Tag: cryptocurrency

TerraUSD Founder Do Kwon Indicted in US Following Montenegro Arrest

Do Kwon, the cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion (nearly Rs. 3,28,500 crore) or more last year, has been charged with fraud by US prosecutors.

An eight-count indictment against Kwon was made public in the US District Court in Manhattan, several hours after news of his arrest earlier Thursday in Montenegro.

Lawyers for Kwon in the United States did not immediately respond to requests for comment after business hours.

Thursday’s indictment charges Kwon, a South Korean national who co-founded Terraform Labs and developed the TerraUSD and Luna currencies, with two counts each of securities fraud, wire fraud, commodities fraud and conspiracy.

The criminal case follows related US Securities and Exchange Commission civil charges against Kwon and Terraform last month.

Kwon had been a fugitive for several months, and South Korean authorities issued an arrest warrant for him last September.

South Korean police said on Friday that the identity of the suspect arrested in Montenegro had been confirmed as Kwon after his fingerprints matched the information held by the country’s National Police Agency (KNPA).

“This has been shared with the Seoul Southern District Prosecutors’ Office and Interpol in Montenegro,” one official at the KNPA said.

Prosecutors will work with other institutions to carry out a swift repatriation, a spokesperson for the country’s prosecution service said.

Montenegro’s interior ministry said police detained a person thought to be Kwon and a second suspect, who were trying to board a flight to Dubai at Podgorica airport.

Police found forged passports of Costa Rica and Belgium during the encounter, the ministry said.

“The person is suspected of being one of the most wanted fugitives, South Korean national Do Kwon, a co-founder and CEO of the Singapore-based Terraform Labs,” Interior Minister Filip Adzic wrote on Twitter.

“The former cryptocurrency king who is behind losses of over $40 billion, has been apprehended at the Podgorica airport with forged documents,” Adzic added.

TerraUSD was a so-called “stablecoin” designed to maintain a constant $1 price, while Luna’s value fluctuated.

But authorities have said TerraUSD and Luna were paired, such that a decline in one could take down the other.

They also said Kwon misrepresented the stability of TerraUSD, once among the top 10 cryptocurrencies by market value.

Both currencies crashed last May, with TerraUSD’s price sinking to less than one penny.

In its civil case, the SEC accused Kwon and Terraform of “orchestrating a multi-billion dollar crypto asset securities fraud.

“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors,” SEC Chair Gary Gensler said in a statement at the time.

© Thomson Reuters 2023

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Coinbase Acquires One River Digital Asset Management to Beef Up Services

Coinbase has acquired One River Digital Asset Management (ORDAM), the cryptocurrency exchange said on Friday as it aims to beef up services and take advantage of weak valuations of digital asset companies.

The company did not disclose the financial details of the deal, in which ORDAM will become Coinbase Asset Management and operate as a fully-owned unit of Coinbase.

ORDAM is a digital asset manager that provides institutional clients exposure to digital assets through investment products.

Eric Peters will continue to serve as chief executive of Coinbase Asset Management as well as One River Asset Management, the parent company of ORDAM.

“Coinbase and ORDAM share an ethos grounded in prudent risk management, a trait which has enabled both firms to successfully navigate the recent market turmoil,” Coinbase said in a blog.

Meanwhile, last month Coinbase Global reported a fourth-quarter loss, as trading volume at the cryptocurrency exchange came under pressure from an industry-wide downturn triggered by a string of high-profile bankruptcies.

The digital assets market suffered from dour sentiment over the last year, but the biggest blow to the sector came from the bankruptcy of Sam Bankman-Fried’s major crypto exchange FTX in November.

“In the wake of FTX and other crypto company failures, we have seen increased regulatory scrutiny,” Chief Executive Brian Armstrong said on a call with analysts but added the development will ultimately benefit Coinbase. 

