tested a new slate of requirements for parties that wished to enjoy greater flexibility in their daily operations.
Then, in June 2010, the CFTC tested out yet another set of rules in response to the “Flash Crash” of May 6, 2010, Pham recalled. The idea here was to gauge the effectiveness of “circuit breakers” for trading of certain stocks via exchanges and FINRA, she said.
Here, US-based exchanges were helpful. Drawing on their own experience, they proposed changes to the rules mandating pauses in trading. Pauses would take effect if the price of a given stock jumped by 10% or more within five minutes.
Originally undertaken on a test basis, the 2010 pilot program worked out so well that the CFTC swiftly codified the rules. Both the market participants, and the regulators, were correct in their belief that these new requirements were in order and would work out in practice, Pham maintained.
Pham’s Next Step: A Cryptocurrency Pilot Program
On the basis of their track record, Pham is a huge advocate of pilot programs. And the next logical step, she argued, is for the CFTC to try one out in the digital assets space.
“As a regulator overseeing the largest financial markets in the world, we have a responsibility to proactively take on new challenges instead of passive observation. That’s why I’m recommending a time-limited CFTC pilot program to support the development of compliant digital asset markets and tokenization,” Pham said.
In theory, such a program will go ahead on a fairly similar basis to those of the past. It will call on market players to share their ideas. She advocated holding a roundtable with stakeholders.
But Pham said that the CFTC, not crypto exchanges and firms, should propose and enact the new rules of the road for the industry. Moreover, her proposal was curiously silent on one critical question.
Namely, just how much real input will players in the market have? And, will their opinions and ideas matter in the end, or can the CFTC, as the ultimate decision-maker, run roughshod over the exchanges and firms and impose whatever rules it wants?
However, Pham did not answer those questions. She called for a “compliant” digital assets market. And some may wonder how much Pham and the CFTC really value the input of the exchanges at all.
People count on the police to be vigilant and help keep them safe from scams, including cryptocurrency fraud. So accounts on Thursday of a probe of police officers in the state of Karnataka, India, have raised understandable concern.
According to a report in the Hindustan Times, the Criminal Investigation Division (CID) of the Karnataka police is looking into the conduct of several unnamed officers who were reviewing evidence in a Bitcoin scam.
Police in Karnataka May Have Mishandled Bitcoin
The report states that the Bitcoin scam came to authorities’ attention back in 2020. Police arrested a hacker who goes by the name SriKi. The reputed bad actor had allegedly used cryptocurrency to buy drugs on the dark web.
Police inquiries led them to suspect the involvement of SriKi (real name Srikrishna Ramesh) in a number of criminal activities. Authorities took custody of, and reviewed, a hard drive, two MacBooks, and two pen drives in their search for evidence.
The CID’s complaint charges that the local police may have tampered with some of the sensitive files that are crucial to the case against SriKi. Their basis for this allegation? The hash values of some of the digital files appear to have changed. Worse, some of the confiscated crypto is no longer where it should be, the report explains.
The CID suspects officers of the Central Crime Branch (CCB). They were supposed to safeguard the evidence, but may have tampered with it. The article quotes an unnamed CID officer:
“We suspect that these devices were tampered with within the premises of the CCB office in Bengaluru between November 9 and December 12, 2020.”
Criminal activity involving cryptocurrency is a serious problem in India as in many other countries. Source: Chainalysis.
India’s Prime Minister Has Called for a Unified Approach
The investigation of one branch of Indian law enforcement by another, in connection with a Bitcoin scam, underscores one of the very issues that India’s prime minister spoke out on this week.
Just ahead of the G20 Summit coming up in New Delhi on September 9-10, Prime Minister Narendra Modi criticized the lack of uniform crypto regulations. Modi would like to see more unity around crypto rulemaking and enforcement globally.
Just as different countries and governments work together to ensure safety and cooperation around commercial aviation, says Modi, so they should recognize their common interests with regard to cryptocurrency.
Modi knows well how exasperating the lack of unanimity can be. In December 2021, hackers accessed his Twitter account. They then posted a number of wild and false claims to his more than 73 million followers. Including that India’s government now recognized Bitcoin and legal tender and planned to give some away for free.
Time will tell whether Modi’s wise counsel about the need for better regulations makes an impact.
Police in Green Bay, Wisconsin, report that local citizens have lost more than a quarter of million dollars to cryptocurrency scams since 2020.
As the crypto industry fights for wider adoption and seeks to cast of the stigma around crypto as a common vehicle for money laundering and other malfeasance, the sheer scale of citizens’ losses in a mid-sized US city is unlikely to help.
