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Washington Court Convicts Bitcoin Fog Founder of Aiding Darknet Drug Trade Money Laundering

In a recent development, the founder of “Bitcoin Fog,” a cryptocurrency-mixing service, was found guilty by a federal jury in Washington of helping to launder tens of millions of dollars from darknet markets notorious for illegal drug sales.

Multi-Million Dollar Crypto Money Laundering Case

According to a Bloomberg report, Roman Sterlingov, a 35-year-old Russian-Swiss national, was convicted by a jury on multiple counts, including conspiring to money launder, money laundering, and failing to register a money transmitting service. The prosecution argued that Bitcoin Fog facilitated over $400 million in untraceable transactions, with some funds originating from illicit markets.

The verdict not only marks another victory for the United States in its crackdown on crypto criminals but also sheds light on the role of Chainalysis, a Wall Street-backed firm utilized by the Justice Department and Treasury Department to trace cryptocurrency flows in money laundering cases. The defense raised concerns about the reliability of Chainalysis during the trial, questioning its methods and credibility.

During the month-long trial, prosecutors presented evidence showing how they tracked the flow of crypto from darknet markets through Bitcoin Fog, which they claimed Sterlingov operated. The government also relied on testimony from other crypto criminals, including Ilya Lichtenstein and Larry Harmon, who testified about using mixers for money laundering purposes.

Bitcoin Fog Founder Maintains Innocence Despite Conviction

Sterlingov, who has consistently denied running Bitcoin Fog, testified that he allegedly worked in information technology and helped clients create domain names during his employment at a marketing and web firm. 

Furthermore, Sterlingov claimed that he did not recall creating the Bitcoin Fog domain name or engaging in certain transactions referenced by the government.

Defense attorney Tor Ekeland also claimed that there was no concrete evidence linking Sterlingov to the operation of Bitcoin Fog, emphasizing a lack of eyewitness accounts or server logs. 

Ekeland also questioned the logic of using a secretive multi-step process to fund Bitcoin Fog when the initial transaction originated from an account registered in Sterlingov’s name. Sterlingov now faces a potential prison sentence of up to 20 years for the most serious charges. 

Bitcoin

As of the latest update, Bitcoin, the largest cryptocurrency in the market, experienced a minor 2% correction, briefly dipping to $68,500 and temporarily falling below the significant $70,000 milestone. However, the cryptocurrency swiftly rebounded and is currently trading at $71,400 at the time of writing.

Despite this temporary correction, Bitcoin has still exhibited notable gains of 11%, 25%, and 48% over the past seven, fourteen, and thirty days, respectively. These substantial increases propelled BTC to achieve its recent all-time high (ATH) of $73,000, which was reached on Monday.

Featured image from Shutterstock, chart from TradingView.com 

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US Banks Rally For Updated Crypto Guidelines As Digital Asset Prices Surge

Amidst a significant surge in cryptocurrency prices, which propelled the total crypto market capitalization to a high of $1.93 trillion on Thursday, influential interest groups are urging the US Securities and Exchange Commission (SEC) to revise accounting guidance that imposes higher costs on US banks for holding digital assets on behalf of their customers.

Banking Trade Groups Urge SEC To Revise Crypto Accounting Rules

According to a Bloomberg report, a coalition of trade groups, including the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum, sent a letter to the SEC on Wednesday outlining their desired changes. 

The existing guidance requires public companies, including banks, to treat cryptocurrencies they hold in custody as liabilities on their corporate balance sheets. Consequently, banks must allocate assets of a similar value to comply with capital requirements and protect against potential losses.

According to Bloomberg, the trade groups have requested the SEC to consider the following key changes:

  1. Exclude certain assets from being classified under the broad crypto umbrella. This includes traditional assets recorded or transferred using blockchain networks, such as tokenized deposits, as well as tokens underlying SEC-approved products like spot Bitcoin exchange-traded funds (ETFs).
  2. Grant regulated lenders an exemption from the current balance sheet requirement while maintaining the disclosure of crypto activities in financial statements.

The trade groups argued that if regulated banking organizations are unable to provide digital asset-safeguarding services at scale, it would negatively impact investors, customers, and the broader financial system. 

However, the SEC has defended its accounting guidance, citing the “unique risks” and uncertainties posed by cryptocurrencies compared to other assets held by banks. 

Limiting Custody Expansion?

The specific guidance in question, known as Staff Accounting Bulletin No. 121, has faced criticism from banks since its publication in 2022. 

Lenders argue that the bulletin limits their ability to expand digital asset services for customers due to the associated high costs. Consequently, banks missed out on providing custody services for recently approved Bitcoin exchange-traded funds, with Coinbase emerging as the preferred custodian for the majority of ETF issuers.

The trade groups also highlighted additional challenges resulting from the guidance, including a “chilling effect” on plans to utilize blockchain technology for traditional assets. While the SEC described SAB 121 as non-binding staff guidance, it acknowledged that following it enhances disclosure to investors regarding firms safeguarding crypto assets for others.

As the SEC faces mounting pressure, there have been efforts by lawmakers to repeal the guidance.  A resolution was introduced in the House Financial Services Committee, spearheaded by Representatives Mike Flood and Wiley Nickel, while Senator Cynthia Lummis sponsored identical legislation in the Senate. These measures aim to remove the SEC’s authority in making rules that impact bank custody.

The outcome remains uncertain, as the legislation’s success depends on garnering sufficient support, particularly among Democrats and within the White House. 

However, the collective efforts of trade groups, lawmakers, and industry stakeholders could potentially lead to regulatory changes that alleviate the burden on banks holding digital assets, facilitating their participation in the evolving cryptocurrency landscape.

Furthermore, the recent endeavors undertaken by US institutions exemplify a growing interest and eagerness to adopt and invest in cryptocurrencies, particularly Bitcoin. 

This heightened institutional involvement has significantly contributed to the swift success of Bitcoin spot ETFs, which gained regulatory approval merely a month ago.

Crypto

Featured image from Shutterstock, chart from TradingView.com

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Prometheum’s Ethereum Custodial Launch Puts SEC’s ETH Classification In The Spotlight

Prometheum, an “alternative” trading platform for crypto “securities” assets, has recently announced the launch of its custodial services for Ethereum (ETH). This move has significant implications for the legal status of the second-largest cryptocurrency by market capitalization. 

Fortune Magazine reported that the company’s strategy is to compel regulators, particularly the Securities and Exchange Commission (SEC), to recognize Ethereum as a security. 

SEC Pressured To Settle Ethereum Legal Status

Per the report, Prometheum, based in New York, has positioned itself as a compliant player in the crypto industry by claiming to have discovered a path to operate within existing laws. 

The company received regulatory approval in 2021 to operate as an alternative trading platform for securities. It gained further attention when it obtained a special-purpose broker-dealer license from the Financial Industry Regulatory Authority (FINRA).

The license allows them to operate as a broker-dealer in “digital asset securities,” a designation no other firm has achieved. This has prompted crypto companies and even members of the US Congress to call for investigations into the firm’s activities.

