Edition No. 32
Sen. Warren's new bill; Charges levied against SBF; CFTC v. Ooki DAO; LBRY loss implications for XRP; and FTX's canary, and more. Here's what happened from 12/13/2022 - 12/19/2022.
Welcome back to 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. The Voices of Women in Crypto
4. Bird Watching (Tweet, tweet!)
5. The Public Ledger (Featuring an additional 20 links on FTX this week)
6. Closing Statements
On the Docket
Five things you might have missed last week:
1. Elizabeth Warren Introduces a New Digital Asset Bill
Okay, Grandma, let’s get you to bed.
Elizabeth Warren has been one of the most prominent critics of cryptocurrencies, often focusing on consumer protection and money laundering while dismissing any benefits of the technology entirely. Despite her apparent refusals to understand the community and technology from any perspective other than that of an infringement on legacy finance, on December 14th she introduced the Digital Asset Anti-Money Laundering Act, which she claims is focused on mitigating the risk of money laundering and terrorist financing.
The bill would take several drastic steps requiring various digital asset services to comply with the Bank Secrecy Act (BSA), along with other actions, like forbidding financial institutions from interacting with mixer services.
Perhaps most controversial, Warren’s legislation would force block validators and “unhosted” wallet providers to register with the Financial Crimes Enforcement Network (FinCEN) as a money service business (MSB).
Compliance with MSB regulation is costly, requiring designating a compliance officer, and implementing “Know Your Customer” (KYC) policies.
Moreover labeling unhosted wallet providers as MSBs represents drastic shift from FinCEN’s 2019 guidance, stating unhosted wallets are not MSBs.
Many in the industry are skeptical of the bill’s new designations.. In particular, Warren’s reasoning for designating unhosted wallet providers MSBs is unclear–especially considering the custodial relationship was largely FinCEN’s 2019 reasoning for defining hosted wallets MSBs.
This measure is in essence a significant expansion of compliance requirements on various digital asset services and block validators.
Warren has often been criticized by individuals and organizations in the digital asset space because of her negative rhetoric and numerous aggressive regulatory recommendations, and this legislation isn’t likely to bring any such advocates to her side.
Neeraj Agrawal offers his take on the proposed bill here:
By: Nick Corso
2. Sam Bankman-Fried Charged by US With Fraud Over FTX Collapse
Charges have arrived:
In the aftermath of the catastrophic fall of his cryptocurrency empire, FTX founder Sam Bankman-Fried has been accused of eight felony charges, including conspiracy and wire fraud, for allegedly misusing billions of dollars in customer funds.
A federal court judge in Manhattan unsealed the indictment Tuesday morning, following weeks of speculation the 30-year-old would be arrested after his company, one of the largest cryptocurrency exchanges in the world, declared bankruptcy last month.
The indictment alleges that Bankman-Fried conspired with others "to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research.”
Bankman-Fried was arrested by police in the Bahamas on Monday evening, mere hours before he was scheduled to testify before the US Congress regarding FTX's demise. Tuesday morning, the Securities and Exchange Commission and Commodity Futures Trading Commission filed separate lawsuits against Bankman-Fried for his role in the collapse of FTX.
According to Bankman-Fried’s attorney, Mark S. Cohen:
“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options.”
3. Federal judge orders CFTC to serve Ooki DAO founders
Just when they thought they were free:
As part of an ongoing case against Ooki DAO, a federal judge directed the Commodities Futures Trading Commission (CFTC) to serve decentralized trading platform bZeroX's founders, Tom Bean and Kyle Kistner.
bZeroX is the precursor to Ooki DAO, a decentralized autonomous organization.
The action follows Bean and Kistner's September settlement on charges with the CFTC related bZeroX's commodity sales. Due to their ownership of Ooki DAO tokens and the CFTC's indictment of Ooki DAO token holders, they will be served with the complaint.
According to District Judge William Orrick:
“It seems clear in this case that Ooki DAO has actual notice of the litigation…but to provide the best practicable notice, the CFTC should serve at least one identifiable Token Holder if that is possible.”
How to properly serve a lawsuit against a decentralized organization has been a fundamental issue in this case. Initially, the CFTC delivered legal service to DAO users through the chat box of the DAO. However, this was met with intense pushback from crypto attorneys who did not represent the DAO and contended that this did not constitute due process. The CFTC is attempting to claim that it has directly served two members of an unincorporated group by serving two token holders.
4. Ripple case will not be affected by LBRY loss, says Crypto Law founder
Good news for XRP?
John Deaton, an American attorney who founded Crypto Law, explained why the LBRY loss to the SEC will not affect the outcome of the ongoing Ripple vs. SEC litigation.