Amid the market downturn, trading volume at the crypto exchange plunged to $145 billion (roughly Rs. 12,00,000 crore) in the fourth quarter, compared with $547 billion (roughly Rs. 45,30,665 crore) a year earlier.

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Binance, Its US Partner Being Questioned for Regulatory Compliance and Finances

Three US Senators have asked giant cryptocurrency exchange Binance and its US partner Binance.US for information about their regulatory compliance and finances, citing a series of investigations by Reuters and some other media reports, according to a letter released on Wednesday.

In the letter, Democrats Elizabeth Warren and Chris Van Hollen along with Republican Roger Marshall, called on Binance “to provide transparency about potentially illegal business practice,” adding that the exchange and its related entities “have purposefully evaded regulators, moved assets to criminals and sanctions evaders, and hidden basic financial information from its customers and the public.

In a statement, Binance said that “a lot of misinformation has been spread about our company” but that “we appreciate the senators’ request” and that it will provide information to help them better understand the firm.

The senators also questioned the legitimacy of the company’s business and the safety of customers’ assets, in the letter addressed to Binance CEO Changpeng Zhao and Binance.US CEO Brian Shroder.

The collapse of rival crypto exchange FTX, whose founder Sam Bankman-Fried has been charged with fraud, “underscored the need for real transparency and accountability in the crypto industry,” the senators wrote.

Warren and Van Hollen are members of the Senate Banking Committee.

The letter cited Reuters articles from last year that found that Binance intentionally kept weak anti-money laundering controls, processed over $10 billion (nearly Rs. 82,400 crore) in payments for criminals and companies seeking to evade US sanctions, and plotted to evade regulators in the United States and elsewhere.

The letter also cited a Reuters report this February that Binance had secret access to Binance.US’s bank account and was able to move $400 million (nearly Rs. 3,300 crore)  to an account held by a trading firm managed by Zhao.

Binance.US publicly maintains that it is entirely independent of the global Binance.com exchange and operates as its “US partner.” However, Reuters has reported that, in fact, Binance created Binance.US as a de facto subsidiary to draw the scrutiny of US regulators away from Binance.com.

Binance has previously disputed Reuters’ articles, calling the illicit-fund calculations inaccurate and the descriptions of its compliance controls “outdated.” The exchange has said it is “driving higher industry standards” and seeking to “further improve our ability to detect illegal crypto activity on our platform.” A Binance.US spokeswoman said in February that “only Binance.US employees have access” to its bank accounts.

In the letter, first reported by the Wall Street Journal, the senators requested Binance and Binance.US provide documents and answers to their questions by March 16.

The senators are seeking information about the companies’ balance sheets, US-based users, anti-money laundering policies. They want written policies regarding Binance and Binance.US’s relationship.

© Thomson Reuters 2023

 

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FM Nirmala Sitharaman, US Treasury Secretary Janey Yellen Discuss Debt, Crypto at G20 Meet

Indian Finance Minister Nirmala Sitharaman and US Treasury Secretary Janet Yellen discussed strengthening multilateral development banks, global debt vulnerabilities and crypto assets on the sidelines of the G20 finance chiefs meeting on Thursday, the finance ministry said.

Yellen is expected to brief reporters later in the day and take part in a meeting of Group of Seven (G7) nations on the sidelines of the G20 meet.

India is hosting the first major G20 event under its year-long presidency at the summer retreat of Nandi Hills near tech hub Bengaluru.

“The two leaders discussed their perspectives on strengthening MDB (multilateral development banks), global debt vulnerabilities, crypto assets besides the Just Energy Transition Partnership,” New Delhi’s finance ministry said in a tweet.

Under the partnership, the United States and its allies, as well as multilateral development banks and agencies, provide funding to developing economies to move away from coal production and consumption.

India’s presidency of the bloc comes at a time when neighbouring South Asian countries Sri Lanka, Bangladesh and Pakistan have sought a bailout from the International Monetary Fund (IMF) over the past year due to an economic slowdown caused by the COVID-19 pandemic and the Ukraine war.