Crypto Fraud Takes Green Bay Citizens for a Ride
As WBAY News reported Wednesday, Green Bay police released data showing a total loss of $195,200 thus far in 2023. The figure is higher than in any other year for which figures are available, and that’s just the theft that citizens have reported.
Since 2020, the local story stated, Green Bay police have received no fewer than 28 reports of crypto theft. The total amount stolen? $273,893.
A highly common modus operandi is for the scammers is to tell citizens that they have incurred some kind of debt or fee, in connection with a technical issue or the delivery of a package, according to the WBAY story.
The bad actors then instruct the victims to send them cryptocurrency to allay the fee, or to convert their money into crypto and then pay. In some cases, they offer to stay on the phone and talk the unwitting victims through the entire process of parting with their hard-earned money.
Green Bay Police Captain Jeff Brester said legitimate companies and government agencies will never ask citizens to pay in crypto.
Once the bad actors receive what they have demanded, it is virtually impossible to get the money back. The scammers are often in foreign jurisdictions and their real identities are unknown.
When it comes to crypto fraud, 2023 is on track to surpass even the dismal figures of last year. Source: CipherTrace
FTC Just Warned About Demands for Payment in Crypto
The figures that Green Bay law enforcement have released may sound like an ironic comment on the inefficacy of current policies to thwart online and crypto scams.
The type of crime that the Midwestern city’s police identified is all too common. In fact, the Green Bay police announcement came just two days after the Federal Trade Commission (FTC) issued a stern warning about the very same criminal modus operandi.
As the FTC reminded consumers in its advisory, “only scammers demand payment in cryptocurrency.” Here is one sure sign of a criminal undertaking.
People should never pay a fee in crypto as part of a job application. Nor should they ever invest money in a platform that a stranger on a dating site told them about.
Romance scams, pig butchering scams, and imposter scams, involving bad actors who claim to be members even of the highest echelons of law enforcement, no know geographical bounds.
As a Middle American city long thought to be a safe and quiet place has learned the hard way.
Blockchain trading platform Aerodrome has reported a massive response to its launch yesterday, with a $150 million worth of deposits, in spite of all the negative publicity swirling around cryptocurrency platforms as SEC lawsuits and trials grind on.
The immediate results of Aerodrome’s launch were the subject of a tweet from crypto researcher and Messari founder Ryan Selkis on Thursday morning.
Velodrome partnered with Base to launch Aerodrome, and describes the new platform as “a business development layer for the Base ecosystem” that will generate liquidity and bring aboard new protocols.
The Aerodrome platform incentivizes its more dynamic and enterprising users. It provides AERO tokens to those who inject liquidity and undertake swaps.
Aerodrome’s site links to an article by none other than Vitalik Buterin. The man Time Magazine has called “the most influential person in crypto.”
In the July 2021 article, Buterin sets forth his vision for an ecosystem driven by startups utilizing what he calls “the results oracle.”
The results oracle, he explains, gets around some of the problems of decentralized governance by offering rewards where merited. Here lies its ingenuity and its “public good” functionality, which will endear it to users and attract legions of new ones.
It is a protocol that can send goods to an individual or organization that helped it get off the ground. Or to a smart contract that applies ingenuity to figure out how to allocate currency among deserving people or organizations.
Ethereum’s popularity and frequent trading highs rest partly on its use of smart contracts. Source: Glassnode.
Results Oracle Should Reward Project Tokens, Buterin Argues
Then there is what Buterin calls “a more radical idea.” The results oracle will deploy its funds to set a project token’s price floor. Buterin goes on to explain how this principle works in practice:
“If it allocates a reward of $X, and the project has a total supply of N tokens, then it publishes an open order to buy up to the entire supply of those tokens at a price of $X/N per token.”
This model allows the results oracle to reward a project as many times as may be appropriate, Buterin states.
Buterin has been bullish on the potential for what he calls “builder culture” to derive expertise from smart contracts. Such as those he pioneered in co-founding Ethereum in 2015.
While much of the world has eagerly waited for the start of Sam Bankman-Fried’s trial in October, the news has come on Wednesday afternoon that it may not begin until well into 2024.
Federal judge Louis Kaplan conveyed his surprising decision that he may grant defense lawyer’s request to give their client more time to review the evidence against him, Reuters reported. The judge might even roll up the legal proceedings into a combined trial with one set to take place in March next year, according to the report.
Sam Bankman-Fried’s “Trial of the Century” Bumped Back?
Many people could barely wait for the trial to begin in October, with Bankman-Fried facing an array of charges that could land him in jail for many years. The former high-flying crypto entrepreneur has been in the headlines virtually every day in recent weeks, for everyone from alleged witness intimidation to complaints about having to subsist on bread and water while in jail.
