The bankruptcy trustee for failed Canadian cryptocurrency exchange QuadrigaCX is now free to hand over a trove of documents—including personal information of the exchange’s users—to the Canadian tax authority.
On Tuesday, Judge Glenn Hainey of the Ontario Court of Justice issued an order authorizing EY to comply with the Canada Revenue Agency’s production demand request. Here is the order. And here is Hainey’s handwritten signed endorsement. He apparently heard the motion over teleconference due to the pandemic.
An important aspect of the order is that it also frees Miller Thomson, the law firm representing Quadriga’s creditors, and the Committee for Affected Users, who speak on behalf of all of the creditors, from any liability.
EY will now be handing over 750,000 documents to the CRA. Many of those documents contain personal information on the 115,000 users who were active on the exchange at the time of its collapse in January 2019.
Quadriga’s creditors are not happy about this. Losing control of their personal data is their worst nightmare. But as I spelled in a previous post, the cost for the creditors to fight any of this would have been prohibitive. It also would have further delayed them getting back any of their already dwindling pool of recovered funds.
One of the biggest fears of cryptocurrency traders is losing control of their personal information. And that fear has become a reality for QuadrigaCX former users.
Ernst & Young, the trustee overseeing the bankruptcy case for the failed Canadian crypto exchange, will be turning over all of Quadriga’s user info and data to the country’s tax collector.
In itssixth report of the trustee posted Tuesday, EY said the Canadian Revenue Authority, or CRA, asked it to hand over information about the failed crypto exchange. In response, the accounting firm wants to send over a mountain of data, which has a lot of Quadriga user data mixed in. And it is seeking an order from the court authorizing it to do so. (The exchange estimated it had 115,000 affected users at the time of its collapse in January 2019.*)
We’ve known this was coming. In August 2019, the CRA sent a letter to EY saying it wanted Quadriga’s records from Oct. 1, 2015, to Sept. 30, 2018. The CRA’s request for documents and information is “significant,” the trustee said at the time. (See the third report of the trustee.)
The long list of requests
Following that, on Feb. 26, the CRA sent EY a seven-page production demand letter. The list of requests includes financial records and documents for tax years ended in 2016 to 2018, corporate legal records, and things like the platform’s raw database, files of AWS accounts, wallet addresses, fiat transaction records from payment processors, and so on
As this is coming from the taxman, EY is obligated to comply. But since it doesn’t have most of the info that the CRA is asking for (Quadriga kept no books), it simply plans to forward a copy of the full EDiscovery Database, redacted only for privilege. The database contains 750,000 individual documents.
In a letter, posted on its website Thursday, Miller Thomson, the law firm representing Quadriga’s creditors, said that it would not oppose the move. At this point, it wants to minimize costs and make sure funds get distributed to the exchange’s users as soon as possible.**
The problem for Quadriga’s users though is that a lot of their personal information is mixed in with those documents in the database. What can they do about it? Not a lot.
On Sept. 17, 2019, when EY was granted an order from the Ontario Superior Court of Justice that would make it easier for them to comply with requests for information from law enforcement, regulators and tax authorities, it also got authorization to produce:
“…material, documents or data that contain any personal information including information related to Affective Users notwithstanding any previous orders of the Nova Scotia Court with respect to confidentiality of Affected User information, as defined in the Representative Counsel Appointment Order dated February 28, 2019…” [Link to order added.]
That order allowed EY to heap all of its Quadriga documents into a single giant database called the EDiscovery Database, and share that entire database with authorities every time they put in a request. This was a lot easier than tailoring each response individually. But it came at the price of giving out personal data about the exchange’s users.
According to Miller Thomson, the cost of trying to fight the CRA’s request would be between CA$50,000 and CA$100,000, notwithstanding the cost of EY and its lawyers.
Alternatively, the law firm could redact or pull anything considered private. But that could potentially come at an even bigger cost because it would require manually going through every single document in the massive database. (And as we know, EY has already spent roughly CA$637,000 compiling that database and responding to legal requests in the second half of 2019.)
Still, Quadriga users aren’t happy. Magdalena Gronowska, one member of the official committee that represents Quadriga creditors, wrote in a Twitter thread on Thursday that the CRA’s request is “an unprecedented affront” to individual privacy. She thinks they are just going on a fishing expedition.
