Bitcoin discussion thread - Page 68

On January 19 2023 23:30 {CC}StealthBlue wrote:
His lawyers need to lock his Twitter account.

https://twitter.com/SBF_FTX/status/1615555252962627584

Silvergate Capital Corp. plans to wind down operations and liquidate its bank after the crypto industry’s meltdown sapped the company’s financial strength, sending shares plunging.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of bank operations and a voluntary liquidation of the bank is the best path forward,” the company said in a statement late Wednesday. “The bank’s wind-down and liquidation plan includes full repayment of all deposits.”

Silvergate collapsed amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with fallen crypto giants FTX and Alameda Research. Though no wrongdoing was asserted, Silvergate’s woes deepened as the bank sold off assets at a loss and shut its flagship payments network, which it called “the heart” of its group of services for crypto clients.

“Today we are seeing what can happen when a bank is over-reliant on a risky, volatile sector like cryptocurrencies,” Senator Sherrod Brown, chair of the Senate Banking, Housing, and Urban Affairs Committee, said in a statement. “When banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.”

The company told investors March 1 that it was reviewing whether it would be able to stay in business. The last bank failure in the US was in 2020, according to the FDIC’s website, which listed four during the first year of the pandemic. Because Silvergate was voluntarily liquidated, the regulator doesn’t count it in its official tally.

Silvergate’s shares were trading down as much as 49% to $2.5 in US premarket trading on Thursday. The stock topped $220 in November 2021.

The firm’s collapse could “put even more pressure on banks to demonstrate that their dealings with crypto are safe and sound,” Hilary Allen, a law professor at American University who’s testified before Congress on FTX, said earlier.

Senator Elizabeth Warren, a critic of Wall Street who has warned of the dangers posed to the financial system by crypto, said Silvergate’s activities have been “risky, if not illegal,” and that the firm failed in its due diligence.

“As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable,” she said in a tweet. “Now, customers must be made whole & regulators should step up against crypto risk.”

The ramifications of Silvergate’s demise continue to ripple through the crypto sector. Marathon Digital Holdings Inc. terminated its loan with the bank, reducing the digital-asset miner’s debt by $50 million. Binance Holdings Ltd.’s Chief Executive Officer Changpeng Zhao said in a tweet that his exchange, the world’s largest, does not have asset losses at Silvergate.

Silvergate opened for business in 1988 to make loans to industrial clients, and filings show that it dealt in conventional services such as commercial and residential real estate lending. But in 2013, the La Jolla, California-based company started to pursue crypto clients.

The idea was to pile up noninterest bearing deposits associated with services to those customers and then plow the money into what it described as a conservative portfolio of investments in interest-bearing cash at other banks, short-term securities, and loans “that we believe generate attractive risk-adjusted returns.”

The crypto-focused services enabled clients to route their money through the company’s proprietary platform and send it to each other to pay for digital assets. The network handled only US dollars and euros; the actual trades of virtual currencies didn’t take place on Silvergate’s system.

With its crypto business growing, Silvergate went public in 2019, telling investors in its prospectus to expect an even bigger shift toward crypto. Eventually the company’s Silvergate Exchange Network helped attract $11.9 billion in digital assets held as deposits as of Sept. 30.

Three months later, after FTX had collapsed into bankruptcy amid charges of fraud, crypto deposits fled and left Silvergate with only $3.8 billion, according to a Jan. 5 statement. FTX was one of its biggest customers, and the sudden drop forced Silvergate to sell securities before they matured at steep losses that eroded its capital and liquidity.

The bank’s crisis intensified on March 2 when investors and business partners were spooked by fresh disclosures of the bank’s difficulties and headed for the exits. Coinbase Global Inc., Galaxy Digital Holdings Ltd., Paxos Trust Co. and other crypto firms decided to stop accepting or initiating payments through Silvergate.

In its statement Wednesday, Silvergate said it is “considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”

In the end, said Aaron Klein, a senior fellow with the Brookings Institution who studies financial technology and regulation, the outcome isn’t all that surprising. “There’s nothing new here,” he said. “Borrowing short and lending long has been the subject of bank failure for centuries.”

Former cryptocurrency mogul Sam Bankman-Fried has been hit with another federal charge: bribery.

In a superseding indictment unsealed Tuesday, federal prosecutors accused Bankman-Fried of bribing a government official in China.

According to the new indictment, Bankman-Fried successfully bribed at least one Chinese government official with a $40 million payment in 2021.

Bankman-Fried is awaiting trial after being charged with a host of crimes related to the mismanagement and collapse of FTX, previously one of the world’s largest cryptocurrency firms, which he co-founded, as well as his hedge fund, Alameda Research.

