Bad day for Binance with SEC investigation and Reuters exposé

June 6, 2022 Coin Telegraph

Binance

The SEC is reportedly suspicious that the world’s biggest crypto exchange sold unlicensed securities in its ICO, and the news agency tallied up some old cases.

The United States Securities and Exchange Commission (SEC) is investigating whether Binance Holdings broke securities rules when it launched its BNB token in an initial coin offering (ICO) five years ago, Bloomberg reported on June 6.

Binance is the world’s largest crypto exchange, and BNB is the fifth largest cryptocurrency.

The BNB ICO took place in July 2017 on several platforms, during the height of the so-called ICO boom, and the Binance exchange opened just days afterward. According to Bloomberg, citing unnamed people familiar with the matter, at least one U.S. resident claimed to have taken part in the ICO, which could be a crucial fact for an SEC case, if the agency chose to pursue one. The SEC has claimed most cryptocurrencies are securities and brought cases against a number of ICO projects.

Binance founder and CEO Changpeng Zhao, often known as CZ, said in a 2020 blogpost that the wording of the BNB whitepaper was changed in January 2019 because “the potential for being misunderstood as a security is higher in certain regions.” Binance’s American arm, Binance.US, was created later that year.

Also on May 6, Reuters published a lengthy special report alleging that Binance processed at least $2.35 billion of transactions from hacks, investment frauds, and narcotics sales between 2017 and 2021, and had weak KYC/AML protections for those years.

Among other cases, Reuters mentions the hacking of Eterbase, with some of the proceeds being laundered through Binance by North Korean hacker group Lazarus, and Binance’s association with Russian-language drug mart Hydra.

A Binance spokesman disputed Reuters’ findings, and the exchange told Forbes in a statement that the report is a “woefully misinformed op-ed that uses outdated information from 2019 and unverified personal attestations.”

Binance is already the object of several U.S. federal investigations, include another SEC probe. The U.S. Commodity Futures Trading Commission (CFTC) began an investigation of the exchange’s trading practices last year.

Binance Markets, its United Kingdom branch, was ordered by the Financial Conduct Authority (FCA) to cease activities in that county after a review of its operations last year. Additionally, Binance was ordered to cease operations in Ontario last June, although it remained active in the Canadian province until March of this year.

US Markets Regulator Sues Crypto Exchange Gemini Over Alleged Violations Regarding Bitcoin (BTC) Futures Product

June 3, 2022 The Daily Hodl

CFTC Sues Gemini Over Futures Contract Statements

June 2, 2022 The Crypto Briefing

CFTC sues Gemini claiming the crypto exchange lied in futures contract evaluation

June 2, 2022 Coin Telegraph

bitcoin futures

The agency says the exchange gave false information in person and in documents in its 2017 bid to be among the first to offer Bitcoin futures contracts.

The United States Commodity Futures Trading Commission (CFTC) filed suit against Gemini Trust Co. in the U.S. Southern District Court of New York on Thursday. The CFTC claimed in the civil suit that Gemini made false or misleading statements to the CFTC in 2017 during in-person meetings and in documents, violating the Commodity Exchange Act and other regulations.

The agency was making an evaluation of the potential self-certification of a Bitcoin (BTC) futures contract to be based on the spot Bitcoin price determined by an auction held on Gemini’s digital asset trading platform.

The CFTC was considering whether the proposed Bitcoin futures contract would be susceptible to manipulation. The proposed Bitcoin futures contract would have been among the first digital asset futures contracts listed.

Gemini is the cryptocurrency trading platform founded by brothers Cameron and Tyler Winklevoss. It announced staff cuts Thursday and is preparing to lay off 10% of its workers due to the crypto market downturn.

This story is still in development.

CFTC Commissioner Issues Warning, Says Crypto Investors Should View New Tokens As Lottery Tickets

June 1, 2022 The Daily Hodl

Goldman Sachs reportedly eyes crypto derivatives markets with FTX integration

June 1, 2022 Coin Telegraph

Binance

FTX has sought to integrate brokerage services internally to fulfill trades automatically, however, CFTC has called for greater scrutiny of the demand as it would lead to a monopoly of big players.

