The Scenius State of Regulation (Issue #5)
Crypto Policy & Regulation
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Welcome to The Scenius State of Regulation — a monthly publication prepared by Ian Corp, a consultant to Scenius Capital.
Our aim with this publication is to provide a snapshot of evolving regulation affecting digital assets globally.
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United States 🇺🇸, Canada 🇨🇦, & Caribbean 🌎
Nexo to Phase Out Service in US
Crypto lender Nexo will gradually phase out U.S. products and services over the coming months due to hitting a “dead end” with regulators.
SEC Urges Firms to Disclose Crypto Exposure
The Securities and Exchange Commission (SEC) has unveiled new guidelines for companies making financial disclosures, which call on them to provide a more detailed record of their exposure to the crypto industry in the wake of recent market chaos.
Bank of Canada Plans 2023 CBDC Consultation
Bank of Canada Governor Tiff Macklem announced a potential Canadian Central Bank Digital Currency (CBDC). Next year the bank plans to consult the public on a potential CBDC.
Senators Warren, Marshall Introduce Bill to Tighten Money Laundering Rules for Crypto
Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., introduced legislation to tighten U.S. anti-money laundering rules to digital assets. The bill would expand know-your-customer rules to wallet providers, miners, validators and other network participants, according to a joint release from the senators. It would also prohibit financial institutions from using or interacting with transaction mixers — decentralized applications that obscure transaction sources on distributed ledger networks like Ethereum.
Biden Administration Delays Tax Rules for Crypto Brokers
The Biden administration delayed a requirement that cryptocurrency brokers begin tracking and reporting investors’ gains to the Internal Revenue Service, punting on the original Jan. 1 timeline for a change that had been resisted by crypto brokers and some members of Congress.
Binance Joins U.S. Lobby Group's Executive Committee
Binance is joining the executive committee of the Chamber of Digital Commerce, a U.S. lobby group for the blockchain industry, as the world's biggest crypto exchange steps up its engagement with regulators. Binance will contribute to research and potentially influence the shape of crypto legislation through discussions with policymakers and regulators.
NFT Marketplace OpenSea Delisting Cuban Artists and Users
Leading NFT marketplace OpenSea is actively delisting Cuban artists and users to comply with U.S. sanctions. “We comply with U.S. sanctions law,” an OpenSea spokesperson told Artnet News. “Our terms of service explicitly prohibit sanctioned individuals, individuals in sanctioned jurisdictions, or services from using OpenSea.”
FTX Paid Crypto Bankruptcy Lawyers $12 Million for Early Work
Law firm Sullivan & Cromwell received a $12 million retainer from an FTX-controlled company shortly before the exchange’s Nov. 11 bankruptcy filing, the filing shows. The firm has drawn a little more than $3 million of that, largely for work done in the days leading up to the rushed bankruptcy filing.
Sam Bankman-Fried Signs US Extradition Papers in Bahamas
FTX co-founder Sam Bankman-Fried, who has been in jail in the Bahamas, has agreed to be sent to the US to face multiple criminal charges.
Bankman-Fried in FBI Custody, Ellison, Wang Plead Guilty and are Cooperating
Former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang have pleaded guilty to criminal charges, U.S. Attorney for the Southern District of New York Damian Williams announced.
FTX Founder Sam Bankman-Fried to be Released on $250 Million Bail
FTX founder Sam Bankman-Fried was released on $250 million bond while awaiting trial for fraud and other criminal charges, a New York federal judge ruled.
Crypto Investment Firm 3iQ Adds Support to Fir Tree’s Grayscale Suit
Crypto investment fund manager 3iQ is adding a voice of support to Fir Tree Capital Management’s lawsuit centered on Grayscale Investments’ Bitcoin trust, becoming the latest firm to publicly express concern over the assailed product.
FTX Seeks to Claw Back Sam Bankman-Fried’s Political Donations
FTX will try to recoup millions of dollars in donations to US politicians made by Sam Bankman-Fried and his close associates to help pay back creditors following accusations that the contributions were funded with customers’ money.
Judge in SBF Case Recuses Herself Over Husband’s Firm’s Past Work for FTX
Federal judge Ronnie Abrams of the US District Court for the Southern District of New York formally withdrew from adjudicating the case. Abrams’s husband, Greg D. Andres, is a partner at law firm Davis Polk & Wardwell, which advised FTX in 2021, according to Abrams’ order. Though Andres himself did not personally advise FTX, Abrams chose to recuse herself from the case “to avoid any possible conflict, or the appearance of one.”