A spokesperson for Bankman-Fried declined to comment.

After Chinese authorities froze several Alameda accounts worth more than $1 billion, Bankman-Fried directed an employee to make bribery payments to at least one government official, the indictment says. The Alameda accounts were held in two major Chinese cryptocurrency exchanges.

"After confirmation that the Accounts were unfrozen, BANKMAN-FRIED authorized the transfer of additional tens of millions of dollars in cryptocurrency to complete the bribe," it says.

The alleged bribe appears to have been a last resort. Bankman-Fried initially tried several other methods to unfreeze the funds, the indictment says. Those tactics included hiring attorneys to lobby for him in China and opening accounts on those Chinese exchanges using the personal information of several unnamed people who were unaffiliated with his companies.

The bribery allegation is the most recent in a growing list of criminal charges that Bankman-Fried faces. He was arrested in December by U.S. authorities and extradited from the Bahamas to the U.S.

He was indicted by a grand jury in the Southern District of New York with a variety of crimes as part of what the Securities and Exchange Commission called "a yearslong fraud."

He has also been charged with making illegal campaign contributions.

Sam Bankman-Fried, founder of fallen cryptocurrency exchange FTX who claimed to have just $100,000 in his bank account last November, is preparing for trial in October backed by a roster of powerful attorneys. But it has remained unclear, until now, how the former billionaire would afford his pricey defense.

Forbes has learned that Bankman-Fried has been paying legal fees from a multi-million dollar gift he gave his father with money borrowed from FTX’s sister company.

In 2021, while CEO of FTX, Bankman-Fried made a large monetary gift to his father, Stanford Law professor Joseph Bankman, two sources with operational knowledge of both companies told Forbes. It was funded by a loan from the exchange’s trading firm, Alameda Research, they said.

Bankman-Fried — who has pleaded not guilty to 12 criminal charges including wire fraud, money laundering and securities fraud, and faces an additional bribery charge — is accused of misappropriating FTX customer funds through Alameda dating back to the exchange’s founding in 2019.

A source close to Bankman-Fried told Forbes that his defense costs are likely in the single-digit-millions range. “I didn’t steal funds, and I certainly didn’t stash billions away,” he wrote on Substack earlier this year. Two additional sources familiar with the family told Forbes that Bankman once begged his son to put away savings, but Bankman-Fried reportedly declined.

It’s been alleged that some $10 billion in customer deposits were secretly diverted to Alameda by the former CEO. These funds were “intended to be used for trading or custodied on FTX” between 2019 and 2022, according to a complaint against Nishad Singh, the company’s former engineering head, who pleaded guilty to fraud and conspiracy charges last month. FTX debtors claim that Bankman-Fried improperly received $2.2 billion in company loans, and alleged this month that $8.9 billion in customer deposits are still missing.

Bankman-Fried declined to comment.

The gift and loan are reported here for the first time, and occurred in 2021 when Bankman-Fried arranged to give money to his father, according to the two sources with knowledge of company operations. After receiving at least $10 million from Alameda, Bankman-Fried sent the funds to Bankman using his lifetime estate and gift tax exemption — essentially a tax-free gift. He contributed the maximum amount someone is allowed to give in their lifetime, which would have been $11.7 million that year, these sources told Forbes.

Lawyers for FTX did not respond to a request for comment.

On April 01 2023 10:37 {CC}StealthBlue wrote:
The guy that was following him to write a book, I think, is going to make so much money. I mean one think he would tell his father how to setup a shell company to ya know... properly launder it.



Source

In a statement to Reuters, Binance denied mixing customer deposits and company funds. “These accounts were not used to accept user deposits; they were used to facilitate user purchases” of crypto, said spokesperson Brad Jaffe. “There was no commingling at any time because these are 100% corporate funds.” When users sent money to the account, he said, they were not depositing funds but buying the exchange’s bespoke dollar-linked crypto-token, BUSD. This process was “exactly the same thing as buying a product from Amazon,” Jaffe said.

The former U.S. regulators told Reuters that Binance’s explanation was undermined by the exchange’s own previous representations to customers that the transfers were deposits. From late 2020 and throughout 2021, Binance’s website told customers their dollar transfers were “deposits” that would be “credited” to their trading accounts in the form of BUSD. Customers were told they could “withdraw” their deposits as dollars. These representations created the expectation that clients’ funds would be safeguarded in the same way as traditional cash deposits, the former regulators said.

“These representations have to be crystal clear at all times,” said Stark, the former SEC official.

