Tag: us sec

Crypto Firm, Industry Group Sue US SEC for ‘Overreach’ on Digital Assets

A Texas cryptocurrency company and an industry group sued the U.S. Securities and Exchange Commission on Wednesday, saying the regulator has overstepped its authority and asking a judge to rule that digital assets traded on exchanges are not securities.

Fort Worth-based crypto company Lejilex and lobbying group Crypto Freedom Alliance of Texas (CFAT) claim the SEC has asserted jurisdiction over the industry without a “clear statutory mandate.”

Lejilex says it seeks to run a cryptocurrency platform called Legit.Exchange. The company formed last year said it plans to list digital assets including those the SEC has deemed securities in lawsuits against Coinbase, the largest cryptocurrency exchange in the U.S., and Binance, the world’s largest crypto exchange.

Lejilex wants the court to rule that listing pre-existing tokens will not violate securities laws.

“We wish we were launching our business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wawszczak said in a statement.

A spokesperson for the SEC did not immediately reply to a request for comment.

Both Coinbase and Binance have denied the SEC’s allegations.

CFAT asked the court to block the SEC from suing its members, and said the agency’s assertion of jurisdiction over digital assets has made it harder to convince Texas lawmakers to embrace “sensible policies.”

The group launched last year and counts Coinbase and venture capital firm Andreessen Horowitz’s a16z crypto fund as members.

CFAT and Lejilex argue the SEC is wrong to classify digital assets as “investment contracts” because they create no ongoing commitment between creator and purchaser.

They also asked the court to apply the “major questions” doctrine, which lets judges invalidate executive agency actions of “vast economic and political significance” unless Congress clearly authorized them.

The once-rare doctrine has gained traction among regulatory opponents, as the conservative-leaning U.S. Supreme Court has applied it in a couple of recent cases.

Crypto companies fighting SEC enforcement actions, including Coinbase and Binance, have made the same arguments in the other cases, so far without success.

A judge in July rejected the argument that an ongoing commitment is required to make an asset a security in the SEC’s case against Ripple Labs. Another judge overseeing the regulator’s lawsuit against Terraform Labs found the “major questions” doctrine does not apply to the cryptocurrency industry. Both of those cases were brought in New York.

The new lawsuit filed in federal court in Fort Worth brings the industry’s fight with the regulator under the jurisdiction of the 5th U.S. Circuit Court of Appeals. More than two thirds of the judges on the appeals court were appointed by Republican presidents, making it the favored venue for challenges to the SEC under the Biden administration.

The case was assigned to Judge Reed O’Connor, an appointee of Republican former President George W. Bush with a track record of ruling in favor of conservative litigants challenging laws and regulations governing guns, LGBTQ rights and healthcare.

Paul Clement, former U.S. Solicitor General under President George W. Bush, represents the plaintiffs.

© Thomson Reuters 2024

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US SEC to Approve Ethereum ETF in May, Standard Chartered Predicts

The US Securities and Exchange Commission is likely to allow exchange-traded funds to hold the cryptocurrency Ethereum in May, Standard Chartered predicts.

May 23 is the last date by which the agency must consider ETF applications from VanEck and Ark 21Shares, the bank said in a research report Tuesday. The asset managers will be the first to come up against the final deadline.

Standard Chartered expects the SEC to rule on the applications on the final date, as it did on January 10, when it approved 10 Bitcoin ETFs. Ethereum has key similarities to Bitcoin’s legal and financial status that suggests it will follow a similar approval pattern, according to Geoff Kendrick, the head of FX Research, West, and Digital Assets Research at Standard Chartered.

Last June, the SEC left Bitcoin and Ether off a list of 67 tokens it considered to be securities. In addition, Ether — like Bitcoin — also has futures traded on the Chicago Mercantile Exchange — a key surveillance tool. At about $285 billion (roughly Rs. 23,66,701 crore), Ether is the second-largest cryptocurrency in market value after Bitcoin.

Kendrick expects Ether’s price to rise to $4,000 (roughly Rs. 3,32,168) by the projected May 23 approval date, assuming that it follows a trading pattern similar to Bitcoin through the ETF approval process. Ether traded at about $2,370 (roughly Rs. 1,96,809) on Tuesday.

