Sweet home Alabama — Virgil Griffith free on $1M bail to live with parents

Screen Shot 2019-12-30 at 3.35.28 PMLast week, after a denial of bail, it looked like Virgil Griffith, the Ethereum Foundation developer who was arrested on Thanksgiving Day for allegedly violating sanctions and traveling to North Korea, was doomed to be spending months behind bars awaiting trial.

Now things are looking up. In an appeal of Thursday’s order, a Southern District of New York judge today granted his release pending $1 million bail. He won’t be headed back to Singapore where he lives, though. Instead, he’ll be going to Alabama — or “Sweet Home Alabama,” to borrow from rock band Lynyrd Skynyrd — to stay with his parents for a year, or however long it takes, to sort out the massive mess he’s gotten himself into. 

“We are very pleased the district judge sided with us and ordered Virgil to be released pending trial, Griffith’s lawyer, Brian Klein of Baker Marquart LLP, told me via email. Klein did not comment on how long it would take Griffith to be released from custody. 

Griffith’s sister and parents are putting up their homes to secure the bail, according to a  report by Matthew Russell Lee of Inner City Press — who said in a live tweet thread that he was the only reporter attending Griffith’s hearing today. 

Along with Klein, Griffith’s father sat in the courtroom today, watching the fate of his son unfold. The presiding judge was Vernon Broderick. 

Only four days earlier, in a separate hearing, also reported by Inner City Press, a different judge, Barbara Moses, denied Griffith’s bail. In making the decision, she cited Griffith’s text messages to his parents about renouncing his U.S. citizenship and setting up a money laundering business in North Korea.  

“Laws in this country are not suggestions… Assisting foreign governments with money laundering is illegal,” Broderick told Griffith in court today, according to Lee’s tweets. 

“If you were in North Korea, you wouldn’t be having a bond hearing,” he added. 

Klein pointed out that Griffith is not charged with money laundering, but sanctions violations. Virgil is “verbose and provocative,” he told the judge, according to Lee.

Assistant U.S. Attorney Andrew Krause argued that the prospect of jail time could make Griffith want to flee and that he might have assets out of the country. He pointed out that Griffith had been making plans to renounce citizenship, according to Lee.

Although Griffith had considered renouncing U.S. citizenship, he didn’t do it, Klein said.

In the end, Broderick agreed to the bail. He also ruled that Griffith will be allowed to e-mail with his lawyers, and even use his passport card for travel, once he gets himself an Alabama state identification, according to Inner City Press.

 

News: Ex-employee sues Kraken, Reggie Fowler to change not-guilty plea, Circle sheds another crypto business

It’s the first night of Hanukkah and a few days before Christmas. A lot of folks are off work for the rest of the year, and those still working are barely working. But the news never sleeps, so here’s a roundup of important crypto news from last week. 

kRAKENOn top of the list — an ex-employee is suing Kraken, a prominent U.S. crypto exchange. (Here’s the complaint.) The ex-employee claims the firm fired him for bringing to light illegal business practices. Among his accusations: Kraken used employee addresses to falsify business records and did business with entities on the Office of Foreign Assets Control list of Specially Designated Nationals and Blocked Persons — a big no-no.

David Gerard, who broke the story on Tuesday, summarizes the important details in a blog post. The story has now made it into the mainstream press and could screw up the exchange’s plans to launch a “cryptobank” in Wyoming.

Next up, Reginald Fowler, the ex-NFL owner accused of operating a “shadow bank” that processed hundreds of millions of dollars of unregulated transactions on behalf of crypto exchanges, plans to change his not guilty plea. In a hearing set for Jan. 10, he is expected to plead guilty to at least one of the charges. 

As an aside, previously, I’d heard that the two wealthy friends who put up a substantial portion of Fowler’s $5 million bail in May — back when he entered a plea of not guilty — were Lori Fowler, his ex-wife, and Molly Stark, the club director of Spiral Volleyball, a company he owned. Indeed, here are the court docs with both their signatures on it.

