SEC - Page 62

Paxos Trust Co, a stablecoin issuer and producer, faces a major lawsuit over alleged violations of laws to protect investors.

The Wall Street Journal (WSJ) reported the United States Securities and Exchange Commission (SEC) had launched the suit due to Binance USD (BUSD). Paxos backed the stablecoin with USD after inking a deal with the world’s largest exchange by volume in September 2019.

BUSD is the third largest stablecoin by market capitalisation at $16 billion USD.

The SEC slapped Paxos with a Wells notice signalling imminent enforcement action, the WSJ reported, citing people familiar with the matter.

The sources added the notice accuses BUSD of functioning as an unregistered security. The news comes after the New York Department of Financial Services (NYDFS) launched investigations on Paxos. Reports have not provided clarity on the investigations.

The news comes after the SEC hit cryptocurrency exchange giant Kraken with a similar investigation, citing alleged unregistered securities sales.

SEC chairman Gary Gensler ordered the platform to register with it as it conducted crypto transactions.

Kraken chief executive Dave Ripley told Reuters that Kraken had no plans to register with the SEC or delist any crypto offerings targeted by the SEC as securities.

Despite this, Kraken agreed to stop its crypto-staking programme in its $30 million USD settlement with the regulator, sources familiar with the industry told reporters.

Cryptocurrency trading platform Kraken has been ordered to halt its crypto staking-as-a-service platform “immediately” for US users, the United States Securities and Exchange Commission (SEC) has revealed.

The move comes after the platform paid $30 million to the SEC after the latter charged Kraken with providing unregistered securities.

Both of Kraken’s registered companies, Payward Ventures Inc and Payward Trading Ltd, would halt the programmes offered to public users since 2019, according to the SEC in a statement.

The regulator continued: “The complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts.”

Kraken Response

The cryptocurrency platform responded in a blog post it would unstake assets staked by US customers save for those conducted in Ether. The company will not take measures on Ethereum-based stakes until after the network conducts its Shanghai upgrade.

It explained that staking services for non-US clients would “continue uninterrupted.”

The SEC added that Kraken’s staking mechanism revealed “risks” for investors using the tool, offering them “very little protection.”

Staking involves proof-of-stake blockchain networks that use decentralised validators. These provide cryptocurrencies as collateral as proof it will use the networks honestly, in return for token rewards.

SEC chair Gary Gensler explained: “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws.”

He concluded that the organisation’s actions would “make clear” to cryptocurrency markets that staking-as-a-service providers will “register and provide full, fair and truthful disclosure and investor protection.”

The United States Securities and Exchange Commission (SEC) has slapped cryptocurrency trading platform Kraken with an investigation over alleged unregistered securities sales.

Bloomberg reported on Wednesday that the SEC had reached an advanced stage, potentially leading to a settlement with Kraken in the next few days.

The news comes after SEC chairman Gary Gensler stated that companies conducting cryptocurrency transactions must register with the regulator.

In a September statement to Reuters, Kraken’s newly-appointed chief executive, Dave Ripley, said the exchange did not plan to register with the organisation or delist cryptocurrencies designated by the SEC as securities. 

The news comes after the US Treasury Department’s Office of Foreign Assets struck a deal with the San Francisco-based exchange. Kraken paid $362,000 in a civil liability settlement over alleged Iranian sanctions violations. It also was forced to invest a further $100,000 USD in compliance controls.

Previously, Kraken rejected requests from regulators to block digital wallets for Russians amid the ongoing Russo-Ukrainian war. Former co-founder Jesse PJowell stepped down shortly after, with Ripley stepping into the role shortly after.

The United States Securities and Exchange Commission (SEC) recently revealed that it did not designate a sale of LBRY Credits (LBC) in secondary markets as a security.

In a recent hearing on Monday, courts ruled in favour of direct sales in a case many see as a victory against the SEC’s regulatory crackdown on cryptocurrencies. Attorney John Deaton attended discussions in the appeal hearing, scoring the major win for digital assets.

He aimed to receive clarity in LBC secondary market transactions due to alleged ambiguities in the injunction launched in November last year.

At the time, courts awarded the SEC a summary judgment and labelled LBC token sales over six years’ time as investment contracts while failing to specify details about the transactions. The SEC hoped to receive backing from New Hamshire district courts in the case.

In the case, Deaton represented technology journalist Naomi Brockwell, an animus curiae of the hearing, to challenge the injunction as ambiguous and broad.

Prior cases found that courts did not acknowledge any security issues of digital assets in the United States a paper from Lewis Cohen, a commercial contractor.

Judges in the case stated told Deaton: “I’m going to make it clear that my order does not apply to secondary market sales.”

SEC-Ripple Labs Legal Row

The news comes amid further litigation against Ripple Labs in an ongoing case, sparking criticisms from the Washington, DC-based Blockchain Association.