That price prediction, however, is based on multiple assumptions being true, including general market sentiment for approval remaining low, implied-volatility being wrong, and the SEC approving multiple applications on the same day.

Ether is expected to avoid much of the selloffs that Bitcoin experienced post-ETF approval, Standard Chartered said. Bitcoin fell as much as 20 percent following the ETF approval as investors, including FTX, sold billions in holdings of the Grayscale Bitcoin Trust (GBTC). The fund was converted from a trust that holders couldn’t make redemptions. Grayscale’s existing Ethereum trust holds a smaller portion of the total market capitalization of Ether, compared with the Bitcoin held in GBTC.

“These factors should make ETH less vulnerable than BTC to a post-approval selloff,” Kendrick wrote.

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SEC Wrong to Deny Grayscale Spot Bitcoin ETF Proposal: US Court

The US securities regulator was wrong to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund, a federal appeals court ruled on Tuesday, in a landmark victory that could pave the way for the first product of its kind.

A three-judge panel of the District of Columbia Court of Appeals in Washington said the Securities and Exchange Commission (SEC) failed to fully explain its reasoning when denying Grayscale’s product and should review its decision.

The price of bitcoin, the world’s largest cryptocurrency, was last up more than 6 percent at $27,858 (roughly Rs. 23,04,400) following the news.

A spot bitcoin ETF would track its underlying market price, giving investors exposure to the digital asset without having to buy the currency. The SEC has denied all proposed bitcoin ETFs, including Grayscale’s, saying they do not meet its bar for preventing market manipulation.

While the ruling does not mean Grayscale’s ETF is automatically approved, it is a big boost for the decade-long industry effort to advance a bitcoin ETF product.

The court decision is a “historic milestone for American investors,” Grayscale CEO Michael Sonnenshein said in a statement.

A Grayscale spokeswoman added that the company was reviewing the details and would pursue “next steps with the SEC.”

The SEC has 45 days to appeal the ruling. An agency spokesperson said it was reviewing the court’s decision in order to determine next steps.

The cryptocurrency industry was quick to hail the ruling. Several other asset managers, including BlackRock, Fidelity and Invesco, have similar filings pending with the SEC for a spot bitcoin ETF.

“This ruling is not just about Grayscale or Bitcoin, it sets a precedent for the broader crypto industry,” said Ji Kim, general counsel and head of global policy at the Crypto Council for Innovation.

Crypto Win

The SEC rejected Grayscale’s application for a spot bitcoin ETF in June 2022, arguing the proposal did not meet anti-fraud and investor protection standards. It cited the same reason in its denial of dozens of other applications for similar products, including those from Fidelity and VanEck.

Grayscale sued the SEC, arguing that because the agency previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should also be satisfactory for Grayscale’s spot fund since both spot and futures funds rely on bitcoin’s price.

The court said in its ruling that the SEC failed to explain why it disagreed with Grayscale’s assertion that the bitcoin spot and futures markets are 99.9 percent correlated.

“The Commission’s unexplained discounting of the obvious financial and mathematical relationship between the spot and futures markets falls short of the standard for reasoned decisionmaking,” the court said in its opinion, which was filed by Judge Neomi Rao of the DC Court of Appeals.

The ruling is the second major legal victory for the crypto industry in recent weeks, after a judge ruled in July, in a case brought by the SEC, that Ripple Labs did not violate federal laws by selling its XRP token on public exchanges. The SEC has said it plans to appeal that finding.

If the SEC appeals the Grayscale ruling, the case would go either to the U.S. Supreme Court or a review by the entire DC appeals court.

If the SEC chooses not to appeal, the court would issue a mandate specifying how its decision should be executed. That could include instructing the SEC to approve the application, or to revisit Grayscale’s application, in which case the SEC could still reject the proposal on other grounds.

It remains to be seen how the ruling might affect proposals submitted in June by BlackRock, the world’s largest asset manager, and several other firms to offer spot bitcoin ETFs. The SEC has yet to deliver a decision on those applications.