The alleged witness intimidation that landed Bankman-Fried in detention was not really that at all, he and his lawyers insist. That is merely how the other side in his highly contentious case predictably classifies it, they maintain.
Bankman-Fried shared his former girlfriend Caroline Ellison’s Google drive diary entries with a New York Times reporter. An action he and his counsel claim falls squarely under First Amendment guarantees of freedom of expression and of the press. It resulted in a sensational story, “Inside the Private Writings of Caroline Ellison, Star Witness in the FTX Case.”
On August 22, Bankman-Fried’s legal team made the case that his prison diet was so abysmal that it would get in the way of an effective defense. The attorneys also asked Judge Kaplan to allow Bankman-Fried weekday release, but the judge shot down this request.
FTX had a presence in so many markets and jurisdictions that its collapse in November 2022 easily ranks as one of the most cataclysmic events in the history of finance. Source: FinTelegram.
Double Standards at Play?
The question of the extent of Bankman-Fried’s access to evidence, and the means by which he reviews it, has been a long-running point of contention. Last week, Judge Kaplan ruled that the defendant could have at least limited access to the evidence while in jail awaiting trial.
The interim order also gave Bankman-Fried more time to confer with his lawyers as they hone their defense strategy. No doubt they welcome this small reprieve, given the seriousness of the charges, from misleading investors to making illegal campaign contributions.
Despite the modest concessions, the ordeal of Bankman-Fried still contrasts jarringly with that of other high-profile defendants who stayed out of custody before and during their trials. The case of disgraced Theranos founder Elizabeth Holmes comes to mind.
All of which suggests, to some observers, that an entrepreneur who made his name in cryptocurrency is still the bad guy in the eyes of an innovation-averse legal establishment.
The United Kingdom’s financial regulator, the Financial Conduct Authority (FCA), has gotten serious about stopping the use of cryptocurrency for money laundering and other crimes. It has implemented much tougher requirements for companies operating in the cryptoasset space.
The agency will brook no deviation from the “Travel Rule,” which mandates the sharing of detailed information about parties on both sides of a crypto transaction. The FCA is no outlier on this issue, but has set forth its guidelines partly under the influence of the US Financial Action Task Force (FATF).
The FCA Wants to Stop Crypto Money Laundering in Its Tracks
An official notice posted on the FCA’s website on Thursday, and updated on Friday, sets September 1, 2023, as the travel rule compliance deadline. From that date on, it states, UK crypto firms must “collect, verify, and share information about cryptoasset transfers.”
The regulator seeks to curb the high levels of illicit activity with which cryptocurrency, sadly, is still associated. And, from the FCA’s standpoint, this goal requires more probity on the part of crypto firms. They must do more to ensure they are not doing deals with money launderers and other bad actors.
To this end, the FCA goes beyond the requirement spelled out above and lists a number of guidelines for firms undertaking trades and transfers of crypto. They must “take all reasonable steps and exercise all due diligence” around Travel Rule compliance.
Moreover, firms are responsible for such compliance even on the part of third-party entities that play a role in transactions. No one will be able to get off the hook by saying: “We can’t control who our counterparty does business with.”
In addition, the requirement goes beyond transactions in the United Kingdom. It includes other countries that are party to the Travel Rule. And firms will need to review the status of Travel Rule adoption in those parts of the world where they seek to do business.
The FCA holds out hope that cryptoasset firms can help curb soaring rates of money laundering through strict adherence to the Travel Rule. Source: Chainalsis.
The FCA Hopes for Broader Travel Rule Adoption
The regulator’s announcement includes further provisions that aim to promote transparency and fair dealing. It does not explicitly ban transactions with parties in places that do not have a Travel Rule in effect.
However, in such cases, firms must do as much as they can to share and receive information. And to make sure that the prospective counterparty is on the level. The FCA’s notice states:
“If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLR) and should store that information before making the cryptoasset transfer.”
If not all information is forthcoming, that is a red flag. In such cases, the FCA requires firms to undertake risk assessments. They must think long and hard about whether to go ahead.
“We will keep our expectations under regular review as global adoption of the Travel Rule develops,” the notice concludes.
The industry has had enough of money laundering and of bad actors. The FCA’s goals, as set forth in this latest notice, might sound noble.
Yet some may wonder whether the FCA is struggling to improve its image. Especially after a recent Censuswide survey finding that a majority of UK crypto firms think poorly of the job the FCA is doing.
The efforts of Sam Bankman-Fried’s legal team to keep him out of prison have failed. On Friday afternoon, a judge’s decision required the former high-flying crypto entrepreneur to report to jail.
