US Regulatory Agencies Launch Parallel Lawsuits Against Co-Founder of Bankrupt Crypto Lender Voyager

October 13, 2023 The Daily Hodl

Voyager Digital was ‘no better than a house of cards’ — CFTC commissioner

October 13, 2023 Coin Telegraph

CFTC Commissioner Kristin Johnson’s comments came after separate lawsuits from the CFTC and FTC were filed against Voyager and its former CEO Stephen Ehrlich.

A commissioner for the United States Commodity Futures Trading Commission (CFTC) has slammed Voyager Digital for its mistakes that eventually led to the loss of billions of dollars of customer funds.

Statement of @CFTCjohnson regarding @cftc's charges against Voyager's chief executive officer. Learn more: https://t.co/OiBvOoCuV6
— CFTC (@CFTC) October 12, 2023

In an Oct. 12 statement, Commissioner Kristin Johnson took aim at Voyager for misleading practices, ignoring warning signs, and “bare-bones due diligence,” which failed to protect customers.

“Because of Voyager’s failures, the company became no better than a house of cards.”

The commodities said Voyager turned a blind eye to what its subsidiary investment firms were doing with its own customer funds:

“It is astounding that Voyager failed to exert pressure on the firms where it invested its customers' assets."

“Instead of demanding that investment firms that received customer assets offer greater levels of transparency, Voyager shirked the long-established expectations for custodians and simply dispatched customer funds with little effort to preserve the same," she added.

Johnson’s comments came after the regulator, along with the Federal Trade Commission, filed parallel lawsuits against Voyager’s former CEO Stephen Ehrlich on Oct. 12.

The CFTC lawsuit alleges Ehrlich and Voyager conducted fraud and “registration failures” over its platform and its “unregistered commodity pool”.

It has been frustrating watching lots of obvious malfeasance happening in crypto land and enforcement actions only target low-rent relatively tiny scam operations while the industry was building industrial scale predation machines.

This is not that pattern!
— Patrick McKenzie (@patio11) October 12, 2023

The FTC, on the other hand, reached a proposed settlement with Voyager, banning the firm from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets, according to an Oct. 12 statement.

Voyager and its affiliates agreed to a judgment of $1.65 billion, which will go toward repaying customers in the bankruptcy proceedings.

Meanwhile, a separate Oct. 12 statement from CFTC Commissioner Caroline Pham said the regulator will continue to pursue action against cryptocurrency firms that misuse customer funds:

“There is a significant difference between managing investor money for the purpose of trading derivatives, and taking deposits and providing loans to others. Without financing and consumer credit, our economy would grind to a halt.”

However, Pham thinks the CFTC may have stepped outside the bounds of its authority in interpreting what constitutes a commodity pool operator:

“Such an interpretation is an overreach beyond our statutory authority and would disrupt well-established legal and regulatory frameworks for lending to institutions and consumer finance.”

On Sept. 7, Pham called for the CFTC to establish a cryptocurrency regulatory pilot program which would address the risks retail investors face.

Voyager filed for Chapter 11 bankruptcy in July 2022 where it indicated that it may owe anywhere between $1 billion to $10 billion in assets to more than 100,000 creditors.

The cryptocurrency brokerage firm opened withdrawals for customers in June.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

‘Biased, deceptive’: Center for AI accuses ChatGPT creator of violating trade laws

March 31, 2023 Coin Telegraph

Center for Artificial Intelligence and Digital Policy

The group believes GPT-4 violates Section 5 of the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.”

The Center for Artificial Intelligence and Digital Policy (CAIDP) has filed a complaint with the United States Federal Trade Commission (FTC) in an attempt to halt the release of powerful AI systems to consumers.

The complaint centered around OpenAI’s recently released large language model, GPT-4, which the CAIDP describes as “biased, deceptive, and a risk to privacy and public safety” in its March 30 complaint.

CAIDP, an independent non-profit research organization, argued that the commercial release of GPT-4 violates Section 5 of the FTC Act, which prohibits ''unfair or deceptive acts or practices in or affecting commerce.''

To back its case, the AI ethics organization pointed to contents in the GPT-4 System Card, which state:

“We found that the model has the potential to reinforce and reproduce specific biases and worldviews, including harmful stereotypical and demeaning associations for certain marginalized groups.”

In the same document, it stated: “AI systems will have even greater potential to reinforce entire ideologies, worldviews, truths and untruths, and to cement them or lock them in, foreclosing future contestation, reflection, and improvement.”

