Tag: Justin Sun

CoinDesk retracts stories about sponsors, makes implausible excuses

  • By Amy Castor and David Gerard
  • Send your sponsorship to the most incorruptible writers in crypto journalism — us. Here’s Amy’s Patreon and here’s David’s. It’s the only workable way!

On two successive days this month, CoinDesk retracted anonymous opinion pieces with weird and spurious explanations. Both stories just happened to be about companies who sponsor CoinDesk. The crypto world noticed, and it’s not happy.

Justin Sun

On August 27, CoinDesk pulled an article detailing Justin Sun’s concerning and questionable practices in the crypto space two days after it was published. The story was titled: “Justin Sun: The Next Do Kwon or Sam Bankman-Fried? The TRON founder has built a crypto empire that would cause collateral damage if it collapsed.” [CoinDesk, article archive of August 26, retraction archive of August 27]

CoinDesk editor-in-chief Kevin Reynolds claims the story was pulled because it didn’t meet CoinDesk standards. He even said that the story “never should have been published.”

This statement is simply not credible. The story was on a topic that was clearly in the public interest. It was extensively cited and backed with data.

The article was written by “awbvious awbvious,” the pseudonym of a “DeFi user and internet artist” — but it was also edited and reviewed before publication by two experienced CoinDesk editors: Ben Schiller (managing editor for features and opinion) and Daniel Kuhn (deputy managing editor for CoinDesk’s Consensus Magazine).

So how does a story that was reviewed by two competent editors suddenly not meet standards?

Reynolds says the story was a personal attack:

… we allow the use of anonymous sources and, from time to time, publish articles written under pseudonymous bylines, but with one very important caveat: we cannot grant the cloak of that identity protection to a writer who launches an outright personal attack against an individual.

The article is built around data-based claims. There are no personal attacks in the story. Reynolds is making statements about the story and its author that are clearly false if you read the actual article text — now safely available on an archive site out of CoinDesk’s control. [archive]

Reynolds claims he was invoking, and links to, CoinDesk’s little-used policy on not outing pseudonymous article subjects. We call this the Scammer Identity Protection Rule, because functionally it is. Marc Hochstein, former CoinDesk editor in chief and current Consensus executive editor, put the rule into place in 2020. [CoinDesk, 2020, revised 2023; archive, 2021]

This rule is mostly ignored in practice at CoinDesk — because it’s obviously stupid. Crypto is an area of finance that’s saturated with fraudsters. Knowing the players’ names is clearly in the public interest. Are you doing journalism or are you doing PR?

But the Scammer Identity Protection Rule doesn’t say a word about articles with anonymous bylines. Reynolds is citing and linking to a rule that doesn’t apply to what he’s just done: retracting an article.

So why did CoinDesk pull the story? The simpler explanation is that the WhiteBIT crypto exchange, controlled by Justin Sun, is one of the few remaining banner ad buyers on CoinDesk — and CoinDesk can’t afford to lose sponsors

CoinDesk may have been concerned that Sun was being compared to two people under criminal indictments. This is a reasonable objection — but the article easily could have been edited to the data-based claims, or to make it clearer that the comparison was in terms of systemic risk.

This would also have avoided a retraction that didn’t make coherent sense — a retraction that made absolutely sure that everyone in crypto read the article.

Chainalysis

The day before the Sun story was pulled, CoinDesk also retracted a pseudonymous op-ed about Chainalysis by crypto Twitter regular L0la L33tz: “Chainalysis Investigations Lead Is ‘Unaware’ of Scientific Evidence the Surveillance Software Works.” [Twitter, archive; CoinDesk, article archive of July 26, retraction, archive of August 26]

Here’s the article summary:

Elizabeth Bisbee, head of investigations at Chainalysis Government Solutions, testified she was “unaware” of scientific evidence for the accuracy of Chainalysis’ Reactor software used by law enforcement, an unreleased transcript of a June 23 hearing shared with CoinDesk shows.

… Bisbee said she was unable to provide the court with statistical error rates for Chainalysis’ Reactor software. She further denied being aware of any scientific peer-reviewed papers or “anything published anywhere” attesting to the accuracy of Chainalysis Reactor. Instead, Chainalysis reportedly judges its software’s accuracy using customer feedback, she said.

This is clearly newsworthy subject matter. It’s a story that makes factual claims about information that the news site saw concerning the administration of justice.

Bitcoin Magazine promptly reprinted the Chainalysis story when CoinDesk pulled it. Yahoo News still has the original CoinDesk version up. [Bitcoin Magazine; Yahoo] 

What’s really weird is that CoinDesk retracted the story a full month after it was published.

As with the Sun story, Kevin Reynolds’s retraction claimed that “we cannot grant the cloak of that identity protection to a writer who launches an outright personal attack against an individual.”