In other news, Coinfloor, the oldest running crypto exchange in London, announced on Tuesday plans to delist ethereum and bitcoin cash. As of Jan. 3, it will only focus on bitcoin. The move comes ahead of the Ethereum 2.0 launch. Being a small exchange, the hassle of dealing with forks was apparently too much for the business to deal with. 

Circle is shedding another crypto business. The Boston firm announced Tuesday that it sold Coin Trade, its over-the-counter crypto trading desk, to Kraken. The move comes after it sold off its crypto exchange Poloniex and co-CEO Sean Neville stepped down. In 2020, Circle plans to focus mainly on stablecoins, or more specifically, its own USD Coin. Leo Jakobson does a nice job covering the story for Modern Consensus.  

The European Central Bank is exploring the use of an “anonymity voucher” to give prospective central bank digital currency users privacy in their retail transactions. Of course! What better way to make it screamingly obvious that you are hiding something than to flag it with an anonymity voucher. I can’t see this being very effective.

Several lawmakers sent a letter to the IRS on Friday asking for clarity on crypto tax laws. Apparently, guidance the IRS issued in October on the handling of forks and airdrops brought up more questions than answers. (Story in CoinDesk.)

Grayscale conducted an incredibly sexist study on women bitcoin investors, which CoinDesk wrote up. According to the study, 93% of women would be more open to buying bitcoin if we only had more educational resources available to us. The big question is, why did Grayscale even conduct a silly study like this? 

FT’s Jemima Kelly has an answer. As she so cleverly points out “… this is of course not about what women want. It’s about what crypto men want, and they want more people to buy into crypto so that their own HODLings can grow more valuable.”  

Finally, Michael Patrick McSweeney, who many of us have long known as Stan Higgins — a pen name he began using when he started working for CoinDesk in 2014 — has landed a new gig as managing editor at The Block. McSweeney left CoinDesk on Oct. 31.  

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News: Quadriga creditors want Cotten’s body exhumed, NYAG/iFinex standoff continues, Bottle Pay shutting down 

I’ve fallen behind on crypto news, mainly because I’ve had this job writing about cash and ATMs for the last seven months. But now I’m trying to get back into it, so here’s a rundown on the news of the week that stuck out. 

Coffin Open

On top of the list, lawyers for QuadrigaCX creditors want to exhume Gerald Cotten’s body. They’ve dashed off a letter to the Royal Canadian Mounted Police seeking a post-mortem autopsy of the body as well “to confirm both its identity and the cause of death.” That sounds horribly gruesome, particularly since, he was buried a year ago. 

He was apparently not cremated. After his death in India on Dec. 9, 2018, his body was embalmed, flown to Canada and buried. No formal autopsy was done, however, so foul play has not been ruled out. Lawyers would like the body pulled from the ground before spring for obvious reasons.

Cotten’s widow said she was “heartbroken to learn of this request.”  

(Read my Quadriga timeline to get up to speed on the details of the now defunct Canadian crypto exchange.)

In other news, the legal standoff between the New York Attorney General’s Office and iFinex, the parent company of Tether and Bitfinex, continues.

In late 2018, the NYAG demanded iFinex hand over documents related to an ongoing investigation of its activities, and iFinex has been trying to avoid doing so ever since.

In August, the court ruled iFinex needed to cooperate. iFinex appealed, and recently, the NYAG filed its lengthy response. The response contains a lot of what we already know, but it’s a good refresher if you want to catch up on the entire saga. You can also read Tether’s response to the NYAG’s response filed on Friday. 

You recall Cryptopia, the New Zealand crypto exchange that collapsed after a $16 million hack in January? Liquidator Grant Thornton released a second report on Wednesday detailing its progress in recovering the funds. So far, it’s recovered NZ$10.9 million ($7.2 million) but reconciling the over 900,000 active customers on the exchange at the time it went belly up in May is proving a gargantuan task. Likely creditors won’t recoup any of their money anytime soon, and let’s not even talk about the legal fees.