The organisation said it would become an amicus brief for the embattled cryptocurrency firm after the latter was hit with an SEC lawsuit over alleged Ripple (XRP)-linked unregistered securities.

The Association tweeted at the time: “This case, which is just one in a long line of SEC efforts to regulate by enforcement, highlights the SEC’s efforts to cement and legitimize its overly broad interpretation of the Howey test.”

It concluded a negative ruling could have “devastating effects” on crypto markets and create laws that “significantly restrict” cryptocurrency networks.

The Digital Currency Group (DCG) is set to face fresh legal woes after Genesis Capital received a securities class action lawsuit. The case will take place in the United States District Court for the District of Connecticut.

Silver Golub & Teitell (SGT) hit DCG founder and chief executive Barry Silbert with the lawsuit, citing federal securities laws violations.

Individuals involved in digital asset lending agreements with Genesis filed the litigation. SGT famously handled a Coinbase class action lawsuit in March last year.

According to the complaint, Genesis offered unregistered securities. Lending agreements also involved securities not exempt from registration under federal securities laws.

It added that Genesis defrauded investors with a scheme involving existing and potential digital asset lenders with misleading statements.

Plaintiffs accused Genesis of misrepresenting its financial standing, which breached section 10(b) of the US Securities Exchange Act. Concluding, the complaint said that the scheme aimed to “induce prospective digital asset lenders to loan digital assets to Genesis Global Capital,”

This prevented current lenders from “redeeming their digital assets,” the lawyers alleged.

FTX – DCG Links

The news comes after Genesis filed for bankruptcy, sending ripples across the crypto industry. This comes just months after the shock collapse of crypto exchange platform FTX. Several executives face massive fraud charges in New York courts, including disgraced ex-CEO and founder Sam Bankman-Fried.

Genesis declared bankruptcy after halting withdrawals in mid-November, shortly after FTX. The former halted withdrawals and could not honour redemption requests for its Earn rewards programme.

Gemini co-founder Cameron Winklevoss slammed the firm on Twitter and threatened further litigation against DCG and others involved in the scandal.

Mango Markets scammer Avraham Eisenberg faces a court ruling from the US Securities and Exchange Commission (SEC), the regulatory body reported on Friday last week.

The SEC charged him with market manipulation after he manipulated pricing for Mango Market’s native token MNGO using bots. Investors lost roughly $116 million from the platform following the incident.

According to the SEC, the token was “a security,” adding that the suspect sold a massive number of perpetual futures for the tokens.

He later repurchased them under another account and inflated their price, offering him $116 million in cryptocurrency tokens. The move purged the entire Mango Market platform of its tokens, the SEC filing said.

David Hirsch, Crypto Assets and Cyber Unit chief, said in a statement,

“Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the price of the MNGO token, which was purchased and sold as a crypto asset security, in order to borrow and then withdraw nearly all available assets from Mango Markets, which left the platform at a deficit when the security price returned to its pre-manipulation level.”

Rug Pull, Pull Over

The news comes after Eisenberg launched the massive rug pull to defraud investors, triggering a major backlash on social media.

He later boasted to people on Twitter about his tactic, stating it was a “highly profitable trading strategy.” Many people responded to his comments by demanding authorities arrest him, despite his replies that his actions were “legal”.

The SEC concluded that Eisenberg faces charges in Manhattan district courts for “violating anti-fraud and market manipulation provisions of the securities laws and seeks permanent injunctive relief, a conduct-based injunction, disgorgement with prejudgment interest, and civil penalties.”

Cybersecurity firm CertiK reported in January on the rise in cryptocurrency fraud, manipulation, and cybercrime last year, with similar numbers expected for 2023.

One of the largest financial scandals to date, the ongoing FTX crisis has prompted governments and organisations to crack down on crypto regulations following the collapse.

Cryptocurrency lending firm Nexo Capital agreed on Thursday to pay $45 million in fines after the United States Securities and Exchange Commission (SEC) slapped them with charges.

The penalty consists of $22.5 million to the SEC and an additional $22.5 million to state regulators, the SEC said in a statement.

The charges are linked to the platform’s Earn Interest Product, which began in June 2020. Crypto investors could offer their assets for alleged earned interest but ceased the product in February last year.

At the time, the SEC slapped a company for similar offences, triggering the firm to cease offerings for the Earn programme.

Nexo stated it was “content” with its settlement, adding: “We are confident that a clearer regulatory landscape will emerge soon, and companies like Nexo will be able to offer value-creating products in the United States in a compliant manner.”

Speaking further, Andrew Harnett, North American Securities Administrators Association (NASAA) president, said that US securities laws were “designed to protect investors through full and fair disclosure.”

He continued: “State securities regulators continue to lead the effort to ensure companies involved in offering digital asset investments comply with our laws and that investors are treated fairly.”

Complying with the ruling, Nexo said it would stop selling its US products over the next few months due to US regulations. The SEC has also hit companies such as Genesis and Gemini lawsuits over allegations of its interest-earning programme.