CZ Backs Off a $1 Billion Deal
Weekly News Recap: 🎤 Coinbase fights the SEC, 📄 legal battles surround Terra, 🫰 the auction for Celsius Network's assets, and more ❕
Coinbase's Legal Action Against the SEC: How It Will Likely Unfold
On the Friday episode of Unchained, law professor J.W. Verret discusses the implications of the case, whose purpose is partially to document SEC actions.
“If this goes up to the Supreme Court, I think this builds a record that maybe allows the Supreme Court to change Howey test itself,” he said.
In the episode, Verret explains the various potential ways this case could go, which doctrine could be used as a defense for crypto companies like Coinbase and Ripple, and why the Kraken settlement was a symbol of overreach on the part of the SEC. Be sure not to miss this episode!
Weekly News Recap
Coinbase Challenges SEC's Allegations
One bit of news on Coinbase vs. the SEC broke after I wrapped my interview with JW. Apart from trying to push the U.S. Securities and Exchange Commission (SEC) to provide more rules, Coinbase has warned the agency led by Gary Gensler that it will be a "well-resourced adversary" if an enforcement action is pursued against the company. In response to the SEC's March Wells notice, Coinbase's Chief Legal Officer, Paul Grewal, stated, "We didn't pick this fight." Chair Gensler has argued that most digital assets are securities and that existing rules are clear, while Coinbase has countered that the SEC is making decisions about alleged legal violations "on the fly." Coinbase's arguments revolve around the notion that cryptocurrencies listed on the exchange are not securities, contrary to Gensler's claims.
Binance.US Calls Off $1 Billion Voyager Deal
Binance.US has terminated its $1 billion asset purchase agreement with bankrupt crypto lender Voyager Digital, citing a "hostile and uncertain regulatory climate" in the U.S. In response, Voyager stated on Twitter that its Chapter 11 plan allows for direct distribution of cash and crypto to customers via the Voyager platform, and will provide information on next steps to reimburse creditors through direct deposits. Binance.US will be required to destroy all Voyager customer information it has received under the terms of the deal.
The termination comes despite an April 20th agreement between Voyager's creditor committee and the US government allowing the deal to proceed as planned. It also had the approval of the vast majority of Voyager creditors who voted and bankruptcy judge Michael Wiles.
Separately, crypto news site Forklog reported that Binance lifted restrictions imposed on Russian users over a year ago, allowing them to use locally issued Visa and Mastercard credit cards for deposits on the platform.
According to the New York Times, Binance CEO Changpeng Zhao hired personal legal representation from Latham & Watkins as the exchange faces multiple investigations and regulatory scrutiny in the United States. CZ has also been in the news due to his allegedly huge fortune. Bloomberg reported that the Asian founder’s net worth is over $28 billion, but CZ denied it. “Numbers all wrong," he tweeted. "I don't have anywhere near as much.”
FBI Searches Home of Ex-FTX Executive Ryan Salame
The FBI conducted a raid on the home of former FTX executive Ryan Salame in Potomac, Maryland, as reported by the New York Times. Salame, who was previously co-CEO of FTX Digital Markets, the exchange's Bahamas operation, has been under scrutiny for $24 million of campaign contributions during last year's midterm elections. This search is part of an ongoing federal investigation into the collapse of FTX and its former CEO Sam Bankman-Fried, who has been indicted for fraud and illegal campaign finance schemes. Three former FTX top executives have already pleaded guilty and agreed to cooperate against Bankman-Fried.
LedgerX to Be Sold for $50 Million
This week, FTX agreed to sell its derivatives platform, LedgerX, to an affiliate of Miami International Holdings (MIH) for $50 million, subject to US bankruptcy court approval on May 4. John J. Ray III, CEO and restructuring head of FTX, expressed satisfaction with the agreement, which aims to deliver recoveries to stakeholders.
In related news, US District Judge Lewis Kaplan approved alternate software to monitor the cell phones of Bankman-Fried's parents, following SBF's revised bail conditions. The software will log keystrokes, track unauthorized applications, and monitor calls. A technical consultant will review the data thrice a week and report any unauthorized activity. This development puts an end to countless comings and goings on the topic.
Lastly, the Bahamas is proposing stricter digital asset regulations following criticism related to FTX's collapse. The Securities Commission of the Bahamas opened a consultation on the Digital Assets and Registered Exchanges (DARE) Bill, which includes expanded definitions of digital asset businesses, disclosure requirements for crypto staking, and tighter requirements for stablecoin issuers. The bill aims to ensure that crypto exchange operators have adequate and appropriate systems and controls in place.
Legal Battles Surround Terra
A South Korean District Court court ruled that Luna Classic (LUNC) is not a security, prompting Korean prosecutors to seek a judgment from the country's Supreme Court. According to the judge, LUNA (now LUNC), cannot be considered an investment product regulated under the Capital Markets Act.
In a related development, attorneys representing Terra cofounder Do Kwon requested a US court to dismiss charges brought against him by the U.S. SEC. Kwon's legal team argued that the agency lacks jurisdiction and that the digital assets involved, such as the UST stablecoin, are currencies, not securities. The SEC has until May 12 to oppose the motion to dismiss.
Finally, South Korea has indicted Terraform Labs cofounder Daniel Shin (no relation of mine) and nine others on multiple charges, including capital markets law violations, in connection with the Terra project. Prosecutors have frozen around $185 million in assets from the accused individuals. Shin's lawyer, Kim Ki-dong, maintains his client's innocence, stating that Shin left the company two years before the collapse and has cooperated with the investigation.