Caroline Ellison 'Knew That It Was Wrong'
Caroline Ellison, the former CEO of collapsed algorithmic trading firm Alameda, told a judge that she agreed with disgraced former FTX CEO Sam Bankman-Fried in providing "materially misleading financial statements to Alameda's lenders." According to a transcript of her courtroom allocution, delivered on Dec. 19 but kept sealed until Bankman-Fried was released on a $250 million bond three days later, Ellison told U.S. District Court judge Ronnie Abrams, "I am truly sorry for what I did—I knew that it was wrong."
Law Enforcement Requests for Information Are Up 66%
Law enforcement agencies are ramping up their efforts to tackle criminal activity in crypto. Requests for information are up 66% year-over-year. Law enforcement agencies from the United States and Germany are leading the charge.
FTX Case May Bring SEC One Step Closer To Banning Crypto Exchanges
The SEC announced charges against two key allies of disgraced FTX founder Sam Bankman-Fried: Caroline Ellison, former CEO of FTX’s affiliate trading firm Alameda Research, and Gary Wang, an FTX co-founder.
In addition to revealing that Ellison and Wang flipped on Bankman-Fried and are now fully cooperating with federal authorities, the complaint divulged that the SEC—in its pursuit of securities fraud charges pertaining to FTX’s sale of its native token FTT—appears to be escalating its assault on crypto assets as a whole.
California Regulator Orders Halt to MyConstant’s Crypto Lending Services
California financial regulators have ordered online crypto loans platform MyConstant to desist from offering some of its crypto-related products in the state.
Retiring U.S. Sen. Pat Toomey Introduces Stablecoin TRUST Act
Outgoing Pennsylvania Sen. Pat Toomey has quietly introduced another piece of cryptocurrency legislation. The Stablecoin TRUST Act—a backronym for Transparency of Reserves and Uniform Safe Transactions—would establish a federal regulatory framework for "payment stablecoins," and is designed to guide Congress towards a path of "sensible regulation of cryptocurrencies."
Gemini's Creditor Committee Presents Plan to Resolve Genesis, DCG ‘Liquidity Issues’
A creditor committee, which includes crypto exchange Gemini, has presented a plan to resolve the “liquidity issues” currently plaguing Genesis and its parent company Digital Currency Group (DCG), and to “provide a path for the recovery of assets.”
Major Democratic PAC to Return $3M in FTX Executive Donations
A major pro-Democrat political action committee (PAC) plans to return $3 million in donations made during the 2022 midterm elections by former FTX executives, including disgraced founder Sam Bankman-Fried and the defunct exchange’s former head of engineering, Nishad Singh. The Senate Majority PAC, which spent over $160 million on ads supporting Democratic candidates in 2022 United States Senate races, will return a $1 million donation made by Bankman-Fried and a $2 million donation made by Singh.
BlockFi Petitions Bankruptcy Court to Let Clients Withdraw Blocked Assets
Bankrupt crypto lender BlockFi has petitioned the U.S. Bankruptcy Court to allow clients to withdraw cryptocurrencies that are held in their BlockFi Wallet Accounts. This request does not impact withdrawals or transfers from BlockFi Interest Accounts, which are set to remain paused at this time.
IRS to Delay $600 Payment Platform Reporting Threshold, Calls 2022 "Transition period"
The Internal Revenue Service is delaying new requirements that require third-party settlement organizations like PayPal and Venmo to report transactions that exceed a minimum threshold of $600 in aggregate payments until next year. "The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements," acting IRS Commissioner Doug O'Donnell said.
SEC General Counsel Dan Berkovitz to Step Down
Securities and Exchanges Commission general counsel Dan Berkovitz will step down effective Jan. 31. While known as a decentralized finance hardliner, reports indicate that in his previous role at the CFTC he met and dined with disgraced FTX founder Sam Bankman-Fried. Berkovitz was lobbied by Bankman-Fried just before joining the SEC.
FTX Asks Court for Help in Battle Over $450 Million in Robinhood Shares
56 million shares are owned by Emergent Fidelity Technologies, an entity 90% owned by disgraced FTX founder and former CEO Sam Bankman-Fried and organized in Antigua and Barbuda, according to a court filing. The parties trying to gain control of the Robinhood shares — frozen on brokerage ED&F Man Capital Markets in November — are failed crypto lender BlockFi, FTX creditor Yonathan Ben Shimon and Bankman-Fried.
DAOs Recognized as Limited Liability Companies by the Marshall Islands
The Pacific island nation has passed a law recognizing DAOs as limited liability companies.
FTX Creditors Tap Paul Hastings LLP for Representation
FTX creditors will be represented by Paul Hastings LLP in the crypto exchange's high-profile bankruptcy proceedings. Paul Hastings was chosen from a pool of candidates by a nine-member committee.