Previously, the SEC refrained from definitively classifying Ethereum as a security despite declaring several other cryptocurrencies as such. 

Prometheum aligns with the SEC’s assessment that most cryptocurrencies are securities and argues that Ethereum can be listed as a security under an exemption called Rule 144, typically used for trading restricted stocks. 

The embattled company claims it can use blockchain data to determine whether the assets have been circulating for over a year, a crucial factor in claiming the exemption.

What’s interesting is that Prometheum’s custodial services for Ethereum could potentially force the SEC to determine Ethereum’s legal status. The company’s registered status with FINRA and the SEC, prominently displayed on its website, adds weight to its claim. 

Legal experts and academics speculated that the SEC may be forced to rule on Ethereum’s classification due to Prometheum’s custodial launch. This decision could have far-reaching consequences for the crypto industry, challenging the industry’s argument that cryptocurrencies cannot operate under existing securities laws.

Backlash Mounts As Prometheum Shakes Up Crypto Regulations

SEC Chair Gary Gensler, who has intensified enforcement efforts following the collapse of FTX, has emphasized the sufficiency of existing rules while filing lawsuits against exchanges for failing to register with the agency. 

Prometheum’s approach contrasts with other crypto exchanges like Coinbase, which argue that the existing rules are outdated. Prometheum’s strategy has drawn criticism from the crypto industry and Republican lawmakers who accuse Gensler of supporting the firm to advance his regulatory agenda.

Overall, Prometheum’s introduction of Ethereum custodial services has thrust the debate over Ethereum’s legal classification into the spotlight.

This move could compel the SEC to decide whether Ethereum should be classified as a security, challenging the crypto industry’s argument for new laws. 

While the success of Prometheum’s approach is still uncertain, it remains to be seen how subsequent SEC administrations will respond and whether institutional investors will be attracted to Prometheum’s compliant approach.

Ethereum

Currently, ETH is trading at $2,428, reflecting a marginal 0.5% price increase in the last 24 hours.

Featured image from Shutterstock, chart from TradingView.com 

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US Treasury Secretary Janet Yellen Urges Congress To Pass Crypto Legislation

In a recent statement before the House of Representatives, US Treasury Department Secretary Janet Yellen emphasized the need for Congress to pass legislation that provides clarity and regulation in the crypto markets. 

Secretary Yellen Calls For Action ‘Digital Asset Risks’ 

During the Financial Committee hearing, Yellen highlighted the “risks” associated with digital assets and called for measures to address potential vulnerabilities and non-compliance with applicable laws and regulations.

Yellen specifically mentioned concerns related to runs on crypto-asset platforms, stablecoins, and the “proliferation” of platforms acting outside regulatory boundaries. 

The Treasury Secretary stressed the importance of enforcing existing rules and regulations while urging Congress to enact legislation specifically targeting stablecoins and “non-securities” crypto assets in the spot market.

Notably, Taylor Barr, head of policy at the blockchain trade association Chamber of Digital Commerce, pointed out that the bipartisan FIT for the 21st Century Act, led by Representative French Hill, aligns with Yellen’s call for market structure and regulation.

Hill, a proponent of the legislative environment for crypto, previously highlighted the progress made in the House of Representatives. He emphasized passing the first comprehensive regulatory framework for digital assets and the prudent approach to stablecoins. 

Furthermore, Hill believes that these initiatives address significant “regulatory gaps” and contribute to the crypto industry’s growth.

Pro-Crypto Stance And Legislative Initiatives Align

Barr also commended the Clarity for Payment Stablecoins Act proposed by the Chairman of the US Financial Committee, Patrick McHenry. 

This act aims to establish consistent oversight and consumer protection for payment stablecoins, incorporating successful state-level regulations and striking a balance between innovation and regulatory certainty.

McHenry, who has been vocal about the importance of the US leading the financial system of the future, has already emphasized the bipartisan progress on legislation to address the regulatory challenges posed by digital assets. 

McHenry called for the “completion of the job,” highlighting the Clarity for Payment Stablecoin Act as a crucial step towards establishing a federal framework for stablecoins.

Overall, the convergence of Secretary Yellen’s call for regulation, Representative Hill’s legislative initiatives, and Chairman McHenry’s pro-crypto stance reflect a growing momentum toward establishing a comprehensive regulatory framework for the crypto industry. 

However, it remains to be seen how Secretary Yellen’s proposed regulatory enforcement ideas and proposals will strike a balance between fostering innovation, as emphasized by McHenry and Hill while ensuring the growth of nascent technology. 

As discussions on crypto legislation continue, the industry eagerly anticipates the outcome, seeking a regulatory environment that provides clarity and consumer protection and positions the United States at the forefront of digital asset innovation.

Crypto

Featured image from Shutterstock, chart from TradingView.com 

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Regulatory Victory: Gemini Receives Digital Asset Service Provider Registration In France

Cryptocurrency exchange Gemini, founded by the Winklevoss twins, has been granted crypto registration by the French markets watchdog Autorite des marches financiers (AMF). 

According to a recent announcement made by the exchange, this approval allows Gemini to offer its services as a virtual asset services provider in France. The company plans to roll out its products to both retail and institutional clients in the coming weeks.

Gemini Seizes Growth Opportunities In Europe

As announced, Gemini customers in France will gain access to a wide range of cryptocurrencies for trading, as well as “advanced” trading platforms such as ActiveTrader. Institutional clients will also benefit from Gemini eOTC, an electronic over-the-counter trading solution.

Gemini’s regulatory approval in France marks a milestone in the company’s European expansion strategy. According to the exchange’s statement, with a strong sense of regulatory support for the cryptocurrency industry in Europe, Gemini sees growth opportunities in the French jurisdiction. 

The founders of Gemini recognized the need for regulatory clarity, which is on the horizon with the European Union (EU) Markets in Crypto-Assets Regulation (MiCA). MiCA allows crypto companies to obtain licenses in one EU country and operate across the entire EU. 

Interestingly, Gemini chose Ireland as its European headquarters, joining other major US crypto companies that have selected Ireland as their regulatory hub. On this matter, Gillian Lynch, Gemini’s Head of Ireland and EU stated:

We are delighted to welcome customers based in France onto the Gemini platform in the coming weeks as we further expand access to crypto across Europe. France is a global innovation leader and has a vibrant crypto community as showcased by the success of Paris Blockchain Week. We are excited to soon be able to provide French customers with compliant and secure access to the future of finance as we continue on our mission to unlock the next era of financial, creative, and personal freedom

US Crypto Companies Seek Regulatory Haven In Europe

According to a CNBC report, major US crypto companies are increasingly looking to expand their operations in Europe driven by regulatory challenges in the United States. 

The crypto industry has faced scrutiny from US regulators, including the Securities and Exchange Commission (SEC). Gemini and Genesis, a crypto lender, were charged by the SEC last year for allegedly selling unregistered securities. Gemini is contesting the lawsuit, asserting that its interest-bearing products do not qualify as securities. 

Per the report, the European Union offers a “more favorable” regulatory environment, and the MiCA regulation provides a framework for companies to operate across EU member states.