Reynolds also claimed: “Given that the very nature of the piece violates that standard — allowing us no way to merely correct the story and be done with it  — we are removing the story in its entirety.” [archive]

That’s curious — because when the retraction hit crypto Twitter and the article was reprinted in Bitcoin Magazine, CoinDesk suddenly found the ability to republish almost all of the article! [CoinDesk, archive of 29 August]

After his previous slander of L33tz, Reynolds realized people were watching his behavior and took care to note in his un-retraction: “It was not our intent to besmirch the reputation of the writer, who has for some time used the same pseudonym and built a reputation around it.” Wasn’t that nice of him.

Chainalysis just happens to be a portfolio company of Digital Currency Group, who (as of this moment) still own CoinDesk. Chainalysis also sponsors the 2023 Consensus conference and the CoinDesk GenC podcast. [CoinDesk, archive; CoinDesk]

“If you retract an article while you have such a huge conflict of interest, that’s just not okay,” L33tz told Gizmodo: [Gizmodo]

L0la L33tz told Gizmodo the article was received well by the editor she worked with and that she was encouraged to write more stories like it in the future.

L0la L33tz claims she only discovered the redaction after stumbling upon it online, saying that nobody at CoinDesk reached out to her to suggest corrections to alter the article or even to inform her that the story had been retracted.

There are no respectable media outlets in a crypto winter*

Leaving a story up for a month and then attempting to vanish it — without even contacting the author — is not competent behavior, individually or organizationally.

Reynolds’ retractions seem not only to slander the authors of these articles, but also to imply his fellow editors Ben Schiller and Daniel Kuhn were incompetent.

Whatever the true reasons for the retractions, they clearly weren’t anything to do with protecting pseudonymous article subjects or harsher rules on pseudonymous authors.

CoinDesk was building up a journalistic head of steam again — with amazing successes like taking down FTX, and the reputations of its best writers.

Whoever was responsible for this debacle has trashed the improvements to CoinDesk’s reputation in two days.

This all comes as CoinDesk is being sold to Peter Vessenes and Matthew Roszak’s consortium. (The sale is in the final stages, but hasn’t quite gone through as we write this.) Was this supposed to make the site more or less attractive to the buyers?

CoinDesk has always been a money-loser. The conference business is the only part of the site that makes any money. (DCG is keeping this bit and selling the rest of the site.) This is a precarious position to be in, especially in a crypto winter.

As we lamented about The Block’s troubles, you can’t make money in crypto news without becoming just another cog in the crypto PR machine.

People will always wonder who your funders are and what you’re doing for them — and they’ll be absolutely correct to do so.

We advise that you treat crypto media as ephemeral and subject to the whims of publishers who suddenly realize they’ve said too much. Always keep copies.

The first rule is still: archive everything.

——-

* except us, of course

Posted on by Amy Castor 2

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]

Posted on by Amy Castor 0

Do Kwon arrested, White House hates crypto, Coinbase Wells notice, SEC charges Justin Sun, Signature sold, FTX Bahamas party fund returns

  • By Amy Castor and David Gerard

“hello I am Don’t Kwoff, yes I may look like Do Kwon with a fake moustache and wig but rest assured I am a completely separate person.”

— Boxturret

Deploying more capital — steady, lads

Do Kwon, co-founder of Terraform Labs and creator of the failed UST/luna cryptocurrency pair that took down the rest of crypto when it collapsed, was arrested in Montenegro on March 23. Kwon was detained at Podgorica Airport with falsified documents. [Twitter; CoinDesk; YNA, in Korean]

Also arrested was Han Chang-Joon, Terraform’s former chief financial officer. The two were sitting in a private plane bound for Dubai when authorities nabbed them. They used forged travel documents from Costa Rica and also had documents from Belgium and South Korea on them. Three laptops and five mobile phones were also seized. [Pobjeda, in Montenegrin; DLNews]

Kwon was wanted by South Korea for violating capital market rules (by stealing everyone’s money). South Korea had also issued a “red notice” via Interpol, asking global law enforcement for help finding him. Kwon has been tweeting, talking to reporters, and insisting he was not on the run since September.

After South Korea stripped him of his passport, Kwon was suspected of being in Serbia. He was likely trying to flee the region before authorities caught up to him. [YNA, 2022, in Korean]

Here’s a video of Kwon and Chang-Joon leaving the Montenegrin court in handcuffs. [Twitter, video]

In February, the SEC charged Kwon with securities fraud over the UST/luna/Anchor Protocol scam.

Following Kwon’s arrest in Montenegro, the US Department of Justice also charged him with conspiracy to defraud, commodities fraud, securities fraud, wire fraud, and conspiracy to engage in market manipulation. [Complaint, PDF] 

Dark Brandon has had it with your blockchain malarkey

The 2023 Economic Report of the President is out, with Chapter 8 devoted exclusively to digital assets: “This chapter primarily examines crypto assets, whose proponents have been relearning the lessons from previous financial crises the hard way.” [White House, PDF, pp 237-272]

This chapter lays out the Biden administration’s policy toward crypto. It is strident, as you’d expect just after a huge disaster like FTX. This is the no-coiner view coming from the highest levels of power.

Crypto bros and their pet politicians have long claimed that if you overregulate crypto, you’ll kill innovation. The White House is saying that, for all the promises and hot air, there is no innovation here — so the path is clear to regulate the hell out of you. 