© Thomson Reuters 2023

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US SEC Set to Adopt New Cyber Rule, Unveils Brokerage AI Proposal

Wall Street’s top regulator on Wednesday was poised to adopt new rules requiring publicly traded companies to disclose hacking incidents, a measure officials said was being taken to help the investing public contend with the mounting cost and frequency of cyber attacks.

The five-member US Securities and Exchange Commission was also set to issue a proposal governing potential conflicts of interest in broker-dealers’ use of artificial intelligence, a reform partly influenced by the events of the 2021 “meme stock” rally when officials found robo-advisers and brokers used AI and game-like features to drive trading.

If adopted, the cybersecurity rule would require companies to disclose a cyber breach within four days after determining it is serious enough to be material to investors. The rule would allow delays if the Justice Department deems them necessary to protect national security or police investigations, according to the SEC.

Companies will also have to describe periodically what efforts they are making to identify and manage threats in cyberspace. The rule, first proposed in March of 2022, forms part of a broader SEC effort to harden the financial system against data theft, systems failure and cyber-intrusions.

Ahead of the vote, SEC officials said that in response to public comments they had trimmed certain parts of the proposal, removing a requirement for companies to disclose board members’ expertise in cybersecurity and narrowing the definition of what information must be disclosed.

The AI proposal, if issued by the commission, would require broker-dealers to “eliminate or neutralize” any conflict of interest that occurs if a trading platform’s predictive data analytics puts the broker’s financial interest ahead of that of the firm’s clients.

SEC Chair Gary Gensler had previewed the AI rule in recent weeks, noting the use of AI also posed a danger to financial stability. According to a regulatory agenda, the SEC is also planning to issue a similar proposal governing the use of AI by investment advisers.

In a third vote also scheduled for Wednesday, the SEC is to decide whether to propose changing rules that exempt some online investment advisers from registering under the Investment Advisers Act of 1940.

© Thomson Reuters 2023  

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US SEC Developing Rules to Govern Use of AI on Trading Platforms

Wall Street’s top regulator is developing rules to govern the use of artificial intelligence on trading platforms, which poses a risk of conflicts of interest, the agency chief said in a speech on Monday.

The US Securities and Exchange Commission will also need “new thinking” to confront challenges to financial stability presented by the use of technologies such as predictive analytics and machine learning, according to Chair Gary Gensler.

Gensler’s remarks are part of a broader US government effort to promote what officials call “responsible” innovation while also managing what they say are threats the emerging technology poses to public safety.

If a trading platform’s AI system considers the interest of both the platform and its customers, “this can lead to conflicts of interest,” Gensler said, according to a copy of prepared remarks, adding that he had tasked SEC staff with recommending new regulatory proposals to address this.

AI could also amplify the world financial system’s interconnectedness, something for which current risk management models may not be prepared, Gensler said.

“Many of the challenges to financial stability that AI may pose in the future … will require new thinking on system-wide or macro-prudential policy interventions.”

Gensler’s remarks echoed statements he has made in recent months on managing risks created by the use of AI in finance.

According to the SEC’s most recent agenda for developing new regulations, officials are considering possible rule proposals, which could be unveiled later this year, to govern the potential for conflicts of interest in the use of AI and machine learning by investment advisers and broker-dealers.

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Nasdaq Refiles BlackRock’s Bitcoin ETF Application With SEC: Details

Nasdaq refiled an application with the U.S. securities regulator to list an exchange-traded fund by BlackRock that will reflect the price of bitcoin to add additional details, according to a filing made public on Monday.

The refreshed filing, submitted to the U.S. Securities and Exchange Commission (SEC) on Thursday, said that Coinbase Global will provide market surveillance in support of the proposed ETF from the world’s largest asset manager.

The move comes after the regulator reportedly had concerns over the initial filings by Nasdaq as being unclear and incomplete. It had flagged similar concerns to Cboe related to a filing from Fidelity.

The digital asset space is looking to regain popularity after a bruising 2022 that saw several crypto ventures collapse, including the spectacular implosion of Sam Bankman-Fried’s FTX.