While the US has yet to approve comprehensive federal-level crypto regulation, recent developments indicate a growing acceptance of cryptocurrency trade. The SEC’s approval of the first-ever spot Bitcoin exchange-traded funds (ETFs) is seen as a significant step toward integrating crypto into traditional finance. 

Despite initial concerns about market manipulation, the approval of Bitcoin ETFs by the SEC is a positive development for the industry. At the same time, several bills related to crypto regulation are making their way through the US House of Representatives. 

Gemini

Featured image from Shutterstock, chart from TradingView.com 

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Crypto Fraud Unveiled: $1.3B Loss As Chuck Norris-Endorsed CEO Turns Out To Be Illusion

In a recent investigation by The Guardian, alarming details have emerged regarding a crypto project, HyperVerse, that allegedly lost $1.3 billion of investors’ funds. 

The report reveals that the chief executive officer promoted by the project, supposedly backed by celebrity endorsements including Chuck Norris, appears to be absent.

Investigation Exposes HyperVerse Crypto Scam

HyperVerse, promoted by Australian entrepreneur Sam Lee and his business partner Ryan Xu, founders of the now-collapsed Australian Bitcoin (BTC) company Blockchain Global, has been scrutinized for its deceptive practices. The project attracted thousands of investors, who ultimately lost millions of dollars.

The investigation raises concerns about the legitimacy of HyperVerse’s CEO, as the qualifications and credentials attributed to the supposed chief executive, Steven Reece Lewis, have no basis. 

Promotional material released for HyperVerse claimed that Lewis graduated from the University of Leeds and held a master’s degree from the University of Cambridge. However, neither institution has any record of his existence.

Furthermore, there are no records of Lewis on the UK companies register, Companies House, or the US Securities and Exchange Commission (SEC). Interestingly, Adobe, a publicly listed company, also has no record of any acquisition involving a company owned by “Steven Reece Lewis.”

The report indicates that HyperVerse managed to secure celebrity endorsements, including video messages of support from Steve Wozniak, co-founder of Apple, and actor Chuck Norris. 

However, it is unclear how these messages were obtained, as all four celebrities mentioned in the report are available for hire through Cameo, where individuals can pay to have high-profile individuals read scripted messages.

Australian Authorities Under Fire

The investigation also highlights regulatory concerns, as HyperVerse operated without significant scrutiny in Australia despite being flagged by regulators overseas as a possible scam or suspected pyramid scheme. 

The Australian Securities and Investments Commission (ASIC) has been referred to the case but has not yet taken action.

Investors in HyperVerse were lured with promises of substantial returns and the opportunity to explore a new digital metaverse similar to Facebook. However, the scheme ultimately resulted in significant losses for investors, estimated at $1.3 billion in 2022, according to blockchain analysts Chainalysis.

The Guardian’s findings shed light on the deceptive practices employed by HyperVerse and raise questions about the responsibilities of regulators in overseeing such projects. 

As the aftermath of this cryptocurrency scandal unfolds, investors and authorities alike are left grappling with the consequences of a scheme that capitalized on false claims and celebrity endorsements to defraud unsuspecting individuals.

Crypto

Featured image from Shutterstock, chart from TradingView.com 

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Hamas And Hezbollah Pick Tron Instead Of Bitcoin In Crypto Shift, Report

TRON (TRX), a blockchain-based digital platform, has surpassed Bitcoin (BTC) as the platform of choice for financial transfers by groups such as Hamas and Hezbollah, which are designated terrorist organizations by the US, UK, and other countries.

According to a Reuters report, this development has opened a new front in Israel’s battle against the funding of alleged Iranian-backed militant groups.

Tron Wallets Targeted In Israeli Seizures

According to the report, a comprehensive analysis of crypto seizures announced by Israeli security services since 2021 highlights a significant increase in targeting TRON wallets and a decrease in seizures related to Bitcoin wallets.

The National Bureau for Counter Terror Financing (NBCTF) of Israel, responsible for seizure operations, froze a total of 143 TRON wallets between July 2021 and October 2023, believing them to be associated with “designated terrorist organizations” or involved in “severe terror crimes.” 

Notably, 87 of these seizures occurred this year, including 39 wallets linked to Lebanon’s Hezbollah and 26 wallets associated with Palestinian Islamic Jihad, a Hamas ally.

In response to heightened scrutiny of Hamas’ financing, Israel intensified its investigation efforts. It discovered that 56 TRON wallets were connected to Hamas, with 46 traced back to a Gaza-based money exchange company called Dubai Co. For Exchange. 

TRON

Following the recent Hamas attacks on Israel, the largest crypto account seizure to date was announced, freezing approximately 600 accounts associated with Dubai Co. 

Per the report, several individuals whose funds were frozen in this seizure claimed to have been using TRON for legitimate business or personal financial purposes and denied any affiliation with Hamas or Islamic Jihad. 

However, Israel designates Dubai Co. as a terrorist group due to its alleged aid to Hamas, particularly in transferring substantial funds on an annual basis.

Key Blockchain For Tether Transactions

When contacted by Reuters, a spokesperson for TRON, Hayward Wong, emphasized that all technologies have the potential for misuse, citing the example of US dollars being employed for money laundering. 

Wong further stated that TRON lacks control over how its technology is utilized and asserted that it is not linked to the groups identified by Israel.

The report also sheds light on the dominance of the cryptocurrency Tether (USDT) within the TRON network. Tether stated that it routinely traces and freezes tokens used for illicit purposes, working in collaboration with law enforcement agencies.

According to Reuters, TRON has become the primary blockchain for Tether transactions, hosting a remarkable $48 billion worth of the tokens. Average daily transactions on Tron jumped to 9.1 million from April to June, a remarkable increase of over 70% compared to last year.

However, as reported by our sister website Bitcoinist, Tron has faced its share of controversies. The founder of Tron, Justin Sun, sued the US Securities and Exchange Commission (SEC) in March on allegations of artificially inflating trading volumes and selling unregistered Tron tokens.

It is important to note that crypto transactions related to terrorist groups have been decreasing since 2021 as seen in the chart below. Unlike traditional payment methods, Bitcoin and cryptocurrencies provide authorities with a backdoor, a transparent path that has allowed them to put a halt to illegal money flows.

TRON

The unfolding developments in this matter are yet to be fully determined, and it remains uncertain whether there will be additional lawsuits and enforcement actions against crypto companies and exchanges implicated in these allegations.

Featured image from Shutterstock, chart from TradingView.com

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Hamas And Hezbollah Pick Tron Instead Of Bitcoin In Crypto Shift, Report

TRON (TRX), a blockchain-based digital platform, has surpassed Bitcoin (BTC) as the platform of choice for financial transfers by groups such as Hamas and Hezbollah, which are designated terrorist organizations by the US, UK, and other countries.

According to a Reuters report, this development has opened a new front in Israel’s battle against the funding of alleged Iranian-backed militant groups.

Tron Wallets Targeted In Israeli Seizures

According to the report, a comprehensive analysis of crypto seizures announced by Israeli security services since 2021 highlights a significant increase in targeting TRON wallets and a decrease in seizures related to Bitcoin wallets.

