Edition No. 29

FTX fallout continues; Sony brings NFTs to gaming; Brazil reconvenes crypto-congress; FINRA arrives at the dance; and more. Here's what happened from 11/14/2022 - 11/21/2022.

Welcome to another edition of Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories directly to your browser.

Table of Contents:

1. On the Docket (Top Stories of the Week)

2. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)

3. Bird Watching (Tweet, tweet!)

4. The Public Ledger (Featuring an additional 20 links on FTX this week)

5. Closing Statements

On the Docket

Five things you might have missed last week:

1. Bahamas Regulator Seizes FTX Assets as U.S. Case Unfolds

Tropical Storm Sam

Authorities in the Bahamas have taken control of cryptocurrency assets formerly held by FTX.

The Securities Commission of The Bahamas announced on Nov. 17 it has directed the transfer of all digital assets of FTX Digital Markets, the Bahamas-based FTX unit that filed for Chapter 15 bankruptcy protection on Tuesday, Nov. 15. Chapter 15 bankruptcy is a relief available to companies operating mainly outside the U.S. The Bahamian regulator said assets were transferred to a digital wallet it controls r “safekeeping.”

Last week, FTX and Alameda, along with more than 100 related entities, sought Chapter 11 bankruptcy protection in a Delaware federal court. In its bankruptcy filing, FTX said it owes nearly $3.1 billion to its 50 biggest creditors . FTX's lawyers called the Chapter 15 filing—and the choice of the Southern District of New York—"distressing" while a Chapter 11 case unfolds in Delaware.   

FTX says it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses. FTX's U.S. restructuring team will square off against the Bahamas liquidators in U.S. court on Tuesday, with both sides seeking jurisdictional clarity on control of FTX's bankruptcy.

By: Evan Santos

See also: theblock.com; reuters.com

2. Sony Files Patent for Tracking In-Game Digital Assets With NFTs

Tokenized Fortnite Skins Inbound:

Newly published documents reveal global entertainment giant Sony sought a 2021 patent  for an in-game system capable of tracking digital assets–such as NFTs–using blockchain technologies.

The patent outlines claims on techniques and technologies for creating, modifying, tracking, authenticating, and/or transferring unique digital assets associated with a video game, including items and characters. It describes generating new blocks to identify changes to the history of such in-game digital.

The U.S. patent office has thus far, however, rejected Sony’s application for failing to "integrate the abstract idea into a practical application" according to the Block. To continue seeking a patent, Sony will  need to update its application. 

While not the first company to pursue in-game tokenization, Sony is one of the largest companies and most recognizable brands demonstrating interest in NFTs and the blockchain.

This patent would not be Sony’s first foray into NFTs. In May 2022, Sony partnered with Theta Labs to launch a collection of 3D NFTs. The limited-edition collection is viewable on the Sony tablet-style device, Spatial Reality Display.

By: Evan Santos

3. FTX COLLAPSE PROMPTS BRAZILIAN LAWMAKERS TO PASS CRYPTO LEGISLATION

The Brazilian-Butterfly Effect

The rapid collapse of FTX, formerly the second-largest cryptocurrency exchange by trading volume, sent shockwaves through the industry. While the full extent of the contagion remains to be seen, crypto advocates in Brazil are urging lawmakers to pass legislation regulating cryptocurrencies. Brazil, South America’s largest cryptocurrency market, has approximately 16 million users.

In June of this year, a bill allowing cryptocurrencies to be used for investment and as a medium of exchange was proposed in the Brazilian legislature. It also sought to expand judicial authority, by granting courts the power to compel exchanges to freeze customer accounts. 

Another bill–passed by the senate earlier this year and awaiting approval from the lower chamber–has gained traction since FTX’s collapse. This measure requires cryptocurrency providers to establish a physical entity within the country. It also seeks to expand mandatory disclosure requirements concerning anti-money laundering and other criminal activities. 

Fernando Furlan, former President of Brazil's blockchain association, believes FTX’s collapse was the “push” lawmakers needed to pass legislation. Arthur Lira, speaker of the lower house, echoed Furlan’s sentiment and stated the chamber will vote on the bill before 2023.

With Lula winning the recent presidential election against incumbent Jair Bolsonaro, regulation of digital assets is expected to be an important focus. He has previously stated regulation is important and should be the responsibility of the independent Central Bank, in conjunction with the government. 

Lula is keen to help Brazil and the rest of South America reduce its dependence on the U.S. Dollar. He has proposed the creation of a regional currency and a digital Real, but both proposals remain ideas with no concrete action having taken place yet. Regardless, the push to regulate crypto seems to be gaining speed.