Reuters reported last week that India is drafting a proposal for G20 countries to help debtor nations by asking lenders, including China, the world’s largest sovereign creditor, to take a large haircut on loans.

During the event, the International Monetary Fund (IMF) plans to hold a virtual meeting with the World Bank, India, China, Saudi Arabia, the United States and other Group of Seven (G7) nations to try to reach understandings on common standards, principles and definitions on how to restructure distressed country debts.

India also supports a push by the IMF, the World Bank and the United States for the so-called Common Framework (CF) — a G20 initiative launched in 2020 to help poor countries delay debt repayments — to be expanded to include middle-income countries.

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EU’s Pending Banking Law Calls for Fast-Track Crypto Capital Rules for Banks

Tough capital rules for banks holding cryptoassets must be fast-tracked in the European Union’s pending banking law if Europe wants to avoid missing a globally-agreed deadline, the bloc’s executive has said.

The global Basel Committee of banking regulators from the world’s main financial centres has set a January 2025 deadline for implementing capital requirements for banks’ exposures to cryptoassets such as stablecoins and bitcoin.

“For the time being, banks have very low crypto-asset exposures and only a limited involvement in providing crypto-asset-related services,” the European Commission said in an informal discussion paper seen by Reuters.

“Banks have expressed interest in trading crypto-assets on behalf of their clients and to provide crypto-assets-related services.”

Basel’s standards are applied in the EU with a law, and a delay could mean that banks have to wait longer to enter the cryptomarket as separate EU rules for trading cryptoassets come into force in 2024.

To enforce Basel’s crypto rules, the EU could either propose a new law, or expand the banking law it is now finalising as called for by the European Parliament.

Parliament and EU states have equal say on the banking law and are due to start negotiating the final text, which could include the provisions on cryptoassets, the paper said.

This would give banks clarity on their requirements for crypto-asset exposures and would ensure that risks stemming from these are adequately addressed, the Commission paper said.

“From an international perspective, it would also allow the EU to fully align itself with the implementation deadline agreed on at Basel level.”

A separate draft law would not be forthcoming until the end of 2023 at the earliest, the paper said. Parliament goes to the polls mid-2024, making it harder to approve a new law in time for 2025.

The Commission paper also suggests that the bloc’s European Banking Authority (EBA) could coordinate with the EU’s securities watchdog ESMA to ensure that cryptoassets are properly categorised.

Basel has set punitive capital charges on unbacked crypto currencies like bitcoin, and less conservative charges on stablecoins, which are backed by an asset or fiat currency.

It could also be useful to mandate EBA, in cooperation with ESMA, to maintain a list of how existing cryptoassets are categorised, the paper said.

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Binance’s US Partner Confirms Role of Trading Platform in Operating CEO Zhao’s Firm

The US partner of global cryptocurrency exchange Binance has confirmed that a trading firm managed by Binance CEO Changpeng Zhao operated as a market maker on its platform.

Reuters reported on Thursday that Binance had secret access to a bank account belonging to its purportedly independent US partner and transferred large sums of money from the account to the trading firm, Merit Peak.

“While there was a market making firm named Merit Peak that operated on the Binance.US platform, it stopped all activity on the platform in 2021,” Binance.US said in a tweet on Thursday after the Reuters story was published. It did not elaborate on when in 2021 the activity ceased, or comment on Zhao’s role at the trading firm.

The global Binance exchange is not licensed to operate in the United States but the transfers to Merit Peak revealed by Reuters suggest that Binance controlled the finances of Binance.US, despite saying publicly that the American entity is “fully independent” and operates as its “US partner.”

Binance transferred over $400 million (nearly Rs. 3,310 crore) from the account at California-based Silvergate Bank to Merit Peak between January and March 2021, Reuters reported on Thursday.

Before that story‘s publication, Binance.US had told Reuters that “Merit Peak is neither trading nor providing any kind of services on the Binance.US platform,” without giving further details.

