SEC - Page 34

A cryptocurrency trading course instructor, Brian Sewell, is currently facing charges filed by the United States Securities and Exchange Commission (SEC) for allegedly deceiving 15 students into investing a total of $1.2 million in a hedge fund that never came to fruition.

Despite touting cutting-edge technology and promising substantial returns, Sewell is accused of misappropriating the funds for personal gain, without ever initiating the proposed investment fund.

According to the recent SEC statement, Sewell, the founder of Rockwell Capital Management, allegedly encouraged investors to deposit their money into a non-existent hedge fund from early 2018 to mid-2019.

The SEC complaint asserts that Sewell received approximately $1.2 million from the 15 students but failed to launch the fund or implement the trading strategies he had advertised to them.

Sewell had enticed potential investors by pledging to employ artificial intelligence (AI) and machine learning technology to optimize their returns.

However, he allegedly left their funds parked in Bitcoin, eventually leading to the loss of the entire investment when his crypto wallet was hacked and emptied.

The SEC’s statement underlines its commitment to taking action against individuals exploiting the cryptocurrency industry’s hype with misleading promises.

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It serves as a warning to potential scammers, stating, “Whether it’s AI, crypto, DeFi, or some other buzzword, the SEC will continue to hold accountable those who claim to use attention-grabbing technologies to attract and defraud investors.”

In a significant development, Rockwell Capital Management has agreed to return the $1.2 million to the affected investors, along with prejudgment interest totaling approximately $402,000.

Pending court approval of the settlement, Sewell himself will be liable to pay a civil penalty of $223,229.

This incident follows a cautionary message from another U.S. regulator, the Commodities and Futures Trading Commission (CFTC), urging cryptocurrency investors in 2024 to exercise caution and avoid falling for exaggerated promises made by AI trading bots.

The CFTC specifically highlighted the risks associated with those who claim to deliver impressive returns through the use of bots, trade signal algorithms, crypto-asset arbitrage algorithms, and other AI-assisted technologies.

Investors are advised to exercise vigilance and conduct thorough due diligence before committing their funds to any cryptocurrency venture.

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Binance, a prominent cryptocurrency exchange, has rebuffed allegations made in a recent report asserting that a “highly sensitive” trove of internal passwords and code had been publicly accessible on GitHub for an extended period.

The exchange contends that the code in question was outdated and posed minimal risks.

The report, published on January 31 by 404 Media, disclosed the existence of a cache encompassing “code, infrastructure diagrams, internal passwords, and other technical information.”

This cache included sensitive details regarding the exchange’s password management and multifactor authentication processes.

Binance acted swiftly, filing a copyright takedown request with GitHub on January 24, citing the information as a “significant risk” that had been posted “without authorization.”

A spokesperson for Binance informed Cointelegraph that the individual responsible for uploading the data had shared exceedingly outdated information on GitHub.

Their security team had confirmed that the cache did not reflect their current operational procedures.

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Consequently, Binance asserted that this outdated information “posed negligible risk to the security of our users, their assets, or our platform.”

The exchange argued that it was so obsolete that it would be unusable by any third parties or malicious actors.

In a bid to safeguard its intellectual property, both past and present, and mitigate any potential confusion or unwarranted concerns arising from the exposure of private data, Binance initiated the takedown request with GitHub.

Furthermore, they are pursuing legal action against the individual responsible for the unauthorized upload.

However, it is noteworthy that Binance’s takedown request to GitHub repeatedly characterized the exposed information as “our client’s internal code, which poses a significant risk to Binance and causes severe financial harm to Binance and user’s confusion/harm.”

Despite these actions, Binance has refrained from offering additional comments or responses to inquiries pertaining to this matter.

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SEC Commissioner Hester Peirce has voiced her strong opposition to the United States Securities and Exchange Commission’s (SEC) long-standing “gag rule,” which prevents defendants from criticizing the agency’s claims in the aftermath of settling enforcement actions.

In her statement issued on January 30, Peirce argued that this policy not only hinders free speech but also erodes regulatory integrity.

The 1972 “gag rule” compels defendants to refrain from making public statements that deny any allegations in the SEC’s complaint or insinuate that the complaint lacks a factual basis.

Peirce asserted that this rule is overly broad and effectively shields the SEC’s allegations from any form of criticism.

She also expressed concern about the clause that requires defendants to prevent others from denying the allegations, as it implies a broader censorship of opinions that challenge the SEC’s judgment.

Furthermore, Peirce emphasized that the “no-deny policy” is an obligatory and non-negotiable component of SEC settlements, which are the most common resolution for enforcement actions. Violating this policy can result in defendants being brought back to court by the SEC.

In 2023, the SEC witnessed a surge in crypto-related enforcement actions, with 46 cases against crypto firms and $281 million collected in penalties from settlements.

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Peirce argued that the SEC’s justifications for the “gag rule” are unfounded, as prior to its adoption in 1972, the SEC had successfully settled cases for decades without imposing such restrictions.

Other federal agencies, like the Federal Trade Commission, allow settling defendants to deny allegations of wrongdoing.