In a podcast interview with Eric Weinstein, managing director at Thiel Capital, published Wednesday, Vitalik Buterin casually mentioned how he managed to convince the Ethereum Foundation to sell 70,000 ETH when the coin peaked in late 2017, resulting in $100 million liquidity. ETH would have been valued at around $1,400 at the time — 10x what it’s worth today. It’s good to know the Ethereum Foundation isn’t starving. 

Canadian bitcoin ATM operator Instacoin announced it’s adding support for seven stablecoins  —  including tether. You can buy and sell up to C$10,000 worth of crypto in a day on these street corner exchanges without having to present any form of identification. Can you imagine if Western Union operated in this fashion?

On Tuesday, U.S. prosecutors arrested four men men for allegedly running a $722 million crypto ponzi scheme. From April 2014 through December 2019, BitClub Network solicited money from investors all over the world in exchange for shares of crypto mining pools. In private conversations, the operators called their clients  “dumb” and “sheep” and “idiots.” What do you call people who get caught running these types of scams? 

Shopin founder Eran Eyal pled guilty Thursday to defrauding investors of millions of dollars through three investment schemes, including a $42.5 million ICO. After conducting an unregistered securities offering by selling Shopin tokens in 2017, he never created a functional platform. (Here’s the PR and complaint.)

In a tweet, crypto lawyer Stephen Palley said: “The SEC’s ICO enforcement work has quickly become indistinguishable from other types of enforcement litigation. Crypto’s novelty receives no special treatment. Like any other securities offering — you have to register, you can’t make misstatements, and you can’t misuse funds.”

Singapore-based VeChain Foundation’s buyback wallet was hacked on Friday. According to a report in CoinDesk, VeChain said it is working with cybersecurity firm Hacken to track the movement of VET tokens should the criminals try to cash out. The hacked funds represent a little over 1% outstanding VET, which has a fixed supply of 86.7 billion. VeChain is calling the mistake “human error,” because we’re all only human.

Bottle Pay, a service that once allowed users to send tiny amounts of bitcoin via social media, is shutting down due to new AML regulations in the E.U.  The Fifth Anti-Money Laundering Directive goes into effect in January and expands existing legislation to include the crypto space imposing strict KYC and AML practices. Users have until the end of the month to withdraw their funds. 

Lawrence Lewitinn, former editor-in-chief of Modern Consensus, is now managing editor of markets for CoinDesk. He wrote his first piece about Bitmain’s Texas Hedge. A Texas hedge is a high reward, high risk venture that’s generally a recipe for disaster. Lewitinn does a good job explaining. 

In an article written for The Block, Palley claims that Bitcoin-linked investment scheme known as HEX is not a ponzi, but it’s obviously an unregistered security offering.  

@Cryptodeleted and @Cryptodeleted2 — the twitter accounts that archived deleted tweets — were shut down by Bitcoin maximalists. 

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DOJ arrests Ethereum Foundation coder for teaching North Korea how to launder money, evade sanctions

Virgil MediumWhen you openly defy the U.S. government and travel to North Korea — one of the U.S.’s foremost enemies — to teach crypto and blockchain tech at a conference, you can’t really expect things to go well. I mean, can you?

It’s hard to know then, if Virgil Griffith, head of special projects for the Ethereum Foundation, knew what was about to happen or if he was completely caught off guard on Thanksgiving Day — a day when everyone else in the U.S. was stuffing themselves with turkey, mashed potatoes and gravy — when the DOJ arrested him at LAX.

According to a statement by the U.S. Attorney’s Office for the Southern District of New York, he is charged with violating the International Emergency Economic Powers Act, which prohibits U.S. citizens from exporting goods, services or technology to North Korea without approval from the Treasury Department. The maximum sentence is 20 years.

In April, Griffith traveled to North Korea — or more formally, the Democratic People’s Republic of Korea — to allegedly deliver a presentation and technical advice on using crypto and blockchain tech to evade sanctions at the Pyongyang Blockchain and Cryptocurrency Conference.

That’s a big no-no. In September 2017, the U.S. issued a travel ban to North Korea. U.S. citizens are not allowed to go there without a special validation.

