Sam Bankman-Fried Found Guilty; Capital Markets Hearing Drips With SEC Overreach

Rep. Ann Wagner

SBF is guilty

Here’s a selection of media outlets who covered the trial of FTX CEO Sam Bankman-Fried and the guilty verdict on all 7 counts last night:

what you should know: There is still a second trial expected in March 2024 which will cover the campaign finance laws that Bankman-Fried violated.

yesterday’s HFS hearing

Yesterday’s 2-hour House Financial Services (HFS) Capital Markets Subcommittee Hearing on the SEC’s agenda for capital markets went as expected.  The Republican majority, owners of the Committee’s agenda, led by subcommittee Chair Rep. Ann Wagner (R, MO), expressed deep skepticism about the SEC’s machinations in the markets. And the Democratic caucus provided support *mostly* for the SEC.

See the recorded video and hearing documents here.

Rep. Wagner noted the SEC had not responded within the requested 30 days to a Congressional letter in September on the SEC’s predictive data analytics rule proposal. Previously, HFS Chair Patrick McHenry (R, NC) threatened to subpoena SEC Chair Gary Gensler at a September SEC Oversight hearing for Gensler’s and his agency’s lack of meaningful response to Congressional requests. Is Wagner’s letter and the resulting echo another mark in favor of the threatened subpoena? Continue reading “Sam Bankman-Fried Found Guilty; Capital Markets Hearing Drips With SEC Overreach”

SEC And DOJ Carry Out Enforcement Action Against Safemoon; Today’s Hearing

enforcement action

enforcement action

The Securities and Exchange Commission (SEC) has filed another enforcement action against a cryptocurrency company – this time it’s Safemoon and accused it of “perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon” and adding that the executive team “withdrew crypto assets worth more than $200 million.”   See the SEC’s press release.

SEC Crypto Assets and Cyber Unit Enforcement Chief David Hirsch projects skepticism about DeFi, in general, in the announcement, too: “Decentralized finance claims to deliver transparency and predictable outcomes, but unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers…”

In a Department of Justice press release, the DoJ announced the arrest of the CEO and CTO of SafeMoon, and said it’s still seeking Safemoon’s creator Kyle Nagy.  U.S. Attorney Breon Peace said about the fraud, “…the defendants deliberately misled investors and diverted millions of dollars to fuel their greedy scheme and enrich themselves by purchasing a custom Porsche sports car, other luxury vehicles and real estate.” Read more in CoinDesk.

what you should know: The Safemoon X account, with 1.2 million followers, gives no indication of the lawsuit. But, many commenting on the company’s Halloween tweet – it’s final tweet? – apparently did see it coming.

AML legislation momentum

Yesterday, momentum may be slowed, for now, for Anti-Money Laundering (AML) legislation on digital assets in the Senate as other priorities take over. Politico reports, “After a hearing last week ‘on crypto’s involvement, we’re looking at that — [and] we’re looking at potentially more sanctions on non-state actors, and we’re looking at Iran and Russia,’ [Senate Banking Chair Sherrod Brown (D, OH)] said when asked about legislative developments. He said he didn’t yet know when the next hearing on the topic would be.” Read it. Continue reading “SEC And DOJ Carry Out Enforcement Action Against Safemoon; Today’s Hearing”

Treasury Warns Crypto Firms In Speech; SAB 121 Smacked Down By GAO

Treasury Threatens

Treasury threatens crypto

Last Friday, a speech to be delivered by U.S. Deputy Treasury Secretary Wally Adeyemo at foreign-policy think tank Royal United Services Institute in London warned “cryptocurrency firms against allowing their platforms to be used to finance terrorist organizations, as scrutiny mounts of how Hamas may have used digital currency to fund its attack on Israel,” reported The Washington Post.

The Post published an excerpt from Adeyemo’s Friday speech the day before: “There are those in the digital asset space who wish to innovate without regard to consequences instead of doing so responsibly, including protecting against illicit financing. (…) Let me be clear: We will use every tool available to go after any person or platform that is facilitating the movement of resources for terrorists.” The theme speaks to an October 19 rulemaking proposal by Treasury’s FinCEN around mixers which has implications for decentralized finance (DeFi).  Read more.

what you should know: The fact the speech was shared by the Administration ahead of time with WaPo is telling. The speech feels like a new level as the speech increases the pressure on the digital assets industry while also showing clear support for legislative efforts in Congress which seek tough or draconian efforts to shut down cryptocurrency, in particular, in the United States. Adeyemo also spoke to CNN on the same day as the speech with a similar tone about crypto and illicit financing.

