SEC - Page 31

In a recent development in the United States government’s legal battle against Sam “SBF” Bankman-Fried, former CEO of FTX, prosecutors have moved to liquidate two luxury aircraft before finalizing forfeiture procedures.

The action, detailed in a filing on March 22 with the U.S. District Court for the Southern District of New York, stems from efforts led by U.S. Attorney Damian Williams to mitigate the financial losses on two planes associated with FTX and Bankman-Fried.

The government’s strategy aims to address the depreciation of the assets in question, specifically a Bombardier Global and an Embraer Legacy, which were previously flagged in October 2023 as liable for seizure due to their connection with Bankman-Fried’s criminal activities.

The financial specifics regarding the aircraft, which were initially purchased for $15.9 million and $12.5 million respectively, remain somewhat ambiguous.

Nevertheless, the prosecution plans to allocate up to $1.8 million for their maintenance and an additional $183,000 for the Embraer Legacy’s transfer, contingent upon the sales’ returns being adequate.

An agreement facilitated between the prosecutors, FTX, and its affiliates has paved the way for the Embraer Legacy to be relocated to a Florida airport, facilitating the U.S. Marshals Service (USMS) to initiate the sale process expediently.

READ MORE: Grayscale’s Bitcoin ETF Faces Record Outflows Amid Crypto Market Turmoil, But Analysts Predict a Turnaround

The USMS had already taken control of the Bombardier Global earlier in February 2023, pursuant to a legal warrant.

These aircraft represent a fraction of the assets linked to Bankman-Fried that are earmarked for forfeiture following his conviction on multiple criminal charges.

A list of assets disclosed in March included shares in Robinhood, various currencies, cryptocurrencies, and political donations made by SBF during his tenure at FTX.

Neither Bankman-Fried nor his legal representative, Marc Mukasey, have contested the sale of the planes.

Bankman-Fried was found guilty of seven felony charges in November 2023 and is currently incarcerated, awaiting a sentencing hearing scheduled for March 28.

The prosecution has proposed a sentence ranging from 40 to 50 years, while his defense has suggested a more lenient sentence of 6.5 years.

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Despite concerns regarding the U.S. Securities and Exchange Commission’s (SEC) engagement level with spot Ether (ETH) exchange-traded funds (ETFs) applicants, Grayscale remains optimistic about approval prospects in May.

Grayscale Chief Legal Officer Craig Salm, in a recent X post, underscored his confidence, stating, “I don’t think perceived lack of engagement from regulators should be indicative of one outcome or another […] I personally am not deterred by it and believe the ETFs should be approved.”

Salm highlighted that the groundwork laid by the approval process for spot Bitcoin ETFs has addressed many issues relevant to spot Ether ETFs, including the mechanics of creation and redemption, asset protection strategies, and custody concerns.

He suggested that the SEC’s prior engagement in these areas means that there’s less new ground to cover this time, with the exception of the complexities introduced by staking in spot Ether ETF proposals.

Notably, firms such as Ark 21Shares, Fidelity, and Franklin Templeton, which are looking to include staking features in their ETFs, face additional regulatory scrutiny.

Bloomberg analysts Eric Balchunas and James Seyffart have expressed reservations about the SEC’s apparent disengagement, recently adjusting their approval odds to a “pessimistic 25%.”

READ MORE: Federal Court Sanctions SEC for ‘Bad Faith’ in Fraudulent Cryptocurrency Scheme Lawsuit Against Debt Box

Balchunas indicated that the SEC’s stance appears more strategic than procrastinatory.

Nevertheless, the path for spot Ether ETFs seems paved by the recent approval and regulation of Ether Futures ETFs.

The classification of these products as commodity futures suggests a favorable precedent for spot Ether ETFs, given the historical correlation between futures and spot markets.

This view is supported by Coinbase Chief Legal Officer Paul Grewal and former Commodity Futures Trading Commission Commissioner Brian Quintenz.

With several prominent financial institutions, including BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Franklin Templeton, and Hashdex, applying for SEC approval, the decision anticipated by May 23 is keenly awaited.

The outcome for VanEck’s application on this date is expected to signal the fate of all pending spot Ether ETF proposals.

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A federal court in the United States has imposed sanctions on the Securities and Exchange Commission (SEC), accusing it of “bad faith” in a legal battle against the firm Debt Box.

This decision stems from the SEC’s attempt to dismiss a case it had initiated, which was rebuffed by Judge Robert J. Shelby.

Shelby criticized the agency for misleading the court over the evidence it presented to obtain a temporary restraining order (TRO) and an asset freeze against Debt Box in August.

Judge Shelby condemned the SEC’s actions as a “gross abuse of the power” granted by Congress, stating that these actions severely compromised the integrity of the judicial process.

He highlighted that the evidence the SEC claimed to have obtained had no factual basis and was presented in a way that was “deliberately false and misleading.”

