An almost typical week in crypto. Banks collapse, banks won’t serve crypto companies, those banks that want to serve crypto companies are stopped from doing so, criminals move fast, and lots to run away screaming from. The founders of failed crypto fund 3AC (Three Arrows Capital), which just last year lost its investors $2.5 billion, are now trying to launch a new exchange to trade on crypto bankruptcy claims, many of which they were the kinda direct / indirect cause…. Do Kwon, the founder of the failed Terra ecosystem is caught using a fake passport after denying he was on the run. And, regulators are having their share of fun, starting with big crypto exchanges. The CFTC is suing Binance and its CEO CZ for basically being a crypto exchange.
CFTC sues Binance and CEO CZ Over ‘Willful Evasion’ of U.S. Laws, Unregistered Crypto Derivatives Products
The U.S. CFTC (Commodity Futures Trading Commission) has sued crypto exchange Binance and its founder CZ (Changpeng Zhao), alleging that the company knowingly offered unregistered crypto derivatives products in the U.S. in violation of federal law. What the CFTC basically claims, is that Binance, which isn’t meant to be allowing US citizens to trade securities on its platform, went out of its way to find and then advise US citizens on how to go about finding loopholes to do so. The loopholes in question included things like advising its use of VPNs to hide locations and setting up companies offshore to set up ‘new’ accounts with. CFTC Chief Counsel Gretchen Lowe referred to Binance’s actions as “willful evasion of U.S. law,” referring to internal chats and emails. The CFTC is charging Binance with various violations, including offering illegal off-exchange commodity options, failing to register as a futures commission merchant, and having inadequate anti-evasion and anti-money laundering programs. The lawsuit states, “Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform,” adding that “Zhao answers to no one but himself.” Binance’s actions are hardly unique for a crypto exchange. It’s just a big one. One can’t imagine it’ll be the only one they go after.
SEC issues Coinbase a Wells notice, a possible prelude to ‘enforcement action’, Coinbase stock drops, Coinbase fights back
The U.S. Securities and Exchange Commission (SEC) has sent a Wells notice to Coinbase, which tends to preceed enforcement action. SEC staff made a “preliminary determination” to recommend filing an enforcement action against the exchange for alleged violations of federal securities law. Coinbase CEO Brian Armstrong defended the company’s position, tweeting that Coinbase is “right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court.” Armstrong (heavily) criticized U.S. regulators for not agreeing on the rules of “this new game”, tweeting ‘ “Imagine you’ve got both football and soccer refs on the field, but we’re actually playing pickleball (fastest growing new sport in America). The refs can’t really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.”
Coinbase’s chief legal officer, Paul Grewal, claimed that the SEC provided “no clear rule book” on crypto regulations and that “efforts to engage with the SEC are met with silence or enforcement actions.” Many in the industry support Coinbase and consider the exchange to be fighting on behalf of the entire U.S. crypto industry, as the unclear regulatory environment pushes activity offshore. Coinbase’s shares dropped following the filing.
Founder of failed 3AC fund talks about their new crypto bankruptcy exchange
Three Arrows Capital (3AC) went tits up and lost a lot of people a lot of money. $2.5 billion of their clients’ money. Its founders are now trying to persuade the world that they will now launch a new crypto exchange trading on crypto victims’ bankruptcy claims…. The Open Exchange (OPNX) says it will enables users to trade the now common bankruptcy claims. The irony hasn’t been missed, given that 3AC added somewhat considerably to the number of bankruptcy claims. The 3AC now OPNX founders haven’t quite dealt with the regulatory side of their new hustle either… Founder Kyle Davies said OPNX has applied for a regulated stock exchange license in a currently undisclosed jurisdiction he described as “a legit jurisdiction”. Typically, anything in crypto described as ‘legit’ is codeword for run away screaming. Starting an exchange in this market isn’t risk free. A pair of founders who’ve already lost customers’ billions isn’t exactly risk free either. After 3AC collapsed and added to the contagion that brought down numerous other major crypto businesses, its founders, to avoid the fallout, traveled to Singapore, where Zhu sold his real estate and “Much Wow,” their $50 million superyacht was repossessed. Davies later resurfaced on CNBC, revealing he was living in Bali, a country without a U.S. extradition treaty, before going silent again. These are the guys now looking to trade on crypto bankruptcy claims…..
Luna Founder Do Kwon (Reportedly) Arrested In Montenegro with fake passport
Do Kwon, the fugitive bossman co-founder of failed crypto ecosystem Terra (LUNA), who had tried to maintain he wasn’t in hiding, has (reportedly) been arrested in Podgorica, Montenegro, after getting caught with a fake passport, despite repeatedly denying he was on the run. Oops. Do Kwon was reportedly detained at the airport for falsifying documents. This followed a manhunt by South Korean authorities and Interpol for his purported involvement in the collapse of the Terra ecosystem. Authorities pursued Kwon through Asia and Europe before his capture. Montenegro’s Minister of Interior, Filip Adzic, confirmed the arrest on Twitter, stating that the “former king of cryptocurrencies,” allegedly responsible for over $40 billion in losses, was detained with fake documents. Authorities are awaiting official confirmation of Kwon’s identity. He had refuted the charges against him and disavowed any involvement in a fraudulent scheme related to LUNA and the algorithmic stablecoin UST.
