SBF in Jail: Could a Plea Deal Be Next? 🔒
Weekly news recap: ⚖️ U.S. Court upholds Treasury's sanctions on Tornado Cash, 🚀 Coinbase fights SEC lawsuit, 💰 FTX and Genesis reach a $175 million settlement, and more!
Sam Bankman Fried, the founder of collapsed crypto exchange FTX, was detained for running afoul of his bail terms, including attempts to intimidate key witnesses like former co-CEO Caroline Ellison.
Lawyer Brian Klein joins Unchained to discuss how this detention changes the dynamics of trial preparation and why an appeal may not prevail. Klein also explores the possibility of SBF becoming more interested in a plea deal and the complexities of the case.
Now that he’s detained, “it makes it much tougher on the defense to prepare for trial,” Brian said.
Weekly News Recap
U.S. District Court Upholds Treasury's Sanctions on Tornado Cash
Yesterday, the U.S. District Court ruled in favor of the U.S. Treasury Department upholding sanctions against Tornado Cash, the decentralized privacy tool also used by money launderers, that was sanctioned by the Treasury Department's Office of Foreign Asset Control (OFAC) last year.
The lawsuit, backed by Coinbase and others, argued that the sanctions overstepped the Treasury's authority. The court argued that in spite of Tornado Cash being widely described as decentralized, it was still an "entity" that could be designated under sanctions regulations. The court also determined that smart contracts constitute property under applicable regulations.
Bill Hughes, a lawyer at Ethereum development firm ConsenSys, noted that the plaintiffs are likely to appeal to the Fifth Circuit. The decision marks a significant legal precedent in the ongoing debate over the regulation of decentralized technologies.
Coinbase Fights SEC Lawsuit as Industry Leaders Rally Support
On Monday, Coinbase launched the "Stand with Crypto Alliance" aiming to mobilize crypto supporters ahead of key votes in the U.S. Congress. The latest in a multifaceted defense against a Securities and Exchange Commission (SEC) lawsuit alleging it operated as an unregistered exchange, seeks to protect what the exchange’s executives believe are consumer rights to crypto and to advocate for clear regulation. In spite of being spear-headed by the largest cryptocurrency exchange in America, Coinbase’s chief policy officer Faryar Shirzad sought to frame the effort as a “grassroots” effort in a statement. In an earnings call initially reported by The Block earlier this month, Coinbase's Chief Legal Officer Paul Grewal said that while the exchange wanted to work with regulators it also expected to defeat them. "We do think we can win,” he said. “We expect to win.”
On Wednesday, Coinbase secured approval to list crypto futures in the U.S. from the National Futures Association (NFA), becoming the first crypto-focused platform to offer Americans regulated and leveraged crypto futures alongside traditional spot trading.
In related news, late last week, venture capital firms Andreessen Horowitz and Paradigm filed a joint amicus brief supporting Coinbase, expressing concern over what they described as the SEC's "regulatory overreach." A consortium of blockchain advocacy groups also argued that the SEC's lawsuit is an attempt to "usurp Congress’s authority," urging the judge to dismiss the case. As reported by Decrypt, Ji Kim, general counsel for the Crypto Council for Innovation advocacy group, criticized the SEC's attempt to "short-circuit the legislative process," highlighting ongoing congressional efforts to establish clear crypto regulations.
FTX and Genesis Seal $175 Million Settlement
On Wednesday, two bankrupt crypto giants FTX and Genesis reached a $175 million settlement, resolving a complex legal dispute involving intertwined loans and customer claims. Crypto lending firm Genesis, a subsidiary of Digital Currency Group, will pay the amount to FTX subsidiary Alameda Research, aiming to smooth FTX’S bankruptcy confirmation process.
The agreement eliminates the need for protracted litigation and provides near-term benefits to Genesis and its creditors. However, a coalition of FTX creditors calling themselves FTX 2.0 expressed discontent with the arrangement in a post Thursday, as Unchained previously reported. Nevertheless, the settlement marks a significant step in the crypto industry, reflecting the broader complexities and the need for clear legal frameworks.
