Tag: Bittrex

Crypto collapse: Sam Bankman-Fried goes to jail, SEC appeals Ripple ruling, Prime Trust bankrupt, the tangled tale of TrueUSD and Tron

  • By Amy Castor and David Gerard
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“i cant wait until we get julain assange out of jail using Crypto. itll make all the pedophile money laundering worth it”

— dril

Go directly to jail

Sam Bankman-Fried’s bail has been revoked for witness tampering — specifically, that he shared ex-girlfriend Caroline Ellison’s private diary with a New York Times reporter. This was the last straw for Judge Lewis Kaplan, who said the documents were “something that someone who has been in a relationship would be unlikely to share with anyone except to hurt and frighten the subject.”

Previously, Sam tried to get in touch via Signal with another witness, former FTX US lawyer Ryne Miller, about getting their stories straight — which nearly saw Sam’s bail revoked that time.

Our hero is currently at MDC Brooklyn — notoriously one of the worst jails in the federal system — but the government has asked that he be remanded at Putnam, where he’ll be allowed more computer access to prepare for his upcoming trial on October 2.

Inner City Press live-tweeted the entire hearing. Sam’s lawyer Mark Cohen immediately filed an appeal. [Twitter, archive; Doc 198, PDF; Notice of Appeal, PDF; Order; PDF] 

Prosecutors filed a superseding indictment against Sam on August 14. The new indictment contains seven of the thirteen original charges, removing anything that wasn’t explicitly in the Bahamas extradition agreement. Sam’s $100 million of political contributions are now listed as just another way he misspent customer money. The government also filed its motions in limine — pretrial motions on what evidence is admissible and so on. [Indictment, PDF; in limine, PDF; Doc 165, PDF]

Mathew Russell Lee of Inner City Press has been the man on the scene at the SDNY courthouse for Sam’s hearings. As well as live-tweeting hearings, he collects his writeups as Kindle books. His collection on Sam is just out, recounting the saga as he saw it happen from December 2022 to last week. [Amazon UK; Amazon US]

SEC appeals Ripple

The SEC has asked SDNY District Judge Analisa Torres to pause their case against Ripple so they can appeal her questionable decision on XRP sales to the 2nd US Circuit Court of Appeals. The SEC’s grounds for appeal is that there’s now a genuine intra-district judicial dispute over the issue. [Doc 887, PDF]

On July 13, Torres ruled that XRP is a security when it’s sold to sophisticated investors, but it’s not a security when sold to retail investors on exchanges – which is precisely backward from the past ninety years of US securities jurisprudence.

In the same courthouse, District Judge Jed Rakoff, who is overseeing the SEC lawsuit against Terraform Labs and its cofounder Do Kwon, flatly rejected Torres’ decision and ruled that Terraform’s LUNA and MIR coins may have been securities when sold to retail investors.

John Reed Stark notes: “For SEC lawyers like myself, Judge Jed Rakoff is arguably considered the most respected and experienced securities law jurist not only in the SDNY but perhaps in the entire U.S. federal court system.” [Twitter, archive]

The SEC proposes to file its opening brief on August 18. Ripple would have until September 1 to respond, and the SEC’s reply would be due a week later on September 8. This is quite soon, but Coinbase and Binance are both using the Ripple decision to support their defenses against their own SEC suits.

Prime Trust goes Chapter 11. You had one job!

Crypto custodian Prime Trust filed for bankruptcy protection in Delaware on August 14. Prime halted withdrawals in late June after Nevada regulators put the company into receivership as insolvent.

How did Prime fall insolvent? They lost the keys to a pile of the crypto they were supposed to be keeping safe. This happened in December 2021. You had one job, guys!

From December 2021 until March 2022, Nevada says that Prime used customer funds to buy additional crypto. But for a year and a half, Prime just lied and told everyone they still had their crypto.

Prime has between 25,000 and 50,000 creditors and liabilities of up to $500 million. The firm’s top fifty creditors have claims of $145 million — including the largest claim of $55 million. [Business Wire; Stretto] 

Knives out at TrueUSD

Archblock, formerly TrustLabs trading as TrustToken, created TUSD, a supposedly asset-backed $3 billion stablecoin. It then sold TrueUSD to Justin Sun’s Tron in late 2020 — but the connection to Tron has always been a bit murky, and TrustLabs has never been upfront about who the coin’s actual owner was.

TrustLabs said the new owner was Techteryx, “an Asia-based consortium” — though TrustLabs/Archblock still managed TUSD until July 2023. [Medium, 2020, archive; Twitter, archive]

Alameda Research was the largest redeemer of TUSD. FTX listed TUSD when they knew that TrustLabs was misrepresenting who owned it. 