A federal judge in Manhattan, Lewis A. Kaplan, made the decision to cut short the house arrest under which Bankman-Fried had been living pending his trial. The basis for the ruling was alleged witness intimidation, which Bankman-Fried committed by handing over to reporters the private diary entries of former Alameda Research CEO (and his former girlfriend), Caroline Ellison.
Sam Bankman-Fried’s Leaking of Documents
The Google documents that Bankman-Fried shared with a New York Times reporter formed the basis for a July 20 article. Its title? “Inside the Private Writings of Caroline Ellison, Star Witness in the FTX Case.”
The article is every bit as sensational as its title makes it sound. Among the quotations from the diary entries that Ellison believed she was writing in privacy, not for public consumption, are such admissions as:
“I have been feeling pretty unhappy and overwhelmed with my job. At the end of the day I can’t wait to go home and turn off my phone and have a drink and get away from it all.”
In this entry, Ellison does not sound like an accomplished, confident CEO, but someone in way over her head. Another entry states, “It really doesn’t feel like there’s an end in sight.”
And in yet another entry quoted in the same article, she writes that breaking up with him “significantly decreased my excitement about Alameda.”
Prosecutors argue that the leaking of such documents was an attempt to intimidate a witness in the coming trial. Bankman-Fried also talked with author Michael Lewis for a book the latter is writing.
But some, including members of the New York Times staff, have defended Bankman-Fried on free speech grounds. They do not look good when a source who brought them evidence to report ends up in handcuffs.
More importantly, intimidation is a two-way street. Locking someone up for talking to the press can have profoundly chilling and damaging effects on the flow of information in a putatively free society.
An Avalanche of Bad News for Bankman-Fried
It has not been the finest week of Sam Bankman-Fried’s life. On Tuesday, after having dropped campaign finance fraud charges, government lawyers announced that they would pursue the defendant on those grounds. In addition to wire fraud and lying to investors.
Prosecutors had originally dropped the campaign finance-related charges. The Bahamas did not include such alleged offenses as grounds for its extradition of Bankman-Fried to the United States. The legal reasoning for pursuing the charges, and flouting the terms of the treaty under which the extradition took place, are still unclear.
But then, consistent logic has never been a strong suit in the government’s vendetta against Bankman-Fried. Some may contrast Friday’s decision to lock him up pending trial with the light touch applied to Elizabeth Holmes, founder and former CEO of Theranos. And may see a pernicious double standard at work.
Holmes did not have to await trial in jail, even after having lied to investors, the public, and the media, not to mention patients with highly sensitive medical conditions, about the efficacy of her company’s blood tests.
Or even after fostering an atmosphere of intimidation and deceit at her firm. One that some blame for the suicide of biochemist Ian Gibbons.
The life of Sam Bankman-Fried, founder of the imploded crypto exchange FTX, isn’t getting any easier. On Tuesday afternoon, the news came that US prosecutors have reversed an earlier decision to drop campaign-finance charges. They will seek a conviction on these grounds when the case goes to trial in the fall.
Bankman-Fried, known as SBF, ironically was once a source to whom sources like New York Magazine turned for expert commentary on the crypto market. As a result of the Tuesday decision, the fallen entrepreneur will face a cocktail of felony charges, incorporating campaign finance fraud along with money laundering and wire fraud.
Sam Bankman-Fried Briefly Evaded Fraud Charge After Extradition
As detailed in a CNBC report, US prosecutors had reluctantly dropped the campaign finance charge on a technicality. Authorities in the Bahamas had not included that offense in the counts providing a basis for their extradition of SBF. Hence, in accordance with the extradition treaty, lawyers in New York could not pursue that charge.
Government lawyers have been highly vindictive toward SBF. The campaign to incarcerate him until his trial starts in the fall has gathered force in recent weeks.
SBF’s lawyers have fought tooth and nail to rebut charges of evidence tampering and witness intimidation. They argue that keeping SBF locked up ahead of his trial would deprive him of internet access. Thus unfairly crippling his ability to mount a defense.
Sam Bankman-Fried’s alleged fraud had consequences for affiliates around the world. Source: FinTelegram.
It does not minimize SBF’s charges to say that CEOs accused of even more serious offenses have received relatively lenient treatment. Elizabeth Holmes, the founder and CEO of blood-testing firm Theranos, did not languish in jail before her trial.
Nor, indeed, until many months after her prosecution for having misled investors, the media, and the public.
A disparity that will lead some to ask whether crypto entrepreneurs, like SBF, are the victim of a double standard. And to wonder whether officials have once again gone too far, in their sheer zeal to punish what they do not understand.
Steadefi, a popular yield aggregator, has been the target of an exploit, and all the funds it handles are at risk, according to a tweet it sent out at 2:33 p.m. on Monday.
