SEC - Page 298

Cryptocurrency entrepreneur Do Kwon, the creator of the failed Terra (UST) stablecoin, appeared in court in Podgorica, Montenegro, facing charges of forging official documents. Meanwhile, a U.S. judge presided over a hearing to determine whether the digital assets produced by Terraform Labs constituted securities. This pivotal question forms the crux of the U.S. Securities and Exchange Commission’s (SEC) fraud case against the company and its founder.

Terraform Labs and Kwon were responsible for two cryptocurrencies that caused significant disruption in global crypto markets last year. They have requested U.S. District Judge Jed Rakoff in Manhattan to dismiss the SEC’s allegations, which assert that they defrauded investors by selling billions of dollars in unregistered securities.

TerraUSD, an algorithmic stablecoin designed to maintain a 1:1 peg to the U.S. dollar, derived its value from another paired token called Luna. Both tokens suffered a substantial loss in value when TerraUSD, also known as UST, fell below its dollar peg in May 2022. Prior to this collapse on May 9, TerraUSD boasted a market capitalization exceeding $18.5 billion, ranking it as the 10th-largest cryptocurrency.

The SEC’s complaint alleges that Terraform Labs and Kwon deceived investors regarding the stability of UST while falsely claiming that their crypto tokens would appreciate in value.

During the hearing, Judge Rakoff raised doubts about whether the offering of Terraform Labs’ Anchor protocol, which promised returns of up to 20% on TerraUSD deposits, should be considered a security. He questioned the nature of this protocol, highlighting that it was exclusive to those who had taken the initial step. Consequently, he pondered why it shouldn’t be regarded as a securities contract.

Terraform Labs and Kwon argue for the dismissal of the case, asserting that their digital assets do not meet the criteria to be classified as securities. Furthermore, they maintain that the SEC lacks the authority to regulate the industry.

The outcome of this legal battle will undoubtedly have significant implications for the cryptocurrency sector, as it could potentially establish important precedents regarding the classification of digital assets as securities. The ruling will shape the future regulatory landscape and provide clarity to market participants and investors alike.

Other Stories:

Tether responds to allegations about its reserves

MineLab.bz Revolutionizes Cloud Cryptocurrency Mining with AI Optimization, Delivering Daily Returns of up to 3%

BlackRock to launch Bitcoin ETF with Coinbase

Wyre, the cryptocurrency infrastructure provider, is shutting down its operations amidst the ongoing crypto winter. Once considered the future of finance, the cryptocurrency market has experienced a decline in interest, leading to Wyre’s decision to wind down.

The announcement came through a tweet on Friday, following Bolt Financial’s cancellation of its planned $1.5 billion acquisition of Wyre several months ago. This move highlighted the deteriorating conditions in the digital asset market.

The crypto industry has faced significant setbacks recently, including the highly publicized bankruptcy of FTX, a prominent crypto exchange, as well as lawsuits from the U.S. Securities and Exchange Commission against Binance and Coinbase Global (COIN.O). These events have further eroded confidence in the market and contributed to Wyre’s decision to cease operations.

Notably, Wyre clarified that its decision was not a result of regulatory action. Investors who have assets on the platform will have until July 14 to withdraw their funds through the company’s dashboard.

The winding down of Wyre reflects the broader challenges faced by the cryptocurrency industry. The once promising market has seen a decline in interest and confidence due to various factors, including increased regulatory scrutiny and concerns over security and market manipulation.

The decision by Bolt Financial to abandon its acquisition of Wyre underscores the cautious approach of industry players amidst the current market conditions. The reluctance to proceed with such a substantial investment suggests a loss of faith in the long-term viability and profitability of cryptocurrency-related businesses.

As the crypto winter continues to bite, industry participants are reassessing their strategies and seeking ways to navigate the challenging landscape. While some companies may succumb to the unfavorable market conditions, others are exploring opportunities to adapt, innovate, and rebuild trust in the cryptocurrency market.

Wyre’s decision to wind down its operations reflects the declining interest and challenging conditions in the cryptocurrency market. With major setbacks and regulatory actions impacting the industry, it is clear that the crypto winter is exerting its influence. As the industry adjusts to these circumstances, it remains to be seen how companies will navigate the evolving landscape and rebuild confidence in the future of cryptocurrencies.

Other Stories:

Tether responds to allegations about its reserves

MineLab.bz Revolutionizes Cloud Cryptocurrency Mining with AI Optimization, Delivering Daily Returns of up to 3%

OKX and McLaren Racing Host Panel on Technology in Sports and Film at Tribeca Festival

In a recent response to circulating reports, Tether, a significant stablecoin issuer, addressed allegations that its reserves once encompassed securities from Chinese corporations. These assertions were presented by mainstream media including Bloomberg, citing documents provided by the New York Attorney General (NYAG).

