CFTC

Regulatory action against Mango Markets exploiter is a win for DeFi — Moody’s

February 2, 2023 Coin Telegraph

The SEC and CFTC taking action against the alleged fraudster shows that decentralized finance is becoming a “safer and more welcoming environment,” according to credit rating firm Moody’s.

Recent charges brought against Mango Markets exploiter Avraham Eisenberg will have a positive impact on the decentralized finance (DeFi) space, according to credit rating firm Moody’s.

In a Jan. 31 note from Moody’s Investor Service, assistant vice president of decentralized finance Cristiano Ventricelli stated that enforcement actions brought by the two leading U.S. market regulators in January mean that DeFi is moving toward a “safer and more welcoming environment.”

“The fact that both the SEC and CFTC took action against market manipulation by an alleged rogue trader is a credit positive for the industry as a whole.

Ventricelli stated that these actions could “improve oversight of the DeFi industry” which has for the most part been a difficult area to regulate due to the lack of clarity regarding jurisdiction over open-source protocols.

On Jan. 20, the United States Securities and Exchange Commission (SEC) filed charges against the alleged market manipulator, while the Commodity Futures Trading Commission (CFTC) filed charges against Eisenberg on Jan. 9.

Ventricelli made a similar comment in an article tweeted out by Moody’s on Jan. 26 but he went into more detail in the Jan. 31 note.

A man has been charged with orchestrating an attack on the Mango Markets trading platform to steal $116M of #crypto assets. Moody’s Cristiano Ventricelli comments on the US Securities and Exchange Commission's move. More on digital finance: https://t.co/pGDxM9u42T @SECGov pic.twitter.com/HLFILPGQOR
— Moody's Investors Service (@MoodysInvSvc) January 25, 2023

The report suggested that DeFi is “no longer a no man’s land,” referring to a June speech by European Central Bank President Christine Lagarde to the European Parliament, where she argued that Europe’s crypto legislation, Markets in Crypto-Assets (MiCA), should be expanded to include a framework for decentralized finance.

Ventricelli suggested that this safer environment could lead to wider adoption among institutional investors “such as banks,” as well as retail investors.

CFTC’s filing alleged that Eisenberg “engaged in a manipulative and deceptive scheme to artificially inflate the price of swaps offered by Mango Markets.”

The SEC filing alleged that Eisenberg’s actions “left the platform at a deficit” when the security price returned to its pre-manipulation level.

Mango Labs, the company behind Mango Markets, filed its own lawsuit against Eisenberg on Jan. 25, demanding $47 million in damages plus interest over his alleged October exploit.

Foundation Behind XRP Rival Stellar (XLM) Tapped for Position on New CFTC Advisory Committee

January 22, 2023 The Daily Hodl

FTX VCs liable to ‘serious questions’ around due diligence — CFTC Commissioner

January 21, 2023 Coin Telegraph

CFTC

The lack of recordkeeping of FTX coupled with “an auditor no one’s ever heard of” forces the CFTC to ask questions about the mindset of the institutional investors.

Amid ongoing investigations around the defunct crypto exchange FTX, the Commodity Futures Trading Commission (CFTC) questions the due diligence conducted by institutional investors and their accountability regarding the loss of users’ funds.

CFTC Commissioner Christy Goldsmith Romero stated that VCs that had to write down their investments in millions of dollars to nearly zero raises “serious questions” about the due diligence conducted over the last year, speaking to Bloomberg.

*CFTC Commissioner Christy Goldsmith Romero questioning the VCs that once backed FTX. Source: Bloomberg*

She raised concerns about FTX CEO John Ray’s revelations in court about not having any records and controls over the exchange’s financials.

I'm glad Mr. Ray is finally paying lip service to turning the exchange back on after months of squashing such efforts!