Judge Torres Grants SEC's Request to Appeal in Ripple Case
The ongoing legal battle between the SEC and Ripple Labs has taken a new, though expected, turn as Judge Analisa Torres of the Southern District of New York allowed the SEC to file an appeal while the broader case proceeds. This decision follows a ruling that some of Ripple's XRP transactions did not breach securities laws. The SEC now has until August 18 to present its motion, with Ripple's response due by September 1.
The appeal specifically targets the decision regarding programmatic sales of XRP, or sales that happen automatically, usually with retail investors. Ripple's legal fight began in December 2020, and this latest development could have broad implications for the way regulators treat assets similar to XRP.
Valkyrie Seeks Ethereum ETF; SEC Delays ARK's Bitcoin ETF Decision
On Wednesday, digital asset exchange Valkyrie Funds filed with the SEC for a new Ethereum Strategy ETF, aiming to provide investors with capital appreciation by investing in ether futures and collateral investments, but not directly in ether. This comes as the SEC continues to delay decisions on spot bitcoin funds, including ARK Investment Management's proposal.
The regulator opened a 21-day comment period for ARK's 21Shares Bitcoin ETF, extending the wait for a decision on spot crypto ETFs in the U.S. While the SEC has approved funds linked to bitcoin futures, it has not yet allowed any spot crypto ETFs, a move that would let institutions otherwise prevented from investing in digital assets invest in securities that directly reflect the price of the assets.
Republicans Question SEC's 'Shady Approval' of Crypto Broker Prometheum
Republican lawmakers, led by the Chairman of the House Financial Services Committee, Patrick McHenry, are demanding transparency from the SEC and the self-regulatory body, the Financial Industry Regulatory Authority, known as FINRA, over the approval process for crypto broker Prometheum.
In a statement Wednesday, the lawmakers raised concerns over what they called the "timing and circumstances" of the approval, questioning why the previously little-known Prometheum was the sole entity granted a license under the SEC's special purpose broker-dealers (SPBD) framework.
The lawmakers also expressed concerns over national security risks due to Prometheum's reported ties to the Chinese Communist Party. Prometheum's co-CEO Aaron Kaplan has insisted that the firm followed the registration process like any other firm and says it will demonstrate compliance with current rules. The Committee has requested all documents related to Prometheum's approval by August 22.
Binance Seeks Protective Order Against SEC
Also on Monday, Binance, the world's largest crypto exchange, filed a motion for a protective order against the U.S. SEC, claiming the regulator is conducting what it described as a "fishing expedition" in its discovery requests. The motion, filed by BAM Trading, the holding company of Binance.US, seeks to limit the SEC to four depositions of BAM employees and prevent questioning on matters outside the scope of the consent order. "At bottom, the SEC is conducting a fishing expedition instead of seeking the narrow and 'limited' discovery authorized by the Consent Order to ensure customer assets are presently secure and available," BAM wrote in the filing.
In a separate development, Binance announced the shutdown of its buy-and-sell service Binance Connect, formerly known as Bifinity, starting Wednesday, August 16. The decision to shutter the service comes as the exchange plans to refocus on its main products and long-term goals. A spokesperson for Binance told Coindesk, "We consistently adapt and modify our business approach in response to changing market and user needs." Launched in March 2022, Binance Connect, let merchants accept 50 different cryptocurrencies and included support for payment methods including Mastercard and Visa.
CoinDesk Trims Editorial Staff by 45% Ahead of Potential Sale
Crypto media company CoinDesk is cutting its workforce by 16%, including 45% of its editorial staff, as it prepares for a potential sale of a stake in the publication according to an internal memo reviewed by The Block. In the message, CoinDesk CEO Kevin Worth said that the reduction was a "required step to ensure a financially sound business moving forward." The layoffs will impact 20 people, predominantly in the media team.
The move comes as CoinDesk, owned by Digital Currency Group (DCG), is reportedly close to a deal to sell a $125 million stake to a group of investors and is expected to be finalized in the coming weeks.
