regulation

US regulators doing ‘good job of alienating’ crypto sector — Cardano founder

Charles Hoskinson took a jab at the perceived inconsistency in applying decentralization standards by the U.S. SEC.

The United States’ approach to cryptocurrencies could do more harm than good, and it risks losing major players by the time they “get their act together,” Cardano founder Charles Hoskinson has said.

“When you look at some of the U.S.

Charles Hoskinson speaks with Cointelegraph Arabic journalist Hermi De Ramos at the Abu Dhabi Finance Week. Source: Cointelegraph

He took a jab at the perceived inconsistency in applying decentralization standards by the U.S. Securities and Exchange Commission, stressing that Cardano did not conduct an initial coin offering (ICO) and saying ADA (ADA) vouchers were sold in Japanese territory with no U.S.

“I guess, apparently, that’s under U.S.

Hoskinson also pointed out that Ethereum, which he said conducted an ICO for its Ether (ETH) token without implementing mandatory Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, and Bitcoin (BTC) were labeled non-securities for “some reason.” He said:

“There are a lot of facts and circumstances that are insanely ambiguous, and it seems like it’s just the monster of the week. And if they can’t have success with a layer 1, like Ripple, then they go hit the exchanges… That’s not really a well-formed policy.”

On Nov. 20, the SEC filed a complaint in a federal court, alleging that crypto exchange Kraken commingled customer funds and failed to register with the regulator.

Hoskinson contends that the registration process with the SEC is vague, as “it’s not possible to actually operate these systems in a reasonable way.” He argued:

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Former US Secret Service asst. director: Keep personal info of FTX users private

Jeremy Sheridan claimed FTX users could become the targets of physical harm as well as attacks through online scams if their information was disclosed.

Jeremy Sheridan, former assistant director of the United States Secret Service Office of Investigations, has warned that certain FTX customers could become targets if their personal information were to be made public.

In an April 20 declaration filed with the U.S. Bankruptcy Court for the District of Delaware, Sheridan supported a motion from the debtors that would withhold “certain confidential information” of FTX users. According to Sheridan, who is currently a managing director for FTI Consulting, releasing the names of customers associated with the failed crypto exchange imposes “a severe and unusual risk of identity theft, asset theft, personal attack, and further online victimization.”

“If Individual Customer Names are made public in these Chapter 11 Cases, such information will provide potential malefactors an itemized list of vulnerable targets,” said Sheridan. “In particular, it will provide malefactors with a menu of potential targets via disclosure of the Debtors’ schedules of assets and liabilities list. […] And each of the Debtors’ customers’ respective cryptocurrency holdings.”

FTX users holding large amounts of crypto, according to Sheridan, would effectively have “a target on their back” and could be victims of fraud by scammers looking at their wallets. He cited examples of common online scams conducted through email and social media, including building fake business and romantic relationships, SIM swaps and phishing attacks:

“Perpetrators of frauds and online attacks are emboldened by, motivated from and attracted to high profile cases like the Chapter 11 Cases. Adding to this environment is the fact that cryptocurrency is already an attractive target for malefactors because it is easy to liquidate, instantaneous, global and pseudo anonymous.”

The legal team representing FTX debtors released a list of creditors owed money by the exchange in January. However, the roughly 10 million users’ names and personal information had been redacted. A group of media outlets, including Bloomberg and The New York Times, has objected to the redaction, claiming that the press and public had a “right of access” to the information.

Related: FTX CEO says he is exploring rebooting the exchange: Report

Judge John Dorsey extended the time that customer information could be redacted until April 20, also expressing concern that users could be put “at risk” with their names going public. FTX debtors and the committee of unsecured creditors filed a motion when the extension was set to expire requesting the bankruptcy court revisit the redaction order. The matter is scheduled for a May 17 hearing, depending on objections filed.

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

Lack of regulatory clarity on payment solutions could undermine US sanctions, says expert

Anja Manuel said U.S. sanctions generally work with “responsible” blockchain firms but not when there are fintech solutions available to individuals looking to circumvent them.

According to former Department of State official Anja Manuel, if the United States isn’t able to maintain its dominance in financial innovation and payments, it could affect its national security policy, specifically on sanctions.

