Regualation

FTX meltdown triggers FINRA into probing crypto comms

The examination comes in the wake of the FTX debacle, a crypto exchange found to be mismanaging customers’ funds by simply lying about their operations.

The Financial Industry Regulatory Authority (FINRA), the American self-regulatory organization, has launched an examination into the firm’s retail communications concerning crypto products and services offered by them.

The regulatory body, in an official notice, announced that it is launching a targeted exam on firms on how they handled retail communications between July 1 and the end of September. The decision to examine crypto-related retail communications comes in the wake of the collapse of the FTX crypto exchange.

Any written (including electronic) message that is issued or made available to more than 25 retail investors within any 30-day period is referred to as a “retail communication” according to FINRA. It also applies to video, social media, mobile apps and websites in addition to writing communications.

In its exam notice, FINRA asked firms to provide additional information for each individual communication, such as the date it was first made public, whether it was filed with FINRA’s advertising regulation department, whether a principal at the firm approved the communication and identifying the crypto assets or services mentioned in the communication.

In addition to any relevant compliance rules or materials, FINRA has requested that firms submit written supervisory procedures for the “examination, approval, record-keeping and dissemination” of the communications. It also requested information on any contracts made with affiliates on the production or distribution of the messages, as well as any knowledge such affiliates might have regarding the target audience.

The probe began on Nov. 14 with an aim to investigate whether any of the retail crypto products or services were falsely advertised. At the peak of the crypto bull run, crypto advertisements became the flavor of many brands and celebrities. Crypto ads ruled the Super Bowl 2022 as well, with FTX being one of the most talked about ads at the time.

Related: Thailand SEC to apply strict guidelines for crypto ads

The flood of advertisements became a big concern for regulators given the majority of these advertisements didn’t adhere to any advertisement standards and often hid the risks associated with crypto investments while glorifying the high returns.

Many celebrities like Tom Brady, Larry David and Steph Curry, who were brand ambassadors for the FTX crypto exchange, are facing a class-action lawsuit. The lawsuit alleged that celebrities advertised FTX’s fraudulent scheme that was designed to take advantage of unsophisticated investors from across the country.

At the start of the year, authorities in the United Kingdom, Singapore and Spain tightened the requirements around crypto firms’ marketing messaging and customer recruitment practices. Many other countries and global brands have also imposed restrictions on crypto advertisements amid market turmoil.

Celsius users concerned over personal info revealed in bankruptcy case

A website revealing personal information from Celsius creditors has created stress and chaos for many, leading some to question the privacy of centralized exchanges.

Crypto lending platform Celsius filed for Chapter 11 bankruptcy on July 13, 2022. Although the Celsius case involves digital assets, it remains subject to United States Bankruptcy Code under the Bankruptcy Court for the Southern District of New York. 

While this may be, a series of unusual events have ensued since Celsius filed for bankruptcy. For instance, Chief United States Bankruptcy Judge Martin Glenn — the judge overseeing the Celsius case — stated on Oct. 17 that the court will look abroad for guidance.

Glenn specifically mentioned that “Legal principles that are applicable in the United Kingdom are not binding on courts in the United States,” yet he noted that these “may be persuasive in addressing legal issues that may arise in this case.” While the treatment of the Celsius case will abide by U.S. bankruptcy laws, Glenn still aims to determine how the Celsius case should be handled.

Additionally, publicly available court documents related to Celsius’ bankruptcy proceedings have revealed personal data from thousands of the platform’s customers. A large financial disclosure form filed on Oct. 5 contains customer names, account balances, timing of transactions and more.

While this may have come as a shock to Celsius users, releasing this information is subject to U.S. Bankruptcy Code. Adam Garetson, general counsel and chief legal officer at WonderFi Technologies, a regulated cryptocurrency exchange based in Canada, told Cointelegraph that bankruptcy proceedings should be open, public and transparent:

“It is a strong way of avoiding any suggestion of impropriety by the courts and the persons and entities involved in the proceeding. As such, courts can make requests and impose orders on the bankrupt entity, including with respect to release of information which is available publicly.”