As a consequence of this misconduct, Shelby determined that imposing sanctions on the SEC, specifically covering attorneys’ fees and costs incurred due to their actions, was justified.

READ MORE: Pro-XRP Lawyer John Deaton Challenges Senator Elizabeth Warren, Launches Crypto-Funded Senate Bid

He remarked, “The bad faith is inextricable from the abusive conduct and a sanction of attorneys’ fees and costs for all expenses resulting from that conduct is appropriate.”

“The SEC had accused Debt Box of engaging in a $50-million fraudulent cryptocurrency scheme, seeking a TRO and an asset freeze on the grounds that the company had transferred funds overseas and planned to flee to the United Arab Emirates.

However, Shelby later found that the SEC had misrepresented the facts regarding the $720,000 transfer, which had actually occurred within the United States.

Following these revelations, Shelby issued a “show cause order” to the SEC in December, demanding an explanation for their misleading conduct.

Although the SEC admitted its lack of transparency, it contended that sanctions were unwarranted.

Shelby criticized SEC attorney Michael Welsh for his role in misleading the court, noting that Welsh’s failure to correct false statements represented an attempt to obscure the truth.

Austin Campbell, a founder of Zero Knowledge Consulting, argued that SEC staff involved in this misconduct should face termination and emphasized the need for agency reform.

He advocated for personal liability for SEC lawyers, stating, “What is described here is unconscionable for those entrusted with such authority by law.”

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The United States Securities and Exchange Commission (SEC) has once more deferred its decision on the Grayscale Ethereum Futures Trust exchange-traded fund (ETF) application.

Initially set for March 31, the SEC pushed back the deadline to May 30, allowing more time to evaluate the application and address the concerns it raises.

This postponement follows a previous delay in December 2023, when the SEC sought further public feedback on the proposed ETF, which aims to invest in Ethereum futures contracts.

The SEC’s hesitance to make a swift decision underscores its cautious approach, emphasizing the need for thorough consideration: “The Commission finds that it is appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein.”

Grayscale’s push for the Ethereum Futures Trust ETF began in September 2023, seeking permission to list and trade shares under the New York Stock Exchange Arca Rule 8.200-E.

Bloomberg ETF analyst James Seyffart suggests that Grayscale’s move is strategic, using the futures ETF bid to potentially sway the SEC towards approving a spot Ether ETF.

According to Seyffart, approval of the futures ETF could strengthen Grayscale’s case for its spot Ether ETF.

READ MORE: Bitcoin Rallies Amid Fed’s Interest Rate Decision, Showcasing Resilience Against ETF Outflows

The SEC’s deliberation on Grayscale’s spot Ether ETF also lingers, with a decision postponed on January 25, following the call for public comments.

This delay reflects growing skepticism within the crypto community about the SEC’s stance on cryptocurrency-based ETFs, heightened by the approval of spot Bitcoin ETFs on January 10.

Industry observers, like Capital founder John Lo, anticipate increased scrutiny from the SEC on all forthcoming crypto-based ETF applications, particularly those related to Ether.

Lo remarks, “Scrutiny towards cryptocurrency ETFs has only grown… No doubt, the SEC internally views that as a huge loss for themselves,” referring to the SEC’s perceived forced approval of Bitcoin ETFs after its litigation with Grayscale.

The SEC’s cautious stance extends beyond Grayscale, affecting other asset management giants like BlackRock and Fidelity.

In early March, the SEC announced delays in deciding on BlackRock’s iShares Ethereum Trust and Fidelity’s Ethereum Fund, indicating a broader pattern of regulatory hesitation towards Ethereum ETFs.

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SEC Chair Gary Gensler recently highlighted the evasion of registration requirements by certain entities within the cryptocurrency industry.

In remarks prepared for a Columbia Law School event on March 22, Gensler emphasized the importance of transparency and regulatory compliance, invoking the words of Supreme Court Justice Louis Brandeis: “Sunlight is said to be the best of disinfectants.”

Gensler criticized the reluctance of some crypto market participants to adhere to the SEC’s disclosure regulations, pointing out that such avoidance leads to a lack of mandatory disclosure.

“There still are those who would like to whittle away at the SEC’s disclosure regime,” he remarked. Highlighting the opacity within the crypto sector, Gensler added, “There are participants in crypto securities markets that seek to avoid these registration requirements.

No registration means no mandatory disclosure. Many would agree that the crypto markets could use a little disinfectant.”

READ MORE: Ether’s Price Projected to Surpass $5,400 in 2024 Amidst High Market Optimism and Potential ETF Approval

This stern critique comes amid the SEC’s active enforcement actions against prominent cryptocurrency companies, including Kraken, Binance, Ripple, and Coinbase.

The ongoing legal battles and the demand from crypto businesses and advocacy groups for clearer regulations underscore the tension between innovation and regulatory compliance in the United States.

