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A ‘use case’ is a fix for a problem you wish people had — Stephen Farrugia
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Coinbase gets out the conspiracy board
Coinbase strikes a blow against “Operation Chokepoint 2.0.” They will crack this conspiracy by … suing the Federal Deposit Insurance Corporation under the Freedom of Information Act. [Complaint, PDF, archive]
The FDIC sent letters to various banks asking them to stop dealing in crypto. History Associates, representing Coinbase, filed FOIA requests for the letters. The FDIC rejected the requests. History Associates is now appealing the rejection.
The FDIC rejected History Associates’ FOIA claim based on Exemption 4 — trade secrets and confidential commercial information — and Exemption 8 — “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.”
Exemption 8 is very broad but has consistently been upheld. Courts have ruled that Congress wrote a broad exemption because they meant it as a broad exemption. [Justice Department]
The complaint contains some facts and a lot of conspiracy theorizing and table pounding: “The Pause Letters are part of a deliberate and concerted effort by the FDIC and other financial regulators to pressure financial institutions into cutting off digital-asset firms from the banking system.”
Given that all four US bank failures in 2023 were crypto-involved, we think: well done, FDIC.
Coinbase and History Associates are also suing the SEC under the FOIA for details of its internal deliberations on whether ETH is a security, which the SEC rejected under Exemption 8. They also want more information on the SEC’s 2018 settlement with the EtherDelta decentralized exchange. [Bloomberg Law, archive]
Bill’s beautiful launderette
Bill Guan, the CFO of the Epoch Times, ran a crypto money laundering operation through the paper’s companies. This apparently supplied over three-quarters of the paper’s revenue in 2020. If you ever wondered how they could afford all those billboards … [Press release; indictment, PDF]
Guan ran the paper’s “Make Money Online” team. The MMO team would buy dirty money from crimes on prepaid debit cards from an unnamed crypto platform for 70 to 80 cents on the dollar. The MMO team would move the money through layered transactions and fraudulent bank accounts into Epoch Times accounts.
Guan lied to banks and crypto exchanges that the money was from subscriptions or even donations from Epoch Times supporters.
The Justice Department has gone out of its way to not name the Epoch Times and stresses that this action has nothing to do with the paper’s “news-gathering” operations — they’re nailing this all on Guan. The indictment notes that other parts of the company even asked Guan what was going on with all the debit card purchases.
Paolo’s beautiful launderette
Consumers’ Research is running a very loud and well-funded advertising and lobbying campaign against our good friends at Tether, saying they’re money launderers and sanctions busters and their backing is questionable. There’s billboards and seven-figure TV ad spend. The ad voiceover speaks of “preece manipulation.” [Tethered To Corruption; press release; YouTube]
It’s not clear who is behind this campaign. Consumers’ Research is a conservative propaganda nonprofit whose funding is laundered through a donor-advised fund — a way for rich people to make controversial donations without having their names attached.
We’ve asked other public critics of Tether and Consumers’ Research doesn’t seem to have contacted any of us at all. The consensus is that it looks like a single guy who is extremely personally pissed off at Tether for unclear reasons. A deal gone very bad, maybe? Bennett Tomlin summarizes what’s known. [Mailchimp]
Consumers’ Research is not wrong about Tether, though. The use case for tethers is still crime and sanctions evasion — in the latest case, Russian commodities firms settling with their Chinese counterparts. Russia’s invasion of Ukraine seems to depend on Tether supplying liquidity. OFAC should probably get onto that. [Bloomberg, archive]
FTX: Salame sliced
When FTX went down, it was incredibly obvious that this was a crime scene. All the FTX executive suite — except Sam Bankman-Fried — pleaded guilty and offered to cooperate with prosecutors in the hope of a lighter sentence.
Ryan Salame was too cool for that. He confessed to a smaller selection of crimes but didn’t agree to cooperate. Salame has now been sentenced to 90 months (seven and a half years) behind bars. After the sentence, Salame gets three years of supervised release. Judge Lewis Kaplan has ordered him to pay $6 million in forfeiture and $5 million in restitution. [Justice Department; Sentencing memorandum, PDF]
Prosecutors had recommended five to seven years. The Probation Office had recommended the maximum sentence of 120 months imprisonment, and evidently, Judge Kaplan was convinced.