I'm still waiting for him to finally admit FTX US is solvent and give customers their money back...https://t.co/XjcyYFsoU0 https://t.co/SdvMIMXQ5K
— SBF (@SBF_FTX) January 19, 2023

The lack of recordkeeping coupled with “an auditor no one’s ever heard of” forces the CFTC to ask questions about the mindset of the institutional investors. In this regard, Romero asked a series of questions:

“How is that possible? So do they turn a blind eye to it? Were they just distracted by this promise of innovation?”

FTX founder and former CEO Sam Bankman-Fried used trust as a marketing technique to gain investor confidence. However, Romero echoed the current investor sentiment while stating that “We know now that that's not true.”

As a result, she believed that the VCs backing FTX ignored the red flags when it came to due diligence, further questioning their involvement.

“So was there some conflicts that prevented them (VC backers) from really paying attention to the due diligence and the facts that they were uncovering?” asked Romero while concluding the topic at hand.

Shark Tank star and investor Kevin O’Leary, who once supported FTX, warned against the possible fall of unregulated crypto exchanges. He stated:

“If you’re asking me if there’s going to be another meltdown to zero? Absolutely. One hundred percent it’ll happen, and it’ll keep happening over, and over and over again.”

As Cointelegraph previously reported, based on a report by the National Bureau of Economic Research, up to 70% of the trading volume on unregulated exchanges is wash trading.

Stellar joins CFTC’s Global Markets Advisory Committee as one of four crypto orgs

January 20, 2023 Coin Telegraph

CFTC

Stellar chief operating officer Jason Chlipala said the foundation would bring the unique perspective of Layer 1 to the committee and highlight stablecoin use cases.

The Stellar Development Foundation (SDF) has become the newest member of the United States Commodity Futures Trading Commission (CFTC) Global Markets Advisory Committee (GMAC), the blockchain announced on its blog. The committee is preparing to meet on Feb. 13 for the first time in over a year.

SDF supports the Stellar blockchain, which is used for crypto-fiat transfers. The foundation will be represented on the committee by chief operating officer Jason Chlipala. He wrote in the company blog that “we hope to bring the unique perspective of Layer 1 protocols” to the GMAC and:

“As part of the Committee, SDF will highlight the role of stablecoins in the digital asset markets and real-world use cases, including leveraging stablecoins in the delivery of humanitarian aid.”

Stellar is the issuer of the Stellar (XLM) coin and creator of the Stellar Aid Assist program that “enables aid organizations to deliver cash assistance to vulnerable populations.” It joins crypto-oriented GMAC members CoinFund, Uniswap Labs and the Chamber of Digital Commerce. Traditional finance giants including HSBC, Goldman Sachs and BlackRock are also represented on the 36-member committee.

CFTC commissioner Caroline Pham is the new sponsor of the GMAC. The first meeting under her sponsorship will be devoted to organizational issues. “Potential topics relating to global market structure and digital asset markets for the GMAC to prioritize in making policy recommendations to the CFTC” will also be discussed.

Excited to represent @StellarOrg on @CFTCpham’s Global Markets Advisory Committee and help ensure the conversation includes a blockchain point-of-view https://t.co/OAbRjAo025
— Jason Chlipala (@jachlipala) January 19, 2023

Pham stated in an interview Jan. 17 that she has held over 75 meetings with various parties on global crypto regulatory standards since she was nominated to the CFTC by U.S. President Joe Biden in January 2022. In September, she proposed the creation of a CFTC Office of the Retail Advocate modelled after the Security and Exchange Commission’s Office of the Investor Advocate.

CFTC commissioner: Crypto exchanges shouldn’t ‘self-certify’ tokens

January 19, 2023 Coin Telegraph

CFTC

Commissioner Christy Goldsmith Romero wants crypto exchanges blocked from self-certifying crypto and crypto products before going live on their platforms.

A commissioner from the Commodity Futures Trading Commission (CFTC) has called on Congress to stop allowing cryptocurrency exchanges to “self-certify” and list tokens without oversight.

CFTC commissioner Christy Goldsmith Romero told an audience at a Jan. 18 University of Pennsylvania event focused on FTX that the current process wasn't adequate to ensure proper oversight, saying:

“I urge Congress to avoid permitting newly-regulated crypto exchanges to self-certify products for listing, under the current process that limits CFTC oversight."