By: Surya Dawar

4. FINRA Focuses On Crypto-Market Communications

Under the Microscope

Amid the recent implosion of FTX, the Financial Industry Regulatory Authority (FINRA) has begun examining crypto marketing practices, specifically brokerages and their affiliates' retail communication. FINRA is requesting brokerages turn over all retail communication the brokerage distributed or made available referring to or relating to crypto assets, crypto services, or holding crypto assets.

Retail communications according to FINRA means “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day periods.” Social media and other electronic mediums also fall into this category. If an exam is requested by FINRA, the brokerage's compliance policies involving communication will also be inspected. 

This examination comes after the recent trouble surrounding crypto exchanges and crypto asset advertising practices. It is likely this is the beginning of more regulatory scrutiny.

By: Nick Corso

5. New FTX CEO Condemns Exchange Failure

Fallout 7: SBF Fool’s Gold Edition

John Ray, the new CEO of FTX, has criticized the manner in which the failing cryptocurrency exchange was managed. The company filed for bankruptcy in the United States last week, and Mr. Ray stated in court documents that he had never seen "such a complete failure of corporate controls." Mr. Ray, who succeeded Sam Bankman-Fried, criticized the:

"total absence of reliable financial information."

Meanwhile, Mr. Bankman-Fried expressed regret to the Vox news website on his bankruptcy filing. Mr. Ray stated that what he had discovered since assuming control was "unprecedented" in his four-decade career, which included overseeing the collapse of US energy giant Enron. Mr. Ray stated that FTX had centralized control in the hands of a "very small group of inexperienced, naïve, and potentially compromised persons" and that it lacked centralized management over its cash.

Rather, he stated that there was

"no reliable list of bank accounts and account signers."

Mr. Ray's declaration to the court also states,

"I understand that in the Bahamas, FTX Group company assets were utilized to acquire mansions and other personal items for employees and advisers."

The new chief executive officer did note that there was a "core team of committed personnel" who had remained focused on their professions after the bankruptcy. He also underlined that present and former employees and executives whose personal interests and reputations have suffered the most as a result of these occurrences.

It is estimated that FTX owes money to over a million individuals and organizations.

By: Kyler Wandler

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Podcasts, Videos, and Blogs

The brightest voices & sharpest pens:

There's nothing better than doing what you love and getting paid for it. CryptoJobs.Law has your next opportunity to work on the legal side of web 3.

With hundreds of open roles and new positions added daily, CryptoJobs.Law is the only website dedicated solely to finding top legal minds jobs in web 3. Join the revolution today.

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Bird Watching

Tweet, Tweet, Tweet!

1. A review of the FTX bankruptcy filing:

Genevieve Roch-Decter, CFA @GRDecter

I read the 30 page FTX Bankruptcy court filing. How bad were FTX's internal controls? Here are the worst examples 👇

2. The DAO Research Collective kicks off their “DAO Tooling” twitter series:

DAO Research Collective @DAOResearchCo

DAO tooling is evolving daily, which is yet another reason to get excited about the future of DAOs 🍾 We’ll be highlighting some of the projects we find most exciting over the next few months. And we’re starting with “The Game” by @bondwithmochi!

3. Coinbase reverts to analog marketing:

angelajung.eth @_angelajung

It’s time to update the system 📠 @coinbase

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The Public Ledger

Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:

General News and Opinion

• Estate Planning and Cryptocurrency

• Holding Digital Assets Through Custodial Wallets

• Litigation Minute: Batten Down the Hatches: Best Practices to Weather the Storm of a Government Investigation (Cryptocurrency Litigation Series: Part Three of Four)

• Extended Crypto Winter Likely To Speed Regulation

• FTX bankruptcy will offer a look behind crypto’s dark curtain

• Crypto Is Flowing Out of Exchanges: 'Severe' Outflows From Gemini, OKX and Crypto.com, Says JP Morgan

• Legal Focus: Insurance market for cryptocurrency continues to evolve

• 'Tracers in the Dark' explores the growth of illicit commerce with cryptocurrency

• Stunning Collapse of Global Cryptocurrency Exchange FTX Leads to Bankruptcy

• About 75% of Retail Buyers of Bitcoin Lost Money, BIS Study Says

U.S. - Federal

• Potential BSA/AML Roadmap – Crypto Exchange Bittrex Enforcement Actions

• SEC reports Enforcement stats—the “risk-reward calculation is not what it was”

• Shhhh! – SEC Wins Summary Judgment Over Library

• Ripple gets support from Blockchain Association in XRP lawsuit against SEC

• Republicans Poised to 'Outright Attack' ESG With House Victory

• Tornado Cash Redesignation: Does it Change Anything for US Users?

