Can Binance Weather the Storm? ⛈️
Weekly News Recap: ⚖️ FTX's legal turmoil escalates, 🏛️ Bankman-Fried's juror scrutiny, 🎨 Stoner Cats NFT's hefty settlement, 💼 Celsius' courtroom battles, and more!
In this episode, Steven Ehrlich, the director of research at Forbes Crypto, delves deep into the challenges currently besieging Binance, the world's largest crypto exchange. From executive departures to legal confrontations, Binance is at a pivotal juncture.
Despite the turmoil, Ehrlich offers a beacon of resilience. “Crypto survived the collapse of FTX, it survived the collapse of BlockFi and Three Arrows and Celsius, and I can mention several others. It would also survive the collapse of Binance if that's actually what ends up happening."
Weekly News Recap
FTX Navigates Legal and Financial Turmoil
In the latest of a series of developing events, the collapsed crypto exchange FTX, which filed for bankruptcy last November, following alleged criminal mismanagement, is navigating through significant legal and financial turmoil. The exchange received approval from U.S. Bankruptcy Judge John Dorsey, in the District of Delaware, to sell $3.4 billion in crypto assets, including substantial holdings in Bitcoin, Ethereum, and Solana, to repay creditors and recover from a $7 billion deficit. In what appears to be a move to prevent spooking the market, the sale, managed by Galaxy Digital, plans to liquidate up to $100 million worth of tokens weekly, a figure that could potentially increase to $200 million, according to the plan.
Simultaneously, Bahamas-based FTX initiated legal action against cross-chain protocol LayerZero Labs, seeking to recover over $21 million in what its lawyers called "avoidable transfers" that occurred in the 90 days leading up to its bankruptcy declaration. A lawsuit alleges fraudulent agreements and share transfers orchestrated between FTX subsidiary Alameda Research's then-CEO, Caroline Ellison, and LayerZero. The exchange accuses LayerZero, its former chief operating officer Robert Litan and others, of attempting to circumvent Chapter 11 regulations and transfer substantial amounts of various tokens from Alameda to LayerZero’s control.
Also this week, a court filing covered by The Block disclosed FTX's substantial marketing and sponsorship payments to notable figures and organizations, including NBA Hall-of-Famer Shaquille O'Neal, Major League baseball Hall-of-Famer David Ortiz, tennis star Naomi Osaka, and NFL quarterback Trevor Lawrence among others.
Bankman-Fried's Defense Team Grills Jurors on Crypto Views
As the monumental trial of former FTX CEO Sam Bankman-Fried rapidly approaches, his defense submitted a series of probing questions to the U.S. District Court for the Southern District of New York, seeking to gauge jurors' opinions on cryptocurrency, their body language, and perhaps in a hat-tip to Bankman-Fried’s advocacy for the concept of selecting funding recipients based on data, so-called “effective altruism.”
Meanwhile, the Bankman-Fried’s defense alleged inaccuracies in the Department of Justice's claims regarding their client's laptop access during his incarceration. The legal team emphasized that he had a poor internet connection during the time period he was allowed to use a laptop, hindering his ability to prepare adequately for the trial. This comes amid accusations by the DoJ of witness tampering that have seen Bankman-Fried denied bail, with Judge Lewis Kaplan noting that the time pressure the defendant claims is "largely of his own making."
That’s a particularly harsh stance, since Bankman-Fried faces myriad charges including fraud, with potential imprisonment exceeding 100 years, and is slated to stand trial in less than a month, on October 3. As for Bankman-Fried, his defense team accused the DOJ of attempting to obstruct a fair trial by seeking to exclude proposed expert witnesses.
Stoner Cats NFT Project Agrees to Million-Dollar Settlement
The U.S. Securities and Exchange Commission (SEC) has clamped down on the Stoner Cats NFT project, promoted by notable figures including Mila Kunis and Ashton Kutcher. The project, which raised $8 million through the sale of 10,000 NFTs to finance an animated series, has been charged with offering unregistered securities.
Gurbir Grewal, the director of the SEC's division of enforcement, emphasized that the economic reality of an offering, not its label, determines its classification as a security. Orchestrated by Stoner Cats 2 LLC (SC2), the project utilized a potent marketing strategy, highlighting the creators' Hollywood credentials and potential high-resale values. It worked, with the collection selling out in just 35 minutes, and accumulating over $20 million in secondary sales.
Despite not admitting to any wrongdoing, SC2 has consented to a cease-and-desist order and agreed to pay a $1 million penalty, according to the SEC statement, which did not name the founders. Furthermore, the company pledged to establish a fund to reimburse impacted investors and to burn all Stoner Cat NFTs in its possession.
Crypto lawyer Mike Selig wrote in a social media post: “The SEC is looking at PFP offerings as akin to 2017 vintage ICOs. Same marketing mistakes can be deadly.”
