What Lies Ahead for SBF in His Upcoming Trial 🥶
Weekly News Recap: 🏛️ Do Kwon's SEC standoff, 💰 Celsius and BlockFi's bankruptcy plans, ⚖️ Gemini vs. Genesis legal spat, 🛡️ Marathon's invalid block, 📈 Kraken eyes stock trading, and more!
As the legal drama surrounding Sam Bankman-Fried intensifies, the upcoming trial has everyone on the edge of their seats. Nik De, CoinDesk's managing editor for global policy and regulation, joins Unchained to shed light on the critical aspects of the case. From the intricacies of jury selection to the potential impact of key witness testimonies, Nik provides an in-depth look at what's at stake.
On the jury, he says: “These are the 12 or so people who are going to determine whether or not Bankman-Fried spends the next 10 to 20 years of his life behind bars.”
Weekly News Recap
Gensler Faces Congressional Heat as SEC Delays Crypto Decisions
This week, SEC Chair Gary Gensler found himself under scrutiny from U.S. lawmakers. A bipartisan group of Congressmen sent Gensler a public letter urging him to approve spot Bitcoin ETFs that would let institutions invest in securities directly tied to the price of bitcoin, calling the SEC's current stance "inconsistent and discriminatory." In their letter, the Representatives cited a recent court victory by Grayscale in which a U.S. Court of Appeals Circuit Judge ruled that the SEC’s decision to reject the Grayscale Bitcoin ETF application was “arbitrary and capricious,” stating that the SEC's posture is "untenable moving forward."
On Wednesday, Gensler fielded a hotbed of questions from the House Financial Services Committee, as reported by The Block. Lawmakers grilled the SEC Chair on various aspects of crypto regulation, including the status of bitcoin as a security and the potential for spot bitcoin ETFs. As has come to be expected in crypto hearings, the conversation touched on such unusual topics as whether Pokemon cards could be securities. More to the point, Gensler faced accusations of lacking transparency and in a taunting play on the practice of so-called “regulation by enforcement,” where a regulator prioritizes persecution instead of clarity, was accused by Representative Emmer of adopting a "regulation by harassment" approach.
Adding to the regulatory uncertainty, also on Wednesday, the SEC announced delays in decisions on ARK 21Shares Ethereum and Bitcoin ETFs and gold bug Vaneck’s Ethereum ETF. The new deadlines are set for late December at the earliest.
In signs of a possible power struggle over the right to regulate bitcoin, Gensler, the top U.S. securities regulator repeated his past assertion that bitcoin isn’t a security. However, Gensler stopped short of identifying the asset as a commodity, which could be seen as admitting another regulator, the U.S. Commodities and Futures Trading Commission, might actually have more authority here than he’d like to admit. The SEC Chair's comments and the agency's delays have heightened tensions as the crypto industry seeks clearer regulatory guidelines.
Showcasing the difference in approach taken by other jurisdictions, a representative of Hong Kong’s Securities and Futures Commission, said in a speech Tuesday that they’re preparing to release near-term guidance authorizing the use of blockchain to create tokenized versions of traditional investment products.
Do Kwon's Legal Team Battles SEC Amid Extradition and Deposition Requests
In a complex legal tangle, Do Kwon, the former CEO of defunct Terraform Labs, is evading the SEC’s legal pursuit. In February, the U.S. SEC sued Kwon for allegedly misleading investors in Terraform Labs’ TerraUSD stablecoin scheme that resulted in a $60 billion collapse when its underlying Luna asset lost nearly all its value. But before they could arrest Kwon, Montenegro authorities snatched him for using forged passports and sentenced him to a four-month prison term. While Kwon serves his sentence, the SEC hopes to have the former CEO questioned on their behalf while reserving the right to extradite him and depose him themselves. As his lawyers put it, the SEC "seeks to have its cake and eat it too."
Binance's Russian Exit Raises Questions Amid CommEX Acquisition
After Binance briefly halted support for deposits from Visa and Mastercard cards issued in Russia, the world's largest crypto exchange says it is exiting the Russian market altogether. The firm’s Chief Compliance Officer Noah Perlman, raised eyebrows though when he said in a statement that Binance would sell its entire Russia-based operations to a little-known firm named CommEX. Though the statement describes CommEX as "venture-backed," its backers remain as of yet unknown, fueling speculation this could be another case similar to Binance.US, which was purportedly separate from Binance.
Changpeng Zhao (CZ), Binance's CEO, denied ownership ties to CommEX, writing on social media: "I am not their UBO [ultimate beneficial owner], nor do I own any shares there." He added that some former Binance staff may work for CommEX in the future. The lack of transparency around the deal continues to fuel skepticism and questions on social media.
FTX Takes Legal Action to Reclaim $157M From Former Hong Kong Affiliate Employees
The new leadership in charge of beleaguered crypto exchange FTX has filed yet another lawsuit, this time against former employees of the exchange’s Hong Kong affiliate, Salameda, seeking to recover an estimated $157.3 million. (And yes, that’s Salameda, does it ring a bell?). The suit alleges that in the days leading up to FTX's filing for Chapter 11 bankruptcy protection in November 2022, the employees including two brothers and their mom, “leveraged their connections to FTX Group personnel to ensure that they would be prioritized over other customers." FTX’s lawyers claim in the suit that more than $123 million was withdrawn on or after November 7, just before the exchange suspended withdrawals.