The chapter begins with crypto’s promises. Crypto assets could be investment vehicles. Crypto could offer money-like functions. Crypto could enable fast digital payments. Crypto could increase financial inclusion. Crypto assets could improve the US’s current financial structure.

“Could” is a word that means “doesn’t.” The report contrasts crypto’s claims with “the reality of crypto assets” — in which crypto falls flat in every instance.

Crypto is mostly used for speculative trading, the report states. The reason tokens are volatile is that many “do not have a fundamental value.” Bitcoin was supposed to be a hedge against inflation — but “as inflation increased globally in the second half of 2021 and in 2022, the prices of crypto assets collapsed, proving them to be, at best, an ineffective inflation hedge.” 

The report also goes through bitcoin’s failure as money — in part because you can’t have something both serve as a speculative asset and as money: “the riskier an asset is, the less likely it can effectively serve as money.”

Crypto’s main role in finance is to create new and ever-riskier derivatives with poor regulation. That’s where the “innovation” is. This carries a tremendous risk of economic contagion. The other innovative financial use cases are ransomware and money laundering.

Stablecoins are subject to run risk — just like a bank run — which could “lead to disruptions in the markets for the reserve assets and reduce the market value of the issuer’s remaining reserves because the sales of the reserve assets put further downward pressure on the prices of remaining reserves.” 

The report doesn’t miss the horrors of crypto mining either: massive energy waste, e-waste, and noise pollution. “Evidence suggests that cryptomining has substantial costs for local communities and has few, if any, attendant benefits.”

Blockchain, or digital ledger technology (DLT), isn’t magic either. It’s stupendously inefficient for supply chains — if the blockchain bit even does anything. Helium, the fraudulent wireless network project, was an a16z-funded token pump-and-dump.

DLTs are at best experimental. They could be of economic value in the future! Which means they aren’t at all in the present. A private, centralized blockchain is just a clunky, slow database.

One bit of actual news from the report: FedNow, the Fed’s new instant payment service due in July, shoots the idea of a US CBDC through the head, despite all of CBDC’s ill-specified hypothetical potential — “the benefits of circulating digital money after FedNow is launched may be minimal.”

Crypto could be all manner of fabulous things. It just isn’t actually any of those things in practice.

Crypto cannot be allowed to break laws in the pursuit of hypothetical tech-magic benefits — “regulators must apply the lessons that civilization has learned, and thus rely on economic principles, in regulating crypto assets.”

Coinbase guesses wrong about Earn

The SEC has sent Coinbase a Wells notice — a threat that action is imminent. This notice is about the current version of the exchange’s Earn product — the one that Coinbase said in its 10-K earnings call was definitely not a security, probably.

Coinbase’s previous Earn product got a Wells notice before launch, in September 2021. Coinbase didn’t post the notice itself that time — they blustered, then folded. But they posted the notice this time. [blog post; Wells Notice, PDF; 8-K]

Rarely do companies receiving a Wells notice make those notices public. The last crypto firm to disclose a Wells notice was Canadian chat app Kik in 2018, as it geared to do battle with the SEC over whether its KIN token was a security. The SEC sued. Kik went to court, and the judge ultimately ruled against Kik.

Paul Grewal, Coinbase’s chief legal officer, complains that Coinbase spoke to the SEC more than thirty times. Sure — but it turns out that if you sit down with a cop and tell him all the bad things you’re doing, he might be taking notes, and then he might tell you to stop doing the bad things.

Matt Levine thinks the SEC wants Coinbase to stop trading in securities at all, and possibly just go away: [Bloomberg]

If Bernie Madoff came to the SEC and said “if you want a higher class of more trustworthy Ponzi schemes, you will need to write a few new rules adapting the disclosure regime to Ponzi schemes,” the SEC would have said “no we absolutely do not want that, we want much less Ponzi scheming, and we certainly do not want to give our approval to Ponzi schemes by writing rules for them.” One gets the sense the attitude to crypto is similar.

… If you run a crypto exchange and you want to set up a meeting with regulators to talk about how to write regulations to prevent a repeat of the recent crypto collapses, they will not trust you, because that is what FTX was saying too. There is not much goodwill left.

John Reed Stark goes through Coinbase’s public response and why it’s nonsense. “Not only are Coinbase’s argument weak, misguided, and more akin to public relations than legal positions, but Coinbase’s arguments are also proven failures of crypto-mumbo-jumbo and ludicrous jaundiced rhetoric.” [LinkedIn] 

Dirty Bubble is shorting $COIN because it’s “a cash-burning regulatory nightmare with limited upside.” [Substack] 

Regulatory clarity

In a class action against the Uphold exchange, Judge Denise Cote in the Southern District of New York has found that the Electronic Funds Transfer Act applies to crypto, specifically Reg E of the act. This is a finding that this complaint in the class action can go ahead — but the order is very clear, and if this order isn’t used in later cases we’ll be amazed. Reg E provides consumer protections over unauthorized transactions, error resolution, and provision of receipts and periodic statements. Crypto exchanges are not at all set up for dealing with any of this — so they might want to get onto it. [Credit Slips; Order, PDF; Consumer Finance] 