See the full thread here:
Deaton stated that Ripple presented compelling arguments and had a good case supported by evidence to ultimately prevail in their case.
Although the regulator launched the Ripple and LBRY lawsuits under identical titles, the lawyer said that they were distinct because Ripple's case was in its "second circuit." In contrast, LBRY never questioned the enterprise aspect in its case, although Ripple did.
In contrast to the LBRY case, Ripple has submitted copies of XRP user testimonials to its arguments, therefore a comparison between the two cases is largely irrelevant.
5. Reports Suggest Caroline Ellison Is Working With Feds and Snitching on FTX Co-Founder Bankman-Fried
Like a Canary in the morning:
Caroline Ellison, the former chief executive officer of Alameda Research, has been the subject of a considerable deal of speculation from crypto enthusiasts and the media. After FTX filed for Chapter 11 bankruptcy protection, Sam Bankman-Fried (SBF) embarked on a publicity tour that included appearances on Good Morning America and the New York Times' Dealbook event. Then, more than a month after the collapse of FTX, SBF was detained in The Bahamas, indicted by a federal grand jury in New York City, charged with fraud by the U.S. Securities and Exchange Commission (SEC), and sued by the U.S. Commodity Futures Trading Commission (CFTC).
In the meantime, Ellison has remained silent. The public was informed on Wednesday that FTX co-CEO Ryan Salame reportedly turned on SBF on November 9, two days prior to FTX filing for bankruptcy. According to reports, Salame disclosed to Bahamian authorities that SBF transferred customer monies to Alameda Research. The only known fact regarding Ellison is that she is purportedly currently represented by Former SEC Enforcement Division Chief Stephanie Avakian and the WilmerHale legal team. Since SBF's imprisonment, there have been rumors that Ellison has also betrayed SBF.
“It is possible Bankman-Fried’s publicity tour, in which he repeatedly disclaimed either knowledge of — or responsibility for — mishandling or theft of customer assets, spurred senior officers to fear that he would specifically blame them.”
It’s appearing more and more likely that someone is singing before SBF has the chance to do so.
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
Voices of Women in Crypto
By: Tamara Szulc & Nicole Prada
The Voices of Women in crypto is back! This week, we sat down with Renatta Fairbanks, a financial controller and crypto enthusiast. To read our full discussion, please follow the link HERE.
Tweet, Tweet, Tweet!
ATBC favorite @BirdnalsLAW notes some promising developments in the CFTC complaint against SBF:
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
Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers
Crypto firm Binance says deposits returning after heavy withdrawals
The Madoff Playbook: How FTX Creditors Could Get Their Money Back
Shaq distances himself from crypto and FTX collapse: ‘I was just a paid spokesperson’
Silvergate's FTX Entanglement Targeted by Crypto Coin Holder
Keeping Up with the Lawsuits: Celebrity Endorsers, Crypto Ads, and the Evolving Liability Landscape
U.S. - Federal
Ripple case will not be affected by LBRY loss, says Crypto Law founder
FTX Co-Founder Indicted by Federal Grand Jury in Manhattan, Bahamian Magistrate Denies SBF’s Bail
FTX founder indicted on eight criminal charges including fraud and conspiracy
Enforcement of Sanctions Violations by Crypto Exchanges Prevail
U.S. Attorney Announces Fraud And Money Laundering Charges Against The Founders And Promoters Of Two Cryptocurrency Ponzi Schemes
VBit Technologies crypto company faces more lawsuits, Ponzi scheme allegations
U.S. - State Law
California Democrats got money from crypto CEO accused of fraud. Now they’re giving it away
New York Financial Regulators Issue Crypto Guidance For Banks
New York regulator and BitLicense proponent gets seat on federal counsel of agency leaders
Florida best-prepared US state for widespread crypto adoption
Wyoming’s Senator bullish on Bitcoin despite market downturn
Decoding Crypto.com’s new Brazilian license and CRO’s growth prospects
Binance, Alone at the Top After FTX, Stirs ‘Too Big to Fail’ Crypto Worry
FTX bankruptcy case: Bahamas denies improper conduct, seeks respect for legal system
Basel Committee Finalizes Policy Suggesting 2% Bitcoin Exposure Cap For Banks
Don't blame the Bahamas for FTX's implosion, foreign minister says as the disgraced company's lawyers hurl accusations of complicity
FTX liquidators’ legal team urges cooperation with Bahamian authorities amid favoritism allegations
Dutch Central Bank Says Crypto Exchange KuCoin Is Operating Without a License in Netherlands
FTX CEO Says Sam Bankman-Fried Released Crypto in Bahamas to Undermine Chapter 11
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Quote of the Week:
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