Legal Bi-Weekly Update

Friday 27th January

• The US SEC brought charges against Avi Eisenberg for his role in the Mango Markets exploit. The SEC views the MNGO governance token as a security and accused Eisenberg of manipulating MNGO’s trading price and volume.

• Mango Labs also brought a lawsuit against Eisenberg for conversion, fraudulent misrepresentation and unjust enrichment. The victims of Eisenberg’s actions “assigned their claims and rights related to the attack to Mango Labs.”

• In The Technology of Decentralized Finance, the Bank for International Settlements dives into the tech stack of DeFi identifying potential research questions such as MEV, centralization through governance and systemic risk factors through token flow analysis.

• A TradFi entity borrowing DAI through MakerDAO: a Societe Generale subsidiary granted a loan to its parent company to refinance the latter’s Ethereum-based security tokens. The tokens were pledged as collateral to MakerDAO for the DAI borrowed from the protocol. The transaction was structured under French law.

• The UK’s Financial Conduct Authority offered (basic) guidance to crypto companies applying for AML registration, such as ensuring an applicant has blockchain analytics tools “adequate for its size and complexity” and adequate sanctions controls.

• Former UK Chancellor Hammond warns the UK is lagging behind the EU as crypto hub, as he becomes chair of crypto company Copper. The UK “allowed itself to slip behind,” he said. “Switzerland is further ahead. The EU is also moving faster. There has to be appetite to take some measured risk.” The comments come as the Law Commission closed its public consultation on DAOs.

• Step up oversight of auditors’ crypto work, US senators Warren and Wyden asked the US Public Company Accounting Oversight Board. The senators expressed concern over the “role that auditors may have played in misleading the public about the financial soundness and safety of crypto companies.”

• The U.S. Securities and Exchange Commission is probing registered investment advisers over whether they are meeting rules around custody of client crypto assets, Reuters reports.

• Crypto exchange Coinbase was fined €3.3 million by the Dutch central bank due to its failure to register under AML/CFT rules prior to offering crypto services to Dutch customers. The base amount of the fine was increased “due to the severity and degree of culpability of the noncompliance”. The fine took into account Coinbase’s “significant number of customers” in the country, the “competitive advantage” it enjoyed by not paying any supervisory fees and the “prolonged period” of non-compliance. A 5% reduction was applied because “Coinbase had always intended to obtain registration”.

• ISDA published new standard documentation for the trading of digital asset derivatives, alongside a whitepaper that addresses some of the legal issues raised by the recent bankruptcies of major crypto exchanges and market participants. Its standard definition of digital asset derivatives initially covers non-deliverable forwards and options on Bitcoin and Ether. ISDA will address issues related to customer assets held with intermediaries in a separate paper scheduled for release this quarter.

• The EU Parliament’s ECON committee voted in favour of aligning capital requirements for banks with the Basel Committee’s recommendation of a risk-weighting of 1,250% of capital for crypto asset exposure.

• Nexo settled charges with the US SEC and state authorities that it unlawfully failed to register its Earn Interest Product for US$ 45 million.

• Bitcoin miner Argo’s IPO documents were “negligently prepared” and contained “untrue statements”, according to a class action lawsuit. According to the plaintiffs, Argo “made false and/or misleading statements and/or failed to disclose” its susceptibility to electricity costs, network difficulties and capital constraints, among other things.

• “There can be a big economic prize if English law is made as attractive for digital transactions as it has been historically for analogue transactions in so many sectors,” according to Sir Geoffrey Vos, Master of the Rolls.

• Crypto exchange Bithumb was raided in South Korea in an investigation on potential market manipulation.


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