Hedge Fund

Crypto news site The Block gets new CEO and reported staff layoffs following admitted ties to SBF

The Block reportedly laid off roughly 33% of its staff, including interim CEO Bobby Moran, to stabilize the platform following loans it received from Sam Bankman-Fried.

Larry Cermak, vice president of research at The Block, has announced that he will be taking the reins at the crypto and blockchain news website from interim CEO Bobby Moran — the second change in leadership since reports surfaced that former CEO Mike McCaffrey financed the platform through loans from Alameda Research. 

In a March 31 tweet, Cermak said he would be stepping up as CEO after roughly five years at the crypto news site. Axios also reported that The Block laid off roughly 33% of its staff — including Moran — to stabilize the platform following the controversial loans it received from former FTX and Alameda Research founder Sam Bankman-Fried.

“We are not immune to the contraction of the crypto market, and the economy more broadly,” the company reportedly said. “We grew too quickly to capitalize on a bull market in crypto. Now, we must shift our strategy and recalibrate our teams to align with the reality of the current market.“

In December 2022, Moran revealed that McCaffrey had used two loans totaling $27 million from Alameda in 2021 in his efforts to restructure the crypto news site. McCaffrey failed to disclose the loans to The Block’s leadership team, which led to his resignation as CEO. The Block’s editor-at-large Frank Chaparro, who previously referred to McCaffrey as “literal scum” who betrayed the platform’s staff, lauded Cermak’s advancement to CEO, saying the site was “returning to our crypto native roots.”

Cermak reportedly said he had received no direction from McCaffrey to cover stories about FTX or Bankman-Fried “in any particular way,” despite the platform’s financial ties. All news stories on the website include a disclaimer with details about the loans from SBF.

Related: FTX presentation shows ‘massive shortfall’ in firm’s assets

Since FTX filed for Chapter 11 bankruptcy on Nov. 11, 2022, many news outlets, lawmakers, and organizations reported financial ties to the defunct crypto exchange or directly to Bankman-Fried. In February, the firm’s leadership announced that it planned to recover all political donations, reporting in March that a research team had determined there had been roughly $25 million as of November 2022.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

Transform Ventures launches holding company for blockchain with $100M AUM

Transform Ventures was founded by Michael Terpin, a crypto investor who previously sued a New York teenager for $71.4 million in damages for allegedly snatching cryptocurrency from his phone.

Transform Ventures has co-invested in a new holding company in what it states is an effort to accelerate blockchain investment and innovation. Alpha Transform Holdings (ATH) aims to support the blockchain ecosystem through investments via two new funds.

ATH was created by merging select assets from Transform Ventures and Alpha Sigma Capital’s parent company, which will include two funds amounting to $100 million in assets under management.

According to an announcement shared with Cointelegraph, the new assets include majority ownership in Content Syndicate, a Transform Ventures-backed content services company. Moreover, the investments will fund the creation of two funds: the Alpha Liquid digital asset fund and the Aegean Fund.

Transform Ventures was founded by Michael Terpin, a crypto investor who previously sued a New York teenager for $71.4 million in damages for allegedly snatching cryptocurrency from his phone. For ATH, Terpin invested $2.65 million in cash, Bitcoin (BTC) and Ether (ETH), with an option to invest an additional $2.9 million.

Speaking about the development, Enzo Villani, Alpha Transform Holding’s CEO and chief investment officer, stated:

“The ATH vision is to shepherd in a new era of financial and technological innovation leveraging decentralization, blockchain technology and Web3 infrastructure.”

The new holding company’s three focus areas include delivering suites of products under asset management, Alpha Transform products and Alpha Transform strategies.

Related: How are crypto launchpads revolutionizing the DeFi industry?

While major investors and venture capitalists continue to pour millions of dollars into blockchain innovation, some investors have started showing negative sentiment, leading to increased outflows.

