SEC - Page 191

Bankrupt cryptocurrency exchange FTX has made a request to the United States Bankruptcy Court for the District of Delaware, seeking approval to liquidate its entire ownership in the artificial intelligence (AI) company, Anthropic.

This move follows a series of financial troubles that have plagued FTX in recent times, leading to the bankruptcy filing.

The ownership stake in Anthropic, consisting of Series B preferred stock and associated rights or interests, was originally held by Alameda Research, a sister company of FTX.

It was revealed that Sam Bankman-Fried, FTX’s former CEO, had invested approximately $530 in Anthropic back in April 2022.

This investment was notably sourced from customer deposits on FTX, a fact disclosed during Bankman-Fried’s legal trial in October 2023.

At the time of Anthropic’s Series B funding round closure in April 2022, Alameda Research held a substantial 13.56% ownership stake.

However, subsequent funding rounds diluted their participation, leaving them with a reduced stake of 7.84% as of January.

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Remarkably, Anthropic’s valuation had surged to $18 billion by December 2023, making Alameda’s remaining stake worth an estimated $1.4 billion.

FTX is also pursuing an expedited review process for its sale motion, aiming for a resolution during the upcoming bankruptcy court meeting scheduled for February 22.

This flexibility in the sale timeline is seen as a means to capitalize on potential demand for Anthropic’s equity securities, which may arise from future financing rounds.

This divestment from Anthropic is a crucial part of FTX’s efforts under new management to recover funds and fulfill its commitments to customers and creditors.

The exchange’s legal representative, Andy Dietderich, affirmed that FTX possesses the potential to fully reimburse its users and creditors, eliminating the need for plans to relaunch the exchange.

In a related development, FTX filed a similar motion on February 1, seeking approval to sell a $175 million claim against the bankrupt digital financial services firm, Genesis Global Capital.

These strategic moves underscore FTX’s determination to resolve its financial predicament and meet its obligations in an efficient manner.

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The European Union has taken a significant step in advancing its regulatory framework for artificial intelligence (AI) as all 27 member states voted to approve the final text of the EU’s AI Act.

Thierry Breton, the Commissioner for Internal Market of the EU, confirmed this momentous endorsement, emphasizing the historical significance of the AI Act, which marks a world-first achievement.

The AI Act is a comprehensive risk-based strategy designed to regulate various AI applications.

It covers a wide range of aspects, including the use of AI in government applications, the regulation of AI systems like ChatGPT, and the implementation of transparency rules that must be adhered to prior to entering the market.

Following the political agreement reached in December 2023, efforts were undertaken to transform the agreed-upon positions into a final compromise text for approval by lawmakers.

The culmination of this process was the “coreper” vote on February 2, which involved the permanent representatives of all member states.

One of the key concerns addressed by the AI Act is the proliferation of deepfakes – convincingly fabricated videos generated by AI algorithms that have the potential to blur the line between truth and fiction in public discourse.

Margrethe Vestager, Executive Vice President of the European Commission for A Europe Fit for the Digital Age, highlighted the Act’s emphasis on assigning greater liabilities to developers of riskier AI applications.

For instance, the Act focuses on high-risk cases, such as using AI for job applicant screening or educational admissions.

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The recent agreement on the AI Act was achieved after France withdrew its objections, and Germany also threw its support behind the Act following a compromise reached by Federal Minister for Digital Affairs and Transport, Volker Wissing, on January 30.

The AI Act is now set to progress towards legislation, with a crucial vote scheduled in an EU lawmaker committee on February 13, followed by a vote in the European Parliament in March or April.

It is anticipated that the Act will be fully applied in 2026, with specific provisions taking effect earlier.

Additionally, the European Commission is taking proactive steps to establish an AI Office responsible for monitoring compliance with a group of high-impact foundational AI models considered to pose systemic risks.

The Commission is also unveiling measures to support local AI developers, including upgrading the EU’s supercomputer network to enhance generative AI model training capabilities.

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On February 1, FTX made a significant move by filing a motion in a Delaware court, seeking approval to sell its claim of $175 million against the bankrupt digital financial services firm, Genesis Global Capital.

This claim was initially asserted by Alameda Research, a hedge fund affiliated with the now-bankrupt cryptocurrency exchange, FTX.

FTX is exploring the option of selling the claim, either in its entirety or in parts, and at various times, in order to maximize its returns.

Currently, claims against Genesis are trading at 65% of their face value, a significantly higher price compared to the 38% that Alameda Research’s claims are fetching.

The motion submitted to the court requests approval of a sales procedure that would apply to all sales, streamlining the process and minimizing the need for separate motions for each proposed sale.

According to this procedure, the sale price must be at least 95% of the highest price quoted by leading market-makers for general unsecured claims of GGC on a reference date within three days of the sale date.

The proposed sale order emphasizes that this action is in the best interests of the Debtors, their estates, creditors, interest holders, and all other parties involved.

Interested parties have until February 15 to voice any objections to the sale of the claim.

It’s worth noting that FTX had initially sought to recover $3.9 billion from Genesis in May 2023, as permitted by bankruptcy law.

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However, the negotiated claim of $175 million was reached between FTX and Genesis in August 2023 and was subsequently approved by the court in October. During that time, other claims FTX had against Genesis were nullified.