The decentrazlied finance (DeFi) company quickly responded to the breach by sending terms of a proposed bounty to the unknown hackers. Steadefi offered to let the bad actors keep 10% of the funds if they returned the other 90%.
Steadefi Pleads With Exploit’s Masterminds
An attack like this is the last thing a DeFi platform needs. The app’s administrators clearly wish this ordeal would go away. They don’t even want all the money back. Just 90% would be fine, and everyone walks away, no questions asked.
The tweet is blunt: Steadefi will not pursue the hackers and there will be no complications with law enforcement. All the hackers have to do is give back most of what they stole.
However, if the hackers reject these terms, a scenario like that in the Mel Gibson movie Ransom will become reality. Steadefi says it will take the ten percent offered to the hackers, and offer the money to anyone who supplies information leading to a conviction.
It is clear that Steadefi would prefer to get most of the money back. If the bad actors will return most of the funds, Steadefi is willing to let the matter go. The tweet states:
“You will have no risk of us pursuing this further, no risk of law enforcement issues, etc. If you choose not to partake in the voluntary return and complete the process by 10th August at 0800 UTC, we will expand the bounty to the public . . . and offer the full 10% to the person who is able to identify you in a way that leads to your conviction in the courts.”
Hacking a Growing Crisis
Crypto and DeFi platforms continue to be vulnerable to hacks, even as the digital asset industry fights for legitimacy and wider acceptance.
Just last month, a cyber breach dealt a blow to CoinsPaid. The company’s investigation led to Lazarus Group, a North Korean-backed hacker outfit that has gained notoriety in recent years.
A subsequent analysis of how the breach happened, and its aftermath, found holes in the defenses of CoinsPaid. Not to mention other platforms. Blockchain scoring is insufficient to stop laundering of stolen assets when the process happens at high speed, CoinsPaid acknowledged.
CoinsPaid set forth a number of steps that platforms can take to guard against hackers of growing sophistication. Time will tell whether the industry can protect itself and salvage the trust of Main Street investors and traders amid the hacker onslaught.
Crypto exchange Binance, which has been in regulators’ crosshairs for months in numerous countries, may now face new fraud charges in the United States.
That’s according to a tweet that crypto commentator Walter Bloomberg sent out Wednesday afternoon, which quickly racked up more than 141,000 views. In a separate tweet, Bloomberg noted that US prosecutors fear that pending charges could cause a run on the exchange.
Binance in the Prosecutors’ Spotlights
A US court slapped Binance CEO Chanpeng Zhao (“CZ”) with a summons in June. The counts involved offerings of unregistered investment services. Not to mention lying to investors. So the rumored fraud charges are not a surprise to everyone.
Some may have seen the new charges coming anyway, given the fear, uncertainty, and doubt (FUD) swirling around Binance and CZ.
Still, there has been an awful lot of bad news for Binance in the space of a week. On July 28, a Wall Street Journal report disclosed that Germany’s financial watchdog, BaFin, had its own share of concerns about CZ and Binance.
Reportedly as a result of BaFin’s unwillingness to approve Binance’s application for a license, Binance pulled its application last week.
Here, again, developments were merely the confirmation of rumors that had swirled. Jonas Jiinger, Binance’s German head of operations, had told a German newspaper that BaFin’s threshold was “rightly high.”
He might have been referring to the 480 days, on average, that it takes to gain a license in Germany.
And, in June, Belgium’s Financial Services and Markets Authority ordered Binance to stop offering crypto services in Belgium immediately. The exchange had violated local laws that prohibit players outside the European Economic Area from marketing crypto services in Belgium without a license. The regulators had well-founded concerns over money laundering.
Now, US lawmakers have gotten on board with the international backlash against Binance. And where things go from here is anybody’s guess.
A court in the United Kingdom has handed down stiff sentences to two crypto fraudsters found guilty of having taken money from would-be investors with promises of high returns.
A judge in Southwark Crown Court has sentenced Ross Jay and Michael Freckleton. They will serve six years and three months and six years and six months, respectively. The court had found them guilty of conspiracy to defraud for a crypto scam operating as far back as 2015.
Crypto Fraudsters Bilked Strangers
According to a statement from the City of London police, the pair reached out to prospective investors with an offer. How would you like to invest in a cryptocurrency called “Telecoin”?
The only hitch? Telecoin did not exist, and the firm under whose auspices the pair operated, Digi Ex, was a shady shell company. One with real employees, but no legitimate investment activities.
To hear the London police tell it, crypto was such a hot commodity in those heady early days that excited investors rushed to invest in Telecoin without performing any diligence.
The pair reportedly did not use any of the more than $635,000 that they received to trade crypto tokens. Instead, they paid hefty salaries to themselves and Digi Ex employees.