After allowing Quadriga to operate for years with no oversight, the CRA has suddenly decided that it wants to audit the exchange. That’s a problem given that Quadriga maintained no traditional books or accounting records since 2016, and it did not file returns. Most years, Gerald Cotten, the exchange’s now-deceased founder, neglected to even file a personal tax return. When he did file, he claimed no income from Quadriga.
I don’t know what the CRA plans to do with all of this information. Are they planning to find out how much Quadriga should have paid them? Most of that money is long gone, thanks to the massive fraud that took place on the exchange after 2016. And if the CRA wants to make sure that Quadriga’s users pay taxes on any money they get back, there are certainly easier ways to get that information.
* An early affidavit estimated that the exchange had 115,000 affected users when it collapsed. But, in its trustee’s preliminary report, published in May 2019, EY said it anticipated receiving omnibus claims from 76,319 affected users.
**Roughly CA$215 million of user funds (crypto and fiat) was on the exchange at the time it shuttered. EY has so far only recovered about CA$45 million—if you count the CA$12 million that should come from selling properties that Cotten and his wife accumulated after 2016. (See my earlier story in Decrypt and the fourth report of the trustee.)
Good news this week. I’ve started freelancing for Decrypt. I’m in their Slack channel, and it’s nice to feel part of a group again. That and a few freelance gigs mean I’m less freaked out about making ends meet after leaving my last gig. Although now, I’m worried about COVID-19 and its impact on crypto media and the world economy as a whole.
This newsletter is going to be a bit different. I’m going to focus on the bigger stuff—or things that are interesting to me while supplementing them with additional notes or thoughts I might have—and then list off a bunch of other news that has caught my eye.
Coronavirus, crypto conferences, and the hell to come
I wrote a blog post about how the new coronavirus is impacting crypto conferences. My story even got picked up in Charles Arthur’s Overspill newsletter. (He’s a former tech writer for The Guardian.) In a week’s time, things have only gotten worse, with more events canceling. The city of Austin has canceled SXSW, which had a blockchain track. MIT issued an official statement Thursday night that is was canceling any event larger than 150 people but somehow made an exception for the MIT Bitcoin Expo, March 7-8.
What’s shocking is that the school did this despite knowing the dangers—more than two dozen cases of COVID-19 in Massachusetts have been linked to a Biogen meeting in Boston with 175 attendees in late February. The news of this started coming out on Thursday, the very day MIT gave the green light for its expo. Even on Saturday, Boston Blockchain Week, scheduled for March 7-13, removed all events from its calendar.
Coindesk has made it clear that it is absolutely not canceling its New York City-based Consensus conference until it is forced to do so. The event, scheduled for May 11-13, drew in 4,000 people last year and 8,500 the year before. Here’s the refund policy:
“If Consensus is cancelled due to guidance from health organizations and local/federal governments, attendees will receive a full refund on their ticket purchase within 60 days of CoinDesk making the announcement to cancel. Further, if an attendee is unable to attend because his or her home country is barred from traveling to the United States, we will also issue a full refund within 60 days.”
Public health in the US is managed in a decentralized fashion by state & local gov. Structurally & politically we don’t have infrastructure to deal w/ a healthcare crisis that demands a strong immediate response. This is an inherent tradeoff in decentralized human systems.
South Korea, China, US step up efforts to disinfect dirty fiat
The new coronavirus can live on paper money, says the WHO, so South Korea’s banks are taking banknotes they receive and putting them through a heating process to kill off any germs. China is doing something similar. And now the U.S. is taking any U.S. dollars that it gets from Asia, disinfecting them, and keeping them for 7-10 days before reintroducing them to the financial system. It is routine for banks to disinfect banknotes, but now they are stepping up the process. Bitcoin is a contactless form of payment, but unfortunately, you can’t buy toilet paper, rice, beans or baby formula with it. (Decrypt, Reuters)
Baseline protocol: coaxing the enterprise to use public Ethereum
The Baseline Protocol is a thrilling new enterprise blockchain initiative from ConsenSys, EY, Microsoft, and a handful of other projects looking to sell consulting hours.