Yet, it is unusual that committee investigations have revealed such a large amount of customer information. This point was highlighted in an article from The National Law Review published on Oct. 18, which states, “Debtor filings and Committee investigations have revealed a great deal more to the public about the Debtors’ financial affairs, insider activity, and the path and direction of the bankruptcy case.” The article also states that even though so much personal information has been disclosed, “there is still little indication of how claims will be treated and repaid in this case.” 

Celsius users face unintended consequences

While Celsius customers continue to wait for decisions to be made by the U.S. Bankruptcy Court, the release of personal information has resulted in additional stress. To add insult to injury, customer data was recently made public on a website called Celsiusnetworth.com. 

The website allows anyone to search Celsius users by their name to reveal their losses, along with the cryptocurrencies they had invested on the platform. If this wasn’t bad enough, the website includes a leaderboard that lists customers in terms of rankings for the greatest losses. Customer information can then be tweeted from the website, as a tweet button appears once user information is shown.

The creators of Celsiusnetworth.com — who go by the name “Avnx” — told Cointelegraph that the website was built using the public data published as a result of Celsius’ legal operations. The source further remarked that the data on the website shouldn’t be considered as a leak, although they noted that releasing this information may have consequences similar to the Ledger data leak that occurred in Dec. 2020. “This data has been made public by Celsius. Whether we like it or not, it is a fact,” Aznx said. 

According to Garetson, sites like these are uncommon when it comes to bankruptcy proceedings. However, he mentioned that such occurrences may arise from high-profile events that generate specific media attention, or the attention of a particular community. Indeed, Avnx mentioned that Celsiusnetworth.com was designed to create a “buzz,” rather than making it easy for individuals to explore losses of Celsius Creditors. Avnx said:

“For example, the Twitter button is a humorous approach, although nothing is funny in these events. Yet this creates a buzz to highlight several things, such as the fact that this information has been revealed, the amounts lost, or the balances of certain strategic people within Celsius.”

In any case, the information revealed via the Celsiusnetworth.com website has resulted in unintended consequences for many Celsius users. 

For example, John Carvalho Jr., a Celsius user based in Massachusetts, told Cointelegraph that his personal information released on Celsiusnetworth.com resulted in a large amount of chaos, particularly on Crypto Twitter.

Carvalho explained that he has the same name as the CEO of Synonym, which is a Bitcoin (BTC) software company. As a result of information being made public, multiple users on Crypto Twitter assumed that John Carvalho — the CEO of Synonym — had invested thousands of dollars on Celsius. This created an uproar on Twitter, as users started accusing the CEO of “buying altcoins,” among other things. Carvalho said:

“I joined Twitter in 2020 but didn’t use it much. However, on the morning of Oct. 10, I was tagged multiple times, as Crypto Twitter had confused me for John Carvalho, CEO of Synonym. Users were talking lots of trash, accusing John Carvalho of being a ‘shitcoiner’ and calling him a ‘dummy.’“

“I had no idea who John Carvalho was. It’s unfortunate that user information was leaked initially, but this was made even worse when it spread on Twitter,” he added. 

Carvalho noted that the situation was clarified following a tweet sent from the Synonym CEO’s personal account, which referenced the mixup. 

Carlos DePaz, a Celsius user and certified public accountant, told Cointelegraph that, while he thinks it’s unfortunate that user information has been made public, he doesn’t feel personally impacted. 

“If I was number one on the leaderboard list on the website, I may feel differently. It may be embarrassing for those individuals for others to know how much money they lost. But for me personally, it’s not a big deal. It’s a live and learn situation,” he said.

Another Celsius creditor who wishes to remain anonymous told Cointelegraph that, while he wasn’t impacted by public information being leaked, he believes this specific situation violates user privacy:

“I am not sure if information of this sort is always public knowledge in similar cases, but it definitely feels like a violation of privacy being that the information is financial by nature.”