Fraudsters Also Use Crypto ATMs
The London police interpretation of this case—that crypto caught on so fast people barely knew what they were getting into—finds support in the extremely rapid spread of crypto ATMs in Britain.
Their rise and unregulated use alarmed UK authorities so much that they have imposed strict registration requirements and undertaken widespread raids targeting crypto ATMs.
The FCA has worked with police to conduct high-profile raids on crypto ATMs in East London as well as Leeds. They mean to shut them down. Even as crypto ATMs grow more common and operate freely in other countries.
Crypto fraudsters sometimes make use of Bitcoin ATMs in the United Kingdom. Source: Coinatmradar.com
Detective Chief Inspector Lee Parish warned about companies that have not registered with the Financial Conduct Authority (FCA). Parrish said:
“The sentencing should serve as a reminder to not invest in emerging currencies that have the potential to be unstable in an erratic financial market. . . . please do your research and go with a company which is FCA registered and is recognized worldwide. If in doubt, contact an accredited financial advisor.”
The cryptocurrency markets have been an area of intensive focus for the FCA this year and in recent years. Hence, in March 2022, the organization disclosed that it had undertaken no fewer than 300 inquiries into unregistered crypto ventures during a six-month period ending in September 2021.
The FCA’s ScamSmart website received 4,300 reports of possible crypto scams during the six months in question.
Gary Gensler, head of the Securities and Exchange Commission (SEC), offered some of his most vehement rhetoric to date about the cryptocurrency industry in a Friday interview on Bloomberg Daybreak Podcast.
The crypto sector, Gensler said, is “a field rife with fraud, rife with hucksters,” and cast doubt on the prospects for a Bitcoin ETF in an industry with such a poor compliance record. He also called for “more cops on the beat” to bring bad actors to justice.
Gensler’s Rhetoric Demonizes Crypto
When the host of the podcast asked Gensler about the ramifications of Ripple’s partial victory over the SEC in a long-running lawsuit, Gensler evaded the question.
The host noted that the ruling confirms that Ripple’s token, XRP, is a security only in its sale to institutional investors. Not when people trade it on public exchanges.
Gensler said he was “disappointed” by the ruling, the host noted, before asking him to elaborate. The SEC is not accepting the decision lying down. But what did the agency mean when it said it “intends to seek further review”?
The SEC chair’s answer was vague:
“The Commission has not acted on that, and if the staff makes a recommendation, we’ll have a discussion of it and we’ll take it up then. But I don’t really have anything more for you, for that.”
Gensler’s Vague Answers and Broad Hostility to Crypto
The host then asked whether the Ripple ruling complicates the SEC’s efforts to regulate tokens as securities.
Refusing to give a straight answer, Gensler changed tack.
“This field of crypto investing, a lot of investors should be aware, it’s not only a highly speculative asset class, it’s also one that they currently should not assume that they’re getting the protections of the securities laws. Even though the securities laws apply to many of those tokens, without prejudging any one. But you as investors are not getting the full, fair, and truthful disclosure. And the platforms, the intermediaries, are doing things that we would never, in a day, allow or thin the New York Stock Exchange or Nasdaq would do. The platforms, often, are commingling or trading against you and have market makers, often, that are on the other side of the trades.”
Gensler still was not done disparaging the crypto industry. He went on to issue a categorical slur against the sector, along with a half-hearted qualification:
“This is a field rife with fraud, rife with hucksters. And there are good faith actors as well, but there are far too many that aren’t.”
Gary Gensler’s rhetoric does not take into account the sheer size of the crypto market and the fact that most industry players are not criminal fraudsters. Source: Statista
Gensler Not Bullish on Spot Bitcoin ETFs
The host noted that many players in the industry have approached regulators looking for approval for a spot Bitcoin ETF.
The most prominent player is BlackRock, the world’s largest asset manager, which awaits an answer on its filing.
So far, no approvals have come through. What does Gensler make of this flurry of filings, the host asked. Instead of answering the question or providing any substantive insight on the question of Bitcoin EFTs, Gensler went on to slander the industry again. He said:
“This is a field that, there’s a lot of non-compliance in this field, and, uh, that the platforms themselves, where trading is occurring of various crypto tokens, though some of it comes under the securities laws, currently they’re not necessarily compliant with those time-tested protections against fraud and manipulation.”
Will the CFTC Gain Broader Oversight?
In the final part of the interview, the host notes that, on Thursday, the House Financial Services Committee advanced legislation that would shift authority over crypto largely to the Commodity Futures Trading Commission (CFTC). However, the change is a long way from becoming law. What does Gensler think?
Gensler refused to give a straight answer.
“I understand your question, but I think those members on the Hill would appreciate if I continue to share my thoughts directly with them,” he said.