According to the unsealed complaint, Griffith knew full well that it was illegal to travel to the DPRK. He sought permission from the Department of State and his request was denied. Still — and this is the mind boggling bit — he went anyway.

In his presentation at the conference titled “Blockchain and Peace,” Griffith allegedly discussed how a blockchain and a smart contract could be used to benefit the DPRK.

The complaint states:

“At the DPRK Cryptocurrency Conference, GRIFFITH and other attendees discussed how blockchain and cryptocurrency technology could be used by the DPRK to launder money and evade sanctions, and how the DPRK could use these technologies to achieve independence from the global banking system.”

In an interview that took place with the FBI in November, Griffith said the presentation amounted to a “non-zero transfer of technical knowledge” and that the information included “basic concepts accessible on the Internet,” the complaint said. So did he actually “export” any new information to the DPRK? I’m not so sure.

Griffith’s flouting of U.S. laws did not stop there, however. He also allegedly communicated about violating sanctions with a financial transaction.

“After the DPRK Cryptocurrency Conference, GRIFFITH began formulating plans to facilitate the exchange of cryptocurrency between the DPRK and South Korea, despite knowing that assisting with such an exchange would violate sanctions against the DPRK.”

Griffith is presumed innocent until proven guilty. Still, he is in deep water and will need a really good lawyer to dig him out of this mess.

Who is Virgil Griffith?

Labeled an “internet man of mystery” by The New York Times in November 2008, Griffith, 36, has a doctorate from the California Institute of Technology in computations and neural systems and a B.A. in computer and cognitive science from the University of Alabama. He is a U.S. citizen who lives in Singapore.

He is also the founder of a data-mining tool called WikiScanner, which makes it possible to figure out which organization made which edits to a Wikipedia entry by cross-referencing IP addresses with a database of IP address owners.

The NY Times article described him as a “troublemaker” and a “twerp” and said Griffith’s problems with authority emerged early on. He spent several school days in detention. Also, according to the article:

“In his public school, he worried about gangs; his mother pulled him out and briefly homeschooled him. Eventually, he graduated from the Alabama School of Math and Science, even though he once threatened to sue the school — for a proposed policy of mandatory drug testing — and skipped his final exams to travel in Greece.”

Griffith joined the Ethereum Foundation in 2015. In an interview, he told developer Makoto Inoue that met Ethereum Founder Vitalik Buterin pre-Ethereum, which would likely have been sometime in 2014, after Buterin dropped out of the University of Waterloo and started traveling the world to learn more about crypto.

“While I was a graduate student Vitalik slept in my closet for about two months,” Griffith told the interviewer. 

‘But danger is my fetish’

What could Griffith have possibly been thinking to do something so incredibly stupid? He once tweeted, “But danger is my fetish,” so maybe that was the thrill.

For many, Griffith’s actions are a flashback to Ross Ulbricht, the creator of the Silk Road, now serving a life sentence for drug trafficking and money laundering. On Thanksgivings, Ross’ mother puts a plate piled high with food in front of an empty chair at the table. One can’t help wonder if Griffith’s family faces a similar future.

Like Ulbricht, Griffith’s actions appear that of a narcissist thinking he was too special, too clever to get caught. So confident was he that he openly flaunted his trip to North Korea. For instance, on Aug. 13, he literally tweeted a picture of his visa to go there. In another tweet, he referred to the journey as a “Trip of a lifetime.”

I recommend reading Ben Munster’s September story in Decrypt on the upcoming 2020 “Pyongyang Blockchain and Cryptocurrency Conference.” In it, Munster describes the government-sponsored event as offering an “exclusive environment of confidentiality and contacts with the highest government officials and engineers.”

Munster spoke with an attendee of the 2019 conference, who told him that “the main things (the North Koreans) were interested in were using Bitcoin to get around sanctions, and using Ethereum for U.N.-less courts.”  The source went on to describe how North Korea has trouble enforcing agreements outside of its own borders:

“‘Generally they load up Chinese people with millions of dollars in cash [and send them across the border], but half the time, these people just disappear with the money. There’s not much they can do about it.’ As such, North Koreans ‘desperately want a way to have agreements that work outside their own borders,’ he explained. ‘I told them about smart contracts. They were very excited about that.’”