"It is critical to institute guardrails against regulatory arbitrage, and that includes prohibiting the use of the self-certification process," she added.

Currently, crypto exchanges can “self-certify” their product's safety before listing unless the CFTC blocks the listing within 24 hours.

*CFTC Commissioner Christy Goldsmith Romero Source: Twitter*

She said this process used to list products such as crypto futures isn’t adequate for that type of asset.

Goldsmith Romero added crypto businesses looking to issue tokens could use the CFTC’s crypto regulatory framework to circumvent registration with the Securities and Exchange Commission (SEC).

Proposals to give the CFTC an increased role in oversight of the crypto industry were introduced to Congress in 2022.

Crypto ‘gatekeepers’ need to ‘step up’

During her speech, the commissioner also called on lawyers, compliance professionals, celebrities, venture capital firms and pension fund investors to conduct better due diligence on crypto firms.

“Gatekeepers themselves also need to step up, and call for compliance, controls, and other governance, without allowing the promise of riches and the company’s marketing pitch to silence their objections to obvious deficiencies.”

Remarking on FTX, which declared bankruptcy in November 2022 after mishandling and misplacing customer funds, Goldsmith Romero said these entities “should have seriously questioned the operational environment at FTX in the lead-up to its meltdown.”

“If the digital asset industry wants to regain any amount of public trust, it has some work to do,” she added.

Some crypto industry observers have continued to argue that the circumstances behind FTX's collapse should not be pegged to the digital asset space or a lack of regulation.

SEBA Hong Kong's managing director Ludovic Shum told Cointelegraph during an interview this week that the fall of FTX could have easily happened in any other industry.

"At the end of the day, it goes back to the trust regarding the checks and balances [...] It was just unfortunate that it happened in this fast-growing area of the crypto world where it could have easily happened to banks, securities, houses, asset managers," said Shum.

Meanwhile, Lachlan Feeney, Founder and CEO of blockchain development agency Labrys said the industry needs more oversight, not necessarily regulation to prevent another disaster.

"The FTX scandal didn’t happen because of a lack of regulation. FTX operated [allegedly] illegally; disregarding the existing regulations rather than capitalizing on an absence of regulation."

"There should probably be more oversight to stop unscrupulous players and activity before situations escalate, but we don’t need masses of new regulation and red tape that deters innovation. We need clarity on the existing regulations," he said in a statement to Cointelegraph.

Law Decoded, Jan. 9-16: Gemini, Bithumb, Nexo are fresh targets for regulation and prosecution

January 16, 2023 Coin Telegraph

Binance

While the FTX saga continues to make headlines, last week brought a plethora of new troubles for crypto companies in the United States, Europe and Asia.

The United States Securities and Exchange Commission charged cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini with selling unregistered securities through Gemini’s “Earn” program.

The Commodity Futures Trading Commission started the process of getting a default judgment in its case against Ooki DAO after the decentralized autonomous organization missed the deadline to respond to the lawsuit. It also filed suit against digital artist Avraham Eisenberg and charged him with two counts of market manipulation in connection with an exploit of the decentralized finance platform, Mango Markets.

In South Korea, tax agents raided the Seoul headquarters of cryptocurrency exchange Bithumb, looking for evidence of possible tax evasion. This development comes after former Bitchumb chair Lee Jung-Hoon was acquitted of $70 million in fraud charges. In the Bulgarian capital of Sofia, the offices of crypto lending firm Nexo were raided by police. They targeted a large-scale money laundering scheme and violations of Russia’s international sanctions.

While the FTX saga continues to make headlines, last week brought a plethora of new troubles for crypto companies in the United States, Europe and Asia.