In short, the initiative is an effort to get big companies to use the Ethereum public blockchain. Baseline is supposed to serve as a middleware with its secret sauce being privacy-preserving zero-knowledge proofs. ZKP is key because otherwise, why would companies want to put their private dealings on a widely shared blockchain?
But what actually goes on the blockchain? The answer: not a lot, and certainly not any actual documents. What goes on the blockchain is a hash of the file you share via some other means along with a timestamp, so you can check the authenticity of the document. ZKP serves to hide the transaction of tokens and business logic in smart contracts.
A German company called Unibright plans on playing “a major role” in developing Baseline. Interestingly, Unibright has its own token (UBT), which had a big pump recently. UBT couldn’t get listed on any major exchanges. Instead, it is traded mainly on the Estonia-registered Hotbit and decentralized exchange IDEX. (Decrypt, David Gerard)
Reggie Fowler pleaded not guilty to wire fraud
Arizona businessman Reginald Fowler flew from his home in Chandler, Ariz., to stand before a judge Thursday and plead not guilty to a new charge of wire fraud. He now faces five counts and plans to go to trial next year. Yes, that’s right. His trial date, originally scheduled for April 28, has been moved to Jan. 11, 2021, because his lawyers need more time to prepare for the case. Until then, he remains free on bond. (My blog.)
How did bitcoin mining maker Canaan get listed on Nasdaq?
That’s like, such a good question. Bitcoin mining machine maker Canaan Creative operates out of China. Last year, it became the first crypto company to be listed on the Nasdaq. Woot! But after an unexplained pump in February, the stock tanked. And then on Wednesday, Phillippe Lemieux, an investor in Canaan, filed a class-action lawsuit against the company, saying Canaan misled investors. Some of the most damning information in the suit comes from a blog post by Marcus Aurelius, or MAV, titled “Canaan Fodder.” Canaan had three prior unsuccessful attempts to list on Asian exchanges. MAV calls the Nasdaq listing a “dumping ground of last resort.” I’m sure CAN stockholders will be happy to hear that. (Decrypt)
UK’s FCA issues warning about Bitmex
U.K.’s financial watchdog, the Financial Conduct Authority, is warning Brits about Bitmex. Arthur Hayes’ bitcoin derivatives platform is promoting its services without authorization, the regulator said. Bitmex said it is trying to “assess” the situation.
The FCA issued a similar warning about Kraken, but that was soon taken down. Kraken CEO Jesse Powell said the regulator made a mistake and fixed it. “Seems like it might have been some scams pretending to be Kraken got reported,” he told Decrypt. (Decrypt)
Libra activates plan B
Facebook’s Libra may issue multiple coins based on national currencies in addition to its original idea—a coin based on a basket of assets. If it does that, it’ll be just another PayPal, but on the Calibra wallet.
Bloomberg and The Information were the first to report on the news, and the financial press followed, all linking back to these stories. (The Information originally said the national coins would replace the original Libra token but has since issued a correction, stating that the national coins would run alongside the Libra token.)
This is not a new plan at all. David Marcus and Mark Zuckerberg talked about doing this back in October. In terms of technology, there’s no innovation here either. The big hurdles for Libra are proving to the world that it can comply with anti-money laundering laws. And so far, it hasn’t been able to do that. (Decrypt, David Gerard, Bloomberg, The Information)
You hit the nail on the head. There is no innovation whatsoever. They have literally invented nothing. Libra is possibly the least innovative project to ever come out of Silicon Valley.
“If they’re not outright scams, they’re normally cash grabs.” One former coiner describes his experience working for crypto projects. (Medium)
Looks like Massive Adtoption’s Jacob Kostechki has exited the crypto world and gone into real estate. He’s now tweeting under @_jake_i_am.