    • Correction: The above story has been updated to reflect that the speech happened on October 27 rather than Friday, November 3.

It’s not about one report

Chair Sherrod Brown (D, OH) and Sen. Elizabeth Warren (D, MA) of the Senate Banking Committee are not impressed with the digital assets industry’s efforts to dispute the connection between crypto and illicit financing portrayed by an October 10 article in The Wall Street Journal.

Punchbowl News Brendan Pedersen provides an overview of the latest and quotes Sen. Warren who says, “It’s not about one report… It’s about the whole structure of crypto that attracts some of the worst people around the world to move value around in a way that they cannot do through the ordinary banking system.” Fellow Banking Committee member Senator Cynthia Lummis (R, WY) chimes in and expresses concern about the damage done by the WSJ article. Read more. Continue reading “Treasury Warns Crypto Firms In Speech; SAB 121 Smacked Down By GAO”

Thousands Of Comments Pile Up For IRS; NYDFS Supports Parallel Stablecoin Regulation

crypto and taxes

tax comments skyrocket

The digital assets industry is keeping up the drumbeat on a request for comments by Treasury and the Internal Revenue Service regarding a tax rules for digital assets proposal. The deadline is November 13. A hearing is scheduled next week on November 7 with another, potentially, the next day according to the Federal Register. Some are already touting their appearance.

IRS’s director of digital assets Julie Foerster said just last week that the agency is expecting 8 billion “information returns” related to crypto. That’s 200 returns for each of the 40 million crypto buyers and sellers in the United States, she said. Read more.

Blockchain Association Senior Counsel Marisa Tashman Coppel tweeted on X yesterday: “Over 25,000 comments have been received by the IRS regarding their broker rulemaking proposal. Over 12,000 posted to the docket on Clearly a sign something is wrong with the proposal.” See the comments.

what you should know: Another reason for so many potential forms is that ANY crypto transaction would need to be reported according to the proposed rule. There still is no di minimis exemption, for example. You buy an NFT or a cup of coffee with Bitcoin, your service provider needs to report it, potentially. Continue reading “Thousands Of Comments Pile Up For IRS; NYDFS Supports Parallel Stablecoin Regulation”

Correction Issued On Crypto And Terrorist Financing Article; SEC’s Peirce Derides LBRY Decision


article correction

It wasn’t a retraction of the story run on October 10 connecting crypto to terrorist financing in the Wall Street Journal, but there was confirmation by the reporting team that interpretation of the data was incorrect.

A new correction posted Friday begins: “Palestinian Islamic Jihad and Hezbollah may have exchanged up to $12 million in crypto since 2021, according to crypto-research firm Elliptic. An earlier version of this article incorrectly said PIJ had sent more than $12 million in crypto to Hezbollah since 2021, citing Elliptic’s research.”

Scroll to the bottom of the article for the “Corrections and Amplifications” section.

article correction – reaction

Crypto venture capitalist Nic Carter observed the change in a tweet thread on X, “…while it’s great that WSJ acknowledged they’d made mistakes, the correction is still very weak.” Coinbase’s Chief Legal Officer Paul Grewal weighed in on X, “[The WSJ’s] lede still maintains that the funding supported Hamas attacks hinged on ‘One answer: cryptocurrency.’ There’s no evidence of that, and WSJ knows it.” Read that thread.

Given the fire the article started in Congress as shown by elements of terrorist financing hearings in the House and Senate last week, the stakes remain high regarding the actual data.

Meanwhile, the “crypto and terrorist financing” narrative has continued to propagate in the media. In an interview on CNN with Deputy Treasury Secretary Wally Adeyemo last week, the lower-third graphic for the interview reads, “U.S. Warns Crypto Firms Against Financing Hamas, Terror Groups.” See it. Continue reading “Correction Issued On Crypto And Terrorist Financing Article; SEC’s Peirce Derides LBRY Decision”

Senators Pick Sides At Banking Hearing On Crypto And Terrorism Financing; JPM Coin Continues To Scale

AML and crypto

senate banking hearing

With 13 mentions of the word “crypto” in his opening statement, Senate Banking Chair Sherrod Brown (D, OH) made sure everyone knew where yesterday’s hearing on illicit finance was going.