The SEC last month sued Coinbase for failing to register as an exchange. According to Cboe’s Fidelity bitcoin ETF filing, the company’s platform represented roughly half of U.S. dollar-bitcoin trading in May.

Coinbase said in a letter filed last month in Manhattan federal court that it will ask a judge to toss the SEC lawsuit, arguing the regulator lacks authority to pursue civil claims because the crypto assets trading on its platform are not “investment contracts”, and thus not securities.

The SEC has rejected dozens of spot bitcoin ETF applications in recent years, including one from Fidelity in January 2022.

In all the cases, it said the filings did not meet the standards designed to prevent fraudulent and manipulative practices and protect investors and the public interest.

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Binance to Leave Netherlands After Failing to Meet Registration Requirements

Binance, the largest cryptocurrency exchange, said on Friday that it was leaving the Dutch market because it had been unable to meet registration requirements to operate as a virtual asset service provider.

It is the latest in a string of setbacks for Binance including the June 5 decision by the US Securities and Exchange Commission (SEC) to charge the company with evading securities laws. Binance disputes the SEC charges.

A spokesperson for Binance, which had been operating in the Netherlands without permission from regulators, said that the company had tried “many alternative avenues” to meet Dutch registration requirements.

“While Binance is disappointed that this has become necessary, it will continue to engage productively and transparently with Dutch regulators,” they said.

The company said that starting July 17, trading in the Netherlands will be halted and existing Dutch users will only be able to withdraw assets from its platform.

The Dutch Central Bank (DNB), which registers financial service providers in the Netherlands said it had previously warned the company it was operating in the Netherlands without proper registration and then fined it for the same reason in January.

Binance has also recently announced plans to leave Cyprus, Canada and Australia.

The company said on Friday however that it has received registration in other European Union countries, including France, Italy, Spain, Poland, Sweden and Lithuania, and will continue to operate there.

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Binance.US Said to Have Laid Off Employees After US SEC Charges

The US affiliate of crypto giant Binance has carried out a round of layoffs since regulators last week charged it with violating securities laws and sought to freeze its assets, said two people with knowledge of the dismissals and employees’ social media posts.

One of the sources said around 50 people were laid off. Reuters was unable to independently verify the number or seniority of employees affected.

A Binance.US spokesperson did not respond to emails and calls seeking comment.

Employees in Binance.US’ legal, compliance and risk departments were among those dismissed, the people told Reuters, requesting anonymity because the matter is private.

The SEC on June 5 accused Binance and its founder and CEO Changpeng Zhao of creating Binance.US as part of a “web of deception” to evade securities laws aimed at protecting US investors. Binance said it would defend itself “vigorously.”

The SEC also sued Binance.US’ operating company, BAM Trading, alleging that it misled investors about “non-existent trading” controls over its platform.

A day later, the SEC asked a federal court to freeze Binance.US’ assets, including more than $2.2 billion (nearly Rs. 18,000 crore) held in crypto and some $377 million (nearly Rs. 3,100 crore) in US dollar bank accounts. The SEC expressed concern that the exchange could move those funds offshore.

Binance.US called the request “unwarranted” and said the SEC’s allegations were “unjustified.”

Two Binance.US employees said on LinkedIn on Wednesday they were leaving the company, with one citing a “round of layoffs.”

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Binance Operations Declared Illegal by Nigerian Market Regulator, Asked to Discontinue

Nigeria’s markets regulator has ordered the world’s largest cryptocurrency exchange Binance to halt its operations in the country, saying a local unit that courted Nigerian investors through a website was illegal.

“Binance Nigeria Limited is hereby directed to immediately stop soliciting Nigerian investors in any form whatsoever,” the Securities and Exchange Commission (SEC) said in a statement dated June 9. It said the company was not registered or regulated, making it illegal.

Binance could not be immediately reached for comment.

The US Securities and Exchange Commission this week sued Binance and Coinbase for allegedly breaching its rules.

Last year, Nigeria’s SEC published a set of regulations for digital assets, signalling Africa’s most populous country was trying to find a middle ground between an outright ban on crypto assets and their unregulated use.

