The authorities are stepping up their crypto crackdown

by · March 2, 2023

The legal crackdown on crypto’s accused crooks, fraudsters and fallen stars has shifted into a higher gear, a shift that is contributing to more volatility in the price of digital assets.

At the top of the crypto crime blotter on Friday is the SEC’s decision to charge Singapore-based Terraform Labs and its founder Do Kwon with orchestrating a multi-billion dollar fraud. This announcement came as a federal judge in New York signaled that Sam Bankman-Fried, the founder of the bankrupt crypto exchange, FTX, could face jail time – and certainly stricter bail conditions – unless he cuts down on his internet habits.

The SEC faces a tough task in bringing Terraform’s Kwon to justice. The South Korean native has been on the run since sparking a crypto crash last spring that wiped out investors and brought down other companies.

Terra’s Collapse “Sent Shockwaves Through Crypto Markets,” said SEC Chief Enforcement Officer Gurbir Grewal. The stablecoin’s value was supposed to be linked to other tokens through an elaborate mathematical formula. It turned out to be “just a scam,” Grewal said, accusing Kwon of deliberately misleading investors. He is also wanted by the authorities in Singapore.

Mr. Bankman-Fried, meanwhile, could lose his much-coveted Internet access — or worse. Bankman-Fried is now under house arrest at her parents’ home in California awaiting trial on fraud and conspiracy charges, and faces new restrictions. Prosecutors told a judge that current bail conditions failed to “restrain a technologically sophisticated individual … willfully evading detection and surveillance.” They pointed to his use of a virtual private network, or VPN, and an encrypted messaging app.

Mr Bankman-Fried’s lawyers said the VPN was for watching football matches; The judge ordered both sides to propose new boundaries for him to consider next week. If prosecutors have their way, Mr. Bankman-Fried, an avid gamer, may not continue playing League of Legends. A letter to the court from a “S. Keithley” in Texas suggested: “Why not just revoke his bail and jail him?”

There has been renewed scrutiny of the crypto exchange, Binance. Earlier this week, New York’s Department of Financial Services ordered cryptocurrency firm Paxos to stop issuing a popular Binance-branded dollar-pegged stablecoin due to “unresolved issues” over its relationship with Binance. Changpeng Zhao, Binance’s founder, disagrees, calling the stablecoin a Paxos product.

The price of Bitcoin fell almost 5 percent to $23,798 at 7 a.m. Eastern on Friday. The law-and-order news, coupled with hawkish comments from Fed officials about interest rates, appears to be pouring cold water on a recent Bitcoin rally.

Fox News stars and executives privately denied claims of 2020 election fraud. Hosts Tucker Carlson, Sean Hannity, Laura Ingraham and others mocked Donald Trump’s advisers who claimed the presidency was stolen, according to a lawsuit filed by Dominion, a voting machine maker, seeking $1.6 billion in damages against Fox. Meanwhile, a special grand jury in Georgia investigating interference in the 2020 election by Trump found no evidence of “widespread fraud.”

A top Chinese banker disappears. Bao Fan, founder of investment bank China Renaissance, has been out of touch for about two days. Shares in the bank plunged on Friday amid investor fears that Beijing is planning another crackdown on the financial sector.

Susan Wojcicki, the longtime head of YouTube, is stepping down. Wojcicki, who was one of Google’s first employees, is one of the most prominent female executives in Silicon Valley – and the latest to leave her senior role. She will continue to be an adviser to Google’s parent company, Alphabet.

Tesla is recalling more than 362,000 cars equipped with “Full Self Driving.“ The company’s driver assistance technology is designed to steer, accelerate and brake the vehicle without human intervention. The National Highway Traffic Safety Administration found that it creates “an unreasonable risk to the safety of motor vehicles.” Tesla shares closed down 5.7 percent on Thursday.

The Munich Security Conference starts on Friday, and high on the agenda for the heads of state, diplomats and business leaders in attendance will be Russia’s invasion of Ukraine and how Vladimir Putin’s “weaponisation of energy has ushered in a global energy crisis”.