• SEC Enforcement Remains Focused on Crypto — Chair Gensler Says He's 'Impressed' With Enforcement Results

• The Final Chapter? Bad Facts Make for Bad Law in LBRY Litigation

• District Court Declines to Dismiss NFT “Insider Trading” Indictment against Former OpenSea Employee

• Senator Gillibrand of New York hopes stablecoin legislation will prevail

U.S. - State Law

• FTX's Bahamas unit files for bankruptcy in New York

• NYDFS Proposes Amendments

• DFPI Says No MTA License Required To Issue Tokenized U.S. Dollars

• New York Attorney General's Office Fall Round-Up

• New York’s financial watchdog calls for better crypto regulation

• No Complaints With Cryptocurrency: The Applicability of CPLR 3213's Summary Judgment in Lieu of Complaint to Obligations in Cryptocurrency

• New York Fed Plans to Launch 12-week CBDC Pilot Program, Features Top US Banks

• California AG Issues Warning-Ladened Guidance For Public Interested In Buying Crypto

• Public Advocate Williams + NY Advocates Rally for Gov. Hochul to Sign Cryptomining Moratorium Now!

• The California Finance Commission revokes BlockFi’s license

International

• Tumbling bitcoin overshadows El Salvador's crypto conference

• St. Kitts and Nevis to adopt Bitcoin Cash as legal tender in 2023

• PM Terrance Drew says due diligence is a priority to make bitcoin legal tender

• The State of Crypto Taxation in India: Past, Present and Future

• Privacy-Enhancing Crypto Coins Could Be Banned Under Leaked EU Plans

• Chimeras: what happens when novel intangible assets meet ancient, abstract legal frameworks in insolvency

• China circles El Salvador’s economy as country edges toward crypto plunge

• DAO Legal Reforms in Spotlight as UK Law Commission Seeks Views

• Australian Regulator Kicks Off Plans to Integrate Crypto Regulations

• The Law Commission of England and Wales Proposes to Classify NFTs as Data Objects

FTX (Here’s 20 additional links to FTX related news.)

• Bahamas seized FTX Digital Markets’ assets on Nov. 12, regulator now says

• 'Wave' of lawsuits over FTX expected, but investors will face legal hurdles

• FTX hit by rogue transactions, analysts saw over $600 million outflows

• FTX Group establishes Kroll to update users on legal proceedings

• FTX's Bankman-Fried, Tom Brady and other celebrity promoters sued by crypto investors

• FTX's Bahamas unit files for bankruptcy in New York

• The FTX bankruptcy filings are a doozy. We bring you the highlights

• FTX Scandal Makes Firms Wary About Crypto Payments

• FTX bankruptcy will offer a look behind crypto’s dark curtain

• New FTX boss condemns crypto exchange's failure

• Brazil Reactivates Cryptocurrency Regulatory Discussion Thanks to FTX Disaster

• FTX’s Advisers Have Found Just a Fraction of Company’s Crypto

• Brazil crypto law back on agenda as FTX collapse sends shockwaves

• Voyager 'Shocked, Disgruntled, Dismayed' by FTX Bankruptcy as Crypto Lender Searches for Another Buyer

• After FTX meltdown, Congress starts to ask: Did it neglect crypto?

• Paolo Ardoino Talks FTX, Adoption And Self-Custody With NewsBTC

• Law Decoded, Nov. 7–14: How regulators reacted to the FTX crash

• FTX Collapse Spotlights Digital Asset Risks and Compliance Challenges

• House panel to hold hearing on crypto exchange FTX collapse

• FTX investor sues Tom Brady, Gisele Bundchen and others as crypto contagion spreads

NOTE: For your convenience, we have started identifying articles that require a subscription or site registration (paid or free) with ** preceding the article link, and the linked site in () after.

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Closing Statements

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If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler, Chris, and the Around the Blockchain News team.

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ATTENTION AROUND THE BLOCKCHAIN READERS:

There's nothing better than doing what you love. And getting paid for it. CryptoJobs.Law has your next opportunity to work on the legal side of web 3.

With hundreds of open roles and new positions added daily, CryptoJobs.Law is the only website dedicated solely to finding top legal minds jobs in web 3. Join the revolution today.

Quote of the Week:

“The Shiboleths that make people like us.” - Sam Bankman-Fried

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The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.