🧱 The Walls Close In on SBF 🧱
Weekly News Recap: 🏛️ SEC clears Ripple execs, 🗽 NY Attorney General targets Gemini and Genesis, 🔄 Uniswap's new fee sparks debate, 📉 Reddit ends community points, and more!
As the courtroom drama unfolds in the third week of Sam Bankman-Fried's high-stakes criminal trial, the defense faces an uphill battle. Legal expert Sam Enzer offers a grim assessment: "This is not going well for SBF. The evidence is utterly overwhelming. I don't think there has been a cohesive theme or narrative to the defense."
With emotionally charged testimony from former FTX head engineer Nishad Singh and incriminating insights from ex-chief legal counsel Can Sun, the defense's narrative appears increasingly fragmented. The jury's attention is now riveted not just on the question of Bankman-Fried's guilt, but also on the mounting evidence that could further tarnish his reputation. As the trial gains momentum, the looming question is whether the defense can salvage any credibility in the face of such overwhelming evidence.
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Weekly News Recap
NY Attorney General Targets Gemini, Genesis, and DCG in Billion-Dollar Fraud Case
In a sweeping legal action, New York Attorney General Letitia James has filed a lawsuit against cryptocurrency firms Gemini, Genesis Global Capital, and its parent company, Digital Currency Group (DCG). The lawsuit alleges that these companies defrauded more than 230,000 investors, including at least 29,000 New Yorkers, out of over $1 billion. The core of the case revolves around an investment program called "Gemini Earn," which was promoted as a low-risk venture. However, internal analyses revealed that Genesis was financially unstable, a fact that was not disclosed to investors.
On Thursday, New York Attorney General James, alleged in a statement, that "these cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result." The lawsuit also implicates Soichiro Michael Moro, former CEO of Genesis, and Barry Silbert, CEO of DCG, accusing them of attempting to conceal over $1.1 billion in losses.
The legal action, being pursued at the same time James is prosecuting former U.S. President Donald Trump for alleged fraud, seeks to ban all three companies from the financial investment industry in New York and is asking for restitution for defrauded investors.
SEC Drops Charges Against Ripple Executives, Marks Third Consecutive Win for the Company
The U.S. Securities and Exchange Commission (SEC) has dismissed all allegations against Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen, the company said in a statement on Thursday afternoon. This marks the third consecutive legal victory for Ripple, following a July 2023 ruling that the programmatic sales of the XRP token to retail investors through exchanges are not security transactions. The SEC had previously attempted an appeal, which was also denied.
While many saw this as bullish for Ripple, crypto lawyer Katherine Kirkpatrick offered some caution. She wrote: "The SEC has voluntarily dismissed the case against Ripple senior execs. This means they can proceed to appeal the Ripple decision much sooner--otherwise they would have had to wait until the conclusion of that trial in the late spring."
Crypto Markets Rocked by False Bitcoin ETF Approval
The crypto community experienced a rollercoaster week, beginning with heightened optimism last Friday. The U.S. Securities and Exchange Commission (SEC) chose not to appeal a court ruling on Grayscale's Bitcoin Trust conversion to a spot ETF, fueling investor confidence. Bitcoin saw an immediate reaction, narrowing Grayscale Bitcoin Trust's discount to 12.5%, according to YCharts, meaning there are more shares on the market than people who wanted to buy them. That’s a far cry from the 43% premium GBTC was trading at in July 2019, also according to YCharts, but a 74% increase from the all-time-low last December of a 49% discount.
However, the jubilance was short-lived. Early Monday, a tweet from news site Cointelegraph falsely claimed that BlackRock's Bitcoin spot ETF had received SEC approval. The misinformation propelled Bitcoin from $27,900 to over $30,000 within minutes, only to revert to $28,103.80 after the tweet was, first edited to read “reportedly,” and then deleted. In the meantime, $136 million worth of short contracts liquidated as the price rose, according to data from Coinglass, and another $51 million was lost when it dropped.
Cointelegraph later issued an apology, claiming an internal investigation was underway and that their standard procedure for verifying sources was not followed. The false news led some on social media to wonder if the market may have been intentionally manipulated.
Uniswap Introduces New Fees, Ignites Community Debate
On Monday, Uniswap Labs, developer of the open-source Uniswap protocol, announced a 0.15% swap fee on the user interface it built for the Uniswap marketplace, including trading pairs, ETH, USDC, USDT and WETH, among others. Founder Hayden Adams wrote on social media that the fee aims to "continue to research, develop, build, ship, improve, and expand crypto and DeFi," and is separate from the Uniswap Protocol fee governed by UNI token holders. The fee applies only to trades made through Uniswap Labs’ web and mobile interfaces, which account for 35-40% of all trades on the platform.
Notably, the move comes after a failed governance vote earlier this year to activate fees to use the Uniswap protocol.