*Complaint filed by the Centre for AI and Digital Policy against OpenAI. Source:* *CAIDP*

CAIDP added that OpenAI released GPT-4 to the public for commercial use with full knowledge of these risks and that no independent assessment of GPT-4 was undertaken prior to its release.

As a result, the CAIDP wants the FTC to conduct an investigation into the products of OpenAI and other operators of powerful AI systems:

“It is time for the FTC to act [...] CAIDP urges the FTC to open an investigation into OpenAI, enjoin further commercial releases of GPT-4, and ensure the establishment of necessary guardrails to protect consumers, businesses, and the commercial marketplace.”

While ChatGPT-3 was released in November, the latest version, GPT-4 is considered to be ten times more intelligent. Upon its release on March 14, a study found that GPT-4 was able to pass the most rigorous U.S. high school and law exams within the top 90th percentile.

It can also detect smart contract vulnerabilities on Ethereum, among other things.

This morning I was hacking the new ChatGPT API and found something super interesting: there are over 80 secret plugins that can be revealed by removing a specific parameter from an API call.

The secret plugins include a "DAN plugin", "Crypto Prices Plugin", and many more. pic.twitter.com/Q6JO1VLz5x
— (@rez0__) March 24, 2023

The complaint comes as Elon Musk, Apple’s Steve Wozniak, and a host of AI experts signed a petition to “pause” development on AI systems more powerful than GPT-4.

Having a bit of AI existential angst today
— Elon Musk (@elonmusk) February 26, 2023

CAIDP president Marc Rotenberg was among the other 2600 signers of the petition, which was introduced by the Future of Life Institute on March 22.

The authors argued that “Advanced AI could represent a profound change in the history of life on Earth,” for better or for worse.

The United Nations Educational, Scientific and Cultural Organization (UNESCO) has also called on states to implement the UN’s “Recommendation on the Ethics of AI” framework.

After +1000 tech workers urged pause in the training of the most powerful #AI systems, @UNESCO calls on countries to immediately implement its Recommendation on the Ethics of AI - the 1st global framework of this kind & adopted by 193 Member Stateshttps://t.co/BbA00ecihO pic.twitter.com/GowBq0jKbi
— Eliot Minchenberg (@E_Minchenberg) March 30, 2023

In other news, a former AI researcher for Google recently alleged that Google’s AI chatbot, "Bard," has been trained using ChatGPT’s responses.

While the researcher has resigned over the incident, Google executives have denied the allegations put forth by their former colleague.

Magazine: How to prevent AI from ‘annihilating humanity’ using blockchain

US consumer watchdog probes crypto firms over deceptive ads

December 6, 2022 Coin Telegraph

Coin Telegraph

The Federal Trade Commission is investigating several unnamed crypto firms over possible misconduct in the advertisement of digital assets.

Several crypto firms are facing a probe from the United States Federal Trade Commission (FTC) over possible deceptive or misleading advertisements relating to cryptocurrencies.

According to a Dec. 6 report from Bloomberg, FTC spokeswoman Juliana Gruenwald said the watchdog is investigating “several firms for possible misconduct concerning digital assets.”

Gruenwald did not provide further details about which firms were the subject of the investigation or what had triggered the probe.

However, deceptive advertising and promotion have been a trending topic in the U.S. this year.

In October, reality TV star Kim Kardashian was fined by the United States Securities and Exchange Commission (SEC) for “touting on social media” about the EthereumMax (EMAX) crypto token without disclosing she was paid $250,000 to promote it.

In November, NFL quarterback Tom Brady and NBA point guard Stephen Curry were reportedly among a group of celebrities facing a probe from the Texas financial regulator over their promotion of the now-bankrupt crypto exchange, FTX.

The FTC is an independent agency of the United States which was created to protect the public from deceptive or unfair business practices through law enforcement, research, and education.

Earlier this year, they sent out an alert about a crypto scam with three key components, an impersonator, a QR code and a crypto ATM where the victims will be directed to send money.

They also revealed in a Jun.6 report nearly half of all crypto-related scams originated from social media platforms in 2021, and as much as $1 billion in crypto has been lost to scammers throughout the year.

Cointelegraph reached out to the FTC for comment but did not receive a reply by the time of publication.

Globally, several financial watchdogs and enforcement agencies have also been actively trying to curb deceptive crypto advertisements.

In March, the U.K.-based Advertising Standards Authority (ASA) issued an enforcement notice to over 50 companies advertising crypto, instructing them to review their ads to ensure they comply with the rules.