Binance.US’s executives were concerned by the outflows from the Silvergate account to Merit Peak because the transfers were taking place without their knowledge, according to the messages reviewed by Reuters.

A spokesperson for the global Binance exchange, which did not respond to Reuters’ questions for the article on Thursday, told crypto news outlet CoinDesk that the transfers were “a Binance.US issue.”

The activities of crypto platforms’ market makers — firms that typically buy and sell assets at exchanges to deepen trading volumes — have come under growing scrutiny from US financial regulators since the collapse of major exchange FTX in November.

‘Tremendous Burden’

Zhao has not directly addressed the report, but on Friday he tweeted, “Remember 4,” tagging a previous post in which he listed his “Do’s and Don’ts” for 2023. The fourth item on the list was “Ignore FUD, fake news, attacks,” using an acronym for “fear, uncertainty and doubt” often used in crypto in relation to news perceived as negative.

The day before Reuters’ article, Binance’s chief strategy officer, Patrick Hillmann, told the Wall Street Journal and Bloomberg that Binance expected to pay penalties to resolve US investigations into the company. Hillmann said Binance had been built by software engineers unfamiliar with laws and rules on bribery and corruption, money laundering and economic sanctions, but earlier “gaps” in its regulatory compliance had since been closed.

“It’s a tremendous burden,” Hillmann told Bloomberg. “We just want to put it behind us.”

Hillmann did not respond to detailed questions Reuters sent him for the article that was published on Thursday.

Regulators are concerned that some market makers have received undisclosed special treatment from crypto exchanges that may disadvantage customers.

The US Securities and Exchange Commission accused FTX founder Sam Bankman-Fried in December of granting “special privileges” to his trading firm Alameda Research, allowing him to siphon off billions of dollars in FTX customer money. Bankman-Fried has pleaded not guilty.

The bankruptcy in 2022 of a string of major crypto firms has also stoked calls from politicians for greater clarity on how regulators assess ties between US banking and the cryptocurrency sector.

In December, US Senators Elizabeth Warren and Tina Smith wrote to top financial regulators including US Federal Reserve Chair Jerome Powell, asking about their assessment of the risks to banks and the banking system stemming from exposure to crypto. The letter cited Silvergate Capital Corp as among the banks that “relied heavily on their crypto customers.”

Shares in Silvergate Capital Corp, Silvergate Bank’s parent company, fell sharply on the Reuters report, closing down over 22 percent. They have lost nearly 90 percent of their value since hitting an all-time high in November 2021.

© Thomson Reuters 2023

 

 

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Sam Bankman-Fried Banned From Using VPNs, Former FTX CEO Says He Used It for Football

Sam Bankman-Fried was blocked from using virtual private networks while out on bail, as a judge expressed concern that VPNs present similar risks to the FTX co-founder’s use of encrypted messaging apps. Bankman-Fried, who was charged with fraud after the cryptocurrency exchange collapsed, says he used a VPN just to watch football.

US District Judge Lewis Kaplan on Tuesday added the private networks, which hide a user’s IP address, to the list of technologies Bankman-Fried is barred from using. In a letter to Kaplan filed late Monday night, federal prosecutors said they recently discovered Bankman-Fried had used VPNs on two recent occasions.

The government said VPNs could be used to access international crypto exchanges, allow data transfers without detection and offer a covert method of getting onto the dark web.

The Big Game

In a letter early Tuesday morning responding to the government’s claims, Bankman-Fried’s attorney Christian Everdell said his client had used a VPN to watch NFL games through a subscription he purchased while living in the Bahamas.

“On January 29, 2023, he watched the AFC and NFC Championship games and on February 12, he watched the Super Bowl,” Everdell wrote. Those uses of the VPN aren’t relevant to any concerns raised by the government, the defense argued.