In a letter calling Binance a “hotbed” of illegal activity, Senator Elizabeth Warren (D-MA) along with two other Senators had asked Binance to provide balance sheets, data on the number of US users, internal policies relating to AML, as well as written policies regarding the relationship between Binance and Binance US. Binance responded with a 14-page letter describing its compliance history — and saying it has a team of 750 compliance staffers! — without addressing financials. [Bloomberg] 

Crypto advertising in Belgium will need to be submitted to the Financial Services and Markets Authority ten days in advance for approval, from May 17. [FSMA]

The SEC has issued a new alert to investors: “Those offering crypto asset investments or services may not be complying with applicable law, including federal securities laws.” [SEC]

Fun in the Sun

The SEC’s really going for it lately. It’s charged Justin Sun of Tron with issuing unregistered securities  — the TRX and BTT tokens — and wash-trading those securities.

Eight celebrities have also been charged, including YouTuber Jake Paul and actress Lindsay Lohan, for illegally touting TRX and BTT without making the proper disclosures. You have to say what you’re being paid to tout for securities, as Kim Kardashian found out previously. [SEC press release; complaint, PDF]

Paul, Lohan, and four of the other celebrities agreed to pay a total of $400,000 to settle the charges. Sun did not settle. Instead, he tweeted that the charges lack merit. So, he’s going to fight this? [Twitter, archive]

Selling Signature for its organs

Signature Bank has been sold! Well, mostly. Flagstar Bank has acquired most of Signature’s deposits and some of its loans. Flagstar did not acquire $4 billion of deposits from Signature’s crypto operations — those are being left with the FDIC. The Signet inter-crypto-exchange network is also being left behind. [FDIC; Bloomberg]

The FDIC anticipates losses on its insurance fund of up to $2.5 billion. Approximately $60 billion in likely-bad loans will remain in the receivership for later disposition by the FDIC.

Senator Warren wrote another one of her letters to bankers, this time to Joseph DePaolo, the former CEO of Signature, on March 15. Warren asks DePaolo to describe the full scope of his lobbying efforts to roll back Dodd-Frank. She also wants to know details of executive bonuses, including if DePaolo received bonuses related to his efforts to limit the regulation of Signature. [Warren, PDF]

In 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, scaling back Dodd-Frank regulations. The Act exempted mid-size banks with under $250 billion in assets from strict regulatory scrutiny. By the time Signature collapsed, it was over the old threshold of $50 billion, but under the new one. Warren sees this as the main cause of Signature’s failure.

Patrick McHenry is chair of the House Financial Services Committee, which is investigating the collapse of Signature and SVB. Signature threw a fundraiser for McHenry 10 days before it collapsed. McHenry’s campaign has said it won’t process any of the donations from the event. [Bloomberg]

The Wall Street Journal tells the story of the last days of Signature. “On Sunday afternoon, March 12, the Fed told Signature that it wouldn’t lend it any more money.” [WSJ]

Why was Signature shuttered? Maybe it was insolvent, but insolvency isn’t the only reason regulators take over a bank. Dirty Bubble suspects the takeover relates to misuse of Signature’s Signet payment network. As well as FTX, the bank “collected a laundry list of other bad actors in the crypto space despite their allegedly strict KYC practices.” [Dirty Bubble] 

Freeing crypto from the legacy fiat system

After the demise of Silvergate and Signature, US crypto firms lament that they can’t find new banking partners. CoinDesk asked several banks about crypto — and those that bothered replying said they didn’t want crypto customers. [Bloomberg; CoinDesk] 

The Kraken crypto exchange will no longer support ACH transfers following the implosion of Silvergate. “Beginning March 27th, you’ll no longer see a deposit option via Plaid or withdrawal option via ACH Silvergate.” [Twitter; Reddit; CoinDesk]

The Australian Prudential Regulation Authority has told banks to improve their reporting on crypto assets and provide APRA with daily updates. [AFR]

The Federal Reserve has just published its full order denying Custodia Bank’s application for an account at the Fed. We’ll detail this more next time, but we’d summarize it as: “no way are we letting you bozos near the financial system.” [Federal Reserve, PDF] (Update, April 9: Our Custodia report is finally out!)

Return of the FTX Bahamas party fund

FTX US says that FTX Digital Markets (FTX DM) — FTX’s Bahamas entity, whose main practical role was to fund Sam Bankman-Fried’s partying — is a legal and economic “nullity,” and that its bankruptcy should just be folded into the US proceeding in Delaware.

The joint provisional liquidators (JPLs) in the Bahamas have apparently been threatening avoidance actions over payments made by the entities in US bankruptcy. The JPLs also applied in the Bahamas for a ruling that FTX US does not own “core assets.”