In August, the U.S.-based consumer watchdog group Truth in Advertising called out 19 celebrities for allegedly promoting nonfungible tokens (NFTs) without disclosing their connection to the projects.

Australia’s financial regulator has also fired warning shots across the crypto industry about deceptive advertising tactics.

In October, the Australian Securities and Investments Commission (ASIC) launched civil proceedings against Australian firm BPS Financial Pty Ltd (BPS) over alleged “misleading” representations concerning its Qoin token.

FTC Files Lawsuit Against Social Media Giant Meta for Allegedly Violating Antitrust Laws

July 28, 2022 The Daily Hodl

Social media blamed for $1B in crypto scam losses in 2021

June 6, 2022 Coin Telegraph

Social media blamed for B in crypto scam losses in 2021

Coin Telegraph

Nearly half of the consumers who reported a cryptocurrency-related scam in 2021 said it started with an ad, post or message on social media.

The United States Federal Trade Commission has labeled social media and crypto a “combustible combination for fraud,” with nearly half of all crypto-related scams originating from social media platforms in 2021.

Published on Friday, the report found that as much as $1 billion in crypto has been lost to scammers throughout the year, which was more than a five-fold increase from 2020, and nearly sixty times up from 2018.

New analysis finds consumers reported losing more than $1 billion in #cryptocurrency to scams since 2021. Most of the losses consumers reported were to bogus cryptocurrency investment scams: https://t.co/MYGTcaw1aS #DataSpotlight /1
— FTC (@FTC) June 3, 2022

As of March 31, the amount of crypto lost was already approaching half of the 2021 figure, showing that momentum doesn’t appear to be slowing.

The FTC found that Instagram (32%), Facebook (26%), WhatsApp (9%) and Telegram (7%) were the top platforms used for crypto scams.

Interestingly, Twitter, the social media platform widely adopted by the crypto-community, was not mentioned despite being littered with spam and scam bots touting fake crypto giveaways.

Based on fraud reports to FTC’s Consumer Sentinel Network, the most common type of crypto scam was Investment Related Fraud, making up $575 million of the total $1-billion figure.

“These scams often falsely promise potential investors that they can earn huge returns by investing in their cryptocurrency schemes, but people report losing all the money they ‘invest.’”

According to the FTC, common investment scams include cases in which a so-called “investment manager” contacts a consumer, promising to grow their money — but only if the consumer buys cryptocurrency and transfers it into their online account.

Other methods include impersonating a celebrity who can multiply any cryptocurrency that a consumer sends them or promises free cash or cryptocurrency.

The FTC also lists scams that involve investment in fake art, gems and rare coins, bogus investment seminars and advice, and other miscellaneous investment scams as part of this group.

The next largest crypto-scam-related losses came from Romance Scams at $185 million, in which a love interest tries to entice someone into investing in a crypto scam.

Business and Government Impersonation Scams came in third at a total of $133 million, in which scammers target consumers, claiming that their money is at risk due to fraud or a government investigation.

“These scams can start with a text about a supposedly unauthorized Amazon purchase, or an alarming online pop-up made to look like a security alert from Microsoft. From there, people are reportedly told the fraud is extensive and their money is at risk.”

The scammers will then pretend to be a representative of the bank to secure the person’s crypto.

In other cases, scammers have impersonated border patrol agents reportedly telling people their fiat accounts are frozen as part of a drug trafficking investigation. These scammers tell people the only way to protect their money is to put it in crypto. They’re directed to take out cash and feed it into a crypto ATM and are tricked into sending it to the scammers’ wallet address instead.

The report found that people aged 20–49 were most likely to lose crypto to a scammer, with those in their 30s the hardest hit, making up 35% of total reported fraud losses.

The amount of crypto lost rises up according to age group, with the median individual reported cryptocurrency losses for those in their 70s reaching up to $11,708, compared to just $1,000 for 18- and 19-year-olds.

An article on the FTC’s Consumer Advice website details a number of ways to avoid cryptocurrency scams:

Only scammers demand payment in cryptocurrency. No legitimate business is going to demand you send cryptocurrency in advance — not to buy something and not to protect your money. That’s always a scam.
Only scammers will guarantee profits or big returns. Don’t trust people who promise you can quickly and easily make money in the crypto markets.
Never mix online dating and investment advice. If you meet someone on a dating site or app, and they want to show you how to invest in crypto or ask you to send them crypto, that’s a scam.

Scammers Have Stolen Over $1,000,000,000 in Crypto Assets Since Start of 2021: U.S. Federal Trade Commission

June 4, 2022 The Daily Hodl

Federal Trade Commission

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