Kaplan had earlier expressed concern that Bankman-Fried could communicate with witnesses and other parties. The judge rejected a revised bail deal that would allow the FTX co-founder to use certain messaging apps, including WhatsApp, with technology that archived his messages, and also to make Zoom and FaceTime calls.

Kaplan scheduled a hearing for Thursday on revisions to the $250 million (roughly Rs. 2071) bail package.

Mary, Queen of Scots

At a hearing last week, Kaplan said he was concerned that without further restrictions, Bankman-Fried would easily find ways to shield communications with witnesses in the fraud case. He noted that encrypted letters sent by the imprisoned Mary, Queen of Scots, had only recently been deciphered.

“You don’t think this defendant is bright enough to encrypt something without a computer?” Kaplan asked in court. He suggested prosecutors’ focus on encryption apps like Signal was “short-sighted.”

Bankman-Fried, who has pleaded not guilty, is accused of committing a yearslong fraud at FTX, allowing customer funds to be used for trading at affiliated hedge fund Alameda Research and for personal expenses. He is living in his parents’ house in Palo Alto, California, after being released from custody in December.

The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).

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E-Rupee for Retail to Be Soon Piloted by 5 More Banks in 9 More Cities

Five more banks will join the pilot on the central bank digital currency or e-rupee for retail customers and the project will be extended to nine additional cities, the Reserve Bank said on Wednesday.

The Reserve Bank of India, which began piloting the central bank digital currency or e-rupee for retail customers in early December with eight banks in five cities, stressed that it does not want to rush with it but favours a slow and steady adoption.

The retail CBDC is available for only 50,000 users now and of them 5,000 are merchants. The service is being offered on invitation basis by eight banks across five cities now, deputy governor T Rabi Sankar told reporters on Wednesday at the customary post-policy presser.

Given the glitches-free adoption so far, five more banks will be added soon on to the platform along with increasing the number of cities where the pilot service is available now from the present five to nine more, Sankar said.

“Having said on this and the risk of being right, let me just reiterate that we want the process to happen. But we want the process to happen gradually and slowly. We are in no hurry to make something happen very quickly.

“We have our targets in terms of users, in terms of merchants and all that. But we will go through it slowly because we don’t want to do something without actually understanding what the possible impact and that impact can be,” the deputy governor said.

On the volume of transaction, he said it is increasing slowly and so far it has totalled at around Rs. 7.7 lakh only.

The RBI on November 1, and December 1, 2022, launched the CBDC for wholesale and retail, respectively. While the use case of the wholesale CBDC is limited to the settlement of secondary market transactions in government securities, the retail e-rupee-is being piloted within a closed user group (CUG) comprising participating customers and merchants.

The first phase includes four banks — State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank and subsequently, four banks Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank joined.

The CBDC is expected to make the inter-bank market more efficient and settlements in e-rupee can reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.

 

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FTX’s Sam Bankman-Fried in Talks With US Prosecutors to Resolve Dispute Over Strict Bail Conditions

Sam Bankman-Fried is in talks with US prosecutors to resolve a dispute over the FTX cryptocurrency exchange founder’s bail conditions, his lawyer said on Thursday.

The judge overseeing Bankman-Fried’s criminal fraud case in federal court in Manhattan on Wednesday temporarily barred the 30-year-old former billionaire from contacting employees of FTX or his Alameda Research hedge fund, after prosecutors raised concerns he might tamper with witnesses.

His lawyers had previously countered that he had contacted current executives at the now-bankrupt exchange to offer “assistance” and not to interfere, and so the additional bail condition was not needed.

Bankman-Fried has pleaded not guilty and is under house arrest at his parents’ California home.

In a court filing, defense lawyer Mark Cohen asked US District Judge Lewis Kaplan to postpone a February 7 hearing on the matter, as well as a February 2 deadline to explain why he should be able to access and transfer cryptocurrency before trial.

“The parties would like to continue these discussions, which we are optimistic will lead to an agreement between the parties in the next few days and eliminate the need for further litigation,” Cohen wrote, noting that prosecutors consented to the request.