Haseeb Qureshi, a managing partner at crypto venture fund Dragonfly Capital, wrote a good article describing how flash loans work. Flash loans were behind two recent hacks—one for $350,000 and another for $600,000—of margin trading protocol bZx. (Medium)
More info coming out on who invested in Telegram’s $1.7 billion initial coin offering: A Russian oligarch, a former cabinet minister and the COO of Wirecard. (Coindesk)
In April 2018, The Reserve Bank of India banned banks from doing business with crypto companies. On March 4, India’s crypto community rejoiced as the country’s Supreme Court ruled that the RBI’s ban was unconstitutional. The RBI plans to fight the ruling. (Economic Times, Cointelegraph)
The hostile takeover of the Steem blockchain is comedy cold for nocoiners. (Twitter thread)
Stephen Palley offers his take on the Feb. 26 ruling in the Ripple lawsuit: His most ooph worthy comment: If the court’s reasoning is accepted, “purchasers of crypto on secondary markets can state securities claims against the issuer where they did not directly purchase the crypto.” (Twitter thread, court order)
Reginald Fowler stood before a New York judge Thursday and pleaded not guilty to wire fraud. The new charge brought the total counts against him to five. An irked-looking judge agreed to move the trial date, originally set for next month, to Jan. 11. (Court doc.)
The wire fraud charge was added in a superseding indictment on Feb. 21. The Arizona businessman and ex-NFL owner had already pleaded not guilty to the four prior counts, which had to do with bank fraud and illegal money transmitting. He was looking at a trial date of April 28.
However, with the new charge piled on, Fowler’s lawyer James McGovern wanted more time to prepare. Matthew Lee of Inner City Press, live-tweeted Fowler’s arraignment in court today.
“The trial is scheduled. Mr. Fowler did not plead guilty. Now he wants an adjournment of the trial,” said U.S. Attorney Jessica Fender, according to Lee’s account.
Judge Carter granted the adjournment and offered Oct. 28 as a new date for the trial. But Fender turned it down saying her colleague was unavailable at that time.
“Really? A prosecutor not being available is not grounds under the Speedy Trial Act,” said Judge Carter.
Finally, a new date of early next year was settled upon — and the judge appeared irritated with the government, Lee told me.
The law moves slow
Nothing is happening fast in this case. But the right to a speedy trial isn’t for the benefit of the public — it’s for the benefit of the defendant, who can waive it. And since Fowler is free on $5 million bail while he awaits trial, he can afford to do that. After all, he could find himself behind bars for many years after the trial.
Fowler was originally indicted on April 30, 2019, along with Israeli woman Ravid Yosef, who remains at large. The pair allegedly ran a shadow banking service on behalf of Crypto Capital Corp, a Panamanian payment processor that counted Bitfinex and the failed QuadrigaCX cryptocurrency exchanges as customers.
A plea deal would have seen three out of four charges against Fowler dropped. The deal was conditioned upon him forfeiting $371 million* allegedly tied up in some 50 bank accounts, but he wouldn’t—or couldn’t—agree to that.
After Fowler turned down the plea deal, federal prosecutors heaped on the newest charge of wire fraud. The fifth count was no surprise. In a court transcript filed in October 2019, Assistant U.S. Attorney Sebastian Swett told Judge Carter:
“We have told defense counsel that, notwithstanding the plea negotiations, we are still investigating this matter, and, should we not reach a resolution, we will likely supersede with additional charges.”
Fowler, who resides in Chandler, Ariz., will likely go about his daily life until next year when his trial begins. Is he rattled by any of this? Who knows. This is a man who has plenty of experience dealing with lawyers and judges. In 2005, ESPN reported that he had been sued 36 times.
Updated (3/7/20) to add names of attorneys.
*Updated (3/5/20 at 11:30 p.m ET) to note that Fowler’s proposed plea deal was based on him forfeiting $371 million, not $371,000 as previously stated.
Novel coronavirus is a real threat. We now know the incubation period for COVID-19 is up to 14 days, and people can spread the disease without showing any symptoms at all. The best way to keep from getting ill is to avoid close contact with other people. Ultimately, that means cutting back on air travel and opting out of large events.
As a result, companies in all fields are canceling conferences in droves. They either can’t sell enough tickets or too many sponsors and speakers are starting to pull out. In some cases, entire cities are outright banning large indoor gatherings.
Nvidia said Monday thatit will not hold its GTC 2020 conference that had been scheduled for March 22-26 in San Jose. As many as 10,000 attendees were expected at the event, which centered around semiconductors, graphic chips, and AI technologies.
Also, on Monday, Facebook and Twitter pulled out of SXSW Conference & Festivals, a sprawling 10-day event in Austin set to kick off on March 13. The event drew more than 400,000 attendees last year. SXSW says the event is still going as planned, even though an onlinepetition is in the works to cancel it.