The National Bureau for Counter Terror Financing (NBCTF) of Israel, responsible for seizure operations, froze a total of 143 TRON wallets between July 2021 and October 2023, believing them to be associated with “designated terrorist organizations” or involved in “severe terror crimes.” 

Notably, 87 of these seizures occurred this year, including 39 wallets linked to Lebanon’s Hezbollah and 26 wallets associated with Palestinian Islamic Jihad, a Hamas ally.

In response to heightened scrutiny of Hamas’ financing, Israel intensified its investigation efforts. It discovered that 56 TRON wallets were connected to Hamas, with 46 traced back to a Gaza-based money exchange company called Dubai Co. For Exchange. 

TRON

Following the recent Hamas attacks on Israel, the largest crypto account seizure to date was announced, freezing approximately 600 accounts associated with Dubai Co. 

Per the report, several individuals whose funds were frozen in this seizure claimed to have been using TRON for legitimate business or personal financial purposes and denied any affiliation with Hamas or Islamic Jihad. 

However, Israel designates Dubai Co. as a terrorist group due to its alleged aid to Hamas, particularly in transferring substantial funds on an annual basis.

Key Blockchain For Tether Transactions

When contacted by Reuters, a spokesperson for TRON, Hayward Wong, emphasized that all technologies have the potential for misuse, citing the example of US dollars being employed for money laundering. 

Wong further stated that TRON lacks control over how its technology is utilized and asserted that it is not linked to the groups identified by Israel.

The report also sheds light on the dominance of the cryptocurrency Tether (USDT) within the TRON network. Tether stated that it routinely traces and freezes tokens used for illicit purposes, working in collaboration with law enforcement agencies.

According to Reuters, TRON has become the primary blockchain for Tether transactions, hosting a remarkable $48 billion worth of the tokens. Average daily transactions on Tron jumped to 9.1 million from April to June, a remarkable increase of over 70% compared to last year.

However, as reported by our sister website Bitcoinist, Tron has faced its share of controversies. The founder of Tron, Justin Sun, sued the US Securities and Exchange Commission (SEC) in March on allegations of artificially inflating trading volumes and selling unregistered Tron tokens.

It is important to note that crypto transactions related to terrorist groups have been decreasing since 2021 as seen in the chart below. Unlike traditional payment methods, Bitcoin and cryptocurrencies provide authorities with a backdoor, a transparent path that has allowed them to put a halt to illegal money flows.

TRON

The unfolding developments in this matter are yet to be fully determined, and it remains uncertain whether there will be additional lawsuits and enforcement actions against crypto companies and exchanges implicated in these allegations.

Featured image from Shutterstock, chart from TradingView.com

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Ripple Vs. SEC: Epic Battle Unfolds Over $770M Disgorgement Demand

In a recent interview with CNBC, Brad Garlinghouse addressed the ongoing legal battle between Ripple and the US Securities and Exchange Commission (SEC) over the classification of XRP. 

Garlinghouse highlighted three consecutive wins for Ripple in the legal proceedings, emphasizing that the first judgment on July 13 clearly stated that XRP is not a security. He also mentioned denying the court’s interlocutory appeal and dismissing allegations against Ripple co-founder Chris Larsen and himself.

Ripple CEO Brad Garlinghouse Criticizes SEC’s Regulatory Approach

In the interview, Garlinghouse criticized the SEC’s approach to regulation by enforcement and lawsuit patterns, stating that the SEC needs to step back and realize that their actions are deviating from its mission to protect investors. 

Garlinghouse questioned who the SEC is truly protecting in this journey and called for a change in their regulatory approach.

Commenting on the exchange-traded funds (ETFs) currently awaiting approval, Garlinghouse acknowledged that an approved ETF could bring significant capital to the market.

However, Brad emphasized that regulatory clarity, utility, and scalable problem-solving are essential for the industry to thrive. Garlinghouse expressed his optimism for the industry’s future, citing macro catalysts that will propel it forward in the next five to ten years.

Pro-XRP Lawyer Challenges SEC’s $770M Disgorgement Demand

In a separate development, pro-XRP lawyer John Deaton chimed in on X (formerly Twitter), stating that Ripple would not come close to paying the $770 million disgorgement demanded by the SEC. 

Deaton argued that the SEC’s claim for disgorgement related to XRP sales in the UK, Japan, Switzerland, and other jurisdictions is flawed. He pointed out that XRP is deemed a non-security in those jurisdictions and was considered a legal exchange/utility token. 

Deaton questioned the SEC’s attempt to disgorge sales made in those jurisdictions and emphasized that the Court’s goal is not to punish Ripple as this is not a fraud case.

Deaton further explained that the disgorgement amount would be significantly reduced after deducting non-US sales, sales to accredited investors and considering the minimal harm caused by ODL (On-Demand Liquidity) transactions. 

Deaton highlighted that a petition filed by 75,000 XRP holders claimed that the SEC, not Ripple, was causing harm, further bolstering Ripple’s position.

The remarks made by Brad Garlinghouse and John Deaton underscore the ongoing legal battle between Ripple and the SEC, with Ripple asserting its stance on XRP’s classification and criticizing the SEC’s regulatory approach. 

The outcome of this high-profile case will likely have significant implications for the cryptocurrency industry as a whole.

Ripple

As of the time of writing, XRP is currently trading at $0.660, exhibiting a sideways price movement and consolidating above this crucial level. Despite the lack of significant upward or downward movement, the token has experienced substantial gains amidst the recent bullish reversal in the market.

Over the past 30 days, XRP has surged by more than 35%, and on a year-to-date basis, it has recorded an impressive growth of over 70%.

Featured image from Shutterstock, chart from TradingView.com 

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US Treasury Cracks Down: Sanctions Crypto Money Launderer Tied To Russian Elite

In a significant move to combat sanctions evasion and illicit financial activities, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has imposed sanctions on Ekaterina Zhdanova, a Russian national allegedly involved in laundering and transferring funds using crypto on behalf of Russian elites. 

According to the announcement, the action aligns with the G7’s commitment to closing loopholes that allow Russian state actors, oligarchs, and proxies to exploit virtual currency to circumvent international sanctions.

Crypto Money Laundering Exposed

Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson emphasized the alleged role played by key facilitators like Zhdanova in aiding Russian elites, ransomware groups, and other illicit actors in evading US and international sanctions through the abuse of cryptocurrencies. 

Nelson stated that the Treasury remains steadfast in its efforts to safeguard the global financial system against such exploitation and other risks within the crypto ecosystem.

Allegedly, Zhdanova’s involvement in obfuscating the source of wealth for a Russian client, enabling the transfer of over $2.3 million into Western Europe via fraudulent investment accounts and real estate purchases, drew OFAC’s attention. 

Zhdanova’s services provided sanctioned Russian individuals access to Western financial markets that would otherwise be restricted due to US and international prohibitions. 

The US Treasury Department alleges that such illicit financial activities enable the evasion of multilateral sanctions and undermine efforts to hold Russia accountable for its unprovoked war and aggression.