The UNI token holders were promised governance rights and the ability to propose and vote on code changes to the Uniswap protocol that now ties together a network of 300 applications built on the open source software. Each app is able to monetize how its developers see fit. Despite their role in governance, UNI token holders won't benefit from the new revenue stream. The gray area that arises from Uniswap Labs both building the protocol itself, and the largest app on the protocol, has sparked a heated debate within the crypto community.
Supporters like AJ Warner, Chief Strategy Officer at Offchain Labs, commend the fee as a positive step for Uniswap's continued development. Critics argue that the fee neglects UNI token holders who originally acquired their tokens through liquidity provision, purchase on exchanges, or via airdrops. Investor Adam Cochran went so far as to joke that thanks to the shift in focus on rewarding app users, the 24th largest token by market cap, UNI token, with a market cap of almost $3 billion, should now be featured in the meme coin section of Coingecko.
Reddit Axes Community Points, Sparks Outrage and Market Fallout
This week, Reddit announced the discontinuation of its Community Points program that sought to help hosts of Reddit communities, called Subreddits, create their own tokens. The decision caused immediate market repercussions. The Ethereum-based tokens MOON and BRICK, specific to the r/Cryptocurrency and r/FortniteBR subreddits, saw their values plummet by 84% and 40%, respectively.
The abrupt end to the Community Points program has left many questioning the platform's commitment to its user base. The decision has been met with strong backlash from the Reddit community, with users expressing sentiments like "a rug pull is not taken lightly" and "you guys crushed thousands of people’s dreams and fortune within seconds."
Crypto Under Scrutiny: Tether Freezes Assets, Lawmakers Urge Action Against Terrorism Financing
This week the crypto industry experienced a concerted effort to combat illicit activities. Tether, the issuer of the world's largest stablecoin USDT, froze 32 addresses linked to suspicious activities in Israel and Ukraine, containing around $873,118. Newly appointed Tether CEO and longtime figurehead Paolo Ardoino wrote in a blog post on the company’s site: "Cryptocurrency is a powerful tool, but it is not a tool for crime."
As reports indicate that Hamas may have raised millions through crypto ahead of attacks in Israel., U.S. Senator Elizabeth Warren joined over 100 lawmakers in sending a letter to the administration of U.S. President Joe Biden, expressing concern over crypto-financed terrorism. The letter urged for "strong action to thoroughly address crypto illicit finance risks." The U.S. Treasury also imposed sanctions on Gaza-based crypto businesses for alleged support to Hamas, according to a CoinDesk report.
FTX Outlines $9 Billion Reimbursement Plan for Customers Amid Bankruptcy Proceedings
FTX's bankruptcy estate put forward a significant update in its ongoing Chapter 11 case. According to a court filing dated October 16, FTX aims to pay out an $8.9 billion "shortfall claim" to FTX.com customers and $166 million to FTX.US customers as early as the second quarter of next year. John J. Ray III, CEO and Chief Restructuring Officer of the FTX Debtors, described the settlement as a "major milestone," adding that it "created enormous value from a situation that easily could have been a near-total loss for customers."
The plan proposes to divide FTX's assets into three pools: one for FTX.com customers, another for FTX.US customers, and a general pool for other assets. Customers who withdrew over $250,000 within nine days before FTX's bankruptcy declaration will see a 15% reduction in their claim value. While the plan estimates that both priority and non-priority claimants could receive over 90% of the distributable value, it also notes that customers will not be fully reimbursed, with FTX.com customers expected to face greater percentage losses. FTX’s founding CEO, Sam Bankman-Fried last year told Forbes he received “bad legal advice” when he filed for bankruptcy. As we learn more about Bankman-Fried’s failed management strategy through an ongoing criminal trial, this latest development does beg the question, if a company is capable of paying back 90% of its debts, did it need to file for bankruptcy at all?
The official filing for court approval is expected by December 16.
In related news, the FTX estate staked $122 million worth of Solana (SOL) coins, countering concerns of potential liquidation and impacting the asset's market value.
Binance Faces Regulatory Hurdle
Binance.US announced significant changes affecting its American users in an email posted on social media, purportedly from Binance. The platform will no longer allow direct withdrawals of U.S. dollars. But perhaps more notably, the funds aren’t insured by the Federal Deposit Insurance Corporation (FDIC). While news coverage of the change to the terms of service has claimed the funds are no longer insured, a closer read simply says, they aren’t insured. Leaving the door open to the possibility they never were. In the wake of Voyager Digital getting in trouble for falsely claiming its customer’s assets were insured, it’s worth taking a closer look at a now-deleted 2019 post from Binance and to this seemingly nuanced Terms of Service change.
Across the pond, Binance has temporarily halted accepting new customers in the United Kingdom. The Financial Conduct Authority (FCA) blocked Binance's compliance plan, which involved partnering with FCA-authorized firm Rebuildingsociety.com. Existing UK customers will maintain access to current services but won't receive new ones during this pause.
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