Speaking to Coinbase CEO Brian Armstrong and listeners in an April 21 Twitter Spaces discussion, Manuel said that because the U.S. was one of the biggest global leaders in payments, it allowed the government to enforce sanctions on “bad actors” like Iran or North Korea. According to Manuel, letting the country lead in innovation under clear rules reinforced U.S. national security controls, but China seemed to be catching up on dominance in mobile payments “both in sophistication and scale.”

“While we’re hemming and hawing here and not having a thoughtful regulatory framework in the U.S., China is marching forward, lots of other people are marching forward,” said Manuel. “If Chinese payments solutions, for example, gained a dominant foothold in the developing world, [sanctions are] going to become much, much harder.”

The U.S. enforces sanctions through the Office of Foreign Assets Control of the Treasury Department, which has announced several actions against Russian nationals and groups related to their involvement in the war on Ukraine — including sanctions on crypto wallets. The former Department of State official said sanctions generally worked “in a world of traditional banks” and “responsible” blockchain firms, but not when there existed financial technology firms available to individuals looking to circumvent restrictions.

Manuel added:

“Other thoughtful countries are getting their act together, from Singapore to the U.K. to the EU. This is not impossible — it just hasn’t happened in the U.S. In the U.S., regulation has been almost entirely by enforcement actions from the SEC.”

The Twitter Spaces discussion was part of Coinbase’s “Crypto435” campaign, aimed at promoting pro-crypto policies and candidates in the United States. Armstrong has reiterated calls for action among pro-crypto U.S. voters following the exchange receiving a Wells notice in March — suggesting a potential enforcement action from the Securities and Exchange Commission.

Related: What new EU sanctions mean for crypto exchanges and their Russian clients

“Countries aren’t going to wait for the United States to get this right,” Tomicah Tillemann, a former senior adviser to two U.S. Secretaries of State, said in regard to regulation. “At the moment, there are 114 different governments that are in pretty advanced stages of investigating their own central bank digital currencies. More than half of those are very far along in the process.”

Armstrong has been one of the more vocal critics among major U.S. digital asset exchange leaders in saying the SEC needs to provide “clear rules to regulate the crypto industry.” Amid the looming Wells notice, the Coinbase CEO said he met with SEC officials and U.S. lawmakers this week to push for regulatory clarity.

Magazine: The FBI’s takedown of Virgil Griffith for breaking sanctions, firsthand

‘BitBoy Crypto’ intentionally misses court appearance to address alleged harassment

YouTuber and Crypto Twitter personality Ben Armstrong openly mocked a federal judge’s authority, tweeting pictures of himself on a beach during an ordered court appearance.

Ben Armstrong, also known as “BitBoy Crypto,” missed a court appearance ordered by a federal magistrate judge in response to the YouTuber’s alleged harassment of counsel in a lawsuit involving several crypto influencers.

Judge Melissa Damian had ordered Armstrong and his counsel to appear on April 20 to address the YouTuber’s “harassment towards plaintiffs’ counsel.” However, Armstrong openly mocked the order on social media, instead tweeting pictures of himself on a beach in the Bahamas.

According to various reports, Judge Damian warned Armstrong’s attorney — who was in attendance, as ordered — that she would issue a warrant for the YouTuber’s arrest if he failed to appear by April 24. The harassment case against Armstrong moved forward without him, with the judge reportedly referring the matter to the FBI.

Individuals affected by the collapse of FTX filed a class-action lawsuit against Armstrong and several other YouTubers in March for allegedly promoting fraud through the exchange “without disclosing compensation.” Moskowitz, the lead attorney representing the plaintiffs in that case, claimed that Armstrong harassed the legal team with “endless phone calls, tweets and emails,” voicemails “full of vulgarities,” and social media posts suggesting threats.

Amid court proceedings on April 20, the YouTuber continued to mock the harassment case and Moskowitz. However, he said that he was “not flying by the seat of [his] pants,” hinting that his absence from court may have been with the advice of counsel. He reportedly offered through counsel to appear before the judge in May.