FTX US is asking Judge Michael Dorsey for declaratory judgments that FTX DM has no ownership interest in FTX’s cryptos, money, intellectual property, or customer information. In an adversarial preceding, FTX wants the court to assert that the assets lodged under the Bahamas unit were “fraudulent transfers,” and are therefore rightfully owned by FTX US. [Complaint, PDF]

We covered the tale of FTX’s very dodgy Bahamas entity previously. FTX US had reached an agreement with the JPLs, but that agreement appears to have failed. 

The US Trustee is appealing Judge Dorsey’s refusal to appoint an examiner in FTX. The bankruptcy appellate panel — three bankruptcy judges from another district within the circuit — will hear that appeal. [Doc 1123, PDF]

The FTX bankruptcy estate is set to get back $404 million from Modulo Capital, a hitherto-unknown Bahamas hedge fund that received $475 million in seed capital from Sam Bankman-Fried in 2022. The court needs to approve the deal. [Bloomberg]

Crypto is really a large derivatives market propped up by an ever-shrinking spot market. Traders want leverage. We predicted in December that a new crypto futures exchange would spring up to replace FTX. A new one hasn’t sprung up yet — but a number of existing exchanges are thinking of buying FTX-owned LedgerX to do this job for them. [Bloomberg]

Image: Dont Kwoff

Posted on by Amy Castor 1

News: Ripple paid Moneygram $11M, weird stuff going on with e-Payments, fraudster tries to buy Perth Glory, another bitcoin ETF bites the dust

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

Screen Shot 2020-02-26 at 5.27.45 PM
Filming at a coffee shop in Vancouver Monday.

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

pexels-photo-2570139As 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

LFE Founder Jim Aylward
LFE founder Jim Aylward on Twitter

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.

Canada’s central bank venturing into e-currency

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

Screen Shot 2020-02-26 at 9.39.31 PMFCoin, 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.

The agency claims that Seagal failed to disclose he was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his promotions. He even put out a cringe-worthy press release in 2018 titled “Zen Master Steven Seagal has become the brand ambassador for Bitcoiin2gen.” (SEC press release, Variety, CNBC)

Can someone check IOTA for a pulse?

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.

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News: Crypto Mom wants to give criminals a head start, IOTA’s meltdown, Lubin’s organism divides

As a reminder, I will be traveling to Vancouver on Feb. 22 to spend about a day and a half with David Gerard. We are being interviewed for a QuadrigaCX documentary. I know when we get there, we are going to wish we had more time to hang out and meet people in the area. Especially given how far Gerard has to travel (from London) and how beautiful Vancouver is. And with that, here is the news from the past week.

Crypto Mom wants to give criminals a head start

SEC Commissioner Hester Peirce (aka “Crypto Mom”) has unveiled her proposal to create a “safe harbor” for crypto startups, allowing them a three-year grace period after their ICO to achieve a level of decentralization sufficient to pass through the agency’s securities evaluations, specifically the Howey Test. (My story in Modern Consensus.)

Where to begin? Given that most, if not all ICOs are illegal securities offerings, this is like giving fraudsters free reign, so they can pump up their coins, cash in and leave the country. It’s like 2017 all over again. This whole notion of “sufficiently decentralized” is something that first came in mid-2018 when Bill Hinman, the SEC’s director, division of corporate finance, mentioned it in a talk he was giving about Ethereum. There is no clear way of defining “sufficiently decentralized.” It’s a murky concept to begin with. (See David Gerard’s story on Peirce. He goes into more depth and is not nearly so kind.)

Peirce is a Republican with libertarian leanings. Her term expires June 5. With a proposal like this and a nickname “Crypto Mom,” I can only assume she is buttering up for her next gig? Also, the odds of this rule passing are slim to none, especially given SEC Commissioner’s Jay Clayton’s strong criticism of ICOs in the past. 

IOTA’s meltdown

IOTA is in full meltdown mode. Apparently, IOTA founders Sergey Ivancheglo (aka Come-from-Beyond) and David Sønstebø were working on a ternary computing development project called Jinn. But it fell apart, and now the two can’t stop pointing fingers at each other. Ivancheglo says that he no longer works for foundation director David Sønstebø and is suing him for 25 million MIOTA (~ $8.5 million). Sønstebø wrote this really long Medium post, which I had trouble staying awake through. There is also a r/buttcoin Reddit post that spells out the full drama, if you’re in need of entertainment.

Given the maturity level demonstrated by this project in the past, I’m not surprised by any of this. The project has been a complete mess ever since they tried to roll their own crypto in 2017. I wrote about it for Forbes, and they attacked me with weird blog posts and other nonsense. Cofounder Dominik Schiener even threatened to slap me. And when confronted, he accused me of “leading the FUD race.” FT Alphaville actually covered this in a story titled “FUD, inglorious FUD” at the time. 

Researcher Sarah Jamie Lewis is calling on some journalist somewhere to do a deep dive on this sketchy project. “At a glance it’s really hard to not come to the conclusion that there is rampant criminal fraud afoot,” she said in a Twitter thread.

Ripple perpetual swaps

Bitmex has announced trading of XRP perpetual swaps. Bitmex co-founder Arthur Hayes apparently believes XRP is lowly enough to trade on his exchange. Boo-yaka-sha!