WASHINGTON (AP) — The world’s largest cryptocurrency exchange Binance and its founder Changpeng Zhao are accused of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws in a lawsuit filed by the SEC.

Filed in the U.S. District Court for the District of Columbia, the Securities and Exchange Commission lawsuit on Monday lists thirteen charges against the firm — including commingling and divert customer assets to an entity Zhao owned called Sigma Chain.

Binance is a Cayman Islands limited liability company founded by Zhao and the charges are familiar to practices uncovered after the collapse of the second largest cryptocurrency exchange, FTX, last year.

The lawsuit lays out the extent to which the firms owners knew of the alleged legal violations: “Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”

SEC Chair Gary Gensler in a written statement that Zhao and Binance “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”

“The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,” Gensler said.

In a social media post, Binance said that it has been cooperating with the SEC’s investigation but said that the agency “chose to act unilaterally and litigate.”

“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis. We intend to defend our platform vigorously,” the company said in a Twitter post. “Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.”

The lawsuit comes roughly eight months after the collapse of FTX, which was also accused of co-mingling customers’ funds and investing the proceeds in high-risk investments that customers were unaware they were participating in.

U.S. prosecutors and the SEC charged FTX’s founder Sam Bankman-Fried with a host of money laundering, fraud and securities fraud charges in December. His criminal trial is likely to be in the fall.

“The new complaint from the SEC against Binance is a laundry list of charges laying out exactly the same claims that many in the Bitcoin and crypto communities have made against Changpeng Zhao and his companies for many years. These practices of Binance have essentially been open secrets, so no one who operates in the space will be surprised by any of the charges,” said Cory Klippsten, CEO of Swan Bitcoin, a bitcoin financial services company.

U.S. regulators have gone after Binance before.

In March, the Commodity Futures Trading Commission filed an enforcement action against Binance and Zhao in the U.S. District Court for the Northern District of Illinois charging them with numerous CTFC violations.

The complaint also charges Samuel Lim, Binance’s former chief compliance officer, with aiding and abetting Binance’s violations.

The Securities and Exchange Commission sued crypto exchange Coinbase in New York federal court on Tuesday morning, alleging that the company was acting as an unregistered broker and exchange and demanding that the company be “permanently restrained and enjoined” from continuing to do so.

Shares fell 15% in premarket trading Tuesday. Coinbase stock had already fallen 9% on Monday, after the SEC unveiled charges against rival crypto exchange Binance and its founder Changpeng Zhao.

Coinbase’s flagship prime brokerage, exchange and staking programs violate securities laws, the regulator alleged in its complaint. The company “has for years defied the regulatory structures and evaded the disclosure requirements” of U.S. securities law.

The SEC has alleged that at least 13 crypto assets available to Coinbase customers were considered “crypto asset securities” by the regulator. Those assets include Solana’s SOL token, Cardano’s token and Protocol Labs’ Filecoin token.

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” said SEC chair Gary Gensler said in a statement.

Coinbase did not immediately respond to a request for comment.

Coinbase’s institutional service, Prime, its retail exchange product, and its self-custody Wallet service all offered one or more crypto asset security, the SEC said in its complaint.

Coinbase’s staking program was also identified as a investment contract and as an unregistered security: The SEC had already taken similar action to force the closure of crypto exchange Kraken’s staking service.

The SEC described the staking program as a way for “investors to earn financial returns through Coinbase’s managerial efforts.” The SEC says the five “stakeable crypto assets” are considered securities under its interpretation of the law, an assessment that will no doubt be disputed by Coinbase.

The exchange had already received a Wells notice from the regulator earlier this year, a letter notifying a company when SEC action is pending. Coinbase had mounted a vigorous defense of its offerings, publicly litigating with the regulator and preparing for potential action with advertising campaigns and publicity.

The company has been identified by many in the crypto community as the only entity with the financial and institutional resources to go toe-to-toe with the SEC and Gensler. The company has a sophisticated presence and has advertised itself for years as a safer, regulated option compared to other exchanges.

But that same advertising has formed part of the SEC’s arguments against the exchange. Regulators alleged that the exchange actively solicits new clients, noting that “Coinbase expends hundreds of millions of dollars a year on marketing and sales to maintain and recruit new investors.”

Solicitation is one of the aspects the SEC uses to determine whether a company is operating as a broker or an exchange.

Another test that the SEC relies upon is the Howey test, which is used to determine whether an asset is an investment contract and therefore, a security. An asset is considered a security if it involves a three things: investment in a common enterprise, with the reasonable expectation of returns, through the work of others.