Weekly crypto asset inflow and outflow data. Source: CoinShares

As Cointelegraph reported, based on CoinShares’ findings, “overall volumes across investment products were low at US$844m for the week,” with Bitcoin market volumes 15% lower than usual, averaging $57 billion.

Three Arrows Capital creditors express frustration with bankruptcy process during call

3AC co-founder Kyle Davies announced regular meetings with creditors, noting that all involved parties are welcome to attend.

Kyle Davies, the co-founder of bankrupt hedge fund Three Arrows Capital (3AC), disclosed via a Twitter thread on Jan. 11 the creation of a 3AC creditors group amid complaints from creditors over bankruptcy costs.

According to Davies, creditors continue to express frustration with the ongoing costs and handling of assets during the bankruptcy process, suggesting that “intercreditor disputes are delaying the process, and the estate value is not being maximized.”

The group’s first meeting discussed several topics, including ways to reduce “ongoing legal costs, pursue claims on a contingency basis against Luna consortium/FTX/Genesis, and organize better ways to deal with asset sales/distributions.” Davies invited all creditors to join the group and announced regular meetings, without disclosing any further details.

The company filed for a Chapter 15 bankruptcy on July 1 in a New York court, with no known whereabouts of founders Davies and Zhu Su. Lawyers representing the liquidators in the case have been trying to trace and recover assets since then, but the founders haven’t cooperated. “The liquidators are trying to put things together without any help from them. They should cooperate if they want to help investors,” a source familiar with the matter told Cointelegraph. 

The last attempt by the liquidators to reach Davies and Su was through a subpoena on Twitter on Jan. 5, after permission was granted by Singaporean authorities following an order from a U.S. bankruptcy court. 

The subpoena aims to give liquidators access to account information, seed phrases and private keys for 3AC’s digital and fiat assets; details about the securities and unregistered shares; and any accounts held on centralized or decentralized exchanges, along with any other tangible or intangible assets. 

Liquidators claim that the co-founders are located in Indonesia and the United Arab Emirates, where it is difficult to enforce foreign court orders. On the creditor’s behalf, they have seized $35.6 million in fiat currencies held by Singaporean banks or by the company’s pre-appointment lawyers. Additionally, over 60 types of cryptocurrencies have been identified and are being held in a digital currency custody account.

CEO of crypto news site The Block resigns for failing to disclose $27M loans from Alameda Research

New CEO Bobby Moran said there was no evidence that Mike McCaffrey had “improperly” influenced coverage of Sam Bankman-Fried, FTX, or Alameda Research on the news site.

Bobby Moran of crypto news website The Block has announced he will be assuming the position of CEO following the resignation of Mike McCaffrey, who reportedly financed the platform through loans from Alameda Research. 

In a Dec. 9 announcement, Moran said McCaffrey had made an executive decision to restructure The Block in 2021, which involved two loans totaling $27 million from Alameda Research — a hedge fund part of former CEO Sam Bankman-Fried’s FTX Group. Axios reported there was also a third $16-million loan in 2022 that McCaffrey used to purchase property in the Bahamas.

According to Moran, the former CEO of The Block failed to disclose the loans to the site’s leadership team, demonstrating “a serious lack of judgment.” The platform’s leadership asked Moran to step down.

“No one at The Block had any knowledge of this financial arrangement besides Mike,” said Moran. “From our own experience, we have seen no evidence that Mike ever sought to improperly influence the newsroom or research teams, particularly in their coverage of SBF, FTX, and Alameda Research.”

According to McCaffrey’s LinkedIn, he became CEO in April 2020 after separate tenures as chief operating officer and chief of staff at the platform starting in 2018. The now-former CEO reportedly led the charge in buying out non-employee shareholders in April 2021, leading to McCaffrey having a majority stake in the site.

“I’m absolutely gutted by this news, which was briefed to the company this afternoon,” said The Block’s editor-at-large Frank Chaparro. “Underpinning my shock are feelings of utter disgust and betrayal by Mike’s actions, greed, lack of disclosure. He’s literal scum. He kept every single one of us in the dark.”