Speaking of Ripple, XRP lost almost half of its value last year. It’s a touchy topic for Galaxy Digital CEO Mike Novogratz, because he has invested $23 million into the coin. He recently told a group of financial advisers in Orlando that XRP will “underperform immensely again this year.” He suggested it’s because Ripple owns a giant pool of the coins and keeps selling them off in a situation he likened to shares. (CoinDesk)  

The total amount of XRP in circulation is 100 billion tokens. While Ripple was “gifted” 80 billion, its holdings are down to 56 billion, most of which are in escrow. The company unlocks one billion XRP each month, sells a portion and puts the rest back in escrow. Does that sound like shares to you?

Mastercard dumps all over Libra

Mastercard was one of several payments companies (along with PayPal, eBay, Stripe, Visa, Mercado Pago) to pull out of the Libra Association in October. In an interview with the Financial Times, Mastercard’s CEO Ajay Banga revealed why.

First, Libra Association’s key members refused to commit to avoid running afoul of local KYC/AML rules. Banga would ask them to put things in writing, and they wouldn’t. Second, he didn’t understand what the game plan was for making money. “When you don’t understand how money gets made, it gets made in ways you don’t like.” Finally, the financial inclusion bit struck him as odd. “I’m like: ‘this doesn’t sound right,’” he said.

This gives us a bit of insight into the lack of thought and planning Facebook put into its Libra project before going public with it. You would think a huge enterprise like Facebook would get this stuff right, but apparently not.

ConsenSys splits in two

images (1)Joe Lubin’s organism (that’s what he used to call it, an “organism) looks to be running into more funding trouble, so it’s going to spin off its venture arm. The company will basically become two separate businesses, a software business and an investment business. In the process, it’s also  cutting another 14% of its staff. This is after cutting 13% of its staff in December. (My story in Modern Consensus.)

At one time, ConsenSys had 1,200 employees. In mid-2018, it reportedly had 900. About 117 were let go in December, and likely another 100 in this last round. This is a company that midwifed many of the ICOs that fueled the 2017-2018 crypto bubble. I can still recall going to ConsenSys’ Ethereum Summit on a sweltering day in May 2017 and watching some guy on stage strip down to his boxer shorts. Such was the exuberance at the time.

ConsenSys now lists only 65 companies in its investment portfolio. When Forbes wrote this scathing article in late 2018, the company had 200 startups. Lubin’s science experiment is starting to unravel.

Justin Sun finally breaks bread with Buffet

On Thursday, Tron CEO Justin Sun tweeted a receipt and pictures to show he finally dined with Warren Buffet. This, after paying $4.6 million in a charity auction last year to have lunch with the multi-billionaire. They were originally supposed to meet in San Francisco six months ago, but Sun postponed. This time they had dinner on Buffet’s home turf in Omaha, so Buffet clearly learned his lesson. Other guests were Litecoin’s Charlie Lee, Huobi CFO Chris Lee, eToro chief Yoni Assia, Binance Charity Foundation Head Helen Hai. The bill was for $515 and Buffet left a $100 tip. (Modern Consensus.)

Craig Wright’s abuse of privilege

Craig Wright, the self-professed creator of bitcoin, is driving the attorneys representing Ira Kleiman and the judge bananas. In a document filed with the court on Feb. 2, plaintiffs claimed that Wright has asserted privilege over 11,000 company documents. That is only part of the problem, they said. “The vague descriptions of what is being withheld makes any meaningful analysis on a document by document basis impossible.”

Wright has also apparently claimed that the” bonded courier” is an attorney and any communications with this person of mystery is privileged as well. (Modern Consensus.)

Altsbit gets hacked

Exchange hacks are extremely rare. We don’t hear about them too often, only once every few weeks or so. The latest victim is a small Italian exchange called Altsbit, which had its hot wallet vacuumed clean last week.

This was especially bad for Altsbit, because for some inexplicable reason, the exchange was keeping almost all of its funds in its hot wallet, which is a terrible idea. Most exchanges keep the majority of their funds in offline cold storage for security purposes.

According to reports, the hackers stole 1,066 Komodo (KMD) tokens and 283,375 Verus (VRSC) coins. The combined value of both stands at about $27,000. That’s small potatoes compared to other exchange hacks, where hundreds of millions worth of coins have gone missing. Almost all of Altsbit’s trading activity was coming from the ARRR/BTC pair. (ARRR is the native token of the Pirate Chain.) Altsbit said in a tweet on Feb. 5, it was investigating details of the hack and would get back to everyone soon, but so far nada. The exchange was founded in April 2018.