Federal Reserve Says Custodia Bank’s plans would endanger itself and the crypto industry
Crypto-friendly Custodia Bank’s membership application has been slammed by the US Federal Reserve Board, which details its “fundamental concerns” about the sustainability of a crypto-focused bank in an 86-page release. The Fed seems so anti the idea of a crypto-friendly bank (this, after the forced closure of Signature Bank), that “The Custodia order is 14 times longer than the next-longest Fed denial order in history, and 41 percent longer than the longest Fed order of any type, which speaks volumes about the messages the Fed intended to send to both banks and crypto companies in this order,” according to Custodia spokes-person Nathan Miller. The document criticised Custodia’s approach in every category assessed, noting significant deficiencies in the bank’s ability to manage risks and comply with money laundering laws. The Fed Board claim Custodia’s revenue model, which “relies almost solely upon the existence of an active and vibrant market for crypto-assets” makes it vulnerable to market volatility, despite admitting that “Custodia appears to have sufficient capital and resources to sustain initial operations.” The rejection has added to suspicion of a coordinated effort by U.S. regulators to cut crypto off from the wider banking system. Custodia, formerly known as Avanti Bank, has accused the Fed’s report of being “the result of numerous procedural abnormalities, factual inaccuracies that the Fed refused to correct, and general bias against digital assets.” It plans to turn to the courts to vindicate its rights and compel the Fed to comply with the law. The bank states “Rather than choosing to work with a bank utilizing a low-risk, fully-reserved business model, the Fed instead demonstrated its shortsightedness and inability to adapt to changing markets”. The bank has a point. If accepted as a member of the Fed system, Custodia Bank would be further forbidden to run crypto-related services “given the speculative and volatile nature of the crypto-asset ecosystem” that is not consistent with the purposes of the Federal Reserve Act.“ The report states: “Further, if the Board were to approve Custodia’s membership application, it would prohibit Custodia from engaging in a number of the novel and unprecedented activities it proposes to conduct —at least until such time as the activities conducted as principal are permissible for national banks […].“
Switzerland-based Sygnum bank sees increased crypto firm inquiries after US banking giants collapse
Zurich-based digital asset bank Sygnum is getting a surge in inquiries from crypto companies in need of a new banking partner. US crypto firms are scrambling to find new banking partners following the collapses of crypto-friendly Signature Bank, Silvergate Capital, and Silicon Valley Bank. Sygnum CMO Dominic Castley noted a significant increase in onboarding inquiries from international locations, including the UAE and the Middle East. Investors, asset managers, and blockchain projects wanting to diversify their crypto investments are reaching out. Sygnum says its ramping up its client service support and compliance teams. But, despite US crypto firms in need of a bank, Sygnum is maintaining its policy not to take on US clients…
Turmoil on UK Crypto Market Over Debanking Risk
UK crypto companies are also struggling to find banking services. Many banks are distancing themselves from the industry and are hesitant to provide banking services to crypto companies. Starling Bank has stopped supporting crypto buying and selling altogether. This trend began a few years ago, with banks imposing limits on transfers to crypto exchanges due to concerns about market volatility and fraud. NatWest imposed a limit on customer transfers to crypto exchanges of £1,000 a day and £5,000 a month, while HSBC and Nationwide also announced limitations on crypto purchases and interactions with exchanges to protect consumers (and, notably, themselves) from risks.
CryptoUK calls on FCA to oppose banks banning transfers to crypto exchanges
CryptoUK, a self-regulatory organisation for the UK cryptoasset industry, has called on UK financial regulators to oppose blanket bans on bank transfers to crypto platforms. In a letter to the UK’s Financial Conduct Authority (FCA) and Payment Systems Regulator, director of operations Su Carpenter stated that banks limiting transactions to crypto platforms are “anti-competitive and disproportionate.” Instead of blanket bans, Carpenter advocates for a risk-based, case-by-case approach with compliance, transaction monitoring, and due diligence. She emphasised that many crypto exchanges have anti-money laundering registrations, electronic money institution (EMI), or MiFID licenses, and invest significantly in compliance and consumer protection. CryptoUK seeks to work constructively with the banking sector, proposing a “whitelist” of platforms or new regulation, such as payment services Regulation 105, which obliges credit institutions to provide access to payment services providers.
Rise of SVB-Driven Fraud Shows How Fast Criminals Move
The recent collapses of SVB and Signature Bank have been good for cybercriminals, giving them a perfect opportunity to exploit businesses amid urgency and worry about their next moves. “The phishing has been through the roof” says David Tabachnick, CFO of HungerRush. “So many people are calling our AP (accounts payable) department saying, ‘Here is my new account number, [transfer funds now].’” Cybercriminals are capitalising on the confusion caused by the numerous banks collapsing, or being forced to collapse, and the need for businesses to move their operational accounts, employing the usual but clever fear-driven tactics.
Bulgarian Woman Charged in $4B Crypto Fraud OneCoin, Extradited to U.S.