Related: FEC probe demanded after SBF ‘admitted’ making dark money donations

The platform’s page on financial disclosures stated it was “fully transparent about our own financial holdings so as to avoid any appearance of bias or impropriety.” Larry Cermak, The Block’s vice president of research, posted a list of Alameda Research’s investments to his Twitter account on Dec. 6 — which included two of the loans to the platform — but did not disclose financial ties between the news site and the hedge fund.

“Mike never asked me or anyone in research to cover FTX or SBF in any particular way,” said Cermak, according to Axios. “Or anyone else, for that matter. We had complete discretion to do our jobs.”

In the wake of FTX’s bankruptcy filing on Nov. 11, many news outlets have revealed financial ties between Bankman-Fried or FTX Group companies and political figures in the United States, including lawmakers from both parties on committees investigating the exchange’s collapse. The Block has also regularly reported on Bankman-Fried, with the former FTX CEO sitting down for a two-hour interview with Chaparro released on Dec. 5.

Cointelegraph reached out to a policy reporter at The Block, but did not receive a response at the time of publication.

3AC bankruptcy process faces challenges amid unknown whereabouts of founders

The liquidators claim Su Zhu and Kyle Davies are located in Indonesia and the United Arab Emirates, where foreign court orders are difficult to enforce.

Liquidators for Three Arrows Capital (3AC) will have to present further documents in order to be granted permission to subpoena the now-bankrupt crypto hedge fund’s founders through Twitter, according to a decision from Judge Martin Glenn during a virtual hearing for the Southern District of New York Bankruptcy Court on Dec. 2.

Lawyers representing the liquidators claimed that Zhu Su and Kyle Davies, co-founders of the hedge fund, have repeatedly failed to engage with liquidators over the recent months. “A communication protocol was agreed between the liquidators and founders but has not yielded satisfactory cooperation,” according to a hearing presentation.

The liquidators claimed that the founders of the company are located in Indonesia and the United Arab Emirates, where it is difficult to enforce foreign court orders.

The founders also refused to accept service through their Singapore counsel, which led the liquidators to seek alternative means to subpoena Su and Davies, as Cointelegraph reported on Oct. 18. The same day, Bloomberg disclosed that United States regulators were launching a probe into possible legal violations by 3AC regardin whether the hedge fund misled investors and failed to register with the appropriate agencies.

Judge Glenn raised questions about the citizenship and current location of the founders, mentioning issues under Rule 45, which permits parties to serve a non-party with a subpoena for the production of documents. He stated:

“From the court’s standpoint, it is relevant to the issue of servicing subpoenas on them. […] But under Rule 45, there is an issue whether this court could exercise personal jurisdiction over either of them. And citizenship does bear on that.”

The judge also noted that authorizing the issuance of a subpoena by an alternative service, such as Twitter, would only be possible if it is an “enforceable order.”

Related: Legal team for 3AC liquidators blast founders for shifting blame to FTX, media blitz amid bankruptcy

Teneo, the liquidation firm in charge of the bankruptcy process, told Cointelegraph on Oct. 5 that it had custody of the nonfungible tokens moved from addresses related to Starry Night Capital, a fund launched by the co-founders of the hedge fund.

The liquidators claim to have taken control of $35.6 million in fiat currencies held by Singaporean banks or by the company’s pre-appointment lawyers. In addition, over 60 types of tokens have been identified and are being held in a digital currency custody account under liquidators’ control, and converted to U.S. dollars as needed.

$138B investment manager Man Group to launch crypto hedge fund: Report

Institutional investors still see a future for Bitcoin and cryptocurrencies despite the epic collapse of FTX and Alameda Research.

London-based investment manager Man Group Plc is preparing to launch a cryptocurrency hedge fund, signaling continued investor appetite for digital assets in the wake of FTX’s monumental collapse earlier this month. 