Bakkt gets into payments

Bakkt, the ICE-owned bitcoin options and futures exchange, isn’t making any money on bitcoin options, but that’s okay because it has another plan. It’s going into payments. The exchange is set to acquire loyalty program provider Bridge2 Solutions. The master plan is to integrate reward points, crypto, and in-game tokens into a single app, so consumers get an aggregate view of their digital assets. Eventually consumers will be able to spend those as cash via the Bakkt mobile app. But for that to happen, Bakkt will have to invest copious amounts of money into marketing to get merchants to adopt the new system of payment. (My story in Modern Consensus)

Other news

What’s happening with Jae Kwon? As Decrypt reported on Jan. 31, he stepped down as CEO of Cosmos to work on a project called Virgo with lofty aims. Cosmos pulled in $17 million in an ICO in 2017. Now Kwon is tweeting under three different monikers and the people within his company have come to find his behavior untenable. (Coindesk)

U.S. Marshalls is auctioning off $40 million of bitcoin (~4,041 BTC) on Feb. 18. (Coindesk.) If you want to put in a bid, you’ll have to deposit $200,000 in advance. Here is the registration form for anyone interested.  

Another study has come out showing that proof-of-stake is just as costly as proof-of-work. But instead of contributing to global warming, PoS requires stakers to put down tokens, lots and lots of them. It’s more evidence that blockchains aren’t economical.

If you have comments or feedback on this newsletter or a tip, drop me a line or DM me on Twitter at @ahcastor.

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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. 

 

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News: EY goes after Quadriga’s payment processors, more exchange hacks, the SEC tells us what we already know

I had to take my website offline for a few hours Tuesday, so if you were searching for one of my stories and got a weird message, my apologies. I asked WordPress to downgrade my site from a business plan to a premium plan, and when they did, a bunch of my content disappeared, so I had to put Humpty-Dumpty back together again.

Big thanks to my now 18 patrons, who are making it easier for me to focus on writing about crypto. If you like my work, please consider supporting me on Patreon, so I can keep doing what I am doing.  

Now onto the news, starting with Quadriga, the defunct Canadian crypto exchange that I won’t shut up about. (Read my timeline to get up to speed.)

Ernst & Young (EY), the court-appointed monitor charged with tracking down Quadriga’s lost funds, released its fourth monitor report, which reveals more money going out then coming in. The closing cash balance for March was CA$23,268,411. Incoming cash for the month was CA$4,232, and total disbursements was CA$1,463,860—most of which was paid to professionals. A full half of that (CA$721,579) went to EY and its legal team.

EY is trying to chase down money held by Quadriga’s payment processors. It has drafted a “Third Party Payment Processor Order” for the court to approve on Monday. If that goes through as is, several payment processors, including WB21, will have five business days to handover funds and/or Quadriga documents and transaction data. If they don’t comply, they will be in contempt of court. A shift from CCAA to bankruptcy proceedings will also give EY more power to go after funds as a trustee. 

Christine Duhaime, a financial crimes lawyer who worked for Quadriga for six months in 2015 to early 2016, wrote “From Law to Lawlessness: Bits of the Untold QuadrigaCX” for CoinDesk, where she talks about how Quadriga went off the rails following its failed efforts to become a public company.

In the article, Duhaime—who in February called for a government bailout of Quadriga’s creditors (archive)—openly admits to having lost CA$100,000 in funds on the exchange. She claims her involvement with the exchange stopped in early 2016. “I’m glad we were let go by QuadrigaCX for being one of the ‘law and order’ folks,” she said.  

I have been corrected on detail here:

She does not mention this in her article, but in 2015, she also owned 20,000 shares of Quadriga stock. It is possible she has since sold the holdings.

Preston Byrne, an attorney at Byrne & Storm, PC, tweeted, “No offense to @ahcastor but this claim that @cduhaime may have owned shares in Quadriga looks to be incorrect. She’s listed as the principal contact for an SPV, and the SPV is the named purchaser. A retraction is in order.”

SPV stands for special purpose vehicle, typically used by firms to isolate them from financial risk. I’ve reworded the paragraph as follows:

This 2015 British Columbia Report of Exempt Distribution, a document of Quadriga Financial Solutions’ ownership, lists Duhaime as the contact for 1207649 B.C. Ltd, which owns—or owned—20,000 shares of Quadriga. I was unable to find the corporate files for 1207649 B.C. The address in the report matches that of Duhaime’s office.  

Update (April 9): I found the corporate files. The actual company name appears to be 1027649 B.C. Ltd.—with the numbers “2” and “0” transposed. The company was founded on February 16, 2015 and dissolved on August 1, 2017. The sole director is “Anne Ellis,” and the registered office is Duhaime Law.

According to court documents, Cotten and Quadriga co-founder Michael Patryn had been seeking to buy back shareholdings after Quadriga’s public listing failed, so it is possible one of them may have bought back those shares as well. I reached out to Duhaime for comment a few times, but she has not responded. 

Duhaime may have left Quadriga behind, but she continued to have business dealings with Patryn, who we now know is convicted felon Omar Dhanani. 

She and Patryn co-founded Fintech Ventures Group, which calls itself “an investment bank focused on digital currency, blockchain, and AI-focused technology.” According to a January 2016 archive of the company’s site, Duhaime was Fintech Venture’s “Digital Finance Maven & Co-Founder.” (Interestingly, former Quadriga director Anthony Milewski worked there, too, as the company’s “Investment Relations Extraordinaire.”) 