As part of the judge’s order on April 20, Armstrong will reportedly be barred from tweeting about Moskowitz and the plaintiffs in the case. He previously compared the lawyer to an ambulance chaser and a pig in addition to largely dismissing the basis of the lawsuit. Cointelegraph reached out to Moskowitz for comment, but did not receive a response at the time of publication.

Related: Multiple Silvergate lawsuits over alleged FTX ties combined by judge

A crypto influencer with more than 1 million followers on Twitter and 1.4 million YouTube subscribers, Armstrong is no stranger to online controversy. He has insulted high-profile figures, including European Central Bank President Christine Lagarde and U.S. Securities and Exchange Commission Chair Gary Gensler, in addition to others affecting policy in the space.

Magazine: Get your money back: The weird world of crypto litigation

Industry leaders and policymakers react to passage of MiCA in EU

Many lauded the bill’s approval, suggesting that its anticipated passage could leave the United States at a disadvantage for attracting crypto firms and investments.

Though a crypto-focused regulatory framework still needs approval from the European Council before final passage, many in the space have reacted positively to the Markets in Crypto Assets, or MiCA, bill moving forward.

On April 20, the European Parliament voted to pass MiCA after two delays starting in November 2022. The bill aims to create a consistent regulatory framework for crypto assets among the European Union member states.

Though EU lawmakers still need to conduct legal and linguistic checks for MiCA as well as publish the bill in the EU journal, the policy could go into effect as early as 2024, depending on the European Council vote. Many crypto industry leaders and policymakers largely lauded the bill’s approval.

Changpeng “CZ” Zhao, CEO of Binance, suggested he would begin implementing changes to the exchange in the next 12-to-18 months in order to be in compliance with the potential new framework. Others targeted the United States for seemingly falling behind in digital asset regulation — a move that could drive companies to the EU with the implementation of MiCA.

“Overall we think this is a pragmatic solution to the challenges we collectively face,” said CZ. “There are now clear rules of the game for crypto exchanges to operate in the EU.”

Prior to the European Parliament vote, EU Commissioner for Financial Stability Mairead McGuinness told lawmakers they were “ahead of many other jurisdictions” in regard to crypto regulation. More than 500 members of parliament ended up voting in favor of MiCA.

Related: Kraken receives virtual asset service provider authorization in Ireland ahead of MiCA vote

One of the key votes for the crypto framework followed a crypto market crash and the bankruptcies of high-profile firms that had many lawmakers across the globe calling for regulatory clarity. Christine Lagarde, president of the European Central Bank, also suggested that policymakers needed to implement a broader framework in response to the collapse of FTX, proposing a “MiCA II” in the future.

Magazine: Best and worst countries for crypto taxes

US House committee chair repeatedly presses SEC chair: ‘Is Ether a commodity or a security?’

Securities and Exchange Commission chair Gary Gensler has said the SEC considers Bitcoin a commodity, but refused to pin down Ether at an oversight hearing.

Patrick McHenry, chair of the United States House Financial Services Committee, jumped right into criticism of the Securities and Exchange Commission and its leadership over digital assets at an oversight hearing. 

In an April 18 hearing on oversight of the SEC, Representative McHenry used his opening statement to bring up the commission’s “punishing” of digital asset firms through regulation by enforcement without a clear path to compliance. The congressman reiterated calls for U.S. lawmakers to provide “clear rules of the road” for crypto through legislation. In addition, he pressed SEC chair Gary Gensler to give a definitive answer on whether Ether (ETH) qualified as a security under the SEC’s purview, or a commodity under the Commodity Future Trading Commission’s.

McHenry repeatedly talked over Gensler’s responses that did not include specifics, citing the SEC chair’s willingness to label Bitcoin (BTC) as a commodity and hinting at private discussions on ETH prior to the hearing.

“Clearly an asset cannot be both a commodity and a security,” said McHenry. “I’m asking you, sitting in your chair now, to make an assessment under the laws as exist, is Ether a commodity or a security?” 

He added:

“You have pre-judged on this: you’ve taken 50 enforcement actions. We’re finding out as we go, as you file suit, as people get Wells notices, on what is a security in your view, in your agency’s view.”