The defense asked for no more than 18 months. LOL. [Sentencing memorandum, PDF]
FTX’s ripped-off customers are outraged at getting back only 100% of their stolen assets plus interest. So they’re suing for even more than that. They claim that because they had crypto supposedly on the exchange before the collapse — though in fact they did not, because Sam Bankman-Fried had stolen it — any cryptos recovered by John Jay Ray’s team must surely belong to them personally. [CoinDesk]
LessWrong and Effective Altruism web hosting company Lightcone hosted a “prediction markets” convention that just happened to be filled to the brim with race scientists from the Rationalist sphere and also failed to return donations from FTX to the bankruptcy. Whoops. The effective altruists are now falling over themselves to argue that it’s all okay, race-and-IQ theorists aren’t really racists, and kicking the racists out is bad. Also that Lightcone should probably have answered FTX’s letters about the money. [Guardian, archive; SFGate; Effective Altruism forum; Effective Altruism forum; Twitter, thread, archive]
The war on Terra
Do Kwon and Terraform have agreed on a settlement with the SEC for $4.5 billion and Judge Jed Rakoff has approved it. [Doc 271, PDF; letter, PDF; press release]
Total remedies — disgorgement, interest, and penalties — come to $4,473,828,306, which will become just another claim in Terraform’s Chapter 11 bankruptcy. Do Kwon must pay $204,320,196 out of his own pocket, which will go to investors.
Do Kwon is still in jail in Montenegro awaiting extradition. We already know that Milojko Spajic, the libertarian-leaning prime minister of Montenegro, was a crypto fan — photo opportunity with Vitalik Buterin and all — but It turns out that he personally bought $75,000 of LUNA in April 2018 and may well be the person keeping Kwon out of the clutches of the US or South Korea. [Bloomberg, archive]
Kwon said in 2023 how crypto “friends” of his had financially supported Spajic’s Europe Now Party. Kwon called it “a very successful investment relationship.”
Regulatory clarity
NYDFS guidance: virtual currency firms licensed in New York (that’s you, Coinbase) need to keep the Department of Financial Services updated on their responsiveness to customer complaints (that’s you, Coinbase). [DFS]
The US Treasury reports on the use of NFTs for “illicit finance.” The uses are not so much sanctions evasion, but more mundane criminal money laundering for frauds and scams. [Press release; Report, PDF]
Kanav Kariya has stepped down as President of Jump Crypto — “the end of an incredible personal journey.” By pure coincidence, this came four days after the CFTC was reported to be probing Jump Crypto’s trading. Jump was one of the heaviest US-based VIP users of Binance, served as a market maker for Terra and FTX, filled crypto orders for Robinhood, and seems to be a part-owner of TrueUSD. [Twitter, archive; Fortune, archive]
85 years old and still running Ponzis? Now that’s a work ethic. [Justice Department]
Still good news for bitcoin
The Gemini crypto exchange has been told by New York to pay back $50 million to Gemini Earn customers. Gemini is also now barred from lending crypto in the state. New York previously got $2 billion back from Genesis, who lost Earn customers’ money in the first place. The two settlements should leave Earn customers made whole! [Press release]
Robinhood is buying the European crypto exchange Bitstamp. [Bloomberg, archive]
Congressman Tom Emmer doesn’t think he can get US crypto legislation through this year. Oh well. [CoinDesk]
Bitcoin ETFs and ETPs have existed outside the US for many years, so the coiner insistence there was massive pent-up demand for a US-based ETF wasn’t such a plausible claim. And so ETPs in Europe have had net outflows every month this year. [FT, archive]
David Rosenthal writes on the bitcoin halving and how it actually worked out. [DSHR]
Watch Jackie Sawicky’s new Proof-Of-Waste Podcast! The first one features Peter Howson, author of Let Them Eat Crypto. [YouTube]
Daniel Kuhn, CoinDesk: well, the world has rejected crypto. But maybe we don’t want the world using crypto! Have you considered that, huh? Anyway, “adoption means following the law (which is often at odds with crypto’s values).” Well, yes. This opinion piece also looks to the philosophical wisdom of Roko Mijic, the creator of the mind-numbingly stupid Roko’s Basilisk thought experiment. [CoinDesk]
Amy Castor 