The cryptosphere reacts

A few of the folks in cryptoland appear to be downplaying the seriousness of Griffith’s behavior — some calling the government’s case “misdirected” and portraying Griffith as a sweet guy with the best of intentions.

“Hoping that this concludes quickly, and teaches a valuable lesson to all, but with a minimum of wasted time and effort for Virgil, who is a valuable technical contributor,” tweeted Emin Gün Sirer, a Cornell professor working on his own blockchain protocol.

Crypto lawyer Stephen Palley retorted: “I mean, it’s the Southern District of New York — they are not really in the teaching lessons business.”

One Ethereum developer wondered aloud on twitter if Griffith was trying to teach North Korean citizens with the hope he was “setting them free” from the regime — a humanitarian mission, if you will.

As for the Ethereum Foundation, it issued a formal statement to Vice, saying it was not represented in any capacity at the events outlined in the Justice Department’s filing, and it “neither approved nor supported any such travel, which was a personal matter.”

News: Bitmarket CEO turns up dead, Bitfinex to NYAG: ‘Yeah but no but,’ more weirdness from Tron

human-figure-outline-imprinted-on-grass-picture-id177395889It’s no fun when the money’s all gone. Two weeks after Polish crypto exchange Bitmarket shut down due to “lack of liquidity,” the lifeless body of its CEO, Tobiasz Niemir, turned up in the woods. It’s not clear if he fell in with shady characters or he put that bullet in his head all by himself.  

Here is an interview with Niemer done shortly before his death.

You remember BTC-e, the crypto exchange that was shut down in mid-2017? The U.S. is now suing the exchange and its operator Alexander Vinnik to recover penalties of $100 million imposed by FinCEN for allegedly violating the Bank Secrecy Act. Vinnik, a Russian national, is facing extradition requests from both the U.S. and Russia. (Here are the court docs.) 

Binance has been shilling its centralized BNB token. The crypto exchange regularly burns (destroys) large numbers of the token to increase the value of whatever is left. The BNB burn is “meaningless nonsense to fool suckers,” writes David Gerard. “Anyone taking Binance posts about BNB seriously as any sort of trading signal is dumb enough to trade literally any shitcoin they see, and probably deserves to.”

The hearing for Reggie Fowler, the AAF investor tied to Bitfinex’s missing $850 million, has been moved to December. (Here are the court docs.) Also, recall that he was released on $5 million bail secured by several pieces of cheap real estate and two financially responsible people. Who were his wealthy friends? A source tells me it was his ex-wife Lori Fowler and Molly Stark, the director of Spiral Volleyball, a company he owned. It pays to stay on good terms with your exes.

(Update Dec. 22: Lori Fowler and Molly Stark signed the court documents for his release.)

Bitfinex and Tether filed court docs arguing once again that they are not doing any business in New York and tether is not a security. (Here is Bitfinex counsel Stuart Hoegner’s affidavit and an accompanying memorandum of law submitted by the company’s outside counsel). It all boils down to “yeah, but, no, but yeah.” We’ll hear from the judge on Monday, July 29 as to what he thinks. 

Big whoops: Swedish crypto exchange Quickbit says it has leaked the data of 300,000 customers. According to the exchange, a third-party contractor left the data unprotected while upgrading on the exchange’s servers. 

Elsewere in cryptoland 

After bidding an astounding $4.5 million in a charity auction for the privilege to have lunch with billionaire Warren Buffet, Tron CEO Justin Sun cancelled last minute, claiming a bad case of kidney stones. But come to find out Sun’s been on the lam from China since November 2018. He is living in San Francisco now, which was where the lunch was supposed to have taken place. 

Sun was, however, feeling well enough to attend the Tron after-party on July 25, even though nothing actually happened before the party, since lunch was cancelled.

According to Chia founder Bram Cohen, Sun also forgot to make a scheduled payment as part of Tron’s mid-2018 acquisition of file sharing service BitTorrent. Someone needs to explain to Bram that kidney stones can take a lot out of a person.