The highlighted securities were allegedly backed by USDT and issued by prominent Chinese state-owned entities such as the Industrial and Commercial Bank of China, China Construction Bank, and the Agricultural Bank of China.

In the face of these reports, Tether quickly retaliated on the same day. In their statement, they questioned the intent and haste with which these media outlets shared the information.

They asserted, “Ultimately Bloomberg, CoinDesk or any other media outlet’s decision to present this information to its readers was likely done in haste with little attention to current events or facts.” Tether expressed disappointment in this perceived media behavior, clarifying their primary allegiance to their clientele.

Moreover, Tether elaborated that the presented documents do not accurately represent the company’s current standing. They claimed that the information shared with media channels is both outdated, being over two years old, and insufficiently comprehensive.

The company also took the opportunity to detail its past involvement with Chinese commercial papers, asserting that these investments were liquid and from stable issuers.

It stressed that these papers were also part of the portfolios of some of the globe’s top investment managers, boasting A1 or better ratings. Tether emphasized the solidity of its financial decisions by stating, “The Chinese banking-related commercial paper at issue was rated A1 or better.”

Tether further revealed that it severed its ties with commercial paper holdings last year, reducing its exposure to zero. Maintaining their stance of strong financial conduct, Tether reassured stakeholders that it did not suffer any losses from any commercial paper, including those issued by Chinese firms. The company appears to be eager to clarify its position amid the unfolding events and remains steadfast in defending its strategic financial decisions.

Other Stories:

Hong Kong warns banks against placing ‘undue burden’ on crypto exchanges

Mark Cuban clashes with the SEC over crypto regulation

Sturdy Finance reinstates stable coin market after exploit

Sturdy Finance, a decentralized finance (DeFi) platform, recently endured an exploit that led to the temporary suspension of its stablecoin market. The lending platform, on June 16, reinstated the stablecoin market, enabling users to regain access to their assets.

The precautionary halt was emphasized as a measure of “an abundance of caution,” assuring users that their funds were never jeopardized.

The exploit, which cleverly manipulated a flawed price oracle, led to significant drain of funds from Sturdy’s platform.

Post-exploit, the team at Sturdy Finance is engaging in collaborative efforts with security specialists, focusing on on-chain analysis to reclaim the lost funds. An alliance with global law enforcement has been formed to aid in information collection and potential asset recovery.

To incentivize the return of the funds, Sturdy Finance has proposed a bounty of $100,000 to the perpetrator. The DeFi protocol’s team pledged to put the issue to rest if the stolen funds are returned to their crypto wallet. If this fails to occur, the same bounty is offered to anyone who can aid in either arresting the hacker or recovering the stolen funds.

Simultaneously, as digital theft grows in complexity, hackers are devising increasingly cunning techniques to obscure their ill-gotten wealth. According to a report by blockchain analytics company, Chainalysis, published on June 15, hackers have been found utilizing mining pools to camouflage their stolen assets.

This method transforms the stolen funds into what appears to be legitimate earnings from mining activities, effectively diverting suspicion from illicit ransomware activities.

Celsius, the bankrupt crypto lender, has adjusted its bankruptcy filing and awaits approval from a New York court, following an acquisition by the Fahrenheit crypto consortium. The reorganized plan, filed on June 15, involves conversion of all customer altcoins, barring those in “Custody and Withhold accounts,” into Bitcoin and Ethereum, commencing from July 1.

The restructuring agenda also proposes to manage retail borrowers’ claims using the ‘set off treatment’, which involves balancing losses against profits in the same year. Any losses not offset against income could be rolled over for offsetting against future years’ income.

However, David Adler of law firm McCarter & English, warned that Celsius’ approach might not sit well with borrowers. Despite demanding repayment of loans, Celsius plans not to honor certain contractual obligations, such as returning borrowers’ collateral. Adler warned, “This proposed ‘treatment’ violates every consumer lending law out there (state, federal) and the ad hoc Borrower group will be opposing this plan.”

As part of its restructuring strategy, Celsius seeks to appoint Chris Ferraro as the foreign representative to handle its U.K. assets in line with the U.K.’s Cross-Border Insolvency Regulations. This would secure the company’s U.K. assets and recognize the U.S. Chapter 11 as the “foreign main proceedings” for a global solution.

On May 25, the Fahrenheit crypto consortium, including venture capital firm Arrington Capital and US Bitcoin Corp, secured the bid to purchase Celsius’s assets, valued at around $2 billion. The new agreement anticipates the new company will garner about $450–500 million in liquid cryptocurrency, while US Bitcoin Corp has plans for a 100-megawatt Bitcoin mining plant.

Celsius suspended withdrawals on June 13, 2022, after it was caught up in poor investments and a crypto market downturn following the failure of the Terra ecosystem.

Other Stories:

TrueUSD loses its USD peg after minting suspension

Bybit completes integration with Copper’s ClearLoop network

SEC and Binance working together on Changpeng Zhao asset freeze