Voyager and Binance.US deal given the green light

There’s still a place for good news. Bankrupt crypto lender Voyager Digital has finally received initial court approval for its proposal to sell its assets to Binance.US for $1.02 billion. The approval comes amid a national security probe concerning Binance.US that Voyager seeks to speed up. The Voyager Official Committee of Unsecured Creditors — a body representing creditors with no security interests in Voyager — supported the transaction in its current form, noting the deal would result in greater recoveries for creditors than if Voyager liquidated its holdings itself.

New York sued by environmental group after approval of crypto mining facility

In September 2022, the Public Service Commission of New York authorized the conversion of the Fortistar North power plant into a crypto-mining site. Now it faces a lawsuit, with the Clean Air Coalition of Western New York and the Sierra Club claiming that the Fortistar plant only operated during periods of high demand for electricity, such as extreme weather conditions. However, as a crypto mining plant, the site would run 24 hours a day, generating up to 3,000% more greenhouse gas emissions.

All you need to know about the FTX from last week

As the investigation into FTX continues, the crypto exchange’s former engineering chief, Nishad Singh, followed former FTX and Alameda Research executives Gary Wang and Caroline Ellison by reportedly meeting with federal prosecutors to cut a deal.

The former president of FTX US, Brett Harrison, has lashed out at Sam Bankman-Fried for manipulating and threatening colleagues who proposed solutions to reorganize FTX US’ management structure. Despite recalling Bankman-Fried to be a “sensitive and intellectually curious person” at first, Harrison said he saw “total insecurity and intransigence” in Bankman-Fried when confronted with conflict, particularly when Harrison suggested FTX US establish separate branches for its executive, developer and legal teams.

Meanwhile, FTX was approved to sell some of its assets to aid efforts to repay creditors. Judge John Dorsey has approved the sale of four key units of FTX, including the derivatives platform LedgerX, the stock-trading platform Embed and its regional arms, FTX Japan and FTX Europe.

Defunct Crypto Hedge Fund Three Arrows Capital Founders Seek $25 Million to Start New Exchange Amid Scrutiny

January 16, 2023 Bitcoin.com

Ooki DAO misses lawsuit response deadline, default judgment on the cards

January 12, 2023 Coin Telegraph

California

The commodities regulator has begun the process of getting a court ruling on the Ooki DAO case after the latter failed to respond to the lawsuit by the deadline.

The Commodity Futures Trading Commission (CFTC) has begun the process of getting a default judgment in its case against Ooki DAO after the latter missed the deadline to respond to the lawsuit.

According to a Jan. 11 court filing, the regulator has requested the court for an "entry of default" against the decentralized autonomous organization (DAO), stating it had missed the deadline to "answer or otherwise defend" as instructed by the summons.

If approved, the entry of default will establish Ooki DAO has failed to plead or defend itself in court and will no longer be able to answer or respond to the suit.

An "entry of default" is the first step in the process of gaining a default judgment — a ruling handed down by the court when the defendant fails to defend a lawsuit.

The lawsuit in question was filed by the CFTC on Sept. 22, accusing Ooki DAO of illegally offering “leveraged and margined” digital asset commodity transactions to retail traders along with failing to enact a way to identify customers and “engaging in activities only registered futures commission merchants (FCM) can perform.”

The lawsuit was served to the DAO through its help chat box along with a notice on its online forum.

In December, District Judge William Orrick ordered the regulator to serve Tom Bean and Kyle Kistner, the founders of a predecessor trading platform to Ooki DAO, adding the CFTC “should serve at least one identifiable Token Holder if that is possible.”

Bringing forward the lawsuit without clear regulatory guidelines had many criticize the regulator. CFTC commissioner Summer Mersinger even called the action a “regulation by enforcement” approach.

The case could set an interesting precedent for future lawsuits involving DAOs as charges and enforcement will be carried out against an organizational structure with no central body that often includes anonymous members.

In a Dec. 20 court filing, Judge Orrick said Ooki DAO "has the capacity to be sued as an unincorporated association under state law" but said that does not "necessarily establish" the DAO is an association which can be held liable under commodities regulations.

He added those questions can be addressed "later in litigation."