Crypto Lenders Celsius and BlockFi Navigate Bankruptcy Waters
This week, creditors of the embattled crypto lending platform, Celsius Network, overwhelmingly approved a $2 billion restructuring plan. Despite reservations from U.S. Trustee William Harrington, over 98% of creditors backed the plan, which promises to return at least 67% of assets to investors, and offers stakes in a new entity, provisionally named "NewCo." This entity aims to broaden Celsius' existing Bitcoin mining ventures and explore new business avenues. The plan's final approval hinges on a U.S. Bankruptcy Court hearing set for October 2.
In a parallel development, BlockFi, another of the crypto companies structured similarly to Celsius that collapsed last year, received court approval for its liquidation plan. New York-based BlockFi's unsecured creditors could receive between 35% and 63% of what they're owed.
Gemini Counters New York Post's Claims, Clarifies $282M Withdrawal From Genesis
Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, has publicly refuted a New York Post article alleging that last August the twins withdrew $282 million from crypto lender Genesis for personal or corporate use. In a social media response, Gemini labeled the story as "misleading" and "pure fantasy," claiming that the funds were actually withdrawn to increase liquidity reserves for their Earn users.
This public claim comes amid an ongoing legal dispute between Gemini and Genesis, with the former accusing the latter of "fraud against creditors." While the $282 million may seem like a lot, the lawsuit aims to recover around $1.1 billion of assets allegedly stuck on Genesis.
Chase UK Halts Crypto Transactions, Sparks Backlash
JPMorgan Chase’s British subsidiary on Tuesday sent an email to its clients prohibiting them from all crypto transactions starting October 16, according to an Associated Press report. Citing an increase in crypto-related scams, the email said the bank would decline transactions related to crypto assets made by debit card, credit card, or bank transfer. In a statement, the bank's spokesperson said: "We've seen an increase in the number of crypto scams targeting UK consumers, so we have taken the decision to prevent the purchase of crypto assets."
The move has drawn widespread criticism from much of the crypto community. Coinbase CEO Brian Armstrong called Chase UK's decision "totally inappropriate" in a social media post. Armstrong questioned how the bank's stance aligns with the UK government's claim last April that it wanted to become a global crypto-asset technology hub. Not one to mince words, Armstrong wrote: “UK crypto holders should close their @Chase accounts if this is how they're going to be treated.” To be clear, nothing we’re reporting here, or anywhere, should be construed as financial advice!
Mixin Network Offers $20M Bounty After $200M Hack Shakes Platform
In a shocking turn of events decentralized wallet service Mixin Network claimed more than $200 million in crypto assets had been stolen. The alleged theft targeted Mixin's cloud service database last Saturday, according to a social media post. In a livestream on Twitch on Monday, the platform's founder, Feng Xiaodong, said that only half of the assets in question could be accounted for at the time. In a bid to recover the stolen funds, Mixin Network offered that the alleged thief could keep $20 million of the funds it owned as a "BUG bounty reward," so long as they returned the other assets owned by users. Though it might not be the most intellectually honest strategy to call funds someone already stolen from you a bounty. Presumably, the implication is the Mixin execs won’t try to recover the stolen $20 million if the hackers return everything else.
The platform later updated that the losses were "not as significant as estimated," but did not provide specific figures. Mixin's native token, XIN, saw an 8.6% drop in value following the news but has already seen signs of recovery. This latest incident of a poorly secured decentralized exchange being robbed or tricked into giving away its funds has once again raised more general questions about the security of decentralized platforms.
In related news, Tron creator and advisor to the Seychelles-based crypto exchange HTX, formerly known as Huobi Global, wrote in a social media post that the exchange was hacked, resulting in a loss of 5,000 ETH, or roughly $7.9 million.
Marathon Stumbles on Invalid Bitcoin Block
Marathon Digital Holdings, a publicly-traded Bitcoin miner valued at $1.5 billion, confirmed the mining of an invalid block, a very rare case for the Bitcoin blockchain. On Wednesday, the company wrote: "The error was the result of an unanticipated bug that came from one of our experiments." The experiment aimed to explore transaction ordering, but it backfired, causing the invalid block. Since shares in the company dropped nearly 10% on Wednesday, and they’ve nearly fully recovered, trading at $8.68 per share at the time of recording.
Kraken Eyes Stock Trading Expansion
Crypto exchange Kraken is reportedly planning to diversify its offerings by adding traditional U.S.-listed stocks to its trading platform. According to anonymous sources, the service, managed by a new division called Kraken Securities, aims to launch next year in both the U.S. and the UK. While Kraken has secured the necessary authorization in the UK, it is still awaiting approval from the Financial Industry Regulatory Authority in the U.S. This move could position Kraken as a direct competitor to licensed broker-dealer Robinhood, which also offers both crypto and stock trading.
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