Similarly, the crypto world is feeling the pain. Tron has postponed indefinitely itsNitron Summit due to coronavirus concerns. The event was scheduled to take place between Feb. 29 and March 1 in Seoul, South Korea.
Paris Blockchain Week, originally set to kick off on March 31, is postponed until December. Even that is risky, though. December is when the cold and flu season starts up again, and a coronavirus vaccine isn’t due out until sometime in 2021.
How will crypto media fair?
If the trend continues — and likely it will — conference cancellations could hit some crypto media publications hard. I’m talking about Coindesk in particular. The company pulls in 85% of its revenue from conferences, according to a May 2019 report inThe Information. Coindesk doesn’t feature ads on its site anymore, so events are its bread and butter.
It hasn’t always been that way. I remember ads for every bottom-of-the-barrel initial coin offering on the site a few years ago. I’m not sure why Coindesk stopped serving ads, but they seem to have completely disappeared from the site after its relaunch in November.
Last year, Coindesk held one investor event in New York and another in Asia. But its flagship conference is Consensus. Held annually in Manhattan, Consensus is widely considered the most significant event in the cryptosphere, accompanied by lots of satellite conferences around the same time. This year, Consensus is scheduled for May 11-13 at the New York Hilton midtown.
In 2018, just coming down from the peak of the crypto hype cycle, Consensus drew in more than 8,500 attendees, each paying about $2,000 per ticket. Coindesk’s total revenue for the year was $25 million, so do the math — that’s $21 million in events alone.
Consensus 2019 saw less than half that with only 4,000 attendees. But even at an estimated $10 million in revenue, that’s still a decent amount of money. Despite the drop-off, Kevin Worth, Coindesk’s CEO, told The Information that Digital Currency Group, which owns 90% of Coindesk, still planned on growing its media business.
Indeed, Coindesk has been on a bit of a hiring spree. Almost anyone who has been writing about crypto has gotten pulled into working for the media outlet. It will be interesting to see what happens if Coindesk ends up having to cancel Consensus 2020 and potentially even Consensus 2021 — or even if it sees a significant drop in attendees.
Oddly, Consensus is the only event listed on the Coindesk’s website at this time. The company’s other two events — “Invest: NYC” and “Invest: Asia,” as they were called last year — are conspicuously missing. I reached out to Coindesk this morning. If they respond, I’ll post their comments here.
Other media pubs also rely on events for revenue, though not to the extent that Coindesk does, and their events aren’t nearly so huge.
Breakermag started planning an NYC event called Breakercon before it shuttered in 2019. The Blocktook over the event renaming it “Atomic Swap.” This year, The Block is now calling the one-day-event, scheduled for May 12, The Block Summit. Tickets cost about $800 and CEO Mike Dudas expects things to go as planned with 400 attendees.
Last year, a leaked investor pitch deck for The Block indicated that of the $5 million the startup wished to see in 2020, $3.4 million will come from subscription revenue; $1.1 million will come from ads and $500,000 from events. At least The Block has its revenue model spread out a bit, so it’s not so heavily dependent on a single event.
Decrypt relies on Ethereum venture studio Consensys’ patronage to keep its doors open. Consensys holds anEthereal Summit each year in New York City right before Consensus. That also appears to be on track for May 8-9.
Cointelegraph has a separate events division that does BlockShow Asia, which it’s been holding since 2016. This year the event is scheduled for Singapore in November. The outlet, which claims 6 million visitors a month, also makes money on ads and consulting.
My guess is that as the coronavirus spreads, we’ll see more crypto events being canceled. Some conferences are opting to go the “decentralized” route and put everything on video, but I just don’t see that being too popular. Most crypto people go to conferences to network and party — the talks, not so much.
A bigger threat: Crypto ice age
The bigger problem here is the crypto ice age, a term that refers to the general slowdown in the space that set in after 2017 due to increased regulation and the plunge in the price of bitcoin. As David Gerard details in a recent blog post, crypto media publications and low-end blogs are now collectively chasing an ever-shrinking pool of ad funds.