Utilizing cryptocurrencies as a facilitator of large cross-border transactions, Zhdanova relied on entities lacking Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) controls, including the OFAC-designated Russian cryptocurrency exchange, Garantex Europe OU. 

Zhdanova employed various methods to transfer funds internationally, including cash transactions and leveraging connections with other money laundering associates and organizations. 

Additionally, she utilized traditional businesses, such as a luxury watch company with global offices, to maintain access to the international financial system.

Furthermore, it is alleged that Zhdanova conducted crypto exchange transfers on behalf of oligarchs who relocated internationally, facilitating the movement of over $100 million to the United Arab Emirates. 

Unveiling The Scheme

Zhdanova also provided a tax residency service in the UAE to Russian clients, potentially participating in identity obfuscation. This service offered clients a UAE tax residency, identification card, and bank account, with payments made in cash or virtual currency, subsequently transferred to foreign bank accounts at the client’s discretion.

Notably, Zhdanova’s services extended to individuals associated with the notorious Russian Ryuk ransomware group. Zhdanova allegedly laundered approximately $2.3 million in suspected victim payments for a Ryuk ransomware affiliate, which has targeted numerous victims worldwide, including the United States, particularly in the healthcare sector.

As a consequence of this action, all US persons must report any property or interests in property belonging to Zhdanova or any entities directly or indirectly owned by her. Transactions involving such property are generally prohibited unless authorized by OFAC.

Crypto

Featured image from Shutterstock, chart from TradingView.com 

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US Authorities Confiscate $54 Million In Ethereum From Convicted Drug Dealer

In recent developments, US authorities led by US Attorney Philip R. Sellinger successfully seized $54 million worth of Ethereum (ETH) from Christopher Castelluzzo, a convicted drug dealer operating in Lake Hopatcong, New Jersey. 

Massive Crypto Bust

The US Attorney’s Office filed a civil forfeiture action to recover previously seized cryptocurrency that was determined to be the proceeds of an illegal narcotics distribution scheme operating in and around New Jersey. 

US Attorney Philip R. Sellinger emphasized law enforcement’s “commitment” to seizing financial gains from criminal activity, regardless of the form they take. Sellinger further stated:

The civil action we are taking today seeks to recover millions of dollars of cryptocurrency, which the defendant allegedly obtained from drug sales. Whether it’s as simple as bags of cash or as sophisticated as cryptocurrency, we will take the steps necessary to seize financial gains defendants obtain from criminal activity. 

According to the US Department of Justice’s (DOJ) press release on the case, the prosecution sheds light on using cryptocurrencies such as Bitcoin (BTC) and Ethereum by criminals on the darknet to evade detection.

In addition, James E. Dennehy, Special Agent in Charge of the Federal Bureau of Investigation (FBI) in Newark, stated that the FBI played a critical role in uncovering the illegal conduct and ill-gotten proceeds.

Drug Trafficker’s Ethereum Stash Seized

According to court documents and the investigations conducted, Christopher Castelluzzo and his associates conspired to sell narcotics between 2010 and 2015. 

In 2013, they allegedly began trading drugs on darknet platforms in exchange for Bitcoin. Castelluzzo, using proceeds from narcotics sales, participated in Ethereum’s Initial Coin Offering (ICO) in July 2014, acquiring 30,000 Ethereum. Additionally, Castelluzzo received 30,000 ETH Classic in 2016.

Castelluzzo’s plan to move the funds to a tax haven in Ireland, Malta, or the Bahamas, or potentially keep them in USDT (Tether), was revealed in forfeiture documents. 

However, a subsequent search warrant led to the raid of Brian Krewson’s residence, an associate of Castelluzzo. Police discovered the relevant crypto wallets under Krewson’s control, and after obtaining the necessary passwords, law enforcement executed the seizure of the Ethereum, valued at $31 million at the time.

Currently serving concurrent 20-year federal and state prison sentences for drug distribution convictions, Castelluzzo attempted to evade taxes and transfer the 30,000 Ethereum out of the United States while incarcerated. 

However, Castelluzzo’s plans were intercepted when recorded prison telephone calls exposed his efforts to launder the cryptocurrency. As a result, the United States intervened and seized Castelluzzo’s cryptocurrency holdings linked to his drug trafficking crimes.

The current value of the 30,000 Ethereum stands at approximately $54 million, underscoring the significant impact of the seizure. 

Ethereum

As of the time of writing, ETH is trading at $1,815, reflecting a 0.9% increase over the past 24 hours and a steady upward trend of over 2% in the past seven days, exhibiting strong bullish momentum in the market.

Featured image from Shutterstock, chart from TradingView.com

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Binance And Tether Accused By Lawmakers: DOJ Investigation Requested For Illicit Finance

In a recent development, US lawmakers have urged the US Department of Justice (DOJ) to initiate a criminal investigation into cryptocurrency exchange Binance (BNB) and stablecoin issuer Tether (USDT). 

The lawmakers, led by Senator Cynthia Lummis, reference a controversial Wall Street Journal (WSJ) report that alleges Hamas and its affiliate raised significant funds through cryptocurrencies. 

Binance And Tether Face Calls For Criminal Charges

In a joint letter signed by Senator Lummis and Representative French Hill, the lawmakers express deep concern over reports indicating that “unregulated crypto intermediaries” outside the United States have allegedly facilitated illicit financial activities, including financing terrorism, such as Hamas’s attacks on Israel.

Lummis and Hill urged the DOJ to promptly reach a charging decision regarding Binance, considering the extent of its involvement, and to conclude the ongoing investigation into Tether’s alleged illicit activities.

The lawmakers refer to the WSJ report of October 10, 2023, which disclosed that Hamas, Palestinian Islamic Jihad, and Hezbollah had received cryptocurrency funding since August 2021. They stress the DOJ’s need to hold any entities facilitating illicit activities accountable. The letter further reads: 

We believe that it’s imperative that the Department of Justice hold bad actors accountable if they are shown to facilitate illicit activity. Binance, notably, is an unregulated crypto asset exchange based in the Seychelles and Cayman Islands. Binance has historically been linked to illicit activity and is purportedly the subject of a current Department of Justice investigation.

On the other hand, Tether faced a fine by the Commodity Futures Trading Commission (CFTC) in 2021 for issues related to backing its stablecoin USDT. 

The lawmakers urged the DOJ to thoroughly assess whether Binance and Tether have provided material support and resources for terrorism by violating applicable sanctions laws and the Bank Secrecy Act. Lummis and Hill emphasize the importance of swift action to cut off funding sources for terrorists targeting Israel.

Tether Counters Allegations

In response to Senator Lummis and Rep. Hill’s claims, Tether issued a statement addressing the “misinformation” surrounding the potential misuse of cryptocurrencies. 

Tether references independent investigations by Chainalysis and Elliptic, which found significant errors and faulty attribution techniques in reports, including the WSJ’s article. 