TrueUSD’s main custodian was Prime Trust — and Prime was also its main fiat on-and-off ramp for the US banking system. Prime Trust was thus Justin Sun’s main link to US banking. At least until Signature, Prime’s main banking partner, collapsed in March.

We wrote previously about how the TUSD coin seems pretty clearly unbacked and was being used by someone in the vicinity of Binance to pump the price of bitcoin earlier this year.

Archblock is now doing a merger to move the company’s domicile from the US to Switzerland, for unclear reasons. [Blockhead]

Daniel Jaiyong (“Jai”) An, co-founder of TrustLabs/Archblock, is not happy with this merger and move. An is suing Archblock and its executives: Rafael Cosman, co-founder and board member; Alex De Lorraine, COO and former board member; and Tom Shields, former chairman of the board. 

The complaint was filed pro se on July 14 in Delaware, meaning An did not hire an attorney. He wrote the 58-page complaint himself — and it shows. [DLNews; complaint, PDF] 

An was in the midst of negotiating the sale of TrueUSD to Techteryx, whose contact was Justin Sun of Tron. In fact, An describes the sale as being to Tron.

So, yes — TrueUSD is run by Justin Sun, if you ever doubted it.

TrustLabs got $32 million from investors in a 2018 accredited investor ICO under SEC Regulation D for a token called TRU. Investors included Andreessen Horowitz, BlockTower Capital, Danhua Capital, Jump Capital,* ZhenFund, Distributed Global, Slow Ventures, GGV Capital, and Stanford-StartX.

*Update: Although An mentions Jump Capital in his complaint, Jump Crypto wrote us to say it wasn’t Jump Capital, but Jump Crypto, a division of Jump Trading Group, who made the investment. 

An says that by January 2020, it was clear that the plan in the TRU white paper would never pass SEC muster. He wanted to pay the investors back, as the SEC would surely require – but he says that his cofounder Cosman blocked this. The other shareholders voted An out in July 2020.

TrustLabs finally issued the TRU token in November 2020, repurposed as the native token of their TrueFi lending protocol. An alleges the other executives enriched themselves with TRU tokens — but not him.

An says the company threatened him with legal action if he informed investors what the company was doing. An then filed as a whistleblower with the SEC. He claims the company has retaliated against him for doing so.

Several paragraphs claim past criminal actions by Cosman.

An remains a shareholder in Archblock. He wants the merger blocked and $94.32 million in damages.

Data Finnovation notes that if An’s allegations are true, then FTX knew since 2020 that TrueUSD was owned by Tron — because Tron’s lawyer Can Sun was working on the deal and Can Sun later ended up working for FTX under Daniel Friedberg. Remember that FTX minted nearly all the tethers on Tron in the same time period. [Twitter, archive; Medium, 2022]

Worldcoin wants your eyeballs

Sam Altman is the founder and CEO of OpenAI, the company behind ChatGPT. Worldcoin is Altman’s proof-of-eyeball cryptocurrency.

Altman promotes Worldcoin as a way to end poverty — and not just a way for him to collect huge amounts of biometric data. In exchange for giving up your iris scan, you’ll get 25 free Worldcoins (WLD). [CoinDesk] 

Worldcoin operators use “orbs” to scan eyeballs. The operators get paid in tethers. [MIT Technology Review, 2022]

Since the Worldcoin project launched on July 24, throngs of people in Kenya have been queuing up to get their eyeballs scanned — lured by free Worldcoin tokens. 

The problem is converting WLD into actual spendable money. The Worldcoin app has no direct withdrawal option — so the Kenyan users have to trade their WLD for USDT on Binance or put their trust in random over-the-counter buyers. So Worldcoin has become a honeypot for scammers: [Rest of World] 

“There’s no regulation in the space, and the people receiving the free tokens don’t have enough information. What do you expect?” Evrard Otieno, a Nairobi-based crypto trader and software developer, told Rest of World. “It’s just another opportunity for traders to make some money in the market.”

Days after the Worldcoin launch, the Communications Authority of Kenya and the Office of the Data Protection Commission ordered Worldcoin to suspend operations while they reviewed the project’s privacy protections. [Twitter, archive]

Kenyan police then raided the Worldcoin Nairobi warehouse on August 5 and seized the orbs. [KahawaTungu]. 