Some Democratic senators took pains to paint crypto with a broad brush (smearing U.S. digital asset companies in the process) only to have witnesses largely push back on the suggested scope of the AML challenge with crypto. See the hearing page and video.

Brown said, “Too often, crypto platforms don’t use the same commonsense protections that help keep illicit money out of the traditional banking system—safeguards like knowing their customers, or suspicious transaction reporting. Some crypto services and tokens even help users keep their transactions anonymous.” Read his statement. But, if you’re a U.S.-based company, you already must comply with existing AML laws.

senate banking hearing – Q&A

Overall, the pro- (Republican) and anti-crypto (Dems) positions were along partisan lines.

Some senators did not bother with crypto in their Q&A – such as Sen. Katie Britt (R, AL) – who maintained focus on how on broader solutions for preventing the atrocities in Israel earlier in the month.

But, Senator Jack Reed (D, RI) promoted his CANSEE Act [S.2355] during the hearing and asked the star witness of the day – former Chair of Israel’s AML authority Dr. Shlomit Wagman – about decentralized finance (DeFi) and its role in terrorist financing. She steered the answer away from potential threats from DeFi saying that toolboxes existed for tracing and emphasized the transparency of the blockchain. She then re-shared a well-known anecdote about Hamas stopping the use of Bitcoin due to its traceability.

Senator Mark Warner (D, VA) shared during his Q&A allotment that what he’s learned in Intelligence briefings might help everyone understand the danger in crypto. He also issued a full-throated rejection of DeFi saying, “I do not accept the premise that there is no father or mother of a DeFi system. Someone is making money off of that.” Continue reading “Senators Pick Sides At Banking Hearing On Crypto And Terrorism Financing; JPM Coin Continues To Scale”

House Financial Services Holds FinTech And Illicit Financing Hearings; NDAA As Vehicle

illicit financing

digital assets hearing

For Republicans – with the (successful) election of Rep. Mike Johnson (R, LA) as House Speaker looming later in the day – yesterday’s House Financial Services (HFS) Digital Assets, Financial Technology and Inclusion Subcommittee hearing was perhaps both a distraction and a welcome respite from the politicking and drama of the past three weeks.

Titled, “Modernizing Financial Services Through Innovation and Competition” (agenda and witnesses), Chair French Hill (R, AR) noted the Subcommittee’s accomplishments on digital assets legislation in his opening statement and explained that the day’s hearing would explore the broader FinTech topic.

Ranking Member Steven Lynch (D, MA) opened by skewering his Republican counterparts about whether the hearing’s timing was appropriate considering the acute need for a House Speaker.

Moving to the day’s subject matter of financial technology, Lynch echoed themes heard from Democratic Party leadership in previous hearings on digital assets: “I believe technology does have the potential to lower costs and improve accessibility for those left out of the traditional financial services service sector. However, while remaining interested in, and really believing in, the potential of FinTech and and ‘Buy Now Pay Later’ products, I want to say that some of these are simply repackaged versions of traditional finance -but packaged in a way to evade laws and regulations under the claims of innovation.”

See the video. The hearing’s duration was 1 hour and 45 minutes.

more tips:

Rep. Hill Statement on Rep. Mike Johnson (R, LA) Elected To Speaker Of The House –

what you should know: Republicans wanted it to appear that it was “business as usual” in the House Financial Services Digital Assets Subcommittee hearing room. Yet, the House Speaker drama remained a heavy, gauze curtain on the proceedings and HFS Democrats didn’t let the majority forget it. With the new House Speaker finally decided today, Republicans will need to come hard out of the gates in the days to come to try and save face with the electorate by effectively legislating and moving forward impactful law. In turn, Democrats will likely have significant “asks” that they wouldn’t have had a chance to make a month ago. For example, in digital assets, a re-negotiation of the stablecoin bill could be on the table, which Chair McHenry seemed to originally declined during the bill’s July markup. That bill’s success (makes it to law) likely turns on the states rights versus Federal oversight of stablecoins. The Dem conundrum: Democratic leadership in D.C. supports the latter, even though Democratic states such as New York support states rights. Continue reading “House Financial Services Holds FinTech And Illicit Financing Hearings; NDAA As Vehicle”