Lessons learned

While it’s unfortunate that Celsiusnetworth.com was created as a result of publicly available user information, this demonstrates the need for further education and regulatory clarity within the cryptocurrency sector. 

For instance, DePaz shared that he initially viewed Celsius as a legitimate crypto lending platform, stating, “Celsius was partially intriguing because the website and regular ask-me-anything segments seemed very legitimate. It seemed like Celsius was run by people who knew what they were talking about, as they mentioned the platform was licensed.”

Carvalho added that he viewed Celsius as an opportunity to build financially for the future of his family: “I would regularly listen to the ask-me-anything segments and would hear Celsius say ‘put your money with us and we will give you yield.’ I didn’t realize the risks involved at the time.”

Ben Samaroo, CEO of WonderFi Technologies, told Cointelegraph that what’s unique about the Celsius case is that a lot of disclosure wasn’t initially provided to customers. He said:

“High returns were being promised, yet the risks that came with that may have not been disclosed or understood by customers. This especially could have been the case for entry-level users, but it also impacted those who had already been in the industry.” 

While Samaroo is responsible for operating a regulated cryptocurrency exchange based in Canada, he pointed out that WonderFi was also put under pressure from investors during the 2021 bull run to offer lending products similar to Celsius, stating, “We couldn’t do this anyway, as this would have required us to go through regulators in Canada. We would have needed to present a plan and do risk assessments, while making sure safeguards and investor protections were in place.” 

The current state of the Celsius case also demonstrates that platforms involving digital assets are still subject to traditional U.S. laws. Shedding light on this, Garetson mentioned that this case is yet another example that broad, formal regulation in the U.S. over the crypto asset sector remains pending.

“Traditional legal concepts like contracts, property and bankruptcy law continue to apply regardless of the status of any ‘crypto’-specific law,” he said. As a result, Garetson noted that the outcomes of the Celsius case are going to be determined in real-time — not by congress or a panel of experts, but rather by individual courts who are likely less familiar with the industry. “This emphasizes a greater need for thoughtful and harmonized regulation in the near term, particularly as it relates to oversight of centralized trading platforms,” he said.

Law Decoded, Sept. 5–12: The pressure is growing in the US

Last week regulators worried about the “de-integration” of financial sector and global energy consumption — all because of crypto.

While last week brought no troubles from the market side of the crypto industry — no operations frozen, no bankruptcies filed — the United States regulators made some explicitly negative statements. 

Recently appointed U.S. Federal Reserve Board vice chair for supervision Michael Barr pledged to “ensure that crypto activity inside banks is well regulated, based on the principle of the same risk, same activity, same regulation, regardless of the technology used for the activity.” In Barr’s opinion, people “may come to believe that they understand new products only to learn that they don’t.”

Michael Hsu, an acting comptroller of the currency at the annual conference of the Clearing House and Bank Policy Institute, mentioned stablecoins and the collapse of Terra (LUNA) — now renamed Terra Classic (LUNC) — as an example of crypto’s disruptive potential. He also noted that the relationship between banks and fintech companies is evolving rapidly and causing “de-integration” in the financial sector.

The White House Office of Science and Technology Policy has weighed in on the environmental and energy impact of crypto assets, focusing on their contribution to energy usage and greenhouse gas emissions. Among the broadly written recommendations are assessment and enforcement of energy reliability in light of crypto mining projects, setting energy efficiency standards, and research and monitoring.

Enforcers participated in the collective push as well. Gurbir Grewal, the enforcement director for the Securities and Exchange Commission, promised the financial regulator will continue to investigate and bring enforcement actions against crypto firms, despite the narrative of “picking winners and losers” and “stifling innovation.” He pushed back against criticism that the Securities and Exchange Commission “somehow unfairly targeted crypto” in its enforcement actions.