Related: Video of SEC chair praising Algorand resurfaces after recently deeming it a security

Representative Maxine Waters, ranking member of the House committee, did not press Gensler on ETH but focused her questioning on the SEC’s enforcement capabilities. According to the SEC chair, the commission had the means, the authority, and the will to bring crypto firms into regulatory compliance.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

This is a developing story, and further information will be added as it becomes available.

Gary Gensler refuses to answer if ETH is a security: SEC hearing

SEC Chair Gary Gensler has said the SEC considers Bitcoin a commodity but refused to pin down Ether at an oversight hearing.

Patrick McHenry, chair of the United States House Financial Services Committee, jumped right into criticism of the Securities and Exchange Commission and its leadership over digital assets at an oversight hearing. 

In an April 18 hearing on oversight of the SEC, Representative McHenry used his opening statement to bring up the commission’s “punishing” of digital asset firms through regulation by enforcement without a clear path to compliance. The member of Congress reiterated calls for U.S. lawmakers to provide “clear rules of the road” for crypto through legislation. In addition, he pressed SEC Chair Gary Gensler to give a definitive answer on whether Ether (ETH) qualified as a security under the SEC’s purview or a commodity under the Commodity Future Trading Commission’s.

McHenry repeatedly talked over Gensler’s responses that did not include specifics, citing the SEC chair’s willingness to label Bitcoin (BTC) as a commodity and hinting at private discussions on ETH prior to the hearing.

“Clearly an asset cannot be both a commodity and a security,” said McHenry. “I’m asking you, sitting in your chair now, to make an assessment under the laws as exist, is Ether a commodity or a security?” 

He added:

“You have pre-judged on this: You’ve taken 50 enforcement actions. We’re finding out as we go, as you file suit, as people get Wells notices, on what is a security in your view, in your agency’s view.”

Representative Maxine Waters, ranking member of the House committee, did not press Gensler on ETH but focused her questioning on the SEC’s enforcement capabilities. According to the SEC chair, the commission had the means, the authority and the will to bring crypto firms into regulatory compliance.

Many in and out of the crypto space have criticized the SEC under Gensler for taking enforcement actions against firms involved with digital assets and blockchain technology. On April 17, the SEC charged crypto asset trading platform Bittrex and its co-founder William Shihara for offering unregistered securities, and a Wells notice issued to Coinbase in March suggests the major exchange could be next.

Gensler claimed the crypto market was “rife with noncompliance”, in many cases firms willfully doing so. His written testimony said compliance with the SEC extended to decentralized finance platforms — an indication of the commission proposing changing its rules to include DeFi in exchanges under its purview.

Related: Video of SEC chair praising Algorand resurfaces after recently deeming it a security

The April 18 hearing was the first time Gensler had directly addressed the House committee since October 2021 — prior to the collapse of FTX, Celsius, BlockFi and crypto-friendly banks including Signature, Silicon Valley Bank and Silvergate. The Financial Services Committee will also meet to discuss stablecoin regulation in an April 19 hearing.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

NYDFS adopts regulation to assess supervisory costs for licensed crypto firms

Since 2015, crypto firms operating in the state of New York have largely been required to apply for a BitLicense to offer services.

The New York State Department of Financial Services has adopted a regulation that will allow the government agency to assess supervisory costs from licensed crypto firms operating in the state.

In an April 17 announcement, the NYDFS said the supervisory costs enforced by the new regulation would be used for “adding top talent to its virtual currency team.” The government department will assess costs for the supervision and examination of crypto firms operating in the state with a BitLicense.

“This regulation provides the Department with additional tools and resources to regulate the virtual currency industry now and in the future as innovators create new products and use cases for digital assets,” said NYDFS Superintendent Adrienne Harris.

Crypto firms operating in the state of New York are largely required to apply for a BitLicense, a requirement for companies since 2015. The NYDFS proposed adopting the regulation to assess costs in December 2022, after which time it met with “key stakeholders” and received feedback. According to the regulator, the proposed rule was added in response to the state’s Financial Services Law not including such a provision on the assessment of operating costs.