The host then asked whether Gensler thought it would be helpful to increase the fines that the SEC imposes on bad actors.
“If you’re asking whether we could use more authorities, I would say, we need more cops on the beat. We need more resources. Our agency is just the size we were in 2016. We actually shrank, we’ve kind of come back, and yet the markets have grown so significantly in those seven years,” he said.
Troubled FTX founder Sam Bankman-Fried got a modest bit of relief Thursday afternoon. The news broke that federal prosecutors have dropped one of the lesser counts against the crypto entrepreneur. He will no longer faces charges of violating campaign finance laws when his case goes to trial in the fall.
The campaign finance charge was the eighth count in the original indictment of Bankman-Fried. It is null and void thanks to a letter that US Attorney Damian Williams sent to Judge Lewis Kaplan of the Southern District of New York on Wednesday.
Prosecutors Drop Campaign Finance Allegation
In the letter, Williams explained that his office had received notification from the government of the Bahamas, where police arrested Bankman-Fried in December, that campaign contributions were not among the grounds for his extradition to the United States.
“Accordingly, in keeping with its treaty obligations to The Bahamas, the Government does not intend to proceed to trial on the campaign contributions count,” Williams continued.
It was a rare bit of grace from a prosecutor who, in a press conference earlier this month, boasted about how tough his office is on crypto-related fraud. Williams stated:
“The Southern District of New York has always been on the cutting edge of catching and prosecuting criminals . . . who use new technologies to commit old-fashioned fraud. . . . SDNY is watching, and we’re determined to follow the digital fingerprints to bring fraudsters to justice.”
While clearly a victory for Bankman-Fried, the significance of this latest twist in his legal saga may be modest.
For most prosecutors campaign finance violations are not high on the list of actionable compliance failures. Source: Statista
SBF’s Legal Woes Persist
Government lawyers have called for Bankman-Fried’s pre-trial detention, applying a standard to which other former CEOs facing prosecution have been curiously exempt.
Whatever the outcome of that request, the defendant is subject to a far-reaching gag order. It blocks him from communicating with the media about his case.
In the court of public opinion, Bankman-Fried continues to be highly controversial. Some may have thought that here was a garden-variety case of fraud. However, the legal saga took a turn for the bizarre last week. Reports emerged that the defendant’s brother, Gabe Bankman-Fried, wanted to buy a Pacific island with funds from FTX.
The idea was reportedly to have a refuge in the event of a global cataclysm. Namely, a pandemic or a conflict with Russia and/or China.
This would have been a questionable proposal on several grounds. The island of Nauru has more than its share of economic and social problems. It is broke and bereft of exportable resources since its reserves of lime phosphate ran out. Although the island is exploring new revenue streams.
Given Nauru’s circumstances, it is unclear how long one could hold out in a bunker there in the midst of some kind of global meltdown. Nauruans rely largely on canned goods from Australia and other exporting nations. So, how would fresh supplies ever get to a bunker on a remote island cut off from the world?
Moreover, a Nauru spokesperson confirmed to CNBC that the island is not on the market.
Sam Bankman-Fried is too dangerous to be a free man in even the brief time left before the trial of the disgraced FTX founder begins in October, prosecutors assert.
Multiple sources have quoted prosecutor Danielle Sassoon telling a judge in a Manhattan court on Wednesday that, in the case of SBF, “no set of release conditions can assure the safety of the community.” This brought objections from SBF’s attorney Mark Cohen, who reportedly learned of the request just before court proceedings began. Moreover, the request contrasts jarringly with the lenient treatment of Theranos founder Elizabeth Holmes, whose vicious witness intimidation was an open secret.
Sam Bankman-Fried Dubbed a Flight Risk
The FTX founder has been living in California amid the flurry of litigation following the exchange’s collapse in November 2022. But his life is no picnic. His legal team is constantly on the defensive.
Accusations have flown back and forth in recent days. Besides the charges related to the implosion of FTX, Alameda Research has sued asset manager K5 Global to reclaim $700 million that SBF had donated. K5 Global claims their dealings were a totally legitimate business relationship.
Meanwhile, SBF’s lawyers have protested the actions of his replacement as CEO of FTX, John Ray III. In a recent court filing, they accused Ray of having made “repeated ad hominem attacks on Mr. Bankman-Fried—which have very little to do with his role recovering assets for FTX creditors.”
SBF has come under fire for leaking private Google Docs entries of his former girlfriend, Caroline Ellison, to the New York Times. He now faces charges of intimidation and evidence tampering, on top of everything else.
Ellison, who was head of Alameda Research, is widely expected to testify during the October trial.