A Bulgarian woman involved in the multibillion dollar Ponzi scheme OneCoin, and supposedly one of its co-founders, has been extradited to the U.S. to face charges of conspiracy to commit wire fraud and money laundering. As OneCoin’s “supposed head of legal and compliance,” Irina Dilkinska “accomplished the exact opposite of her job title and allegedly enabled OneCoin to launder millions of dollars of illegal proceeds through shell companies” according to U.S. Attorney Damien Williams. She faces up to 40 years in prison. OneCoin’s victims were defrauded of at least $4 billion since 2014. Its co-founder ‘crypto queen’ Ruja Ignatova, hasn’t been seen since October 2017 and was added to the FBI’s Top Ten Most Wanted list in 2022, although is presumed by many to have been got rid of. Co-founder Karl Greenwood pleaded guilty to federal U.S. charges of wire fraud and money laundering in December.
Bitcoin From Defunct BTC-e on the Move Again
A long-dormant bitcoin stash from the defunct Russian BTC-e crypto exchange (which some would claim was primarily used for money laundering) has been moving for the past two weeks. In November 2022, the wallet received 3,299 bitcoin in its first transaction since 2017. On March 14, one of the receiving wallets started moving funds again, sending small amounts to exchanges and OTC trading desks, presumably to cash out bitcoin. Blockchain analytics firm Crystal Blockchain confirmed that parts of those 3,299 bitcoin have been sent to exchanges KuCoin and MEXC, as well as an OTC desk named BTC2pm. On-chain data shows that 2.75 BTC landed on KuCoin in two transactions via intermediary wallets, and 1 BTC went to MEXC.
Crypto Exchange Ziglu Courting Buyers After Robinhood Deal Collapses
Uk based crypto platform Ziglu is seeking new buyers following he collapse of its acquisition deal with Robinhood. Robinhood had initially agreed to buy Ziglu for $170million, before dropping the offer to $72.5 million, before it was dropped, reportedly after not gaining FCA approval for the purchase. Ziglu is currently looking to raise around 2 million British pounds ($2.5 million) at a valuation of $12.3 million to help to keep operating until it reaches a deal.
Venezuela shuts down crypto mining facilities, exchanges amid corruption probe
Venezuela’s energy supplier has shut down crypto mining facilities across the country. Some crypto exchanges have also been ordered to cease operations. The closures are believed to be part of an ongoing investigation into corruption within national state oil company PDVSA and a reorganisation of the national crypto department. Venezuela’s Attorney General Tarek William Saab disclosed that government officials were allegedly running parallel oil operations with the assistance of the national crypto department. “This network used a conglomerate of commercial companies to legitimize the capital obtained from sales through the acquisition of crypto-assets, personal and real estate” he noted on Twitter. According to Saab, at least 10 people have been arrested in connection with the investigations, including Joselit Ramirez Camacho, who led the crypto department since its inception in 2018 overseeing crypto tax rules and the country’s supposedly oil-backed cryptocurrency Petro.
Crypto scammers aren’t stopping any time soon. Two examples, out of thousands
A 60-year-old woman in Mumbai, India, was scammed out of $29,243 on a matrimonial website by a scammer who claimed to be a US-based engineer. They had known each other, albeit virtually, since 2022. The fraudster lured the victim with the promise of huge returns in a crypto company. She invested the money, but was asked for an additional $14,620 for income tax and conversion fees when she tried to withdraw. In a similar incident, a 49-year-old Mumbai woman lost $12,183 to a work-from-home Bitcoin scam. Some lessons: if anyone on a matrimonial, dating, or any other matchmaking site or basically any other site asks you to send crypto or tries to get you to invest in anything crypto related, ignore anything they say about it being for your own good and run away screaming (after blocking them). And if anyone offers a work from home too good to be true opportunity that pays in crypto, 9 times out of 10, also run away screaming.
Hard Times For SpankPay: Sex Worker-Led Crypto Payment Platform Forced To Close
Crypto sex payment platform SpankPay has shut down following the end of its partnership with payment infrastructure company Wyre. SpankPay claimed on Twitter that payment infrastructure company Wyre walked out of the partnership, and their payment processor, Checkout .com, won’t work with the adult business industry. SpankPay is part of the SpankChain ecosystem, a suite of blockchain-based solutions for sex workers. The team behind it said: “Rest assured your money is safe and we’ll get it to you as soon as possible.” For many in the adult entertainment industry, crypto is the only way to get paid.
Animoca Brands cuts metaverse fund target to $800M
Hong Kong-based blockchain gaming technology developer Animoca Brands has reportedly cut its target for its metaverse fund by a further 20% to $800 million due to market volatility. The company had Initially aiming for a $2 billion fund in November 2022, halving that target to $1 billion in January 2023 before the recent reduction. Sources revealed that Animoca’s market capitalization has fallen from around $6 billion to below $2 billion, with shares trading at lower valuations in secondary markets. This decline indicates a shift in sentiment towards the crypto and digital assets industry. Despite these challenges, Animoca, which holds a majority stake in the leading metaverse platform, The Sandbox, was named the most funded metaverse developer in 2022, closing 15 deals and receiving over $564 million in funding.