Tether emphasizes its commitment to regulatory compliance, due diligence, and global collaboration with law enforcement agencies. They highlight their track record of freezing assets tied to illicit activities and assert no evidence of sanctions law or Bank Secrecy Act violations.

Tether further notes the inherent transparency of blockchain technology and the proactive measures taken by virtual asset service providers to monitor and report potentially illicit activities. 

They reaffirm their dedication to transparency, compliance, and collaboration with authorities, inviting constructive dialogue and cooperation.

As the call for a DOJ investigation unfolds, the cryptocurrency community awaits further developments and the potential impact on Binance and Tether’s operations.

Binance

As of this writing, BNB is trading at $221, representing a decrease of 0.9% within the last 24 hours. However, it is worth noting that the token has experienced significant gains over the past seven and thirty days, amounting to 5.3% and 4.9%, respectively.

Featured image from Shutterstock, chart from TradingView.com 

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FBI Busts Indian Citizen Group For $15 Million Crypto-To-Cash Money Laundering Scheme

In a recent crypto investigation, the US FBI successfully infiltrated a group of Indian citizens suspected of engaging in illicit activities involving the exchange of cryptocurrency for over $15 million in cash. 

The alleged transactions took place at various locations in Westchester County, with the group catering to customers seeking anonymity for their activities.

Crypto Crime Unveiled

According to recent reports, five out of the six suspects were apprehended on October 17 and subsequently charged in US District Court, White Plains. 

The charges primarily revolve around operating an unlicensed money-transmitting business. The investigation unfolded with the assistance of law enforcement agents who monitored 80 “cash hand-offs”. 

The FBI’s scrutiny began in April 2021 when they identified a suspect operating within the “dark web” criminal marketplaces. 

Although the individual remains unnamed in the criminal complaint, they are believed to be a co-conspirator of the arrested local suspects. Notably, the suspect offered to ship cash to customers in exchange for cryptocurrency.

According to the complaint, the unidentified co-conspirator disclosed to an undercover officer in January that some of their customers were involved in drug sales, while their wealthier clients were hackers. 

The co-conspirator claimed to have amassed approximately $30 million over three years by exchanging cash for cryptocurrency.

In February, an individual responsible for mailing packages of cash on behalf of the co-conspirator was arrested. The complaint reveals that this individual had been receiving sacks of cash from various individuals, three times a week for 18 months, at a Westchester County post office. The cash bundles ranged from $100,000 to $300,000.

In a bid to receive leniency during sentencing, the aforementioned individual agreed to assist the FBI with their investigation. Over several months (from February 10 to September 27), they allegedly participated in 80 controlled cash pick-ups amounting to $15,067,000.

One of the arrested individuals, Raju “Jay” Patel from Flushing Queens, played a significant role in the operation. The complaint alleges his involvement in 58 cash transfers totaling $10.8 million. 

Raju would collect cash from various locations in George, Massachusetts, North Carolina, Pennsylvania, and South Carolina. Subsequently, Raju allegedly coordinated the transfers with the co-conspirator and the FBI’s confidential source.

On March 6, Raju allegedly arranged an exchange of $250,000 at a Tarrytown supermarket parking lot. Surveillance conducted by law enforcement agents captured Raju leaving his Queens apartment with an orange cloth bag, which he handed over to the FBI’s confidential source upon arrival in Tarrytown. The bag reportedly contained $249,715.

Illicit Cash Exchange

Similar exchanges took place at a parking lot in Port Chester, further implicating the suspects involved. On August 6, Shaileshkumar Goyani allegedly handed over a bag containing $114,000 to the FBI’s confidential source.

Apart from Goyani, the complaint identifies Brijeshkumar “Samir” Patel, Hirenkkumar Patel, Naineshkumar Patel, and Nileshkumar Patel as additional suspects in the case. 

All the suspects are charged with operating an unlicensed money-transmitting business under New York and federal laws.

According to an affidavit by FBI agent Lawrence Lonergan, such unlicensed money-transmitting businesses operate as shadow banks, enabling funds to pass through without undergoing the scrutiny imposed by Congress on the United States financial system.

While the allegations against Goyani’s crypto fraud remain unproven, his defense attorney, Daniel A. Hochheiser, emphasizes that his client has not been indicted by a grand jury. Hochheiser further stated that if and when an indictment is issued, Goyani intends to enter a plea of not guilty.

Crypto

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Crypto-Terrorism Concerns? Senator Warren And 100 Lawmakers Push Biden For Swift Response

In the middle of escalating tensions between Israel and Hamas, over 100 legislators, led by Senators Elizabeth Warren and Roger Marshall and Representative Sean Casten, have issued a bipartisan note urging the Biden administration to address alleged close relations between crypto and terrorism. 

The lawmakers express alarm over reported evidence suggesting that Hamas successfully evaded US sanctions, acquiring millions of dollars through crypto assets. They are now pressing the administration to clarify its strategy for tackling this critical national security threat.

Lawmakers Sound Alarm On Crypto-Financed Terrorism

The bipartisan letter, addressed to National Security Advisor Jake Sullivan and Brian Nelson, Under Secretary for Terrorism and Financial Intelligence at the Department of the Treasury, highlights the concerns surrounding Hamas and Palestinian use of crypto funding. 

The letter states that between August 2021 and June of the following year, these organizations allegedly raised over $130 million in digital assets, with millions being transferred between them. 

The lawmakers stress the urgency of the situation, given the danger posed by the financing of militant organizations, and call on the Biden administration to provide details about its plan to prevent the use of crypto for terrorism financing.

In their letter, the lawmakers cite an article from the Wall Street Journal, which reports that researchers studying Hamas’s financing allegedly confirm that crypto remains one of several tools employed by the group to raise funds. 

While it has not been determined whether the crypto received by Hamas directly financed the October 7th terrorist attack on Israel, the group’s explicit solicitations for crypto have left no doubt about their intentions. 

Furthermore, the lawmakers highlight that both the Israeli and US governments have previously warned about the threat posed by crypto in the fight against terrorism. Israel has even seized crypto assets from terrorist organizations like Hamas and Hezbollah. 

However, experts believe that only a fraction of the digital asset funds flowing through Hamas have been successfully captured. 

Urgent Call To Curtail Alleged Illicit Activity 

In light of this, the lawmakers call for decisive action to address the risks associated with illicit crypto activity to prevent further tragedies. 

As Congress considers legislative proposals to mitigate alleged money laundering and illicit finance risks, they urge the Biden administration to swiftly and comprehensively act to curtail such activities and safeguard national security, as well as the security of US allies.

The lawmakers have set a deadline of October 31, 2023, for the Treasury and the Biden administration to respond to questions about their plans to address the serious national security threats arising from using crypto to finance terrorism.

As the debate surrounding the regulation of digital assets continues to intensify, the alleged crypto-financed terrorism adds another layer of complexity. 

Crypto

Featured image from Shutterstock, chart from TradingView.com 

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CFTC Files Lawsuit Against Voyager Digital And Former CEO For Fraud

The US Commodity Futures Trading Commission (CFTC) has taken legal action against Voyager Digital and its former CEO, Stephen Ehrlich. 