Data watchdogs in Britain, France, and Germany are also investigating Worldcoin for similar reasons. [ICO; Reuters]

The WLD token launched at $3.58 but had crashed to a low of $1.76 by August 14. WLD trades only against USDT and mostly on Binance. [CoinDesk; CoinGecko] 

Worldcoin’s investors, who have collectively put in $125 million, include the usual suspects — Andreessen Horowitz, Coinbase Ventures, Digital Currency Group, Sam Bankman-Fried, and Reid Hoffman, the co-founder of LinkedIn. [Crunchbase]

Hex enduction hour

Hex is an ERC-20 token that doesn’t do anything. Hex was promoted widely, even internationally on billboards, by a fellow called Richard Heart (or Richard Schueler to the tax man).

Hex promised stupendous yield rates. You bought Hex with ETH, then you staked the Hex, then you got paid interest in Hex. The website called Hex the “first high-interest blockchain certificate of deposit” that “was built to be the highest appreciating asset that has ever existed in the history of man.”

To “stake” your Hex, you would send it to … the Ethereum genesis address, 0x0. That is, you would throw your Hex into a black hole from which it could never be recovered. The Hex smart contract would then pay you Hex tokens in the future, apparently.

The SEC has finally sued Heart over Hex, PulseChain (a fork of Ethereum), and PulseX (a fork of UniSwap). They allege that Heart raised over $1 billion from these three unregistered securities offerings beginning in 2019. [SEC press release; Complaint, PDF]

The SEC says that Heart misappropriated investor funds to buy luxury sports cars, Rolex watches, and a 555-carat diamond, known as “The Enigma,” which he purchased in February 2022 in a Sotheby’s auction. Sotheby’s accepted ETH for the purchase. Heart was famous for promoting Hex with photos of himself showing off his wealth.

Heart has an unfortunate past of selling email spam software in the 2000s. He even called himself the Spam King. Bennett Haselton of peacefire.org successfully sued Heart in 2002 under Washington anti-spam laws for sending junk emails with deceptive headers. [ZDNet, 2002, archive; Panama Guide, 2007, archive]

David went on Richard Heart’s livestream in early 2020. David talked about books a bit, then Richard went into his sales pitch for Hex. Richard is a very charming and likable fellow, but in that particular way that cautions you not to let a penny of your cash within a mile of him. [YouTube, 2020]

This bank failure is fine, nothing to see here

A fourth US bank fell over this year — Heartland Tri-State Bank of Elkhart in Kansas, a small bank with just $139 million in assets. David Herndon, the Kansas banking commissioner, closed Heartland on July 28 after it became insolvent because it was “apparently the victim of a huge scam.”

Herndon said he didn’t know what the scam was — but he said other banks in the state were not affected. Our psychic powers tell us he has an extremely good idea what happened. The FBI is on the case.

The FDIC had to pay $54 million out of its deposit insurance fund – more than Heartland’s entire $48 million loan portfolio. [FT, free with login]

An employee of the bank said all workers at the bank are still employed, but Shan Hanes, the president and CEO, is no longer there. The bank was handed over to Dream First Bank as a growing concern. 

Everyone has been careful to note that the bank fell due to a “huge scam” and definitely not the sort of thing that took out Silvergate Bank, Silicon Valley Bank, and Signature Bank. The “scam” was first mentioned in an August 4 story in American Banker. [Kansas Reflector; FDIC; American Banker]

Still only good news for bitcoin

The SEC is suing Binance. BAM (Binance US) wants to block further discovery and depositions, because they’ve given the SEC so much information toward the consent order they had to be beaten into. BAM demands only four depositions of BAM employees, no depositions of BAM’s CEO or CFO, and no matters outside the consent order. We suspect that Binance doesn’t have some of the perfectly reasonable stuff the SEC has asked for, such as non-existent financial accounts — so Binance is resorting to the Tether defense. John Reed Stark thinks the SEC will largely prevail. [Doc 95, PDF; Twitter, archive]

The SEC sued Bittrex in April for listing securities without registering as an exchange. Bittrex has now settled with the SEC. They will pay $14.4 million disgorgement, $4 million prejudgment interest, and a $5.6 million civil penalty. [Press release] 

CoinDesk is laying off 20 people from editorial — 45% of the editorial staff, or 16% of all staff – to prepare for its sale to the Peter Vessenes and Matt Roszak consortium. We’re pretty sure everyone at CoinDesk is furiously updating their resumes right now. [The Block; TechCrunch]