Zuckerberg is called to address the ‘breeding ground’ of crypto scams on Facebook

In the United States, a group of Democratic senators has reportedly asked Meta CEO Mark Zuckerberg to provide details on the social media giant’s policies regarding cryptocurrency fraud. Six senators — Elizabeth Warren and Sharrod Brown, among them — called on Zuckerberg to explain actions the company may take to detect crypto scams, coordinate with law enforcement and assist victims of fraud. The senators are concerned that “Meta provides a breeding ground for cryptocurrency fraud that causes significant harm to consumers.”

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‘False and misleading claims’ by Celsius and its CEO 

The ​​Vermont Department of Financial Regulation accused crypto lending platform Celsius Network and CEO Alex Mashinsky of misleading state regulators regarding the firm’s financial health and its compliance with securities laws. According to a filing with the United States Bankruptcy Court in the Southern District of New York, the company and its CEO “made false and misleading claims to investors,” which allegedly downplayed concerns about volatility in the crypto market and encouraged retail investors to leave their funds on the platform or make new investments. 

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Crypto assets are no longer niche, according to IMF

In a new report from the International Monetary Fund (IMF), experts noted that crypto assets have firmly shifted away from being “niche products” to assets used for speculative investments, hedges against weak currencies and payment instruments. Along with the recent failures of crypto issuers, exchanges and hedge funds, it has “added impetus to the push to regulate,” according to the IMF. However, regulators are still “struggling to acquire the talent and learn the skills to keep pace.” 

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Which countries are the worst for crypto taxation? New study lists top five

Crypto analytics firm Coincub has released crypto tax rankings, pointing out the worst and the best countries regarding crypto taxation.

Global cryptocurrency taxation rules significantly vary among countries, and some jurisdictions have come up with extremely tough crypto tax policies for their residents.

In a new study by crypto analytics firm Coincub, Belgium is referred to as the worst country in the world in terms of crypto taxation for residents. That is according to in-house rankings covering taxation aspects like taxes on crypto income or crypto capital gains.

Belgium is known for its massive 33% tax on capital gains on crypto transactions, and it also withholds up to 50% in taxes from professional income on crypto trades. As previously reported, Belgium adopted strict crypto taxation rules back in 2017.

Released on Thursday, Coincub’s tax rankings also bring up countries like Iceland, Israel, the Philippines and Japan as the locations less favorable to crypto investors.

In Iceland, any crypto gains up to $7,000 are subject to under 40% tax, while bigger gains will incur 46%, the report notes. Under Israel’s tax regime, the sale of crypto is usually subject to capital gains tax, which is up to 33%. On the other hand, if crypto trading involves a business income tax, it may go as high as 50%.

In the Philippines, there is no tax on any crypto income under $4,500, but after that, any income is taxed up to 35%. The country’s government has also been discussing new taxes on crypto by 2024, raising concerns that Manila may follow India’s lead and impose a 30% flat tax on all crypto income.

Japan closes the top-five worst countries for crypto taxation for residents in Coincub’s rankings. The country has a progressive tax rate system for income considered miscellaneous income. The tax rate varies from 5% to 45%, depending on the amount of total profits.

Among other strict crypto tax economies, Coincub also mentioned countries like India, Austria, the United States, Norway, Denmark and France.

On the other hand, the study pointed out a number of countries that provide tax-efficient incentives to citizens and have much more favorable crypto tax policies. According to the rankings, Germany tops the list as the best place for crypto investors, as anyone holding cryptocurrency for a minimum of a year will incur no capital gains tax on selling or converting their crypto. Other crypto-tax-friendly countries include Italy, Switzerland, Singapore and Slovenia.

Related: Australian Treasury consults public on Bitcoin foreign currency tax exclusion

Additionally, Coincub mentioned classic tax havens or countries that offer foreign businesses and individuals minimal to no tax liability for their financial deposits, where crypto is no exception. Among those, the study listed The Bahamas, Bermuda, Belarus, the United Arab Emirates, the Central African Republic, Lichtenstein and others.

Coincub emphasized that crypto taxation is very fast-changing as new regulations occur regularly. The firm also noted that there is an increasing number of countries that apply flat tax rates on gains for individuals, aiming to simplify tax take.