The CFTC filed a complaint in the US District Court for the Southern District of New York, alleging fraud and registration failures related to the operation of the Voyager digital asset platform and an unregistered commodity pool.

Voyager Faces Legal Action For ‘Misleading Customers’

According to the CFTC, Ehrlich falsely marketed the Voyager platform as a safe haven for high-yield returns, deceiving customers to purchase and store digital assets. 

Per the filing, Voyager allegedly took “reckless risks” with customers’ assets, leading to Voyager’s bankruptcy and significant customer losses. The lawsuit seeks various penalties, including restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act.

In a separate but related action, the Federal Trade Commission (FTC) has charged Voyager and Stephen Ehrlich with violating the FTC Act and the Gramm-Leach-Bliley Act. 

The FTC alleges that the company falsely claimed customers’ accounts were insured by the Federal Deposit Insurance Corporation (FDIC) and misled consumers about the safety of their deposits.

The FTC’s complaint states that Voyager enticed customers to deposit funds by assuring them of the safety of their assets on the platform. However, Voyager was neither a bank nor a financial institution, and the deposits were not eligible for FDIC insurance. 

The FTC alleges that consumers suffered significant losses when Voyager experienced financial difficulties, including being locked out of their accounts and losing over $1 billion in cryptocurrency assets.

Stephen Ehrlich Rejects Settlement 

Voyager and its affiliates will be permanently banned from handling consumers’ assets and offering related services as part of a proposed settlement. 

The companies have also agreed to a judgment of $1.65 billion, which will be suspended to allow Voyager to return the remaining assets to consumers during the bankruptcy proceedings. 

Stephen Ehrlich, however, has not agreed to a settlement, and the FTC’s case against him will proceed in federal court.

The FTC’s complaint further alleges that Ehrlich transferred millions of dollars to his wife, Francine Ehrlich, including funds linked to the alleged unlawful conduct. 

The proposed settlement also prohibits Voyager and its affiliates from misrepresenting product benefits, making false representations to obtain financial information, and disclosing consumer information without consent.

Both regulatory bodies are seeking to hold Voyager, Stephen Ehrlich, and other involved parties accountable for their alleged deceptive practices and violations of financial regulations. 

Voyager

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Is Your Crypto at Risk? FBI Issues Dire Warning Over ‘Phantom Hacker’

As the crypto market continues to attract substantial investments, it has also witnessed a surge in scams and fraudulent activities. Regulatory institutions worldwide, spearheaded by the United States, seem to intensify their efforts to combat cyber threats, hacks, and frauds that affect the industry. 

However, the nascent sector is far from the only one suffering from increasing cyber threats. Since 2020, these attacks have been common both within the crypto space and outside.

In line with this, the Federal Bureau of Investigation (FBI) identified a new threat dubbed “The Phantom Menace.” The FBI issued a warning on September 29, alerting the public about the escalating “Phantom Hacker” scams, particularly affecting senior citizens. 

FBI Warns Of ‘Phantom Hacker’ Scams Targeting Crypto

The FBI’s statement revealed that the “Phantom Hacker” scam is an evolution of traditional tech support scams, employing imposter tech support, fraudulent exchange account support, and government personas to gain victims’ trust. This multi-layered approach helps scammers identify lucrative accounts to target. 

From January to June 2023, the FBI Internet Crime Complaint Center (IC3) received over 19,000 complaints about tech support and crypto scams, resulting in estimated losses exceeding $542 million. Losses have already surpassed 2022 figures by 40% as of August 2023.

The Scam Phases:

  • In the initial phase of the scam, fraudsters adopt the guise of tech or customer support representatives from legitimate companies. They reach out to their victims through various communication channels and employ persuasive tactics to convince them to call a designated number for assistance.

Once victims are connected, scammers manipulate them into downloading software that grants remote access to their computers. By fabricating a fictitious virus scan, scammers deceive victims into believing their computers have been compromised or are at risk.

Subsequently, they coax victims into opening their financial accounts, allowing scammers to identify the most lucrative targets.

  • Upon successfully gaining access to victims’ financial accounts, scammers proceed to the second phase of the scam. In this stage, they assume the role of representatives from reputable financial institutions such as banks or brokerage firms.

The scammers falsely inform victims that foreign hackers have compromised their computers and accounts. To ensure the safety of victims’ funds, they instruct victims to transfer their money to a purportedly “secure” third-party account, often claiming an affiliation with recognized entities like the Federal Reserve or other US government agencies.

These transfers typically involve wire transfers, cash, or even cryptocurrencies, with the funds predominantly sent overseas. Scammers coerce victims into maintaining secrecy regarding the true purpose of these transfers.

Rise In Ransomware Attacks

In contrast with the alarming rise of “Phantom Hacker” scams, a Chainalysis report indicates an overall decline in cryptocurrency-related crime in 2023. Cumulative daily inflows to known illicit entities have decreased by 65% compared to the same period in 2022. 

Notably, scams have experienced the most significant decline, with scammers generating nearly $3.3 billion less revenue in 2023 than in 2022. However, the report highlights a concerning trend: ransomware attacks. 

Ransomware attackers extorted $175.8 million more by June 2023 than during the same period in 2022, suggesting a reversal from the downward trend observed in 2022.

While overall crypto-related crime has declined, the resurgence of ransomware attacks poses a significant menace and could spill over to the nascent sector. While the number declines, the amount stolen in the crypto space urging users to remain cautious in the face of new threats. 

Crypto

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Mastermind Behind Massive Crypto Ponzi Scheme AirBit Club Receives 12-Year Prison Sentence

In a landmark verdict, Pablo Renato Rodriguez, the co-founder of AirBit Club, has been sentenced to 12 years in prison by US District Judge George B. Daniels. 

According to the US Department of Justice (DOJ), Rodriguez, along with his co-conspirators, masterminded a sprawling global pyramid scheme that defrauded investors of millions of dollars through false promises of cryptocurrency trading and mining profits.

AirBit Co-Founder Convicted For $100 Million Crypto Fraud

Per the DOJ’s investigations, the elaborate scheme involved luring unsuspecting and often inexperienced investors into purchasing AirBit Club memberships with the guarantee of substantial returns. 

However, instead of engaging in legitimate cryptocurrency activities, Rodriguez and his cohorts allegedly diverted the funds for personal gain while employing an intricate money laundering operation to conceal their ill-gotten profits.

Rodriguez’s co-defendants, Gutemberg Dos Santos, Scott Hughes, Cecilia Millan, and Karina Chairez, have already pleaded guilty and await sentencing. The court has also ordered the forfeiture of the fraudulent proceeds, which include a staggering $100 million worth of assets, such as US currency, Bitcoin (BTC), and real estate.

Describing Rodriguez’s actions as a flagrant exploitation of cryptocurrency for fraudulent purposes, US Attorney Damian Williams emphasized the importance of this case in deterring potential fraudsters from making false promises of lucrative cryptocurrency investments.

Troubling Pattern Of Fraudulent Ventures

According to court documents, Rodriguez and Dos Santos founded AirBit Club in 2015 and “aggressively” marketed it as a multilevel marketing club operating in the cryptocurrency industry. 

