Legal Bi-Weekly Update
Friday 13th January
Welcome back to our legal news blog where you’ll find a range of key insights selected to highlight what is happening in the legal side of crypto at the moment.
Lots of US legal updates:
• The US IRS has delayed defining what a ‘crypto broker’ is under a much-discussed provision in the Infrastructure Act adopted late 2021, which requires brokers to report information about crypto transactions of US$10,000 or above to tax authorities. The Treasury reiterated its plan to publish the proposed rulemaking, followed by a public consultation and hearing.
• Coinbase reached a US$ 100 million settlement with the New York Department for Financial Services for poor anti-money laundering practices. The settlement includes a US$ 50 million fine and a commitment by Coinbase to spend another US$ 50 million on improving its compliance practices over the next two years. The DFS, which granted Coinbase a virtual currency business and money transmitting business license in 2017, called the crypto exchange’s AML practices “immature and inadequate”.
• The CFTC brought a civil enforcement action against Avi Eisenberg, who is accused of engaging in “a manipulative and deceptive scheme to artificially inflate the price of swaps offered by Mango Markets, a decentralized digital asset exchange, culminating in the misappropriation of over $100 million from the platform.” A separate, criminal case has been brought against Eisenberg by the US Attorney’s Office in the Southern District of New York.
• In the ongoing Ooki DAO lawsuit, the US CFTC requested a default judgment after the DAO “failed to answer or otherwise defend” the charges against it.
• The US SEC reportedly is investigating whether FTX investors did their due diligence homework properly, meeting their fiduciary duties towards their own investors.
• The US SEC and DOJ are probing transfers between DCG and its subsidiary Genesis.
• US federal prosecutors sent subpoenas to US hedge funds asking them about their communications with crypto exchange Binance.
• Celsius’ Mashinsky defrauded “hundreds of thousands of investors” through false and misleading representations promoting “Celsius as a safe alternative to banks while concealing that Celsius was actually engaged in risky investment strategies”, according to a civil lawsuit brought by the New York Attorney General.
• US sanctions against Tornado Cash led to a 68% decrease in inflows, according to Chainalysis.
• The brother of a former Coinbase product manager was sentenced to 10 months in prison on charges of “wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading”, using confidential Coinbase listing information to make almost US$ 900,000 in profits.
• The potential US$1 billion takeover of Voyager Digital by Binance.US received a preliminary green light from a US judge. The deal has previously been flagged on potential national security grounds by the US Committee on Foreign Investment. The SEC had filed limited objections to the planned takeover, arguing that Binance.US failed to include necessary information in a disclosure statement.
Meanwhile the UK is moving forward with its plans to become a crypto hub and compete with the EU’s draft MiCA Regulation post-Brexit:
• The UK government fully endorses a wholesale settlement stablecoin, according to the economic secretary. The stablecoin would be issued by a third party, not the government. The comments came against the backdrop of negotiations over the Financial Services and Markets Bill, which the secretary expects to be adopted in the Spring. The Treasury plans to launch another consultation on crypto regulation in the coming weeks.
• The UK’s National Crime Agency plans to set up a dedicated crypto crime unit.
• The City of London joined a new digital currency advocacy alliance.
• 3AC’s founders were served notice through Twitter, with the approval of the Singapore Supreme Court.
• A16z’s Miles Jennings published a follow-up to its web3 proposal to “regulate apps, not protocols”.
From around the world in brief…
• China included its digital yuan in its monetary supply count for the first time (it’s 0.13%).
• Nexo’s Bulgarian premises have been raided by officials, who are investigating suspected money laundering and tax violations.
• Binance registered with Sweden’s Financial Supervisory Authority.
• Dubai’s crypto regulator VARA poaches a Nomura veteran, who led the bank’s Komainu spin-off, as new CEO.
• Crypto exchange Zipmex, in the midst of a US$100 million VC buyout, is being probed by the Thai Securities and Exchange Commission.
• South Korean tax authorities launch an investigation into crypto exchange Bithumb.
• Iranian courts ordered the government to return seized crypto mining equipment.
• Hong Kong’s financial regulator, piloting an NFT offering and assessing tokenized green bonds and a CBDC, wants a more solid footing for crypto regulation.
• Hong Kong’s Securities and Futures Commission CEO wants to restrict retail trading to highly liquid crypto assets under a new licensing regime expected to become operational in June.
• Indonesia plans to launch its own crypto exchange in the coming year.
• Israel’s securities regulator proposes to expand three existing financial laws, expanding the definition of securities to cover digital assets. A public consultation on the proposed amendments is open until 12 February.
• Nigeria’s Central Bank wants to assess regulation on stablecoins, CBDC and ICOs as part of its Payments System Vision 2025.
• Nepalese authorities want ISP providers to block crypto-related websites.
• Crypto users in India moved US$38 billion away from domestic crypto exchanges to international alternatives after the country’s stringent crypto tax rule.
• The Marshall Islands adopted its DAO Act, wrapping DAOs in an LLC entity.
• EU financial regulator ESMA published guidance for applications of the DLT pilot.
• The Stanford Journal of Blockchain Law & Policy published its latest edition (NFTs, jurisdiction, ESG and more).
Lastly, for those who listen to podcasts:
• The Unchained Podcast on Avi Eisenberg’s arrest and what it means for DeFi (with Collins Belton and Gabriel Shapiro).
• The Law of Code podcast on DAOs with Aaron Wright.
January 13, 2023