NFT approvals scrutinized; Bank Krypto Guide Issued; DOJ, CFTC and SEC Bring Crypto Enforcement Actions; Research Finds Crypto Insider Trading | Baker Hostetler
NFTs expand on social media, celebrity NFT endorsements scrutinized
Of Lauren Bass
According to reports, one of the world’s largest social media platforms recently expanded its NFT (non-fungible token) initiative, allowing users in more than 100 countries to connect to wallets and display and promote their digital collectibles. The platform now reportedly supports Coinbase, Dapper, MetaMask, Rainbow and Trust Wallets along with Ethereum, Polygon and Flow blockchains.
As social media platforms expand user access to NFTs, consumer watchdog Truth in Advertising (TINA) has reportedly sounded the alarm about the celebrities promoting them. According to its recent blog post, TINA has issued warning letters to more than a dozen celebrities, warning them for potentially promoting digital assets without including proper disclosures required by both the Federal Trade Commission and the Securities and Exchange Commission. (For more on the TINA letters, read our sister blog post here.)
For more information, please see the following links:
Federal Reserve Addresses Crypto; Senator asks about bank-crypto relationship
This week, the Federal Reserve Board (Board) issued an oversight letter that identifies actions that board-supervised banks should take when engaging in crypto-asset-related activities, according to a recent press release. The regulatory letter highlights potential risks associated with crypto-related businesses, including concerns about consumer protection, financial stability and technological security. Among other guidance, the letter provides that “before engaging in any cryptoasset-related activity, a supervised banking organization must ensure that such activity is legally permitted and determine whether any filings are required under applicable federal or state laws.” The letter further recommends that banks under supervision should have appropriate risk management systems and controls in place to carry out such activities in a safe and sound manner, and that they must notify their lead supervisory contact point at the board before engaging in crypto assets. -related activity, or if they are already engaged, they must give such notification immediately.
Also this week, Senator Pat Toomey, a member of the US Senate Banking Committee, issued a letter to the Federal Deposit Insurance Corporation (FDIC) seeking information on alleged obstruction of banking relationships with crypto companies, according to a recent press release. Among other points raised in the letter, the FDIC reportedly delivered letters to regional offices requesting that banks refrain from expanding their relationships with crypto companies, without providing a legal explanation for the request. Toomey also points in his letter to reports from whistleblowers suggesting the FDIC may be abusing its powers in an attempt to deter banks from extending credit to crypto-related businesses. The senator has asked the FDIC for answers and documents addressing his inquiry by August 30, 2022.
For more information, please see the following links:
DOJ, CFTC and SEC Crypto Enforcement are targeting tax evasion, fraud and ICOs
By Alexandra Karambelas
In a press release published this week, the US Department of Justice (DOJ) announced that a federal court in California approved the service of a John Doe subpoena on SFOX, a US prime cryptocurrency dealer, earlier this week. According to the press release, the subpoena seeks information related to US taxpayers who conducted at least $20,000 in cryptocurrency transactions through SFOX between 2016 and 2021. In a statement regarding the subpoena, IRS Commissioner Chuck Rettig urged taxpayers to “come into compliance with their filing” and report liability and avoid compromising themselves in arrangements that may ultimately go badly for them.”
In another recent press release, the Commodity Futures Trading Commission (CFTC) announced an enforcement action against an Ohio man, Rathnakishore Giri, and his companies in connection with an alleged cryptocurrency Ponzi scheme. The CFTC alleged that Giri fraudulently solicited more than $12 million in fiat and cryptocurrency from investors and misused client funds meant for trading digital assets. In a statement regarding the alleged scheme, CFTC Commissioner Kristin N. Johnson said: “Recent attraction to digital asset and cryptocurrency market companies that proclaim high returns or promise instant wealth but hide deceptive schemes that borrow from long-prohibited conduct is deeply troubling. While there are many benefits to responsible innovation, customers need to be wary.”
In a third enforcement action this week, the US Securities and Exchange Commission (SEC) announced charges against a blockchain startup, Dragonchain, its founder and two related entities in connection with the alleged sale of unregistered securities. According to the SEC, Dragonchain raised more than $16.5 million through the sale of its initial token (DRGN), which the SEC characterized as “unregistered crypto-asset securities.” In its complaint filed this week, the SEC accused Dragonchain of failing to register DRGNs as a security and creating “an information vacuum so it could sell DRGNs to a market that only had the information Dragonchain chose to share about DRGNs.”
For more information, please see the following links:
US and foreign law enforcement targets cryptocurrency laundering
By Alexandra Karambelas
This week, the US Department of Justice (DOJ) announced the extradition of suspected cryptocurrency launderer Denis Mihaqlovic Dubnikov from the Netherlands. The DOJ alleges that Dubnikov and his co-conspirators laundered $70 million in ransoms extorted from victims of Ryuk ransomware attacks throughout the United States and abroad. According to the DOJ, Dubnikov allegedly laundered more than $400,000 in ransom money from Ryuk attacks in July 2019 alone.
In related news, Dutch authorities recently announced the arrest of a technology developer allegedly involved in Tornado Cash, the cryptocurrency mixing service that was recently sanctioned by the US Treasury Department’s Office of Foreign Assets Control. In a statement regarding the arrest, Dutch authorities claim that the man is “suspected of having been involved in concealing criminal cash flows and facilitating money laundering” through Tornado Cash.
For more information, please see the following links:
DeFi Stablecoin Hacked; Research finds evidence of crypto insider trading
Of Jordan R. Silversmith
According to reports, a Polkadot-based decentralized finance (DeFi) platform’s initial stablecoin was depegged on Sunday after it surged 99 percent when hackers exploited a flaw in a new liquidity pool to mint nearly 1.3 billion tokens, lowering the coin’s value . A liquidity pool is a digital stack of cryptocurrency locked in a smart contract, which creates liquidity for faster transactions on decentralized exchanges and DeFi protocols. In this case, the platform’s developers believe that the flaw exploited by the hacker was caused by a misconfiguration of a new liquidity pool that was recently published. A wallet believed to belong to the attacker still contains approximately 1.27 billion of the stablecoin, but investigators on the chain have pointed out that the attacker who minted the fake coins was not alone in exploiting the flaw, with several other users stealing thousands of dollars worth of coins from the liquidity pool.
Australian researchers recently released an analysis of insider trading in the cryptocurrency markets. The newly released paper finds evidence of systematic insider trading in the industry, where individual traders use private information to buy coins before exchanging listing announcements. The report estimates that insider trading occurs in 10-25 percent of cryptocurrency listings and that insiders have made at least $1.5 million in trading profits. The report also identifies cases from major stock exchanges that have not yet been prosecuted.
For more information, please see the following links:
[View source.]