In general, the media advertising model has gone the way of the dinosaur. Subscriptions work for some publications. But big outlets like the New York Times and the Wall Street Journal who employ the model successfully have hundreds of thousands of readers. The crypto world simply does not have that big of a following.
Events are a big deal for many crypto pubs, and if that important revenue stream dries up, it could push some outlets to the breaking point. Expect more layoffs in 2020 with some crypto pubs and blogs falling off the map completely.
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As you know, I left my most recent full-time gig, so I’m solo again. I’m going to keep on writing, but I need to figure out how to make ends meet. I’ll be writing more for my blog, possibly writing some e-books, and relying on support from patrons. If this newsletter is worth buying me a latte every four weeks, consider becoming a monthly supporter.
Now, on to the news. Since I didn’t write a newsletter last week, a few of these items stretch beyond the last seven days.
Filming for Quadriga documentary
If you’ve been following me on Twitter, you know I was in Vancouver all weekend filming for an upcoming Quadriga documentary for Canadian public broadcast station CBC. It was a whirlwind adventure, loads of fun, and I got to meet my idol and fellow nocoiner David Gerard for the first time. He is 6’4″, which helps explain why he is not easily intimidated by anyone. (My blog, David’s blog with more pics.)
On our second day of filming, the crew got shots of David and me at a coffee shop going through my Quadriga timeline in detail. Of course, the more we talked and went over things, the more unanswered questions we came up with.
Ripple has been paying Moneygram millions
Moneygram’s 8-K filing with the SEC must be a bit of an embarrassment for Ripple CEO Brad Garlinghouse. It reveals Ripple paid $11.3 million to Moneygram over the last two quarters. That’s in addition to the $50 million Ripple has already invested in the firm. (Cointelegraph, Coindesk.)
This is apparently the ugly truth to how Ripple works. The company appears to pay its partners to use its On-Demand Liquidity (formerly xRapid) blockchain platform and XRP tokens and then say nice things about how well things are going. (FT Alphaville)
Of course, none of this is news to @Tr0llyTr0llFace, who wrote about how Ripple pays its partners in his blog a year ago. “Basically, Ripple is paying its clients to use its products, and then pays them again to talk about how they’re using its products,” he said.
Ripple class-action to move forward
In other Ripple news, a federal judge in Oakland, Calif., has granted in part and denied in part Ripple’s motion to dismiss a class-action lawsuit claiming the company violated U.S. securities laws. There’s a lot to unpack here, but overall it’s a win for the plaintiffs. In other words, the lawsuit will proceed even though it’s been trimmed back a bit. (Court order, CoinDesk, Bloomberg)
Ripple had claimed in its November court filing that the suit could topple the $10 billion market for XRP. Well, yeah, one would think so, especially if XRP is deemed a security and gets shut down by the SEC. This class action may be laying the groundwork for that.
Reggie Fowler gets hit with another charge
As if Reggie Flower did not have enough trouble on his hands. After forgoing a plea deal where three out of four charges against him would have been dropped, prosecutors have heaped on another charge — this one for wire fraud.
They allege that Fowler used ill-gotten gains from his shadow banking business, which he ran on behalf of Panamanian payment processor Crypto Capital, to fund a professional football league. The league isn’t named in the indictment, but a good guess says its the collapsed American Football League of which Fowler was a major investor. (My blog.)
The new charge should come as no surprise to those following the U.S. v. Fowler (1:19-cr-00254) case closely. In a court transcript filed in October 2019, Assistant U.S. Attorney Sebastian Swett told Judge Andrew Carter:
“We have told defense counsel that, notwithstanding the plea negotiations, we are still investigating this matter, and, should we not reach a resolution, we will likely supersede with additional charges.”
Fowler needs to go before the judge and enter his plea on the new charge before he can proceed to trial. Federal prosecutors are asking the judge to schedule arraignment for May 5, but it’s quite possible this is a typo and they meant March 5. (Court doc.)
Convicted fraudster won’t be buying Perth football team after all
The sale of Perth Glory Soccer Club to a London crypto entrepreneur fell through after it turned out that the man behind the company trying to buy Glory — businessman Jim Aylward — is convicted fraudster James Abbass Biniaz. (Imagine that, a person with a criminal past getting involved in crypto?)