Duhaime and Patryn were also both advisors at Canadian crypto exchange Taurus Crypto Services, according to this June 2016 archive. (Milewski shows up here again, this time as an advisor.) The exchange was founded in 2014 and shut down in January 2017, when the business shifted to over-the-counter trades.  

Like Duhaime, Patryn also claims his involvement with Quadriga ended in early 2016. Although the Globe and Mail said that in October 2018, “it received an e-mail pitch from an ‘executive concierge’ company called the Windsor Group offering up Mr. Patryn for interviews to discuss virtual currencies and describing him as a Quadriga director.” Patryn told the Globe he did not know what the Windsor Group was, nor had he authorized anyone to pitch him as a Quadriga director, as he never served on the board.

Patryn had a personal website michaelpatryn.com, but it got taken down. Here is a 2011 archive and here is a 2014 archive. From 2016 on, the archives point to his LinkedIn profile, where he now goes by “Michael P.” having dropped all but the first initial of his last name. According to his LinkedIn, he has been an advisor for numerous cryptocurrency platforms going back to November 1999. I guess that means his work at Shadowcrew in 2004 and the 18 months he spent in jail for conspiracy to commit credit and bank card fraud and ID document fraud qualifies as advisory services.

Patryn appears to enjoy the limelight. Several reporters told me they had no trouble reaching him. At one point, Patryn even went into the “Quadriga Uncovered” Telegram group—basically, the lion’s den, where hundreds of pissed off Quadriga creditors sat waiting on their haunches —where I am told he calmly deflected accusations.

Meanwhile, I’ve been practicing my authoritative stare and baritone.

Other exchanges

Elsewhere in cryptoland, there have been a number of exchanges hacks. Singapore-based exchange DragonEx was hacked on March 24 for an undisclosed amount of crypto.

Blockchain data firm Elementus suspects that Coinbene, another Singapore exchange, was also hacked. On March 25, Elementus noted that $105 million worth of crypto was on the move out of the exchange. Coinbene totally denies it’s been hacked, claiming that delays in deposits and withdrawals are due to maintenance issues. 

A third exchange, Bithumb was hacked on March 30. The South Korean crypto exchange lost 3.07 million EOS and 20.2 million XRP, worth around $19 million. Bithumb thinks it was an insider job.

Helsinki-based LocalBitcoins, a once go-to for anonymous bitcoin transactions, has added know-your-customer (KYC) identity checks to comply with new laws in Finland. The change goes into effect in November. Per the company’s announcement, this is actually good news for bitcoin, because it will create a “legal status for crypto assets, which should improve significantly Bitcoin’s standing as a viable and legit financial network.”  

A study by reg-tech startup Coinfirm found that 69 percent of crypto exchanges don’t have “complete and transparent” KYC procedures. And only 26 percent of exchanges had a “high” level of anti-money-laundering procedures.

With crypto markets in the dumps, exchanges are looking for new ways to attract volume. To that end, San Francisco-based Coinbase is launching a staking service to lure in institutional investors. The service, which starts with Tezos (XTZ), will pay investors to park their money in XTZ. The coins are kept in offline cold wallets. The catch is that the interest will be paid XTZ, and of course, crypto is highly volatile. 

The price of XTZ went up 70 percent on the news.

Cryptocurrency exchange Binance is launching a new fiat-to-crypto exchange in Singapore later this month. (It’s been launching these crypto onramps all over the word.)

Binance also says it’s planning to launch its decentralized exchange (DEX) later this month. The DEX is built on a public blockchain, Binance Chain. Basically, Binance is looking to create an economy for binance coin (BNB), which is totally not a security.

Other interesting news bits 

Screen Shot 2019-04-05 at 11.03.29 AMThe the U.S. Securities and Exchange Commission issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets.” There is not a lot new to see here. A footnote in the document makes clear this is “not a rule, regulation, or statement of the Commission,” just some thoughts from the SEC’s staff about how they interpret existing securities laws. 

Stephen Palley, partner at law firm Anderson Kill, appeared on Bloomberg sporting a beard to explain the framework—definitely worth five minutes of your time to listen to.

Justin Sun, the founder of blockchain project Tron, bungled a Tesla promotional giveaway. After a widespread cry of foul play, he decided to make it up to everyone by giving away—two Teslas. This wasn’t the first time a Tron promotion raised eyebrows.

Nocoiner David Gerard wrote a Foreign Policy piece on “How Neo-Nazis Bet Big on Bitcoin (and Lost)” that was translated for Newsweek Japan.

The ever outspoken Jackson Palmer did a good interview with Epicenter Blockchain Podcast on the history of Dogecoin and the state of cryptocurrency in 2019.

Nicholas Weaver, who gave the “Burn it with Fire” talk at Enigma, spoke to Breaker about why cryptocurrencies don’t really work as currencies.

Finally, Dream Market, the last standing marketplace from the once infamous “big four” sites that dominated dark web trading in the mid-2010s, announced plans to shut down.

 

 

Posted on by Amy Castor 1