Bloomberg reported on Nov. 18 that Man Group is preparing to launch its crypto-focused hedge fund through its computer-led trading unit AHL. Citing private sources, Bloomberg disclosed that the new hedge fund could be ready by the end of the year. 

A spokesperson for Man Group declined to comment on the matter when asked by Cointelegraph.  

Man Group already has exposure to digital assets through AHL, which actively trades crypto futures. By the end of September, Man Group had $138.4 billion in assets under management, down slightly from $142.3 billion during the previous quarter.

The company trades publicly on the London Stock Exchange and is a component of the FTSE 250.

Institutional appetite for digital assets like Bitcoin (BTC) has grown over the past two years, driven partly by the recognition that crypto represents a new investment class. However, broad institutional exposure to crypto has been hindered by a lack of clear regulations and the perception that fiduciary standards prevent fund managers from openly advocating for the sector.

Related: Amid FTX collapse, crypto funds see largest inflows in 14 weeks

Crypto’s push for mass adoption may have been hindered by the recent collapse of FTX and the firm’s subsequent Chapter 11 filing. Some believe that FTX’s failure will put more regulatory scrutiny on the industry at a time when investors were anticipating clearer and perhaps more favorable guidelines.

Why are institutions accumulating crypto in 2022? Fidelity researcher explains

Institutional involvement in crypto, especially in Ethereum, has increased in 2022 despite the bear market, according to the latest findings of a Fidelity Digital Assets survey.

Institutions’ investment in crypto has increased in 2022 despite the bear market, according to a recent survey by Fidelity Digital Assets. In particular, the amount of large investors betting on Ethereum have doubled in the last two years, as revelead by Chris Kuiper, the Head of Research at Fidelity Digital Assets in a recent interview with Cointelegraph.

“The percentage of respondents saying they were invested in Ethereum doubled from two years ago”, pointed out Kuiper. 

Kuiper pointed out that Ethereum’s appeal in the eyes of institutions is likely to increase even more now that after the Merge, Ether has become a more environmentally friendly, yield-bearing asset.

In general, according to the same survey, institutional players are accumulating crypto despite the crypto bear market. At the end of the second half of 2022, 58% of the institutions surveyed were holding cryptocurrencies, a 6 percent increase from last year. Moreover, 78% were planning to tip their toes in crypto in the future.

The main reason for that, the survey shows, is the conviction of the long-term upside potential of digital assets.

“They’re agnostic to some of this crazy volatility and price because they’re looking at it from a very long-term perspective”, Kuiper explained.

To learn more details about how institutional capital is flowing into crypto, check out the full interview, and don’t forget to subscribe to our channel!

Institutional crypto adoption requires robust analytics for money laundering

Large financial institutions are getting involved in digital assets by investing capital, time and effort into on-chain analytics solutions.

Institutions have begun to take crypto seriously and have entered the space in numerous ways. As noted in a previous analysis, this has resulted in banks and fintechs looking at custody products and services for their clients. 

However, as custodians of clients’ assets, banks must also ensure they are clean assets and stay compliant.

This is where on-chain analytics solutions have a huge role to play in understanding patterns in transactions to identify money laundering and other spurious activities within the cryptocurrency and digital assets space. According to a report by Chainalysis, over $14 billion of illicit transactions took place in 2021.

Therefore, it is critical to build the foundational infrastructure around Anti-Money Laundering (AML) to support the growing institutional appetite for digital assets. Before getting into various types of money laundering patterns that exist in crypto, let us understand what an on-chain analytics solution is.

What are on-chain analytics?

All transactions on public blockchains are visible to anyone. Analytics tools query these blockchains to help us understand trends in transactions. Platforms like Glassnode, Nansen and Dune analytics offer ways for retail audiences to see the flow of money in the ecosystem.