Democrats Split on Gensler’s Crypto Approach Post-FTX
As Congress weighs the FTX collapse, Democrats appear split on how much more the Securities and Exchange Commission and its chair, Gary Gensler, could have done to stave off what the agency now calls “massive, years-long fraud.”
Gemini, Winklevoss Twins, Sued for Fraud Over Interest Accounts
Gemini Trust Co. and its founders, Tyler and Cameron Winklevoss, were sued by investors who claim the crypto asset exchange sold interest-bearing accounts which it failed to register as securities. The investors accused the company and its founders of fraud and violations of the Exchange Act in a proposed class-action complaint filed in Manhattan federal court.
Sam Bankman-Fried Will Face Judge Who Presided Over Trump, Kevin Spacey
A judge who handled lawsuits against Donald Trump, Kevin Spacey, and Prince Andrew will now oversee the forthcoming federal criminal trial of disgraced crypto mogul Sam Bankman-Fried. U.S. District Judge Lewis Kaplan replaced his colleague Ronnie Abrams on Monday, after Abrams recused herself due to a potential conflict of interest.
Latin America 🌎
Brazil Passes Crypto Regulation
The bill, which was approved by the Chamber of Deputies weeks ago, aims to regulate providers of virtual assets. The bill requires that a regulator must also be appointed for the sector, and the industry expects it to be the Brazilian Central Bank.
Europe 🌍
UK Includes Crypto Assets in Financial Services Reform Package
The UK government announced a package of more than 30 reforms to financial regulation, including the extension of tax breaks for investment managers to cover crypto assets.
Coinbase Secures Regulatory Approval in Ireland
Coinbase has been granted approval by the Central Bank of Ireland to operate as a Virtual Asset Service Provider (VASP), meaning that Coinbase can continue to provide products and services to individuals and institutions in Europe and internationally, from Ireland.
British Columbia Suspends New Connections for Bitcoin Miners
BC Hydro, a state-owned electric utility provider in the Canadian province of British Columbia, has paused new electricity connection requests from cryptocurrency miners for 18 months “to support the province’s climate action and economic goals.”
European Parliament's NFT Push Derailed by Qatargate Bribery Scandal
The European Parliament’s report for bespoke NFT policy has been scrapped after MEP Eva Kaili was charged with corruption over alleged bribes from Qatari officials.
Hidden Road's UK Entity Receives Digital Asset Firm Registration
Hidden Road’s UK entity has been granted registration as a digital asset firm by the Financial Conduct Authority. It is currently the only prime broker holding both an investment firm license and digital asset firm registration from the FCA.
Asia 🌏
SEBA Bank and HashKey target institutional investors in Hong Kong
HashKey will become SEBA Bank's preferred digital asset trading and market development partner in Hong Kong.
Binance Acquires Japanese Crypto Exchange Sakura
Binance acquired crypto exchange Sakura Exchange BitCoin (SEBC). As SEBC is already regulated by Japan's Financial Services Agency (FSA), the acquisition will allow Binance to reenter the country.
Hong Kong Accelerator Looking to Help 1,000 web3 Startups in Next 3 Years
G-Rocket's new initiative, "Hong Kong Web3.0 Hub," coincides with the special administrative region's concerted push to put itself among the leaders in the virtual asset industry. 150 start-ups — primarily founded by Chinese entrepreneurs based elsewhere — have signed up for the accelerator's new program.
North Korean Hackers Have Stolen $1.2B in Crypto Since 2017
Hackers sponsored by North Korea have stolen an estimated 1.5 trillion won ($1.2 billion) in cryptocurrencies from around the world since 2017, according to an AP News report citing South Korea's main spy agency, the National Intelligence Service (NIS). The NIS believes that North Korea is among the best in the world when it comes to stealing crypto as the country turned its focus on cybercrime after U.N. economic sanctions were toughened in 2017 in response to its nuclear and missile tests.
Reserve Bank of India Says Crypto will Cause 'Next Financial Crisis' and Should be Banned
The Reserve Bank of India's governor, Shaktikanta Das, said private cryptocurrencies would lead to the "next financial crisis" if allowed to continue — and should therefore be banned. Das reiterated that the RBI believes private cryptocurrencies should be prohibited. "Please, mark my words, the next financial crisis will come from private cryptocurrencies.”
China to Launch First National ‘Digital Asset’ Marketplace
China is launching its first state-backed non-fungible token (NFT) marketplace, the latest sign of embrace for a technology that has occupied a legal gray area within the country’s notoriously strict regulations on cryptocurrency. The platform will be run by three state-owned and private entities, including China Technology Exchange and Art Exhibitions China, both of which are government-backed, and Huban Digital, a private company.
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