SEC - Page 41

U.S. government prosecutors are taking steps to prevent former Binance CEO Changpeng “CZ” Zhao from leaving the United States, citing concerns about his potential flight risk.

In a filing made on November 22 to a federal court in Seattle, prosecutors requested a review and reversal of a judge’s decision that would have allowed Zhao to return to his home in the United Arab Emirates (UAE) on a $175 million bond, provided that he comes back to the U.S. two weeks before his sentencing scheduled for February 2024.

The prosecutors argued in their proposed order that Zhao poses an “unacceptable risk of flight and nonappearance” if allowed to leave the United States before his sentencing. They expressed serious doubts about their ability to ensure his return if he decides not to come back voluntarily.

The government’s case against Zhao is based on his strong ties and privileged status in the UAE, coupled with the absence of an extradition treaty between the UAE and the U.S. Prosecutors pointed out that Zhao has a partner and three young children in the UAE, and once he is in the UAE, he might choose to remain there with his family rather than facing the prospect of up to 18 months in a U.S. prison.

READ MORE: CEO Resignation and Binance-DOJ Settlement Send Shockwaves Through Cryptocurrency Markets

Furthermore, prosecutors argued that the majority of Zhao’s wealth, which was used to secure his $175 million bond, is held outside the United States and beyond the reach of U.S. jurisdiction.

Changpeng Zhao recently admitted to failing to maintain an effective Anti-Money Laundering program at Binance as part of a plea agreement.

This led to his resignation as CEO of the exchange and a $50 million fine.

Despite this legal setback, industry experts and observers view Binance’s settlement with the Justice Department as a positive development for the cryptocurrency industry, as it further legitimizes the industry in the United States.

Crypto markets have already rebounded from the negative news surrounding one of the industry’s most influential players, with the total market capitalization returning to pre-Binance news levels, reaching $1.48 trillion during the Thursday morning Asian trading session.

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Kraken co-founder, Jesse Powell, has strongly criticized the United States Securities and Exchange Commission (SEC) in response to the recent lawsuit filed against his crypto exchange for alleged securities law violations.

Powell took to social media, specifically X (formerly Twitter), on November 21 to express his discontent with the SEC’s actions.

In a scathing post, Powell referred to the SEC as the “USA’s top decel,” a term used in the tech industry to disparage someone seen as hindering progress.

He also claimed that the SEC was not satisfied with the $30 million settlement that Kraken had agreed to pay in February.

This settlement had been reached in response to previous charges by the SEC, which accused Kraken of failing to register the offer and sale of their crypto asset staking-as-a-service program.

As part of the agreement, Kraken had agreed to pay the $30 million fine and cease offering crypto-staking products and services to U.S. customers.

In a subsequent post, Powell issued a warning to other crypto companies, advising them to avoid the “US warzone” to steer clear of costly legal battles.

READ MORE: Bitcoin Nears Crucial Fibonacci Level Amidst Pre-Halving Rally

He asserted that the $30 million payment would only buy them about ten months of respite before the SEC returned to demand more.

Powell argued that the SEC was well aware that a genuine legal battle could cost well over $100 million and valuable time.

The SEC’s latest lawsuit, filed on November 20, accused Kraken of multiple securities law violations, including the failure to register as a securities broker and the alleged commingling of customer and corporate funds.

Kraken’s response was swift, with a spokesperson denying the listing of unregistered securities and describing the lawsuit as “disappointing.”

The exchange vowed to defend its position in court, asserting that the commingling accusations were merely the result of Kraken spending fees it had already earned.

Importantly, the SEC did not allege that any user funds were missing.

Jesse Powell’s vocal criticism of the SEC underscores the ongoing tension between crypto companies and regulatory authorities in the United States.

As the crypto industry continues to evolve, it faces increasing scrutiny and legal challenges, prompting some companies to reconsider their operations within the country.

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Fidelity, a prominent asset management firm overseeing an impressive $4.5 trillion in assets, has joined the growing list of entities seeking approval for a spot Ether exchange-traded fund (ETF).

Their request was formally submitted to the United States Securities and Exchange Commission (SEC) on November 17.

Fidelity’s proposal centers around listing and trading shares of the Fidelity Ethereum Fund on the Cboe BZX Exchange.

The filing outlines the structure of the proposed ETF, where each share will represent a fractional undivided beneficial interest in the Trust’s net assets.

These assets will primarily consist of Ethereum (ETH), securely held by a Custodian on behalf of the Trust.

One of the primary motivations behind Fidelity’s request is to provide U.S. citizens with a secure and regulated vehicle for gaining exposure to ETH.

The filing argues that up until now, American retail investors have been deprived of a low-risk option for investing in Ethereum.

It emphasizes that the existing methods for accessing digital assets in the United States involve significant counter-party risk, legal uncertainties, and technical complexities.

In contrast, the filing points out that European investors have access to products that are traded on regulated exchanges and offer exposure to a wide range of spot cryptocurrency assets.

As an example, it mentions the approval of the Jacobi Bitcoin ETF for listing on the Euronext Amsterdam stock exchange, demonstrating the more favorable environment for cryptocurrency investment in Europe.

READ MORE:CoinShares Gains Exclusive Option to Acquire Valkyrie Funds, Eyes U.S. ETF Market Expansion

Fidelity also highlights the potential benefits of an Ether ETF for American investors, suggesting that it could have mitigated losses suffered by investors involved with now-defunct firms like FTX, Celsius Network, and BlockFi.