As the war in Ukraine approaches its one-year anniversary, analysts have calculated the enormous economic toll and modeled what’s to come.

The feeling in Germany and in surrounding countries is that Europe has dodged a bullet. The reason: a dramatic drop in energy prices, led by natural gas, that began in late summer.

Europe appears to have sufficient natural gas reserves to stave off an economic downturn. “In our baseline scenario … the EU is set to come through next winter as well,” Salomon Fiedler, an economist at Berenberg Bank, wrote in a research note on Friday.

The positive calculation assumes that Europeans will continue to save on natural gas (they have managed to cut consumption by 20 percent since the war began, Mr. Fiedler estimates), that the weather will not plunge to abnormally cold temperatures, and that energy imports from countries outside Russia — think liquid natural gas from the United States — will remain at the same rapid level.

Risks of this model: China. If China’s demand for LNG rockets increases, amid a major reopening of the economy, it could disrupt the global energy market.

Ever since Rupert Murdoch abandoned his plans to merge the remnants of his empire into a single business have media observers wondering how he could appease shareholders and pull off a final deal before the 91-year-old hangs up. The Times’s Ed Lee runs through one potential scenario.

Some investors have expressed concern that combining Fox, his TV business, with News Corp, his newspaper business, would value the latter unfairly. (Mr. Murdoch’s children, who sit on the foundation that controls 40 percent of the shareholder votes, were split on the issue.)

Here’s a solution that would be in line with what activists are calling for: Spin off Wall Street Journal publisher Dow Jones into a separate business, potentially giving News Corp shareholders the value they seek. It would also allow Mr. Murdoch to spin off the property listing business (a move suggested by at least one activist), raising money through a new stock offering. The two spinoffs could probably add up to more than the current total.

Magazine publisher Dow Jones could be worth as much as $8.9 billion — based on the price-earnings multiple of comparable media companies, including The New York Times — if traded separately. News Corp itself is only valued at $11 billion.

Adding some pressure to such a calculation: Fox is currently facing the $1.6 billion Dominion lawsuit related to the Fox News network. A loss in court can be a big blow to the business.

— President Biden says he plans to speak with Chinese President Xi Jinping to calm tensions amid uproar over Chinese aerial spying in North America. Biden also clarified that the last three objects shot down were likely research balloons, not spy craft — and not necessarily related to China.

Workers at a Tesla factory in Buffalo began a union campaign this week. If successful, it would establish the company’s first union, a milestone also achieved by workers at Starbucks, Apple, Trader Joe’s and Amazon in recent years. Managers are generally given one piece of advice about organized labor: avoid it. But it’s no longer a hands-on education, says Roy Bahat, the head of Bloomberg Beta, an early-stage venture capital firm.

DealBook spoke with Mr. Bahat about a new MBA class he is teaching at the University of California, Berkeley on how to lead an organized workforce. The interview has been edited.

What must managers in companies with an organized workforce do differently?

If they assume that organized labor is going to destroy their business and they prepare to go to war, a disastrous outcome for everyone becomes much more likely. Company managers who are knowledgeable about how to work with the union can make things work much better. We’ve heard of companies doing things like paying for their bargaining team, and a union’s, to do a bargaining training program together.

You have said that a union can make it easier to manage. What do you mean?

Companies typically roll out changes to their workforce using a random process. It seems so much easier to sit down with elected representatives of that workforce and say, ‘hey, we’d like to innovate by introducing the following new technology. How can we work together to try to roll it out? And there are companies where it works like this. The business leaders who think a union is bad for them are not imaginative enough about it.

Many business leaders believe a union will make change difficult or strengthen an extreme element in their workforce.

It’s no different than any business relationship: You build trust. You show that you can be trusted, you communicate honestly. You try things and see if they work. It’s exactly the same.

Offer

  • Bank of America is reportedly preparing to cut jobs in its investment banking unit, as the downturn in deals hits another Wall Street giant. (Bloomberg)

  • A consortium of Qatari investors is reportedly preparing a £5bn ($6bn) bid for Manchester United. Gulf sovereign wealth funds are also seeking minority stakes in NBA teams. (Bloomberg)

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