Wyoming Senator Cynthia Lummis, several lobbyists and academics, and venture capital firms a16z and Paradigm have filed amicus briefs urging the SEC to drop its lawsuit against Coinbase. These mostly repeat Coinbase’s arguments. [Doc 48, PDF; Doc 50, PDF; Doc 53, PDF; Doc 55, PDF; Doc 59, PDF; Doc 60, PDF; Doc 62, PDF]

Kai Lentit of “Programmers Are Also Human” on YouTube goes to Web3 Berlin. “Where people without jobs ask people without companies for jobs.” [YouTube]

Posted on by Amy Castor 1

Crypto collapse: Bittrex files chapter 11, Binance loses market makers, FTX gets a tax bill, bitcoin gets apes 

  • By Amy Castor and David Gerard

Bittrex takes a dive

Bittrex’s US entity, Desolation Holdings LLC, and Bittrex Malta filed for Chapter 11 bankruptcy in Delaware on May 8. The move came just weeks after Bittrex shut down its US operations, which was soon after they were sued by the SEC for trading securities without registering as a securities exchange. [Bloomberg; Bittrex; case docket] 

The bankruptcy is apparently the fault of the SEC. The first-day declaration cites several SEC actions against other firms — and harps on about a “lack of regulatory clarity.” [Doc 9, PDF; first day declaration, PDF]

Bittrex says the bankruptcy will totally not impact its non-US operations, and funds are safe! Surely Bittrex didn’t do any commingling of company and customer funds like every other crypto exchange in trouble keeps turning out to have done.

The debts are largely fines levied against Bittrex by US government agencies — who are the only named creditors. OFAC is the largest creditor, owed $24.2 million. FinCEN is also a top 50 creditor with a $3.5 million claim. The SEC is listed with an undetermined amount of claims. [Doc 1, PDF]

Bittrex wishes to avail itself of a debtor-in-possession loan of 700 BTC so as to wind down Desolation and Bittrex Malta in an orderly manner and return customers’ funds. The loan will be from themselves — Aquila Holdings Inc, Bittrex’s parent entity, which is not in bankruptcy. [Liquidation plan, PDF]

The precedence of creditors (who gets paid back first) would be: themselves, then the customers, then the US government. That’s novel.

Michel de Cryptadamus notes several other interesting wrinkles. Bittrex’s US gross (not net) revenue for 2022 was $17 million, against the $30 million in government fines. “Several states alleged that BUS was undercapitalized and demanded that BUS immediately surrender its money transmitter licenses in those states.” Bittrex’s complicated corporate structure is reminiscent of FTX. And Bittrex may also be trying to protect the salaries of Bittrex executives from being seized by the SEC. [Twitter, archive]

Michel thinks the whole filing is a massive troll. We concur. The idea seems to be for Bittrex to set up a sacrificial entity to pay back their customers but stiff the US government. We are unconvinced that the government agencies will be inclined to let this one slide.

Good news for Binance

Market makers are leaving Binance US. Jane Street Group in New York and Jump Trading in Chicago — two of the world’s top commodities market makers — are pulling back from crypto in the US as regulators crack down on the industry. Their business in normal commodities is much larger, and they could do without the regulatory heat. [Bloomberg]

The Department of Justice is investigating Binance for possible violations of US sanctions against Russia. There’s already plenty of evidence that Binance has committed sanctions violations. Binance was the final destination for millions in funds from Bitzlato, an exchange shut down for money laundering. Now Dirty Bubble writes that Binance partner Advcash may be facilitating transfers from Russian banks. [Dirty Bubble]

Binance is withdrawing from Canada, owing to a surfeit of regulatory clarity. [Twitter, archive; Reuters]

Bitcoin has been trading at a premium of up to $650 on Binance US. A premium like this is usually an indication that people can’t get their dollars out of the exchange, so they buy bitcoins and move those to another exchange to cash out. [CoinDesk] 

We also saw bitcoin trading at a premium on Mt. Gox just before that exchange collapsed in 2014, and the same with QuadrigaCX, which imploded in 2019. Naïve traders who don’t understand what’s happening will often move their BTC to the dying exchange, thinking it’s an arbitrage opportunity.

Trading at a premium is not a good sign, but a worse sign is when people complain they can’t get their crypto off an exchange. Binance US has long had a reputation for demanding arbitrary new KYC documentation when users try to withdraw.

Monkey laundering comes to bitcoin

Binance paused withdrawals twice on Sunday, May 7. The first time was due to a “congestion issue.” Later in the day, Binance paused withdrawals again due to a “large volume of pending transactions.” [Twitter, archive; Twitter, archive]

For once, Binance might have been on the level. On May 7, the bitcoin mempool was clogged with 400,000 transactions waiting to be processed, and transaction fees surged.  