In other news, the IRS is sending out scary letters to bitcoin holders, reminding them that they need to report any gains in crypto trading and pay their taxes. “Taxpayers should take these letters very seriously, IRS Commissioner Chuck Rettig said. 

How did the IRS get all this info? Previously, a court ordered Coinbase to hand over the personal identifying information of customers who had transactions of $20,000 or more on the exchange between 2013 to 2015.

An MIT fellow thinks the structure of Facebook’s Libra was lifted verbatim from a paper that he and two other scholars published last year. What say you, Facebook? Are you stealing people’s ideas? It’s not like you’ve done anything like that in the past.

On the subject of Libra, one of the big selling points of the project was that it had 27 partners backing the project. But the CEO of Visa reminds us, no companies have officially joined yet. They’ve only signed non-binding letters of intent. 

Telegram is under the gun. The popular messaging service has sold $1.7 billion worth of its Gram tokens to investors. Now it needs to build a Gram wallet into Messenger by October or give all the money back — and we’re sure it doesn’t want to do that.  

Finally, Sergey Ivancheglo (aka “Come from Beyond”), the founder of IOTA and one of the project’s core developers, quit the IOTA Foundation. The two remaining directors are non-developers, but we’re sure they’ll handle everything just fine on their own. Nice bunch of people, really. 

 

News: Former Wex CEO arrested, CFTC probes BitMEX, Facebook’s Libra grilled in Washington

Since I’m now the editor of an ATM website, let’s start with bitcoin ATM news. LibertyX is adding 90 machines to its bitcoin ATM network. It now has over 1,000 machines.

Actually, these are not new machines. They are traditional cash ATMs that are bitcoin enabled. A software upgrade on the machines allows users to buy bitcoin with a debit card. The ATMs continue to dispense cash as well. 

According to CoinATM Radar, there are now 5,200 bitcoin ATM machines on this earth. Who the heck is using them? At least one operator, frustrated by a lack of business, has moved his Bitcoin ATM into his mother’s garage. 

In the exchange world —

Criminal in handcuffsDmitri Vasilev, the ex CEO of defunct crypto trading platform Wex, was arrested in Italy. Wex was a rebrand of BTC-e, an exchange that was shut down in 2017 for being a hub of criminal activity. BTC-e was also linked to the stolen bitcoin from Mt. Gox.  

Economist Nouriel Roubini — aka “Dr. Doom” — has stepped up his attack on crypto derivatives exchange BitMEX. In a scathing column in Project Syndicate, Roubini claims sources told him the exchange is being used daily for “money laundering on a massive scale by terrorists and other criminals from Russia, Iran, and elsewhere.” 

Days after Roubini’s column came out, Bloomberg reported that the CFTC was investigating whether BitMEX allowed Americans to trade on the platform. In fact, we know that crypto analyst Tone Vays, a New York resident, was trading on the platform until November 2018 when his account was terminated.

Regulators are cracking down on crypto exchanges. As The Block’s Larry Cermak points out, the situation is getting “quite serious.”

Elsewhere, Bitpoint, the Tokyo-based crypto exchange that was recently hacked, says it will fully refund victims in crypto, not cash. Roughly 50,000 users were impacted when $28 million worth of crypto vanished off the exchange. Two-thirds of the stolen funds belonged to customers of the exchange. 

U.S. crypto exchange Coinbase has killed off its loss-making crypto investment packages. After shutting down its crypto index fund due to a lack of interest, it closed its much ridiculed “Coinbase Bundle.” The product launched eight months ago with the aim of making it easy to purchase a market-weighted basket of cryptocurrencies. 

Malta-based Binance found itself $775,000 richer when it stumbled across nearly 10 million Stellar lumens (XLM). Turns out, the exchange had been accidentally staking (receiving dividends) on its customers lumens for almost a year. It’s planning to give the tokens away in an airdrop and will also add staking support for customers.  