That was after Nigeria’s central bank in 2021 banned banks and financial institutions from dealing in or facilitating transactions in digital currencies.

Nigeria’s young, tech-savvy population has eagerly adopted cryptocurrencies, for example using peer-to-peer trading offered by crypto exchanges to avoid the financial sector ban.

Meanwhile, the US affiliate of Binance said it was halting dollar deposits and gave customers until Tuesday to withdraw their dollar funds, after the US securities regulator asked a court to freeze its assets.

Binance.US, the purportedly independent partner of Binance, said in a tweet on Thursday that its banking partners were preparing to stop dollar withdrawal channels as early as June 13.

The SEC sued Binance, its CEO and founder Changpeng Zhao, and Binance.US’s operator on Monday, in a dramatic escalation of a crackdown on the industry by US regulators. The SEC sued major US exchange Coinbase a day later.

Binance.US said in the tweeted customer notice that it would no longer accept dollar deposits as part of plans to change to a “crypto-only exchange”. It called the SEC’s civil charges “unjustified” and said it would “vigorously defend” itself.

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Binance.US Halts Dollar Deposits After SEC Crackdown, Asks Customers to Withdraw Dollar Funds

The US affiliate of Binance said it was halting dollar deposits and gave customers until Tuesday to withdraw their dollar funds, after the US securities regulator asked a court to freeze its assets.

Binance.US, the purportedly independent partner of Binance, said in a tweet on Thursday that its banking partners were preparing to stop dollar withdrawal channels as early as June 13.

The SEC sued Binance, its CEO and founder Changpeng Zhao, and Binance.US’s operator on Monday, in a dramatic escalation of a crackdown on the industry by US regulators. The SEC sued major US exchange Coinbase a day later.

Binance.US said in the tweeted customer notice that it would no longer accept dollar deposits as part of plans to change to a “crypto-only exchange”. It called the SEC’s civil charges “unjustified” and said it would “vigorously defend” itself.

The SEC alleged in 13 charges on Monday that Binance had in a “web of deception” artificially inflated trading volumes and diverted customer funds, as well as failing to restrict US customers from its platform.

The SEC on Tuesday asked a federal court to freeze Binance’s US assets. Binance.US called the motion “unwarranted”, saying it had addressed SEC concerns over the safety of customer assets.

The SEC said it had not received “sufficient reassurance” that Binance.US’s customer assets were controlled by its operator, BAM Trading, “rather than under the control or influence of Binance or Zhao, a person who has openly expressed his desire to avoid compliance with US law.”

Zhao and Binance had “free reign” to handle Binance.US assets, the SEC said. “They have exercised this control over US investor assets with no oversight or controls to ensure that those assets are properly secured,” it added.

Binance did not immediately reply to a request for comment. It has said it would “defend our platform vigorously,” saying the SEC was limited in reach as Binance was not a US exchange.

Binance.US’s customer assets total more than $2.2 billion. (nearly Rs. 18,100 crore) held in crypto and some $377 (nearly Rs. 3,100 crore) million in US dollar bank accounts, the SEC said.

‘Existential Threat’

BAM Trading holds customer’s funds directly with California-based Axos Bank, according to a letter from lawyers for BAM Trading to the SEC dated May 26, which was made public by the SEC on Tuesday.

Axos did not immediately respond to a request for comment sent via email.

Binance.US had struggled to find banking partners after the failure of Signature Bank, the Wall Street Journal reported in April.

In its tweet on Thursday, Binance.US said crypto-denominated trading, deposits, withdrawals and “staking” – where users deposit cryptocurrencies for use in blockchain transactions — would remain fully operational.

“This is very serious for Binance.US because Americans cannot use Binance Global,” said Clara Medalie, director of research at Kaiko.

“The inability for Binance.US to offer USD trading services in a region the exchange was specifically built to operate in is an existential threat.”

Crypto prices barely reacted to the news, with bitcoin last trading up 0.4 percent at $26,610 (nearly Rs. 22 lakh). It was headed for a weekly loss of about 1.9 percent, after having dipped to an over two-month low of $25,350 (nearly Rs. 21 lakh) earlier in the week as the SEC crackdown stoked nerves.

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