The decision to settle for a significantly lower sum was based on the argument that the potential for recoveries was unpredictable, and opting for a settlement allowed both parties to avoid protracted and costly litigation, the outcome of which would also have been uncertain.

FTX faced a crisis in November 2022 when irregularities were discovered in its account books. At that time, Genesis had $175 million tied up in its FTX account, although Genesis asserted that this did not impact its market-making activities.

Genesis Global Capital, a subsidiary of the Digital Currency Group, filed for bankruptcy in January 2023, leading to an extended dispute with the Gemini cryptocurrency exchange.

Genesis had been managing the Gemini Earn program, which was affected when Genesis suspended withdrawals.

Recently, on February 1, Genesis reached a $21 million settlement with the United States Securities and Exchange Commission (SEC) regarding the Gemini Earn program.

A court hearing scheduled for February 14 in New York will evaluate Genesis debtors’ proposed bankruptcy reorganization plan and the inclusion of the SEC settlement within it.

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The Argentine government, under the leadership of President Javier Milei, has made a significant change to its ambitious package of reforms, dropping the option to legalize crypto holdings for individuals who have overdue tax declarations.

This decision was reported by Argentine tech-focused outlet iProUP on January 27th, as part of the Law of Bases and Starting Points for the Freedom of Argentines, an extensive legislative package aimed at advancing Milei’s policy agenda.

The clause that has been removed from the bill pertained to asset regularization, proposing a one-time tax on various previously undeclared assets, including cryptocurrencies, real estate, personal property, stocks, and securities.

The proposed tax rates were 5% for assets declared by the end of March 2024, 10% from April to the end of June 2024, and 15% from July to the end of September.

The decision to eliminate the asset regularization component from the bill was made by the Minister of the Interior, Guillermo Francos, who cited concerns that it would delay the treatment of the broader legislative initiative in parliament.

This change comes after earlier promises in December 2023 by the government, including the possibility of allowing Bitcoin’s use in the country through a decree, which has yet to materialize.

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Interestingly, the “Bases for the Reconstruction of the Argentine Economy” decree passed in December 2023 included provisions allowing debtors to pay in currencies “not recognized as legal tender” in Argentina, hinting at potential support for cryptocurrencies.

Javier Milei won the 2023 presidential election in Argentina, addressing the country’s persistent and rising inflation.

He had previously expressed positive sentiments about Bitcoin, considering it a move toward returning monetary control to the private sector.

However, since taking office in December 2023, he has not publicly addressed digital assets.

In January, Milei pledged not to legally oppose provincial authorities’ efforts to create local currencies, responding to the Governor of La Rioja province’s announcement of a separate currency after Milei devalued the Argentine peso by 50% upon assuming office.

This decision reflects a broader stance on allowing local autonomy in monetary policy.

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On January 31, United States Federal Communications Commission (FCC) Chairwoman Jessica Rosenworcel made a significant announcement proposing that calls featuring artificial intelligence (AI)-generated voices should be deemed illegal.

Such calls would be subject to the regulations and penalties outlined in the Telephone Consumer Protection Act (TCPA).

This proposal comes in the wake of a recent incident where AI technology was used to create a false message, imitating the voice of U.S. President Joe Biden.

In this fabricated message, residents of New Hampshire were advised against participating in the state’s primary election.

The motive behind these automated messages was to interfere with the upcoming 2024 presidential election. However, the state’s attorney general’s office promptly denounced these calls as misinformation.

Rosenworcel’s proposal seeks to put an end to robocalls, in line with the TCPA, a law enacted in 1991 to regulate automated political and marketing calls that are made without the recipient’s consent.

The primary objective of the TCPA is to shield consumers from unwanted and invasive communications, such as unsolicited telemarketing calls and automated messages.

The proliferation of such calls in recent years has raised concerns, as technology has evolved to the point where it can convincingly mimic the voices of celebrities, political figures, and even family members.

By adopting this proposal, the FCC intends to provide state attorneys general across the country with additional tools to pursue those responsible for malicious robocalls and enforce legal consequences.

Back in November 2023, the FCC initiated a Notice of Inquiry to gather information about addressing illegal robocalls and the potential role of AI in this issue.

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The inquiry specifically sought input on how AI could be involved in scams and voice impersonations, and whether it should be subject to TCPA regulation.

Additionally, the FCC aimed to gain insights into the positive uses of AI, such as identifying and preventing illegal robocalls.

The White House also weighed in on AI-related matters, releasing a fact sheet on January 29 that outlined key actions taken in response to President Biden’s executive order on AI issued three months earlier.

The fact sheet highlighted “substantial progress” toward the president’s goal of protecting Americans from the potential risks posed by AI systems.

One pressing concern in the realm of AI-generated content is deepfakes, which have been on the rise.

The World Economic Forum, in its 19th Global Risks Report, drew attention to the adverse consequences of AI technologies, particularly deepfakes.

The Canadian Security Intelligence Service, Canada’s primary national intelligence agency, expressed concerns about disinformation campaigns conducted on the internet using AI deepfakes.

In response, U.S. lawmakers have called for legislation that would criminalize the production of deepfake images, spurred by instances like the widespread circulation of explicit fake photos of Taylor Swift.

This underscores the growing need to address the challenges posed by AI-generated content and the importance of robust regulation and enforcement.

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