Tether, the stablecoin issued by Bitfinex/Tether, is now running on Algorand, a new blockchain protocol. It’s also running on Omni, Ethereum, Tron and EOS. Presumably, running on a plethora of networks makes tether that much harder to shut down. It’s sort of like whack-a-mole. Try to take it off one network, and tether reappears on another. 

There are now officially more than $4 billion worth of tether sloshing around in the crypto markets. That number almost doubled when Tether inadvertently issued $5 billion unbacked tethers when it was helping Boston-based crypto exchange Poloniex transfer tethers from Omni to Tron. Oops.

Also interesting —

David Gerard is working on a book about the world’s worst initial coin offerings. He recently uncovered another cringe-worthy project. “Synthestech was an ICO to fund research into transmutation of elements, using cold fusion — turning copper into platinum. Literally, an ICO for alchemy. Turning your gold into their gold.” 

Facebook’s Libra had a busy week.

U.S. Secretary of Treasury Steven Mnuchin gave a press briefing on crypto at the White House. (Here’s the transcript.) He is concerned about the speculative nature of bitcoin. He’s also seriously worried Libra will be used for money laundering. He said the project has a long, long way to go, before he feels comfortable with it. 

Unlike bitcoin, which goes wildly up and down in price, Libra would have a stable value, because it would be pegged to a basket of major currencies, like the dollar, euro, and yen. Although, nobody is quite sure how that will work and what currencies it will be pegged to. Tether has a stable value, too, of course.

After his talk, Mnuchin flew off to Paris, where he met with finance ministers from six other powerful countries at the G7 summit. Everyone there agreed they need to push for the highest standards of regulation on Libra. 

Meanwhile, David Marcus, the head of the Libra project, got a grilling in Congress over privacy and trust issues. (You can watch the Senate hearing here and the House Financial Services Committee hearing here.) Nobody believes Facebook will keep its word on anything.

All of this is happening, of course, just after the social media giant got a $5 billion slap on the wrist for privacy violations following the Cambridge Analytica scandal.

The dumb tweet of the week award goes to Anthony Pompliano, co-founder of a digital asset fund Morgan Creek Digital, who says dollars aren’t moved digitally, they are moved electronically. For some reason, he has 250,000 followers on Twitter. The historic tweet even made it in FT Alphaville.

Apple co-founder Steve Wozniak has joined an energy-focused blockchain startup in Malta. The Mediterranean island nation is gung-ho about blockchain. It is also a haven for money laundering and the place where a female journalist who tried to expose government corruption was blown up in 2017. 

U.S authorities have charged former Silk Road narcotics vendor Hugh Brian Haney with money laundering. The darknet market was shut down in 2013. Special agents used blockchain analytics to track down Haney and seize $19 million worth of bitcoin. 

This clever young man has made a business out of helping crypto exchanges inflate their volume. 

ConsenSys founder Joseph Lubin is being sued by a former employee for $13 million. The employer is alleging fraud, breach of contract and unpaid profits.

Former bitcoin core developer Peter Todd is being sued for allegedly touching people inappropriately.

And finally, bitcoin ransomware Ryuk is steadily making its way into China.  

 

 

News: NYAG calls Bitfinex out, Bitfunder founder off to jail, Roubini pissed at Bitmex

A few people asked me where I’ve been lately. I’ve been working! I recently started a full time job. I’m the editor of a website about ATM machines. I recently wrote Spanish authorities: bitcoin ATMs expose hole in AML laws” and Bitcoin ATMs: Why Vancouver doesn’t want them.” (By the way, if you are curious how criminals use bitcoin ATMs to clean money, this moneylaunder.com article does a nice job of explaining the process.) 

I also write a newsletter on money. You should sign up for it

On to the news — 

Much ado about exchanges

Crypto exchange Bitfinex is doing a lot more business in New York than it’s led us all to believe. The NYAG’s recent court filings — a Memorandum of Law and an affirmation from assistant Attorney General Brian Whitehurst, along with 28 pieces of evidence — reveal a full picture of the company’s dealings in the state.  

Why does it matter? Because his means NYAG has jurisdiction to push ahead with its investigation into Bitfinex and Tether’s ongoing shenanigans. Decrypt’s Ben Munster also points out that Bitfinex “loaned tethers to a New York trading firm.” There’s an open question as to whether the funds were ever paid back.  