Circle Launches Cross-Chain Transfer Protocol
Circle has launched the Cross-Chain Transfer Protocol (CCTP) for Ethereum and Avalanche, enabling seamless USDC transfers between these blockchains. This protocol simplifies asset transfers and improves liquidity by avoiding the need for traditional lock-and-mint bridging methods. Circle's CEO, Jeremy Allaire, celebrated the launch on Twitter, calling CCTP its "most important new piece of blockchain infrastructure since the launch of USDC."
Despite the milestone, Circle faces a regulatory hurdle as their its for accessing the New York Federal Reserve's reverse repurchase program has taken a hit. A policy change now deems funds organized for a single beneficial owner, like Circle's BlackRock-managed USDC reserve fund, generally ineligible. The reverse-repurchase program allows selected counterparties, such as money-market funds and banks, to lend overnight to the Fed at a fixed rate, offering a high yield with minimal counterparty risk. It remains to see whether this will affect Circle.
Coinbase and Gemini Enter Battle for Celsius's Assets
Two new consortiums, including major crypto exchanges Coinbase and Gemini, have joined the bidding race for bankrupt crypto lender Celsius Network's assets. One of the new bidding groups, the Fahrenheit consortium, is backed by venture firm Arrington Capital, former Algorand CEO Steven Kokinos, and investment banker Ravi Kaza. Arrington Capital CEO Michael Arrington said on Twitter that it would be structured as a new company with plans to grow assets for stakeholders.
The other contender for Celsius’s assets is the Blockchain Recovery Investment Committee, supported by Gemini, Van Eck, Plutus Lending, and other investors. These additional bids pose a challenge to NovaWulf's existing reorganization plan, which proposed returning 70% of funds to Celsius customers. The auction began April 25 at Kirkland & Ellis' offices in New York. Insiders believe one of the two new consortiums is most likely to win the auction because they are backed by established crypto operators.
Genesis and DCG Pursue Mediation
Bankrupt crypto lender Genesis Global Holdco and parent company Digital Currency Group (DCG) have sought a mediator in their ongoing bankruptcy case. According to DCG, a "subset of creditors" rejected the restructuring agreement reached in February, which will likely prolong the court process. Genesis has requested immediate mediation, as DCG owes the firm $630 million in fixed-term loans due in May 2023. In a tweet thread, Ram Ahluwalia of Lumida said, “There is now not enough time to get a new TS, definitive docs, and forebearance in place. This creates a scenario for DCG default risk.”
In related news, several major creditors of troubled Singaporean crypto lender Hodlnaut, including the Algorand Foundation, have expressed their preference for liquidation over restructuring. The Algorand Foundation, which has $35 million in exposure to Hodlnaut, previously stated that liquidation would "maximize the company's remaining assets available for distribution."
OPNX Investor List Controversy Grows Amid Funding Denials
The newly launched crypto bankruptcy claims exchange OPNX has encountered controversy after revealing its list of major investors, which supposedly included venture arms of Susquehanna International Group (SIG), DRW, and others. However, several of these alleged investors have since denied their involvement in OPNX's fundraising round. A spokesperson for SIG stated, "We have not provided any funding to OPNX and have no intentions to do so." DRW also confirmed via Twitter that neither the firm nor its affiliates are investors in OPNX. AppWorks, another named investor, clarified that their equity in CoinFLEX was forcibly converted to OPNX and they have not committed capital to the new entity.
OPNX was founded by Three Arrows Capital (3AC) cofounders Kyle Davies and Su Zhu, who partnered with CoinFLEX founders Mark Lamb and Sudhu Arumugam. The exchange claims to have raised $25 million from investors, but the recent denials have cast doubt on the accuracy of its funding claims.
Former Coinbase Employee Seeks Reduced Sentence in Insider Trading Case
Ishan Wahi, a former Coinbase product manager, has requested a jail sentence of no more than 10 months for insider trading charges. Wahi pleaded guilty to sharing details of upcoming Coinbase crypto listings with his brother and another contact. His lawyers cited significant public attention, Wahi's previous law-abiding life, and mental health conditions as reasons for leniency. Wahi's sentencing hearing is scheduled for May 9 in New York.
Yuga Labs Wins Legal Battle Over BAYC Copycat NFTs
Bored Ape Yacht Club creator Yuga Labs has claimed a "landmark legal victory" against Ryder Ripps and Jeremy Cahen over their copycat RR/BAYC NFT collection. A federal judge ruled in favor of Yuga Labs, entitling it to an injunction and damages for trademark infringement. Ripps and Cahen argued their project was a parody and protected by the First Amendment, but the court disagreed, stating their sale of RR/BAYC NFTs was not artistic expression.
Merlin DEX Rugpull Results in $1.8M Loss Despite CertiK Audit
ZkSync-based decentralized exchange (DEX) Merlin suffered a $1.8 million loss during the public sale of its MAGE tokens, in what appears to be a rugpull incident. The funds were drained from Merlin's liquidity pool despite a recent audit by blockchain security firm CertiK, which is now collaborating with Merlin to initiate a compensation plan for affected users. The rogue developer behind the exploit is believed to be based in Europe, and CertiK has urged them to return 80% of the stolen funds in exchange for a 20% white-hat bounty.
FUN BITS 😁
Ginny from Unchained gives us her own take on the SBF bail monitoring situation.
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