Silvergate Bank's Top Executives Depart Amid Ongoing Liquidation
Soon-to-be shuttered Silvergate Bank, previously known for its crypto-friendly services before it imploded earlier this year, announced in a regulatory filing the departure of three key executives amid ongoing liquidation proceedings. CEO Alan Lane, Chief Legal Officer John Bonino, and Chief Financial Officer Antonio Martino will leave their roles, with Lane and Bonino departing on August 15, and Martino stepping down by September 30. Kathleen Fraher, Silvergate's Chief Risk Officer, will take over as "Chief Transition Officer." The bank stated that the departures were not due to any disputes or disagreements.
The San Diego-based bank is in the process of winding down operations after reporting $1 billion in losses related to the collapse of FTX and facing several lawsuits. The bank's stock price plummeted by 44% following the announcement of voluntary liquidation in March, and has fallen 99% from its all-time high in November 2021 to $0.20 today.
Celsius Seeks User Approval for Restart as a User-Owned Entity
Meanwhile in New York, bankrupt crypto lender Celsius received permission from U.S. Bankruptcy Judge Martin Glenn to ask its account holders if they wanted the company to restart as a user-owned entity, according to a Bloomberg report. The plan, managed by TechCrunch founder Michael Arington’s Arrington Capital, would see around $2 billion worth of Bitcoin and Ethereum distributed to creditors, and customers repaid partly through equity in the new company.
Some creditors reportedly objected to the repayment plan throughout the course of the hearing, arguing they would be forced to take stock in a risky new venture. Judge Glenn's approval is contingent on Celsius advisors sharing information about the crypto industry's volatility and potential challenges to the firm's mining operation.
Prime Trust Files for Bankruptcy
On Tuesday, crypto custodian Prime Trust filed for Chapter 11 bankruptcy protection, marking a significant downfall for the Las Vegas-based company.
The collapse of the firm that once transacted $3.5 billion in a single month, was accelerated by regulatory intervention from the Nevada Financial Institutions Division (NFID), which placed Prime Trust under receivership in June due to insolvency and breaches of fiduciary duties. A failed acquisition attempt by rival Bitgo further destabilized the firm. "Prime failed to safeguard assets under its custody and cannot meet all client withdrawals,” stated the NFID. “As such, Prime had breached its fiduciary duties to its clients, in violation of Nevada trust laws.” The bankruptcy filing reveals liabilities between $100 million to $500 million, with the largest unsecured creditor claiming $55 million. John Guedry, former President of the Bank of Nevada, will lead restructuring efforts.
DeFiance Capital's $140 Million Dispute Heads to Singapore as 3AC Founders Face Dubai Fines
A $140 million legal dispute between bankrupt crypto hedge fund Three Arrows Capital's (3AC) liquidators and investment firm DeFiance Capital will be heard in Singapore, against the liquidators' wishes.
The disagreement centers around assets managed by DeFiance Capital, with 3AC's liquidators arguing they should be included in the bankruptcy estate, while DeFiance insists they should be treated separately. Singapore Judge Chua Lee Ming ruled in favor of hearing the case in Singapore, citing the location of crypto assets and the substantial creation of the trust in Singapore. DeFiance Capital founder Arthur Cheong expressed optimism, saying, "We are delighted...the High Court of Singapore agreed with our position."
Meanwhile, 3AC founders Kyle Davies and Su Zhu face fines issued by Dubai's Virtual Asset Regulatory Authority (VARA) over the OPNX exchange, amounting to around $2.8 million for violations of market regulations, with additional fines for executives. The Dubai regulator has emphasized potential further penalties or actions to recover the payment.
Uniswap Terminates Developer Over Alleged 'Rug Pull'
In the Big Apple, Uniswap Labs fired developer Allen Lin, known as "AzFlin," following allegations he orchestrated a rug pull on the FrensTech (FRENS) memecoin on Coinbase's Layer 2 network, Base.
Lin was accused of removing liquidity and moving 14 ETH ($25,700) off the Base chain through the Hop cross-chain protocol. Uniswap's founder and CEO, Hayden Adams, confirmed Lin's termination, stating it was "not behavior we support or condone." Lin defended his actions on social media, claiming he used his own money and was entitled to do as he pleased, but admitted that dumping the token was a mistake.
FUN BITS 😁
We’ve heard everything about SBF going back to jail. But don’t miss stand-up comedian Ginny Hogan’s take.
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