In bitcoin, the mempool, or memory pool, is where pending transactions pile up before a miner selects the most profitable ones and puts them together as a proposed block. If your transaction stays in the mempool too long, it gets dropped.

The best way to break a blockchain is to try to use it for something. In this case, some idiot worked out how to do NFTs on bitcoin.

“Ordinals” are a new way to create NFTs on bitcoin by linking a JPEG, video, or another image type to a satoshi, the smallest denomination of a bitcoin. Ordinals came out in January, and bitcoin has been filled with monkey pictures since. Bitcoin maxis condemn ordinals as a conspiracy to destroy bitcoin by using the network for a purpose. [Decrypt]

Child genius, adult moron

Sam Bankman-Fried’s defense team is trying to strike 10 of the 13 criminal charges against their client. They argue that the Bahamas did not agree to several of the charges — including one claim that Sam hid millions of dollars in political donations — while other claims didn’t meet the legal requirements of the underlying criminal statutes. [Docket, see filings 137-147]

The facts against SBF are solid. There’s no reason to doubt that Sam did everything the US claims. So the defense seems to be going for unreasonable doubt and hoping they have a dumb enough jury member or two.

Former federal prosecutor Sean Shecter of Lewis Brisbois says SBF’s lawyers want to preserve an appeal, so they have to try everything they can think of, “even if it involves throwing spaghetti against the wall.” He thinks the defense is likely hoping that the government gives up “nuggets of information” in response to the motions. [Law360, paywall]

Prosecutors have until May 29 to respond. Judge Lewis Kaplan will hear oral arguments on June 15. 

The IRS has hit the FTX companies with a $44 billion tax bill, with the largest chunk being $20.4 billion for Alameda. It looks like the IRS reclassified all FTX employees from contractors to employees and charged for unpaid employment taxes. [Docket, see filings April 27, 28; IRS Alameda claim, PDF; CoinDesk]

The IRS has not released its calculations in detail, but we’d assume the bill is inflated by fraud (fictitious profits), penalties, and interest. John Jay Ray is sure to fight this. But even if Ray gets that amount substantially reduced, this is still sure to be a huge hit for FTX creditors.

The IRS claims are treated as unsecured — but they will receive priority status as ordinary and necessary business expenses of the bankruptcy estate. So the IRS will come before ordinary unsecured creditors.

The searing light of regulatory clarity

Ishan Wahi will spend two years in prison for insider trading as a former product manager at Coinbase. He previously admitted to passing on confidential information from Coinbase to his brother and friend, who profited from the tips. [WSJ, paywall; DOJ press release]

In Estonia, nearly 400 VASPs (“virtual asset service providers,” the FATF term for companies dealing in crypto) have shut down or had their licenses revoked after the government’s recently enhanced terrorist financing prevention and anti-money laundering laws came into effect in March. [Protos; Estonia Financial Intelligence Unit] 

Bakkt has delisted a bunch of tokens from the institutional crypto business they bought from Apex Crypto, including several that the SEC has indicated it considers securities. “Our review process ensures those interests are best served when we contemplate the most up-to-date regulatory guidance.” [CoinDesk]

John Reed Stark thinks an SEC action against Coinbase is imminent. He explains the regulations and how they work in detail and why Coinbase doesn’t stand a chance.

Stark notes also that Coinbase’s “regulatory estoppel” claim — that the SEC approving their S-1 public offering means the SEC must have approved the exchange dealing in securities — is directly contradicted by the mandatory “no approval clause” in the S-1: “Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.” Whoops. [LinkedIn]  

Unvaxxed bitcoin is the new bitcoin

QuadrigaCX bankruptcy claimants will get 13% on the dollar. They will be paid out the dollar value of their crypto at the time Quadriga filed for bankruptcy — April 15, 2019, when bitcoin was in the toilet.