Revulsion over the excesses of financial firms, like that led by Sam Bankman-Fried, has boosted politicians such as Elizabeth Warren and Bernie Sanders. Source: University of New Hampshire Survey Center.
Bankman-Fried Did Not Break the Law in Talking to the Press
But for all the unpleasantness, it is far from clear that SBF poses a danger to the community.
SBF’s lawyers argue that, in providing a reporter with the diary entries, he was merely granting the latter’s request for his side of the story. His actions were legal under the Fifth and Sixth Amendments. They did not violate the protective order and bail conditions to which SBF is subject, they maintain.
The lawyers made this point explicitly in their July 22 letter to Judge Lewis Kaplan of the Southern District of New York. They rebut charges of witness intimidation and evidence tampering. They maintain that SBF was well within his rights to speak to the media and grant a routine request for comment. The letter states:
“Defense counsel independently verified that the documents were not part of the discovery and therefore did not implicate the protective order. Defense counsel contacted the prosecutors the following day and reported these findings and offered to provide copies of the documents to the Government’s filter team so that it could verify that the documents were not part of the discovery.”
A Double Standard
Observers are bound to ask whether the government, and some in the media, are treating a crypto entrepreneur unfairly. Holding him to a different standard than in another high-profile insolvency: the case of Theranos and its founder Elizabeth Holmes.
Many former employees of Theranos said they lived in fear of retaliation from the company’s founder and CEO. They dared not share what they knew about the firm’s deceptive marketing practices. To do so could be fatal for their careers and possibly their lives.
None of this was a secret. The intimidation and abuse were the subject of articles by John Carreyrou in the Wall Street Journal as far back as 2015. Long before the case went to trial in September 2021.
That’s not even the worst of it. Ian Gibbons, a scientist who raised concerns about Theranos testing devices, lost his job for not keeping silent. He later committed suicide. His widow blames the climate at the firm for his death. She says that Holmes never offered condolences or voiced remorse of any kind.
Yet, for all her well-known witness intimidation, Holmes was able to live comfortably and in total freedom. She did not see the inside of a cell until May 2023.
A stark contrast with the measures that prosecutors in the FTX case now publicly advocate. Even without credible evidence that SBF’s dealings with reporters violate any law or condition of his release.
A crypto entrepreneur, it seems, is far more dangerous than an ex-CEO whose ruthlessness drove a potential whistleblower to suicide.
BlackRock continues its aggressive worldwide expansion with the launch of a joint venture with Jio Financial Services of India. The two parties will, initially, commit $150 million apiece to their new platform, which will offer investment services.
According to a Financial Times report on Wednesday, BlackRock seeks to take advantage of the growing popularity of digital assets in India. An area of the market where BlackRock, which recently filed for approval of a spot Bitcoin ETF, has ambitions few other asset managers can match.
BlackRock’s Global Ambitions
Jio’s owner is the tycoon and multibillionaire Mukesh Ambani. The firm may have been looking for a new partner since decoupling from another Ambani venture, Reliance Industries Conglomerate, the FT report suggests.
But whatever the motives on Jio’s side, the move cannot fail to impress many as the newest step in a plan of sweeping Asia-wide, and global, growth on the part of BlackRock.
Just this past Monday, news broke that BlackRock had made two high-level appointments to spearhead its expansion in China and Singapore.
Mandy Lui came aboard as head of Greater China Wealth, with a purview including Hong Kong and Taiwan as well as mainland China. Dennis Quag became head of Singapore Wealth. The appointments help consolidate a dominant global position, resting largely on an active presence in 36 countries and counting.
BlackRock joins forces with Jio Financial Services in a booming crypto market. Source: Statista
Is BlackRock Committed to Responsible Investing?
And, just last week, BlackRock announced that Saudi oil executive Amin Nasser was the newest addition to its board of directors.
As head of Saudi Aramco, Nasser wielded vast influence in an industry many credit with devastating much of the world’s natural environment.
Hence, numerous journals and websites offered up caustic commentary on his joining the board of a firm whose CEO, Larry Fink, supposedly champions socially conscious investing.
A headline in the journal Business Insider summarized the reactions of many: “BlackRock might not be ‘woke’ anymore after asset manager put an oil CEO on its board.”
The Business Insider story commented further:
“[BlackRock’s] decision to name Aramco CEO Amin Nasser to its board Monday provides further ammunition for those critics, signaling that the firm might not be as socially conscious as it says it is.”
This controversy, along with a recent history of scandals and legal troubles, may blunt whatever prestige BlackRock hopes to gain from the forging of its latest cross-border alliance.
And may also significantly complicate efforts to market its spot Bitcoin ETF if, as many expect, the asset manager gains approval from the SEC in coming weeks or months.