The duo reportedly organized extravagant expos and presentations worldwide, enticing victims to invest in cash and providing them access to an online portal showcasing false investment returns. 

As early as 2016, victims who attempted to withdraw funds encountered excuses, delays, and exorbitant hidden fees. The scheme’s architects, including Rodriguez, spent the defrauded money on luxury items, financed more expos to attract additional victims, and siphoned funds through a network of domestic and foreign bank accounts. 

According to the DOJ, Rodriguez’s attorney trust account, managed by Scott Hughes, played a crucial role in concealing the illicit proceeds of the AirBit Club scheme.

Before AirBit Club, Rodriguez and Dos Santos were involved in another pyramid investment scheme called Vizinova, which led to a legal battle with the US Securities and Exchange Commission (SEC). 

Hughes, an attorney representing Rodriguez and Dos Santos in the Vizinova case, later assisted them in perpetrating the AirBit Club fraud by removing negative information about both schemes from the internet.

With Rodriguez’s sentencing, justice has been served to one of the key figures responsible for defrauding countless victims through AirBit Club.

Airbit

Featured image from Shutterstock, chart from TradingView.com 

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Grayscale CEO Highlights US Opportunity To Lead Crypto Space Through Regulation

The chief executive of Grayscale, a leading digital asset management firm, believes that the United States has a significant opportunity to dominate the cryptocurrency space by shaping effective regulations. 

In a recent interview with Yahoo Finance, Grayscale CEO Michael Sonnenshein expressed optimism about the progress made in the past year and highlighted the bipartisan support for crypto-related legislation. 

Sonnenshein emphasized the importance of lawmakers’ understanding of the crypto industry and urged Congress to actively engage with the issue to foster innovation and create robust financial and regulatory frameworks.

Grayscale CEO Urges Congress To Support Crypto

Sonnenshein commended the “groundbreaking” work done by regulators and lawmakers in Washington over the past 12 months, acknowledging the efforts of Chairman McHenry, Congressman Hill, and Senators Lummis and Gillibrand. 

The Grayscale CEO emphasized that crypto has become a nonpartisan issue, with members of Congress increasingly recognizing its long-term presence and importance.

Sonnenshein praised the bills that have made progress and are set for further votes in the fall, highlighting the need for broader member support and ongoing engagement on crypto-related topics.

Moreover, Sonnenshein underscored the growing involvement of constituents who are part of the crypto space and stressed the importance of elected officials aligning their positions accordingly. 

With upcoming elections and various catalysts on the horizon, Sonnenshein urged members of Congress to actively engage with the crypto industry, given its increasing significance and the need for comprehensive financial and regulatory frameworks, expressing optimism about the current momentum surrounding crypto legislation and the unprecedented level of engagement from lawmakers.

Grayscale’s GBTC Inches Closer To ETF Conversion?

Regarding the recent court order that vacated the SEC’s denial order for the Grayscale Bitcoin Trust (GBTC) application to convert to an Exchange-Traded Fund (ETF), Sonnenshein addressed the ongoing process and emphasized the organization’s commitment to full and fair disclosures. 

Grayscale has been litigating to convert GBTC into an Bitcoin (BTC) Spot ETF, as it would provide investors with additional protections, disclosures, and reporting obligations. 

On this matter, Sonnenshein stated that constructive dialogue with the SEC is anticipated once the 45-day process is complete, and the organization looks forward to pursuing the next steps expediently.

Furthermore, Sonnenshein highlighted the significant recognition given to the crypto industry by global entities such as the G20 and the International Monetary Fund (IMF), emphasizing the opportunity for the United States to establish itself as the center of the global capital markets ecosystem by implementing the right frameworks. 

Notably, Sonnenshein advocated for maintaining an open-door policy for innovation and positioning the US as a leader in the crypto space.

Overall, Grayscale CEO Michael Sonnenshein’s interview emphasized the United States’ chance to dominate the crypto space through effective regulation. With bipartisan support and increasing awareness among lawmakers, Sonnenshein urged Congress to engage actively and build momentum around crypto-related legislation. 

Grayscale

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SEC Charges Stoner Cats With Alleged Unregistered $8 Million Securities Sale In NFT Crackdown

In a recent move that intensifies the Securities and Exchange Commission’s (SEC) crackdown on the Non-Fungible Token (NFT) sector, the SEC has charged Stoner Cats 2 (SC2) with conducting an “unregistered offering of crypto asset securities.” 

The charges specifically target Stoner Cats’ sale of non-fungible tokens, which raised approximately $8 million from investors to finance the production of an animated web series.

SEC’s Legal Earthquake Hits NFT Market Once Again 

The SEC order reveals that on July 27, 2021, SC2 sold over 10,000 NFTs to investors at approximately $800 each, with the entire supply being sold out within a mere 35 minutes. The SEC alleges that SC2’s marketing campaign highlighted the potential benefits of owning the NFTs, including allowing owners to resell them on the secondary market. 

Furthermore, the SEC claims that SC2 emphasized its Hollywood producer expertise, knowledge of crypto projects, and involvement of well-known actors in the web series, which led investors to anticipate profits from the potential rise in resale value.

According to the SEC, SC2 configured the NFTs to provide a 2.5% royalty for each secondary market transaction, incentivizing individuals to buy and sell the NFTs. Subsequently, purchasers allegedly engaged in over 10,000 transactions, amounting to more than $20 million. 

The SEC alleges that SC2 violated the Securities Act of 1933 by offering and selling these SEC-denominated “crypto asset securities” to the public without registering the offering or qualifying for an exemption.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasizes that the determination of whether an investment contract qualifies as security lies in the economic reality of the offering, rather than the labels attached to it. Grewal stated: 

Here, the SEC’s order finds that Stoner Cats marketed its knowledge of crypto projects, touted that the price of their NFTs could increase, and took other steps that led investors to believe they would profit from selling the NFTs in the secondary market.

Stoner Cats Settles Charges, Agrees To NFTs Destruction

While the SEC’s actions are intended to “protect investors” by ensuring proper disclosures, some critics argue that the SEC’s language and terminology surrounding the NFT market are biased and lack clarity. 

Crypto enthusiast and investor Adam Cochran expressed his concerns, highlighting that there is no such thing as an “unregistered offering of NFTs” since registration requirements typically apply to securities. Cochran believes that the SEC’s communications should accurately reflect the law to avoid a chilling effect through fear-mongering.

In response to the charges, SC2 has agreed to a cease-and-desist order and to pay a civil penalty of $1 million. The order also establishes a Fair Fund to return funds to injured investors who purchased the NFTs. 

Additionally, SC2 has committed to destroying all NFTs under its possession or control and publishing notice of the order on its website and social media channels.

The SEC’s lawsuit against Stoner Cats underscores the ongoing regulatory battle surrounding the NFT sector. As the industry evolves, stakeholders are calling for clearer guidelines and unbiased regulatory practices to strike a balance between investor protection and fostering innovation in the digital asset space.

NFT

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