It’s amazing that creditors will even get back that much. Most of the Quadriga money was gambled away by cofounder Gerald Cotten and filched by shady payment processors. We’re surprised no criminal charges were filed — but then, most of the money was stolen by a guy who is supposedly dead. [EY notice, PDF; CoinDesk]

Arthur Hayes of BitMEX has been tweeting at Three Arrows Capital co-founders Su Zhu and Kyle Davies because 3AC owes him $6 million following its collapse in June 2022. Rather than returning Hayes’ money, 3AC cofounder Su Zhu has filed a Singapore restraining order to prohibit Hayes from using “threatening, abusive or insulting words” and “making any threatening, abusive or insulting communication, that would cause the Applicant harassment, alarm or distress.” [Twitter, archive; Twitter, archive; CoinDesk]

BlockFi users discover that BlockFi owned their coins. Bankruptcy Judge Michael Kaplan ruled that BlockFi users who had money in BlockFi’s interest-bearing accounts gave up ownership of their bitcoins — all they owned was a liability from BlockFi — and all of the $300 million in crypto deposits is now the property of the bankruptcy estate, as is normal. [Bloomberg]   

P2P exchange Paxful has resumed operations after it shut down last month amidst a messy dispute between cofounders Ray Youssef and Artur Schaback. The entire operation has been comedy gold. Youssef and Schaback say the exchange is now owned by a custodian — who they never actually name — and the custodian, Schabeck, and Youseff all serve as directors. [Paxful, archive; CoinDesk]

In the crypto bubble, Miami crypto companies boomed with the enthusiastic support of Mayor Francis Suarez. Now there’s empty real estate and lawsuits. “Most of crypto was a pyramid scheme,” said local businessman Ryan Kirkley. Suarez is now trying to lure tech startups into Miami instead. [WSJ, paywalled]  

Robert F. Kennedy Jr., who is running for US President on the gibbering insane Twitter blue check conspiracy theorist ticket, will be making the first appearance of his campaign giving the keynote at Bitcoin 2023 in Miami later this month. So, on brand then. [Twitter; NBC]

A propaganda movie is in the works for bitcoin mining — because consuming a country’s worth of electricity is actually good news for bitcoin. Based on the trailer, the film is amazing, but not in a good way. [Dirty Coin the Movie]

Media stardom  

Amy spoke to Bloomberg about the growing ranks of crypto skeptics after the crypto collapse: “There were a handful of us before, screaming into the abyss. Now there’s a lot more.” We’ll just be over here, quietly being right. [Bloomberg]

Posted on by Amy Castor 0

Crypto collapse: No cashing out from Binance US, Catherine Coley lawyers up, Voyager-Binance deal on hold, Celsius

  • By Amy Castor and David Gerard

“Unless they allow crypto crime, all the innovation in crime is going to go overseas, and we’ll fall behind in crime!”

— Doctor Orrery

Binance: This is fine

Your actual money has been locked in Binance US since late March: [Binance.US, archive] 

“Due to recent developments in the banking industry, Binance.US is transitioning to new banking and payment service providers over the next several weeks. Some USD deposit services will be temporarily impacted during the transition. Apple Pay and Google Pay deposits are temporarily unavailable. Wire deposits and withdrawals are temporarily unavailable. For <5% of customers, Debit Card deposits are temporarily unavailable. We are working to restore all services as soon as possible.”

BUSD trading pairs on Binance US are also suspended, and fiat withdrawals for institutional clients are cut off as well. [Twitter] 

Catherine Coley has shown up alive and well! Coley was the CEO of Binance US until April 2021, when she abruptly left the company. Coley hasn’t said a word to the press or social media since — to the point where crypto people wondered what had happened to her. In the wake of the CFTC suit against Binance, Coley has finally surfaced. She’s hired Sullivan & Cromwell partner James McDonald, a former director of enforcement at the CFTC, for the suit. Coley appears to have started working with McDonald as early as January 2022. [Reuters]

The Australian Securities and Investments Commission (ASIC) is conducting a “targeted review” of Binance’s Australian operation. Oztures Trading misclassified about 500 Australian retail investors as wholesale operators and sold them derivatives that were only for sophisticated investors. [AFR]

“Crypto warning: AK-47s, crooks, and the exchange Aussies should avoid” — David was quoted by news.com.au on the CFTC charges against Binance. “Regulators should also kick the company out of the banking system, cryptocurrency expert David Gerard said.” This story came out exactly as David had hoped it would. (Written by the other guy who originally started Rocknerd. We’re all in the rock journalist to finance journalist pipeline.) [Daily Telegraph, archive]

Voyager’s Binance deal is on hold

Voyager Digital wanted to sell itself to Binance US. The plan included an exculpation clause — that Voyager, the Unsecured Creditors’ Committee, Binance, and any professionals were not “liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or such distributions made pursuant to the Plan.” They wanted this bankruptcy court to grant them broad criminal immunity.

The US government and various regulators objected, and the February 28 version of the plan explicitly carved government action out of the exculpation provision. But the exculpation crept back into the March 2 version of the plan. The government and the regulators objected again, leading to this appeal. This time they are asking that the provision be removed, or else that the whole deal be blocked — at which point Voyager can only go into liquidation.