Using on-chain analytics, it is possible to see the net flow of Bitcoin (BTC) into crypto exchanges from private wallets. This typically happens when someone chooses to sell their Bitcoin on an exchange. The net outflow of BTC from exchanges, on the other hand, represents someone wanting to hold on to their Bitcoin. Both actions have implications on the price of the asset.

However, at an institutional level, on-chain analytics can help with identifying spurious transactions. Firms like Chainalysis, Elliptic and Coinmetric are critical for banks to build digital assets capabilities that are foundational as this asset class grows in significance.

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Banks already have mechanisms in place to check for money laundering and terrorist financing activities. Therefore, any digital assets-related AML solution must ensure alignment with a bank’s existing AML controls.

What are money laundering patterns?

There are patterns that banks must keep an eye on to spot money laundering and other illicit activities. Referred to as “typologies” in traditional AML frameworks, not all of them are unique to the digital assets industry. However, on-chain analytics solutions can proactively track them.

Layering

Layering involves converting one crypto into another or moving assets from one chain to another. It makes AML efforts incredibly harder if there are multiple small-sized transactions that are generally beyond the monitoring radars.

Layering can also involve blending crypto assets across different exchanges and sources, making it harder to trace back to the original source of the assets.

Money mules

A money mule is someone who receives crypto assets from a third party and sends it over to another party. Alternatively, they could withdraw assets as fiat cash and hand it over to someone else and receive a commission for this.

Money mules are typically used when criminal syndicates want to be anonymous yet keep their money flowing through the system.

Dusting

Dusting involves creating many small transactions across several wallets that trigger AML monitoring systems. These small transactions would clog the pipeline of AML support teams whose workload increases and make them overlook the illicit transaction that really needed their attention.

Wallet laundering

Wallets used by crypto users make it hard to trace owners. As a result, a money launderer could just hand over the custody (private keys) of their wallet with assets in it to another party. In turn, they would receive payment in crypto on another wallet, thereby making the two transactions seem completely unrelated.

Darknet transactions and mixers

The darknet is an overlay network on the internet that is accessible through special software and configurations. It has earned a reputation for hosting anonymous illicit activities like drugs and arms sales.

Many platforms have flagged crypto addresses from darknet users and marketplaces and do accept assets that are sent therefrom.

However, some illicit actors have taken to crypto mixing services like Tornado Cash to hide the providence of their crypto.

Tornado Cash scrambles crypto transactions in an attempt to anonymize assets that have entered the platform, hiding their point of origin. It has become so associated with perceived criminality that the United States Treasury’s Office of Foreign Assets Control sanctioned the platform in August, and many trading platforms will not touch coins that came from a mixing service.

How are banks addressing this issue?

The money laundering methods described above are not exhaustive. A recent report from Elliptic covers over 41 typologies (patterns) observed within the digital assets space.

So, given the myriad ways that illicit actors attempt to use digital assets for money laundering, how can banks react?

Robust Know Your Customer (KYC) standards are a good starting point when onboarding digital assets customers. However, proactive screening and transaction monitoring should be in place through on-chain analytics solutions.

These solutions can automate AML and sanction checks, identify address clusters associated with illicit activities, map the flow of digital assets across addresses to perform forensic analysis and monitor how assets are moved through activities related to dark-web markets, smart contract frauds, oracle hacks, cross-chain bridge hacks and more.

Furthermore, banks and fintech firms have ramped up their digital assets AML capabilities through partnerships with on-chain analytics firms, as the below graphic shows. 

Even though Barclays began its journey with Chainalysis in 2015, this space really has taken off only in the last 18 months. Be it investments or partnerships, it is highly critical that before offering custody services, banks must put AML controls in place to ensure they are handling clean assets. 

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More institutional capital has flown into the digital assets space in the last two years. At the same time, more innovative models have emerged in cross-chain bridges, decentralized finance, nonfungible tokens and transaction mixers.