This case marks another instance of the SEC's stringent oversight of celebrity-endorsed crypto ventures, such as the one backed by Kim Kardashian, who was fined $1 million for her role. Still, some are noting the irony that the SEC catches celebrities but misses the big blowups like FTX. Messari founder Ryan Selkis wrote on social media: “Your tax dollars at work.”
DCG Unveils Recovery Plan for Gemini Earn Users
Connecticut-based Digital Currency Group (DCG), the parent company behind the beleaguered lender Genesis Global, has put forth a proposal that could see users of Tyler and Cameron Winklevoss’s Gemini Earn program reclaiming between 95% to 110% of their assets. Whatever the amount ends up being, this initiative, filed on Wednesday, promises a significant recovery rate.
The recovery strategy hinges on the sale of 30 million shares of the Grayscale Bitcoin Trust (GBTC), valued at approximately $607 million, pledged as collateral by Genesis to Gemini. Gemini previously said it would help make its users whole up to $100 million if they weren’t paid out in full. The proposal comes amid a backdrop of legal disputes and regulatory scrutiny, with both Genesis and Gemini facing accusations from the SEC of selling unregistered securities. Despite the ongoing challenges, this proposal, pending approval, offers a glimmer of hope to affected investors.
Former Celsius CEO Battles FTC Lawsuit
In the latest development surrounding the beleaguered Celsius Network, former CEO Alex Mashinsky is embroiled in a series of legal battles. Following the freezing of his assets, including multiple bank accounts and a home, as ordered by the U.S. Department of Justice (DOJ), Mashinsky is now fighting back against a lawsuit filed by the Federal Trade Commission (FTC).
In a motion to dismiss the lawsuit filed on Tuesday, Mashinsky's legal team argued that the FTC has failed to substantiate any violations of laws or rules by him, emphasizing that the commission is not entitled to monetary relief. This move comes after Mashinsky faced severe charges, including securities fraud and wire fraud, leading to his arrest in July.
In related news, Roni Cohen-Pavon, Celsius' ex-chief revenue officer, pleaded guilty to several criminal offenses in the U.S., according to a report from Reuters. This verdict comes after accusations of engaging in fraudulent activities, including market manipulation and securities fraud, primarily concerning the inflation of Celsius' crypto token prices. Cohen-Pavon, who reportedly profited immensely from this scheme, now faces up to 65 years in jail.
Crypto Exchange CoinEx Grapples With Major Hack
Hong Kong cryptocurrency exchange CoinEx is believed to have been attacked by the North Korean hacker group Lazarus, according to blockchain security researchers SlowMist and ZachXBT. Initial estimates suggested losses of around $27 million, with later evaluations increasing to over $55 million drained from the exchange’s hot wallets. The Hong Kong-based exchange has assured users that their assets are secure and promised full compensation for the affected parties.
The exchange has temporarily halted deposits and withdrawals to enhance security measures and is actively investigating the incident, promising a detailed report soon.
Milady NFT Collection Suffers Exploit
The controversial Milady NFT collection, simultaneously known for its popular anime profile picture NFTs, and for its co-creator resigning after admitting to racist writings, encountered yet another setback this week. After co-creator, Charlotte Fang, confirmed in May that she pseudonymously wrote racist articles, and resigned from her leadership position, she surfaced on Monday, claiming on social media that an attacker had seized control of social media accounts associated with the project, including Miladymaker and Remilionaire.
In the social media post, Fang claimed an unnamed developer within the Milady ecosystem had orchestrated a scheme diverting about $1 million in fees from the Remilia Corporation, the supposedly decentralized autonomous organization (DAO) behind the Milady Maker project. This exploit primarily impacted the revenue generated from Bonkler, an experimental finance art project initiated in April 2023, according to Fang, who added that "only Remilia’s revenue from Bonkler was compromised." She claimed that the main contract, NFTs, and Bonkler reserves were still secure.
Fang vowed to pursue the culprits "with the heavy hand of the law.”
Paxos Embroiled in Record-Breaking Bitcoin Transaction Fee Blunder
In a startling error, crypto service provider Paxos has been identified as the entity that mistakenly paid a staggering 19.89 Bitcoin, approximately $500,000, in transaction fees to transfer a mere 0.008 Bitcoin, or about $200. This incident, which occurred on Sunday, set a new record for the highest transaction fee paid in a single Bitcoin transaction.
A spokesperson from Paxos confirmed the mistake to The Block, stating it was due to a bug in a single transfer and sought to assure users that efforts are underway to recover the funds from F2Pool, the mining pool that processed the transaction. The spokesperson emphasized: "Paxos clients and end users have not been affected and all customer funds are safe." However, an F2Pool cofounder has expressed annoyance and regret about initially agreeing to a refund, turning the matter over to a social media questionnaire.
FUN BITS
The founder of crypto exchange Thodex was sentenced to over 11,000 years in prison. Hear it from standup comedian Ginny Hogan.
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