Judge Jennifer Rearden concurs with the government that exculpation is meant to head off suits between stakeholders in the bankruptcy itself — it’s not there for courts to “prospectively immunize debtors and non-debtors from law enforcement and other actions undertaken by the Government.” As such, she considered the appeal plausible, so has granted the stay. That said, Judge Rearden is painfully aware that Voyager is a melting ice cube, so she wants the government brief by April 4 (today!) and the Voyager and UCC briefs by April 14.

We wonder just what snakes are lurking in the deal such that Voyager and Binance tried to sneak in such a weirdly broad exculpation after it was already knocked back once. [Order & opinion, PDF]

Celsius Network

With less than an hour to go before Celsius’s exclusive right to propose a plan lapsed, Kirkland & Ellis filed the Celsius chapter 11 plan for the NovaWulf deal, which we summarized previously. On April 12, Celsius will file the disclosure statement, which the court has to approve before creditors can vote on the plan. The disclosure statement lists Celsius’ assets, liabilities, and business affairs. [Doc 2358, PDF; Plan summary, PDF]

Shoba Pillay, the examiner in the Celsius bankruptcy, has filed nicely hyperlinked PDFs of her interim and final examiner reports. [Interim report, PDF; final report, PDF]

Pillay’s work is done now. She’s been officially discharged. [Doc 2364, PDF]

Based on the jaw-dropping criminality in the examiner’s reports, the Celsius Unsecured Creditors’ Committee filed a suit on February 14 against past Celsius executives to recover as much money from them as possible. The UCC has now filed a revised complaint. The new filing includes a redline against the previous version of the complaint, starting at page 139 of the PDF — it mainly adds two extra claims of misappropriation. [Doc 2349, PDF]

Good news for casinos

Matt Damon says his crypto.com ad at the 2022 Super Bowl was just because his water nonprofit was short of cash. If only there was a way to do good except by doing a ton of bad! [Gizmodo]

BaFin has lifted a finger and kicked Crypto.com out of Germany. The Singapore exchange was licensed in Malta and wanted to use that license in Germany. But Germany also required that they get a permit to advertise the investment offer, which Crypto.com didn’t bother doing. [The Paypers]

The Bittrex crypto exchange is leaving the US market. The only reason they give is that “regulatory requirements are often unclear and enforced without appropriate discussion or input, resulting in an uneven competitive landscape.” [Bittrex, archive; The Block] 

We suspect the regulations Bittrex has in mind are very clear, and they just couldn’t survive with a legal business model. Bittrex’s volume dropped below 1% of the US market in 2021 and didn’t recover. Last year, they paid $53 million to OFAC and FinCEN for sanctions violations. [Treasury, 2022]

FTX EU LTD (Cyprus) launched a new website for withdrawals. The exchange will be returning funds on account to customers, per Cyprus law. This does not cover all EU customers — just those who were dealing with this particular FTX entity. [PR Newswire; FTX EU]

Paxful, a peer-to-peer bitcoin trading platform, is suspending operations. Paxful claims “regulatory challenges for the industry”— but also that “we unfortunately have had some key staff departures.” Did they depart in a police van, maybe?  [Paxful, archive]

Lost all your money in a dodgy crypto company? Why not trade your bankruptcy claims on a new exchange run by the guys who lost all your money! Brought to you by the founders of the defunct Three Arrows Capital and the troubled CoinFLEX, OPNX is currently only doing spot trading in cryptos but promises to bring trading in bankruptcy claims some time soon. None of the proprietors are in any way on the run and hiding out from regulators, you understand — but they’re all just doing business strictly from Dubai for now. Your lack of funds is safe. [CoinDesk]

The usual good news for bitcoin 

The US government sold 9,861 BTC connected to Silk Road, the first darknet market, on March 14. It intends to sell another 41,490 BTC in four batches over the course of a year. Tether coincidentally printed 2 billion USDT the same day — though the government will only accept real money. [Court filing, PDF; Twitter]

A South Korean court has once again denied the prosecutor’s request to issue an arrest warrant for Terraform Labs co-founder Daniel Shin. This was the second attempt made by South Korean authorities to arrest Shin following the arrest of Do Kwon, Terraform’s other co-founder. [Cointelegraph]

The Seoul Southern District Prosecutor’s Office has confiscated 210 billion KRW ($160 million) in assets — primarily real estate — from eight people connected to Terraform Labs, including Shin and former Terraform vice president Kim Mo. [KBS, in Korean]