In order to protect assets while innovating at breakneck speed, AML and transaction monitoring controls must be in place. That is essential to keep attracting more institutional capital into digital assets.

TrueFi issues first default notice on $3.4M BUSD loan

TrueFi does not expect Blockwater Technologies’ default to affect its stablecoin lending pools or capital market portfolios.

On Oct. 10, unsecured lending protocol TrueFi issued a default notice to Blockwater Technologies for missing a scheduled payment related to its $3.4 million Binance USD (BUSD) loan, the first declared default on the platform to date. According to the company, the default does not impact lenders in its USD Coin (USDC), TrueUSD (TUSD) and Tether (USDT) stablecoin lending pools, “nor any of TrueFi’s capital market portfolios.”

As outlined in the statement, TrueFi had an extensive out-of-court workout with Blockwater’s principals last week. After reviewing the “complexity around the sudden insolvency,” the company concluded that a court-supervised administrative proceeding would bring better outcomes for stakeholders.

The companies are in active discussions about maximizing the recovery for lenders and stakeholders. According to the statement:

“To date, Blockwater has completed 8 payments totalling $645,405 towards loan repayment. $2,967,458 remains due at the time of the default. Further updates will be provided to the TrueFi community and any action required by TrueFi DAO will be subject to tokenholder vote and approval.”

Established in 2018, Blockwater Technologies is a hedge fund headquartered in Seoul, South Korea. The company’s LinkedIn profile claims that its portfolio includes exposure to projects such as Fantom, Bifrost and Playdapp. The Blockwater website was unavailable at the time of publication.

TrueFi claims it has originated more than $1.7 billion in unsecured loans and has successfully collected approximately $1.5 billion in repayments across 136 loans, generating $34.34 million in interest for lenders. As stated by the company:

“Despite market conditions, borrower demand remains high and continues to outpace available capital. With a traditional and rigorous approach to underwriting, TrueFi’s loan book remains healthy and active across both crypto-native and real world lending.”

In June, TrueFi was launched on Optimism, Ethereum’s popular layer-2 scaling solution. The company also announced in February a new lending marketplace, allowing asset managers to create their own decentralized finance products.

Three Arrows Capital’s NFT collection to be liquidated

As part of 3AC’s bankruptcy proceedings, over 300 NFTs from Starry Night Capital were moved this week.

Teneo, the liquidation firm in charge of the Three Arrows Capital (3AC) bankruptcy process, confirmed in a statement to Cointelegraph on Oct. 5 that it has custody of the NFTs moved from addresses related to Starry Night Capital, a fund launched by the co-founders of the now-bankrupt hedge fund. 

According to the firm, the collection move was part of the liquidator’s duty of identifying assets and maximizing recoveries on behalf of all creditors. A report from Bloomberg estimated that the Starry Night Capital collection’s total value sits at around $35 million. It represents only a tiny fraction of the 3AC’s debt of $2.8 billion to its creditors.

The firm’s statement said:

“We would like to make clear that VVD [pseudonymous NFT collector Vincent Van Dough] has cooperated with the JLs [Joint Liquidators] in an effort to protect the value of these assets for the benefit of all relevant stakeholders and has sought to ensure that no Starry Night Portfolio assets would be disposed of improperly, or without sanction of the BVI Court if required.”

VVD also offered to assist with the eventual sale of 3AC NFTs and will likely oversee the assets’ disposal with the firm, Teneo said.

In 2021, 3AC co-founders Su Zhu, Kyle Davies, and pseudonymous NFT collector Vincent Van Dough (DVV) formed Stary Night Capital, a nonfungible token-focused fund that, initially, intended to invest exclusively in “the most desired” NFTs.

In August, Teneo was selected as the liquidation firm in the 3AC case. The Singapore-based hedge fund went bankrupt following the collapse of the Terra ecosystem earlier this year. The company, which once had over $10 billion in assets under management, eventually filed for a Chapter 15 bankruptcy on July 1 in a New York court.