Moreover, the SEC’s efforts to bring cryptocurrencies under its regulatory scope have intensified, with moves to potentially classify Ether as a security.

The past two years have seen the SEC making significant strides in approving cryptocurrency-related exchange-traded products (ETPs) for U.S. exchanges.

These advancements include investment vehicles based on ETH and Bitcoin futures, as well as the launch of the first spot BTC exchange-traded funds (ETFs) in January.

Gensler’s comments reflect a broader regulatory initiative to ensure transparency and investor protection in the rapidly evolving crypto industry, amidst calls for a balanced approach that fosters innovation while ensuring market integrity.

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The United States Securities and Exchange Commission (SEC) has decided to postpone its verdict on the introduction of spot Ether exchange-traded funds (ETFs) proposed by Hashdex and ARK 21Shares.

The delay, announced on March 19, occurred shortly before the SEC’s third and final deadline for these applications, setting the stage for a conclusive decision in late May.

The SEC has scheduled May 24 for its final determination on ARK 21Shares’ application and May 30 for Hashdex’s, marking a critical period for the future of Ether ETFs.

This postponement reflects growing skepticism among analysts about the approval prospects for the eight Ether ETF proposals currently on the table from major firms including BlackRock, Grayscale, Fidelity, Invesco Galaxy, VanEck, Hashdex, and Franklin Templeton.

Bloomberg ETF analyst James Seyffart expressed a shift in optimism on March 19, citing a notable decrease in engagement between the SEC and the ETF issuers, leading him to anticipate likely denials of the applications by May 23.

Similarly, analyst Eric Balchunas adjusted the approval probability for Ether ETFs downward to 35%, highlighting a contrast in the SEC’s approach compared to the spot Bitcoin ETF applications, which experienced more open communication.

READ MORE: Bitget Wallet Launches Native Token BWB, Announces $30M Investment and Airdrop Plan Following Rebranding

The public’s confidence in the approval of Ether ETFs by the end of May has also waned, as indicated by Polymarket odds which have fallen to 32% from January’s more hopeful 77%.

Polymarket, a decentralized betting platform, has seen around $2.2 million wagered on the outcome of these ETF decisions.

In a related development, Grayscale is exploring the addition of staking capabilities to its Ether ETF application.

Through a consent solicitation statement to Grayscale Ethereum Trust investors, the firm proposed enabling the trust to engage in proof-of-stake validation protocols, potentially providing consideration for the benefit of shareholders.

This move aims to counteract inflationary pressures from Ethereum’s proof-of-stake protocol and keep pace with competing products offering staking.

The proposals, requiring approval from over 50% of shareholders, could position Grayscale alongside ARK 21Shares, Franklin Templeton, and Fidelity, who have recently incorporated Ether staking into their ETF offerings.

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Prosecutors are advocating for a substantial prison sentence for Sam Bankman-Fried, the ex-CEO of the now-defunct cryptocurrency exchange FTX, after his conviction on fraud charges.

They propose a term of 40–50 years, in contrast to Bankman-Fried’s defense team requesting a maximum of six and a half years.

Bankman-Fried, who could face a maximum of 110 years, was found guilty on multiple charges, including wire fraud, securities fraud, and money laundering conspiracy, on November 2, 2023.

The government’s 116-page sentencing memorandum, delivered to Judge Lewis Kaplan on March 15, offers a thorough account of Bankman-Fried’s illegal activities.

The document emphasizes his scheme to make unlawful political donations, efforts to bribe Chinese officials, banking misconduct, attempts at shifting blame, and obstruction of justice.

Notably, Bankman-Fried was not extradited by the Bahamas for illegal political contributions or charged with bribing Chinese officials.

The memorandum sharply criticizes Bankman-Fried for not genuinely acknowledging his role in FTX’s collapse and the ensuing loss of customer funds, stating, “The defendant has failed to take genuine responsibility for his role in the collapse of FTX and the loss of customer funds.”

READ MORE: UK Financial Watchdog Eases Path for Crypto ETNs, Keeping Retail Investors on the Sidelines

Highlighting the gravity of his offenses, the memorandum argues for sentence enhancements and draws parallels between Bankman-Fried and other infamous financial criminals like Bernie Madoff.

It also includes personal accounts from victims, underscoring the significant distress caused by FTX’s failure.

Prosecutors believe a sentence within their recommended range would serve dual purposes: ensuring Bankman-Fried pays for his crimes while safeguarding society by preventing future fraudulent activities.

They also seek an $11 billion judgment against him, highlighting the financial magnitude of his crimes.

The decision on the final sentence rests with Judge Kaplan, who is not bound by the prosecution’s recommendation.

The sentencing is scheduled for March 28, marking a pivotal moment in the case against the disgraced cryptocurrency mogul.

This case not only underscores the severity of Bankman-Fried’s actions but also serves as a cautionary tale in the volatile world of cryptocurrency trading and investment.

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