Aylward had set up a group called London Football Exchange, a football stock exchange and fan marketplace powered by the LFE token. The grand scheme was for the company to buy soccer teams all over the world and integrate that business with the token.
Glory owner Tony Sage pulled out of the deal after traveling to London to go through a due diligence process with his lawyers and representatives of the London Football Exchange group. Sage had been promised $30 million by Aylward for 80% of the A-League club. (Sydney Morning Herald)
Here’s a recording of Aylward admitting the price of LFE is totally manipulated. “We control about 95% of the token holders,” he said.
Weird stuff happening with e-Payments
Something funny is going on with e-Payments, one of the biggest digital payments firms in the U.K. The London firm, which caters to the adult entertainment, affiliate marketing, and crypto industries, was ordered by the U.K.’s Financial Conduct Authority to suspend its activities as of Feb. 11 due to loose anti-money-laundering controls. That’s left ePayments’ customers unable to access their funds. Robert Courtneidge, one of its e-Payments’ directors stepped down the following week. Nobody knows why, but it looks like he was previously involved with the OneCoin scam. (FT Alphaville)
(BTW, on my flight back from Vancouver, I listened to the Missing Crypto Queen BBC podcast, which is all about OneCoin, and it’s fantastic. Definitely worth a listen.)
SEC shoots down another bitcoin ETF; Hester Pierce chimes in
In a filing posted Wednesday, the SEC set aflame another bitcoin ETF proposal. The regulator claims Wilshire Phoenix and NYSE Arca had not proven bitcoin is sufficiently resistant to fraud and market manipulation. (Their idea was to mix bitcoin and short-term treasuries to balance out bitcoin’s volatility, but the agency still wasn’t keen.) The SEC has rejected all bitcoin ETFs put before it to date, so there’s no new news here.
Predictably, though, SEC Commissioner Hester Pierce, aka “crypto mom,” filed her statement of dissent. She said the agency’s approach to bitcoin ETFs “evinces a stubborn stodginess in the face of innovation.” For some reason, Pierce seems to consistently confuse innovation with anarchy and giving bad actors free rein.
Speaking of which, she recently posted on Coindesk asking for suggestions to her ICO “safe harbor” plan. Attorney Preston Byrne responded, saying it would be hilarious if it weren’t so serious. He thinks the plan should be tossed in the bin.
other SEC commissioners: "no, 2+2 still makes 4" Hester Peirce: "I think sophisticated market investors can judge for themselves if it makes 5, or even 6. As Bruce Springsteen sung, 'it's just like Sister Ray said.'"
Canada’s central bank plans to lay the foundation for its own digital currency should the day arise where cash no longer rules. In a speech he gave in Montreal, Deputy Governor Tim Lane said there isn’t a compelling case to issue a central bank-backed digital currency right now, but the Bank of Canada is starting to formulate a plan in the event Canadian notes and coins go out of style. (Calgary Sun.)
Despite so many countries jumping into the game, central bank digital currencies are nothing new. They have been around since the 1990s, only nobody cared about them until Facebook’s Libra popped into the scene. Bank of Finland’s Alexi Grym recently did a podcast, where he talks about how the country launched its own Avanti project (a form of CBDC) in 1993. The idea sounded great in theory, but in practice, consumers didn’t like being charged to load the cards, especially since ATM withdrawals were free.
Drug dealer loses all his bitcoin
The problem with keeping track of the keys to your bitcoin is that it’s just too easy to lose them, as this U.K. drug dealer demonstrates. He jotted down the keys to his illicit $60 million BTC on a piece of paper. But then when he went to jail, his landlord gathered up all his belongings and took them to the dump. (Guardian.) This isn’t the first time millions of dollars worth of bitcoin have ended up in a trash heap.
FCoin insolvency bears hallmarks of funny business
FCoin, a crypto exchange based in Singapore, announced its insolvency on Feb. 17 after making the surprise discovery it was short 7,000 to 13,000 bitcoin—worth roughly $70 million to $130 million. The exchange blamed the shortage on a cacophony of errors following the launch of a controversial incentive program called “trans-fee mining.” There has been a lot of speculation that this was an outright scam. Now a new report by Anchain.ai shows BTC leaving the exchange’s cold wallets in droves right before FCoin shuttered and its founder Zhang Jian happily moved on to start a new business.