A spokesperson for the US Attorney’s Office in Manhattan declined to comment.

Once worth an estimated $26 billion (roughly Rs. 2,12,989 crore), Bankman-Fried was arrested in December after FTX collapsed.

Prosecutors have said he looted billions of dollars in FTX customer funds to plug losses at Alameda. Two former colleagues have pleaded guilty and are cooperating with prosecutors.

Bankman-Fried has acknowledged risk management failures, but said FTX collapsed because of a liquidity crunch and that he did not steal funds. A trial is scheduled for October 2.

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FTX Collapse Has Put Spotlight on Vulnerabilities in Crypto Ecosystem: Economic Survey 2022-23

The recent collapse of the crypto exchange FTX and the ensuing sell-off in the crypto markets have placed a spotlight on the vulnerabilities in the crypto ecosystem, the Economic Survey 2022-23 presented in Parliament said on Tuesday.

Crypto assets are self-referential instruments and do not strictly pass the test of being a financial asset because it has no intrinsic cashflows attached to them.

US regulators have disqualified Bitcoin, Ether and various other crypto assets as securities.

A rare joint statement by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) on January 3, 2023, highlighted their concerns about crypto-asset risks to the banking system, it noted.

The geographically pervasive nature of the crypto ecosystem necessitates a common approach to the regulation of these volatile instruments, and the global response to cryptos is evolving, it said.

Observing that crypto assets are new forms of digital assets implemented using cryptographic techniques, the survey said its market has been very volatile, with its total valuation swinging from almost $3 trillion (nearly Rs. 2,45,35,900 crore) in November 2021 to less than $1 trillion (nearly Rs. 81,78,500 crore) in January 2023.

The volatility of the crypto asset ecosystem has brought to the forefront their fragile backing and governance problems, as well as the increasing complexity and non-transparency, it said.

With related financial stability risks rising, the issue of crypto asset regulation has recently moved up the policy agenda of many nations. International fora like OECD and G20 are discussing a globally coordinated approach to regulating crypto assets, it noted.

Monitoring and regulating cryptocurrencies have been tricky, and regulators across the globe find it challenging to keep track of the new and emerging issues in the fast-moving uncharted field, it said.

While crypto assets were apparently designed to disintermediate traditional financial services, this has created new unregulated intermediating entities, it said, adding the promise of decentralisation has yet to be realised in practice.

New centralised intermediaries, such as crypto asset exchanges, wallet providers, and crypto conglomerates, require users to trust centralised entities, it said.

The increasing importance of these entities could force regulators to consider them as systemic financial market infrastructures (FMIs), it said, adding still, the fact that they are yet largely unregulated is a cause for concern globally.

Interestingly, it said, holdings of crypto assets are primarily concentrated in the hands of a few ‘whales’.

Estimates show that around 85 percent of all circulating Bitcoins are held by 4.5 percent of entities, and the underlying protocols used to create crypto assets may also conflict with other public policy objectives, for instance, the massive energy intensity of ‘mining’ crypto assets.

There are minimal global standards applicable to unbacked crypto assets, which do not currently mitigate all risks and vulnerabilities, it said.

“Even as Standard-Setting Bodies (SSBs) have been making efforts to adjust and develop standards, these remain mainly focused on specific issues (financial integrity), sectors (payments, securities and banking), products (global stablecoins), or entities designated as systemic by domestic authorities,” it said.

Thus, there are regulatory gaps at each stage when crypto assets are issued, transferred, exchanged, or stored by non-bank entities. Crypto’s cross-sector and crossborder nature limits the effectiveness of uncoordinated national approaches, it said.

The terminology used to describe the different activities, products and stakeholders is not globally harmonised. The term “crypto asset” itself refers to a broad spectrum of digital products that may need the attention of multiple domestic regulators based on their actual or intended use. 

 

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