Justin Sun of Tron turns out not to be Grenada’s ambassador to the World Trade Organization — he was kicked out when the new administration came in June 2022. So for the past nine months, the “H. E.” in his Twitter name must just have stood for something other than “His Excellency.” After the local news story reporting this came out, Sun first told The Block that he was totally still the ambassador — then tweeted how his term was actually ending as of March 31, 2023, y’see. OK. [GBN; The Block; Twitter]

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News: Craig Wright suing more people, exchanges respond by delisting BSV, and Arwen launches

I am trying to make my news posts shorter with an effort to focus mainly on cryptocurrency exchanges, unless something else comes up that is just fun to write about. If you enjoy my stories, tips are always welcome via Patreon.

At a hearing on April 18, Quadriga’s court-appointed monitor continued its battle with the exchange’s third-party payment processors to get them to hand over transaction records and funds. The court also extended Quadriga’s creditor protection until June 28.

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Dorian Nakamoto, one of those who turned out not to be Craig Wright.

Craig Wright, who claims to be Satoshi, is suing people who are accusing him of not being Satoshi. (Wright has yet to prove he actually is.) As mentioned in my last newsletter, it all started when Wright sued twitter user Hodlonaut. Wright has now followed with libel suits against Bitcoin podcast host Peter McCormack, Ethereum co-founder Vitalik Buterin and crypto blog Chepicap. (CoinGeek, a publication financed by Calvin Ayre, Wright’s billionaire backer, has a full story.)

Naturally, the Bitcoin community is up in arms. In response, Binance—an exchange that has been traditionally unselective in the coins it lists—has delisted BSV (stands for Bitcoin Satoshi’s Vision), the coin that resulted from the bitcoin fork spearheaded by Wright and Ayre. The move was followed by several other exchanges delisting BSV, including Kraken, ShapeShift and Bittylicious. Blockchain.info removed support for BSV from its wallet.

Kraken’s BSV delisting was in response to a poll it put up on Twitter. This quote from Kraken founder Jesse Powell is priceless. He says:

“In this case, it is a unique case for us, we haven’t delisted any other coins because the founders, people who are promoting it turned out to be total assholes.”

Angela Walch, a law professor at St. Mary’s University School of Law, compared the #DelistBSV movement to Visa and PayPal not processing Wikileaks transactions and expressed surprise the crypto world was cheering it.

Meanwhile Gemini’s Tyler Winklevoss says Gemini never listed BSV in the first place, and Chandler Guo, a Chinese miner who has made a fortune on ICOs and Bitcoin forks, announced that he would do the opposite and list BSV.

Crypto exchanges just aren’t pulling in the gazillions they used to. Binance generated about $78 million in profit last quarter, up 66 percent quarter-over-quarter. But that still falls short of full year 2018, when the exchange made $446 million in profits. Coinbase brought in revenue of $520 million in 2018, down 44 percent year-over-year.

Hacks, inside jobs and irreversible goof-ups are pushing some crypto exchanges to the brink. Coinnest, once South Korea’s third-largest exchanges, is closing. Users have until April 30 to get their funds off the exchange. Coinnest lost $5.3 million in a botched airdrop in January, though it blames its closure on low trading volume.

Elsewhere, on April 10, Bittrex’s application for a BitLicense (required to do business in New York State) was rejected—in part, because Bittrex customers were using fake names, like “Give me my money,” “Elvis Presley” and “Donald Duck” to trade.

Bittrex says the NY Department of Financial Services (DFS) “sent four people who didn’t know anything about blockchain.” DFS responded again, saying the exchange “continues to misstate the facts” and “presents a misleading picture about the denial.”

Binance is about to begin the process of moving its BNB (currently an ERC20 token) off the Ethereum network and onto Binance Chain, its custom blockchain. Interestingly, The Block’s Larry Cermak notes that Binance has quietly changed its white paper to remove a clause about the exchange using 20 percent of its profits to buy back BNB.

Arwen, a self-custody solution that uses on-blockchain escrows and off-blockchain atomic swaps to allow traders to maintain control of their keys while they trade, launched on Singapore’s KuCoin earlier this week. KuCoin raised $20 million in VC funding last year, and it is the first exchange to partner with Arwen, created by a company of the same name based in Boston.

Finally, Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, is reportedly eyeing a New York license for its crypto exchange Bakkt. The launch date for Bakkt has been delayed for months due to skepticism from the CFTC. The regulator appears most concerned over how tokens will be stored.

 

 

Posted on by Amy Castor 1