The filing suggests that if a Spot ETH ETP (Exchange-Traded Product) had been available, a substantial portion of the funds tied up in these defunct companies might still be held in the brokerage accounts of U.S. investors.

Fidelity’s move to seek approval for a spot Ether ETF follows BlackRock’s recent filing for a similar product, the iShares Ethereum Trust, with the SEC on November 16.

This development comes after BlackRock previously registered the iShares Ethereum Trust with Delaware’s Division of Corporations, about six months after filing its spot Bitcoin ETF application.

Notably, Fidelity is the seventh firm to apply for an Ether ETF, joining a list that includes VanEck, 21Shares, ARK Invest, Hashdex, Grayscale, and Invesco Galaxy, as the financial industry continues to explore opportunities in the rapidly evolving cryptocurrency market.

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The Texas State Securities Board has taken action against a network of companies operating under the “GS” brand based in Germany, accusing them of engaging in fraudulent activities related to digital assets and investments in a staking pool within their proprietary metaverse.

The network is reportedly controlled by Josip Dortmund Heit.

According to regulatory authorities, on November 16th, GS Partners, GS Smart Finance, and GS Wealth, under the leadership of Josip Dortmund Heit, conducted three rounds of metaverse property sales starting in September 2021.

During this period, investors were offered the opportunity to purchase XLT Vouchers or BNB Chain tokens, which represented ownership of one square inch of a unit within the company’s G999 Tower metaverse.

These tokens were initially priced at 9.63 USDT per voucher. However, their value plummeted rapidly to less than 0.0000049 USDT each on the decentralized exchange PancakeSwap after the respondents failed to meet their $175 million fundraising target.

The Texas State Securities Board also noted that the respondents had never been registered with the Securities Commissioner as dealers or agents, which is a legal requirement for conducting such financial activities.

READ MORE: Paxos Secures Initial Approval from MAS for U.S. Dollar-Backed Stablecoin Launch in Singapore

Furthermore, regulators allege that various other investment products offered by the GSB network, including Lydian World metaverse tokens, gold tokens, G999 coin, and Elemental Certificates, also constituted unregistered security offerings.

In response to these allegations, the Texas State Securities Board has filed an emergency enforcement action, demanding that the GSB group of companies immediately cease and desist from engaging in these activities within the state of Texas.

This is not the first time the GSB network has faced regulatory scrutiny.

On August 15th, the Ontario Securities Commission issued a warning, stating that GS Partners was not authorized to conduct business in the Canadian province of Ontario.

Prior to this, securities regulators in other Canadian provinces, including Saskatchewan, British Columbia, Alberta, and Quebec, had also issued warnings about the activities of GS Partners.

In conclusion, the Texas State Securities Board’s actions against the GS network of companies highlight the growing concerns surrounding unregistered security offerings and fraudulent activities in the digital asset and metaverse space.

It serves as a reminder of the importance of regulatory oversight in protecting investors and maintaining the integrity of financial markets.

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The Canadian Security Intelligence Service (CSIS), Canada’s primary national intelligence agency, has expressed growing concerns regarding the use of artificial intelligence (AI) deepfakes in disinformation campaigns on the internet.

These deepfakes, which are becoming increasingly realistic, pose a significant threat to Canadians, as they are often difficult to recognize or detect.

CSIS has highlighted instances where deepfakes have been utilized to harm individuals, emphasizing the potential risks associated with this technology.

In its report, CSIS warns that deepfakes and other advanced AI technologies have the potential to undermine democracy, as certain actors may exploit uncertainty or propagate false information based on synthetic or falsified content.

This threat is exacerbated when governments are unable to prove the authenticity of their official content.

CSIS also referenced Cointelegraph’s coverage of deepfakes targeting crypto investors, particularly those featuring Elon Musk.

Since 2022, malicious actors have been using sophisticated deepfake videos to deceive unsuspecting crypto investors into parting with their funds.

Elon Musk himself issued a warning against deepfakes after a fabricated video of him endorsing a cryptocurrency platform with unrealistic returns circulated on X (formerly Twitter).

READ MORE: New York Tightens Cryptocurrency Listing and Delisting Rules to Enhance Investor Protection

In addition to the threat of deepfakes, CSIS has identified other concerns related to AI, including privacy violations, social manipulation, and bias.

The agency recommends that governmental policies, directives, and initiatives evolve in response to the increasing realism of deepfakes and synthetic media.

CSIS emphasizes the need for governments to act swiftly, as delaying interventions may render them irrelevant.

CSIS proposes collaboration among partner governments, allies, and industry experts to address the global distribution of legitimate information.

Canada has taken steps to involve allied nations in addressing AI concerns, as evidenced by the Group of Seven (G7) industrial countries’ agreement on an AI code of conduct for developers on October 30.

This code comprises 11 points aimed at promoting safe, secure, and trustworthy AI worldwide while addressing and mitigating the associated risks.

In conclusion, the Canadian Security Intelligence Service is deeply concerned about the use of deepfake technology in disinformation campaigns and its potential impact on democracy and individuals.

CSIS calls for proactive measures, international collaboration, and the development of policies to counter the growing threat posed by AI deepfakes and synthetic media.

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