Also, Bennet Tomlin had a good thread on the NYAG’s filing.

By the way, there are now nearly $3.9 billion tether sloshing around in the markets, pushing up the price of bitcoin, which briefly crested $13,000 on July 10. 

I nearly missed this bit of news from a few weeks ago: Ireland-based cryptocurrency exchange Bitsane went poof!, leaving its 246,000 users high and dry. Users began having issues withdrawing crypto from the exchange in May. And on June 17, the exchange’s website along with its twitter and facebook accounts vanished.  

Bitmarket, the second largest Polish crypto exchange, has shut down citing a loss of liquidity. Approximately 1,300 bitcoin are stuck on the exchange, and users are rightfully pissed off. They have formed a Facebook group and are planning a class-action lawsuit. The exchange was acting goofy before the shutdown. Reddit user u/OdoBanks says users were asked to change passwords and provide additional KYC for withdrawals.

Founder of bitcoin stock exchange Bitfunder will be spending 14 months behind bars for lying to the SEC about a hack that cost clients 6,000 BTC. Instead of telling his customers the truth in 2013, operator Jon Montroll misappropriated funds to hide the losses.  

Cryptocurrency exchange hacks don’t happen too often — only once every few weeks. Japan’s Bitpoint is the latest to make headlines. The exchange’s hot wallets were hacked to the tune of $32 million worth of crypto, most of which were customer funds. On Monday, the exchange found another $2.3 million missing on exchanges “that use the trading system provided by Bitpoint Japan,” according to Japan Today

(Update, July 15, 11:30 a.m. EST — previously, I indicated Bitpoint located $2.3 of the missing funds, but actually the exchange found more money missing.)

Speaking of Japan, the country’s top regulator says 110 crypto exchanges are waiting for licenses right now. Under Japanese law, crypto exchanges need to register with the Financial Services Agency to operate in the country. As of now, there are only 19 licensed exchanges in Japan. The FSA has been slow to license after the Coincheck hack

Binance burned 808,888 of its native BNB tokens — about $24 million worth. This is the eighth burn of BNB coins, which are totally not a security. The price of the remaining BNB goes up every time there is a burn. Keep in mind, until any crypto is converted to fiat, its value is completely theoretical. 

Screen Shot 2019-07-14 at 11.26.10 PMBitMEX, the Hong Kong-based bitcoin derivatives exchange, has finally released the tapes (round 1 and 2) from its “Tangle In Taipei,” a July 3 debate between Bitmex CEO Arthur Hayes and NYU professor Nouriel Roubini. The two have been going at it online.

A man is suing Gemini — the NY exchange operated by the Winklevoss twins — after $240,000 was stolen from his money market account and wired to Gemini, where it was used to to purchase crypto on the exchange.  

Due to heightened oversight on online crypto exchanges, users are increasingly asked to fork over their IDs and addresses. The shift is giving peer-to-peer exchanges, which typically don’t impose such KYC checks, a boost, according to Bloomberg

Other interesting stuff

Founders of the Tezos crypto platform object to sharing emails between them regarding the Tezos “fundraiser” because they are married. Steven Palley has the full story

New York City’s Monroe College was hit with a ransomware attack that shutdown the college’s computer systems. The attackers want the college to fork over $2 million worth of bitcoin to free up the computers.  

President Trump blasted bitcoin on Twitter. He is no fan of Facebook’s Libra either. There’s only room in this country for one currency, and that’s the almighty dollar.

The Federal Trade Commission has fined Facebook a gobsmacking $5 billion for privacy violations. It’s the biggest fine in FTC’s history. Surprise, surprise, Facebook’s stock went up on the news. 

An angry mob burned down the home of a man behind bitcoin ponzi scheme in South Africa after he admitted all the money was gone. 

Finally, police in China cracked down on a cartel of illicit bitcoin miners who stole nearly $3 million worth of electricity. A local power company tipped off authorities after they noticed a peculiar surge in power use.