Goldman Sachs, one of the leading investment banks in the United States is reportedly trying to onboard some of its derivatives products into FTX.US crypto derivatives offerings.

Goldman Sachs has been in talks with FTX over regulatory and public listing help, and aims to expand into crypto derivatives offering by leveraging some of its own derivatives tools and services, reported Barron’s.

FTX.US, the U.S. subsidiary of global cryptocurrency exchange FTX is currently seeking to offer brokerage services for its derivatives offerings. This would allow the crypto exchange to handle the collateral and margin requirements internally rather than depending on “futures commission merchants” (FCMs). FTX.US president Brett Harrison said:

“We have multiple FCMs already committed to integrating technologically with the exchange. There are several large ones you can probably name.”

The U.S. Commodity Futures Trading Commission (CFTC) has sought public comments on the requested amendment from the crypto exchange. The chief regulatory body also believes that FTX’s proposal warrants scrutiny as it would lead to a monopoly by large investment banks such as Goldman.

According to people familiar with the matter, the integration of Goldman Sachs derivatives services would offer “trading futures directly, introducing clients and acting as an on-ramp to the exchange, or providing capital top-ups for clients.”

FTX has argued that an integrated brokerage model would help in making the market more stable and free. In a recent roundtable discussion with the CFTC, CEO Sam Bankman-Fried fielded several questions about crypto derivatives and FTX’s proposal to integrate its own FCM.

Crypto derivatives trading has been a topic of debate for quite some time, with many European and even the U.S. prohibiting most of the crypto exchanges from offering leveraged trading. Binance had to shut its derivatives offerings in several European countries post regulatory interventions.

On one hand, CFTC has called for greater scrutiny of FTX’s amendment demand, while on the other, FTX argues that an integrated brokerage model would help them calculate calculates margin requirements every 30 seconds, rather than waiting until the next day to liquidate positions.

Bankman-Fried faces down roomful of futures industry insiders at CFTC roundtable

May 25, 2022 Coin Telegraph

CFTC

The discussion of FTX.US’s proposal for non-intermediated margined products clearing highlighted unknown factors and need for more regulatory framework.

FTX CEO Sam Bankman-Fried did a lot of talking at the United States Commodity Futures Trading Commission (CFTC) staff roundtable on non-intermediation Wednesday. He fielded questions and issues from 31 industry professionals about the FTX.US application to offer clearing of margined products, including crypto-based products, without a futures commission merchant (FCM) intermediary.

Many participants felt the need to mention their devotion to innovation and declared that they do not see the proposed new technology as an “us versus them” situation. Joe Cisewski of Pantera Capital said that just six or eight clearing houses dominate the market at present, so new competition would not be out of place. Like many others present, he saw the need for more regulatory framework for this new trading model.

“We don’t know what a crypto margin is,” said Hilary Allen, Professor of Law at American University. Allison Lurton of the Futures Industry Association (FIA) emphasized that FCM regulations are prescriptive and not principles-based because of the merchants’ “core position” in the system, and many rules and regulations would have to be revised for the proposed non-intermediated trading system.

Christine Parker of Coinbase said, “We don’t really have a good view of what a retail trader in the crypto space […] would design in a market.” Parker, commenting on the company’s experience outside the U.S., said crypto trading does not follow the patterns of traditional commodities. She was one of several people who considered trading options abroad superior to those in the U.S.

Several people also pointed out the ways in which the current system intentionally differs from the automated solution FTX is proposing. The framework for 24-hour clearing already exists, Lurton and others pointed out, but there are reasons not to use it. The proposed trading algorithm would have to respond go unexpected situations, Allen said, noting:

“That’s not what algorithms do, […] that’s what regulators are for.”

Todd Phillips of the Center for American Progress suggested that the role of the CFTC is to make sure investment products are appropriate for consumers. Possible round-the-clock clearing “isn’t something we want our retail investors getting into,” he said. Bankman-Fried took umbrage at this suggestion, calling it condescending and saying that “a lot of people know more than the people in this room” about margined trading.

“I was expecting something far more contentious,” moderator Robert Steigerwald of the Federal Reserve Bank of Chicago said later in the six-and-a-half-hour session.

CFTC