Quadriga was using Crypto Capital
The law firm representing QadrigaCX’s creditors believes the failed Canadian crypto exchange was funneling money through Crypto Capital. Financial documents that two former Quadriga users posted on Telegram show that to be true. (My blog)
Next question: Was Crypto Capital holding any Quadriga funds at the time the exchange went under? That’s going to be hard to track down given the exchange had no books.
Buffett still thinks crypto is a joke
Tron CEO Justin Sun paid $4.6 million to spend three hours with Warren Buffett and turn him into a crypto fan. He even gave the multi-billionaire some bitcoin. Turns out Buffett, promptly handed those BTC over to charity. He doesn’t want anything to do with bitcoin and still thinks crypto has zero value. “What you hope is someone else comes along and pays you more money for it, but then that person’s got the problem,” he told CNBC.
Steven Segal pays the price of being a shitcoin shill
Steven Segal thought he would bring in a little extra dough by shilling a shitcoin, but the effort backfired. The Hollywood actor has agreed to pay $314,000 to the SEC for failing to disclose payments he received for touting an ICO conducted by Bitcoiin2Gen (spelled with two “i”s) in 2018. He’ll pay a $157,000 disgorgement, plus a $157,000 fine on top.
How long does a blockchain need to be shut down for before it’s considered dead? How is it even possible to shut down something that is decentralized? Oh, wait, maybe it’s not.
IOTA has been offline for 14 days and counting ever since the IOTA Foundation turned off its coordinator node, which puts the final seal of approval on any IOTA currency transactions, to stop an attacker from slurping up funds from its wallet service.
The project has put together a tedious three-part series explaining the theft of its Trinity wallet, its seed migration plan and all the lessons it’s learned from the mishap. It’s all a bit mind-numbing, and you’ll feel a little dead after you read it, too.
Anyway, now the network, which they originally sold as (and spent years claiming was) decentralized has been down for nearly 2 weeks.
Anyway, now the network, which they originally sold as (and spent years claiming was) decentralized has been down for nearly 2 weeks.
“Absurd” isn’t the word I would use to describe the situation.
Well, it’s finally happening. I’m in Vancouver with David Gerard, my mentor and the person responsible for turning me into a bitter nocoiner. If it weren’t for him, I would be doing something productive and useful with my life. Instead, I’m writing about crypto for my blog. Next thing you know, I’ll be a Wikipedia gatekeeper.
This is my first time meeting him in the flesh. I flew in from Boston Saturday with a layover in Toronto, and almost as soon as I got here, David — who arrived several hours earlier on an eight-hour direct flight from London — met me in the hotel lobby. He was everything I pictured — six-foot-four-inches tall, legs a mile long, says “fuck” a lot and likes to drink beer. Naturally, we made a bee-line to the bar.
We’ve both come here to be interviewed for a documentary on failed Canadian crypto exchange QuadrigaCX. I initially met with filmmaker Sheona McDonald last year in Nova Scotia — after a harrowing drive through a blizzard to attend a Quadriga court hearing — so the plan to bring me and David together has been in the works for nearly a year.
The documentary is for CBC, Canada’s national public broadcaster. We aren’t sure when it will be out, but Sheona tells us the film may be in a few festivals first before it’s on TV.
It’s been a tight schedule this weekend. After a long day of travel, this morning, we went to this cool loft in downtown Vancouver for the filming. I was on the hot seat first, followed by David. As it turns out, talking for two-hours is really exhausting, especially when you’ve had only a few hours of sleep.
But this is exciting stuff, and it’s great to be able to hash over the details on what went on inside Quadriga with David. Sheona keeps asking us if we think Gerald Cotten, Quadriga’s cofounder who supposedly single-handedly drove the exchange to insolvency after February 2016, is really dead. David is split 50/50, but I’m leaning toward, no that’s not his body buried in Nova Scotia.
This evening, we got to meet up with fellow journalist and Vancouver local Cali Haan for a nocoiner convention at Starbucks and later for a beer.
We have more filming ahead Monday. While today we were interviewed separately, tomorrow Sheona will shoot us in a coffee shop, sharing ideas about what we think happened with Quadriga. And then after that, it’s off to the airport.