Peirce contended that settling a lawsuit with the SEC is often the most economical option, given the substantial financial resources required for SEC investigations and the legal complexities of challenging the agency in court.

However, she raised concerns that the policy allows the SEC to avoid proving its claims in court and secures a “permanent silence” from defendants, which it could never achieve through litigation.

Peirce’s stance is grounded in the belief that if the SEC is confident in its investigative work and analysis, it should not require defendants to remain silent and should instead permit them the freedom to express their views after settling enforcement actions.

This, she argues, would ensure a fair and transparent regulatory environment while upholding the principles of free speech and accountability.

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Coinbase, the popular cryptocurrency exchange, may encounter near-term volatility in its stock price, warns Oppenheimer analyst Owen Lau.

The primary reasons behind this anticipated turbulence are Coinbase’s ongoing lawsuit with the U.S. Securities and Exchange Commission (SEC) and the expected decline in Bitcoin’s price.

As of now, Coinbase’s stock is priced at $125, but its future appears uncertain due to regulatory challenges.

In a recent interview with Yahoo Finance, Lau highlighted the lingering regulatory uncertainty surrounding Coinbase.

The SEC has accused the exchange of violating security laws, and until a resolution is reached, Coinbase’s stock may experience fluctuations.

Lau explained, “There is still a regulatory overhang, we still don’t have clear regulations in the United States right now.”

Interestingly, Bloomberg litigation analyst Elliot Stein expressed optimism about Coinbase’s chances of a favorable outcome in its lawsuit against the SEC.

Stein predicts a 70% probability of Coinbase emerging unscathed from the legal battle.

READ MORE: US Government Plans to Sell $118 Million Worth of Seized Silk Road Bitcoin

Coinbase’s recent stock performance adds to the uncertainty. Over the past 30 days, the company’s stock price has declined by approximately 28%.

However, it has shown an overall gain of around 67% in the past three months.

This upward trend was driven by Bitcoin’s price surge towards the end of 2023, fueled by optimism surrounding the potential approval of a spot Bitcoin ETF by the U.S. SEC, which was granted on January 10th.

Despite this initial positive development, Bitcoin’s price has faced a setback, dropping by approximately 10.37% in the last two weeks following the SEC’s approval of spot Bitcoin exchange-traded funds.

At the time of writing, Bitcoin’s price stands at $41,863. Owen Lau believes that Bitcoin may continue to experience short-term price fluctuations until a significant catalyst emerges.

Adding to the challenges, JPMorgan recently downgraded Coinbase’s stock to an “underweight rating” on January 23rd.

The decision was influenced by the declining price of Bitcoin and the listing of spot Bitcoin ETF shares.

These factors have cast a shadow of uncertainty over Coinbase’s near-term future in the cryptocurrency market.

In conclusion, Coinbase’s stock price is likely to remain volatile in the coming months, with regulatory uncertainties and Bitcoin’s price fluctuations acting as key drivers of this instability.

Traders and investors will need to closely monitor developments in the ongoing lawsuit and the broader cryptocurrency market to make informed decisions.

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Nigerian crypto analyst, Rume Ophi, has urged the Nigerian Securities and Exchange Commission (SEC) to reconsider its crypto licensing requirements, specifically the guidelines for virtual asset services providers (VASPs).

Ophi expressed his concerns in an interview with Cointelegraph, stating that the existing guidelines do not favor local crypto exchanges, and he believes that these exchanges should have been a priority when formulating the regulations.

According to the SEC’s current guidelines, all exchanges must obtain a VASP license by complying with the specified application processing requirements and paying the necessary registration and applicable fees.

However, Ophi pointed out that many local exchanges struggle to meet the minimum upfront capital requirement of 500 million naira ($556,620).

This financial burden could lead to a situation where primarily foreign exchanges dominate the Nigerian crypto market, instead of achieving a more balanced ecosystem.

Supporting Ophi’s perspective, Kue Barinor Paul, a Nigerian Web3 legal representative, emphasized during a discussion hosted by Ophi that Nigerian crypto exchanges and VASPs might need to consider merging to pool resources and meet the SEC’s license requirements.

Paul stressed the need for the Nigerian SEC to revise its licensing framework, as the current regulations seem to favor foreign exchanges over local ones.

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In May 2022, the Nigerian SEC released a 54-page document titled “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets,” which aimed to create a framework for cryptocurrency service providers in Nigeria.

This document also outlined guidelines for how the country’s banking and financial institutions could engage with digital assets.

Ophi further highlighted the importance of the Nigerian National Assembly’s involvement in aligning the SEC’s licensing requirements with the current economic realities of the country.

Nigeria, being the largest economy in Africa, has shown significant awareness of cryptocurrencies, ranking second in crypto adoption worldwide, according to Chainalysis’ “2023 Cryptocurrency Geography Report.”

Despite this potential, the country has faced challenges in attracting foreign crypto investment, which Ophi attributes to the recent removal of the ban on financial institutions serving crypto exchanges.

Revising the licensing requirements may help unlock the full potential of the Nigerian crypto market and attract more investment.

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