Related: New York Assembly introduces crypto payments bill for fines, taxes

The NYDFS listed 33 companies involved in crypto and blockchain operating in the state under a virtual currency license, limited purpose trust charter, or money transmitter license as of Feb. 10. New York City Mayor Eric Adams suggested the state scrap the BitLicense regime in April 2022, claiming the requirements stifled innovation and economic growth.

Magazine: Crypto City: Guide to New York

Update (April 17 at 8:57 PM UTC): This article incorrectly stated the NYDFS announcement was on April 16. It has been updated to reflect the correct date, April 17.

Blockchain Association files further FOIA requests over banking closures

The crypto advocacy group wants clarity on recent regulatory action against digital asset-friendly banks.

More Freedom of Information Act requests seeking information on recently closed crypto-friendly banks have been submitted by cryptocurrency advocacy group the Blockchain Association to two regulators.

On April 14, the association said that it had filed Freedom of Information Law requests to the Federal Housing Finance Agency and the New York Department of Financial Services, a little over a month after initially filing for further information from the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency.

The organization is seeking further information on the de-banking of crypto companies following the seizure of Signature Bank and the failure of Silvergate Bank.

The BA said that its request to the NYDFS was to:

“Seek to understand whether the closure of Signature Bank was the result of the bank’s insolvency or a decision to send an anti-crypto message despite the bank being fully solvent.”

The association also reported that it was investigating whether the failure of Silvergate “was the result of a politically-motivated decision by the Federal Home Loan Bank of San Francisco, which is overseen by the FHFA, to take the extraordinary and unusual action of pulling a loan made to Silvergate only months earlier.”

In early March, Silvergate’s parent company announced it would “wind down operations” for the crypto and tech-focused bank. Its peer, Silicon Valley Bank, collapsed on March 10 following a bank run. The Treasury, Federal Reserve, and other agencies closed Signature Bank on March 12.

On April 16, the Blockchain Association and the DeFi Education Fund filed a brief in a United States District Court over the sanctioning of Tornado Cash.

Related: Crypto regulation decided by Congress, not the SEC: Blockchain Association

The Blockchain Association is an advocacy and lobbying group for the crypto sector, with around a hundred members that include industry executives, investors, companies, organizations, and projects.

In 2022, the association spent $1.9 million lobbying the U.S. government, according to campaign finance data firm OpenSecrets.

Cointelegraph contacted the Blockchain Association for further details but did not immediately receive a response.

Magazine: Crypto Wendy on trashing the SEC, sexism, and how underdogs can win

Individual behind $3.4B Silk Road Bitcoin theft sentenced to one year in prison

James Zhong pleaded guilty to the wire fraud charges in November 2022 and has been awaiting sentencing for his role in the “unlawfully obtained” Bitcoin scheme.

The United States Attorney’s Office for the Southern District of New York has announced the sentencing of an individual who pleaded guilty to wire fraud charges connected to “unlawfully obtained” Bitcoin from the Silk Road marketplace in 2012.

In an April 14 announcement, the U.S. Justice Department said James Zhong was sentenced to one year and one day in prison for charges related to executing a scheme to steal more than 51,680 Bitcoin (BTC). Zhong pleaded guilty to the charges in November 2022 and has been awaiting sentencing.

“Cyber-criminals should heed this message: we will follow the money and hold you accountable, no matter how sophisticated your scheme and no matter how long it takes,” said U.S. Attorney Damian Williams.

According to Williams, Zhong stole the BTC in 2012 and managed to conceal his crime for roughly 10 years before facing charges. U.S. authorities seized the Bitcoin holdings from Zhong’s home in the state of Georgia in November 2021, finding the bulk of the crypto in a floor safe and a computer concealed in a popcorn tin. The coins were worth roughly $3.4 billion at the time.

Related: US government plans to sell 41K Bitcoin connected to Silk Road

The Silk Road marketplace, defunct for roughly 10 years, allowed users to buy and sell illicit goods such as weapons and stolen credit card information, drawing the attention of U.S. authorities. The creator of the platform, Ross Ulbricht, was arrested in 2013 and is currently serving two life sentences without the possibility of parole.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime