SEC pushes back against Coinbase’s ‘overly broad’ discovery requests

August 6, 2024 Coin Telegraph

Coinbase narrows subpoena, wants Gensler’s emails during time as SEC Chair

July 15, 2024 Coin Telegraph

Crypto exchange FTX gets nod to sell $873M of assets to repay creditors

November 30, 2023 Coin Telegraph

Crypto exchange FTX gets nod to sell 3M of assets to repay creditors

Bitwise

Nearly $700 million of the $873 million trust assets allowed to be sold by FTX comes from Grayscale’s flagship product, the Grayscale Bitcoin Trust, or GBTC.

Bankrupt crypto exchange FTX has been given the green light to sell around $873 million of trust assets, with proceeds used to repay creditors impacted by the exchange’s collapse in 2022, according to a Nov. 29 filing in a Delaware bankruptcy court.

The $873 million in assets will be sourced from FTX’s stakes in various trusts issued by crypto asset manager Grayscale Investments, valued at $807 million, and custody service provider Bitwise — valued at $66 million.

While the court document references a total of $744 million in assets — this is due to the valuation figure being as of Oct. 25, 2023. The assets have increased in value since.

*Order authorizing FTX Trading to sell trust assets. Source: Kroll*

The approval comes nearly four weeks after FTX debtors filed a motion to Judge John Dorsey on Nov. 3 requesting the sale of the six cryptocurrency trusts — including the Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Bitwise 10 Crypto Index Fund (BITW).

FTX currently owns over 22 million units of GBTC, Grayscale’s flagship Bitcoin product, now worth $691 million, while its 6.3 million shares of ETHE are now worth around $106 million.

Grayscale’s Ethereum Classic Trust (ETCG), Litecoin Trust (LTCN) and Digital Large Cap Trust (GDLC) are the three other trusts that FTX can now sell to recoup funds for impacted FTX customers.

*FTX's shares in Grayscale and Bitwise were worth $744 million as of Oct. 25, but the valued has increased since. Source: Kroll*

FTX’s administrators, headed by John. J Ray III, has been working to recover assets since Sam Bankman-Fried’s former empire collapsed in November 2022.

So far, around $7 billion in assets has been recovered, with nearly half of that coming in the form of cryptocurrencies ($3.4 billion).

In June, FTX’s debtors estimated the total amount of customer assets misappropriated was $8.7 billion.

Meanwhile, Bankman-Fried was convicted on seven fraud-related charges on Nov. 2 and is set to be sentenced on March 28.

He remains in Brooklyn’s Metropolitan Detention Center for the time being, where he recently paid four mackerels in exchange for a haircut.

Magazine: Deposit risk: What do crypto exchanges really do with your money?

Appeals court rejects Sam Bankman-Fried’s bid for release

November 22, 2023 Coin Telegraph

Appeal

The court cited Sam Bankman-Fried’s alleged witness tampering as the main grounds for rejecting his release bid.

FTX founder and convicted fraudster Sam Bankman-Fried will stay jailed after failing to convince a United States appellate court that he should be freed while his legal team appeals his conviction.

In a Nov. 21 mandate, the U.S. Court of Appeals for the Second Circuit said Bankman-Fried’s previous attempts to tamper with two witnesses while on pretrial release was a major reason behind rejecting his request.

“We have reviewed the Defendant-Appellant’s additional arguments and find them unpersuasive,” the court said.

*Bankman-Fried’s release motion was rejected by a U.S. appeals court. Source: Courtlistener*

Government prosecutors accused Bankman-Fried of leaking Caroline Ellison’s diaries to The New York Times in July, which caused his bail to be revoked by a New York District Court.

Bankman-Fried argued the New York court failed to consider that he was engaged in activity considered freedom of speech protected under the First Amendment.

The appellate court, however, said the New York District Court ruled correctly and that witness tampering “falls outside the zone of constitutional protection.”

The 2nd Circuit has — rather belatedly — denied Sam Bankman-Fried's appeal of his pretrial detention.

"The record supports the district court’s conclusion that there was probable cause to believe
that the Defendant-Appellant attempted to tamper with two witnesses".
— Molly White (@molly0xFFF) November 21, 2023

Bankman-Fried’s legal team also argued that the District Court failed to consider a less restrictive alternative to detention.

That argument was struck down, with the court stating that the District Court “thoroughly considered” all relevant factors, including Bankman-Fried while he was on pretrial release.

Bankman-Fried was found guilty of seven fraud and money laundering-related charges on Nov. 2.

The former FTX CEO will remain behind bars while he awaits his sentencing on March 28 next year.

Magazine: Deposit risk: What do crypto exchanges really do with your money?

Fraud trial of Mango Markets exploiter behind alleged $116M theft pushed to April

November 4, 2023 Coin Telegraph

Fraud trial of Mango Markets exploiter behind alleged 6M theft pushed to April

Avraham Eisenberg

Attorneys representing the alleged fraudster, Avraham Eisenberg, convinced the judge that more time was needed to sift through discovery materials submitted by U.S. prosecutors.

Lawyers representing the $116 million Mango Markets exploiter have convinced a judge to postpone the fraud trial until April 8, 2023.

Avraham Eisenberg’s fraud trial was set to commence on Dec. 4 but several circumstances impacted his trial preparations, according to his lawyers, who filed a successful motion for a continuance to District Court Judge Arun Subramanian on Nov. 2.

“As discussed in today’s conference, the motion for continuance is GRANTED. Trial in this case will begin on April 8, 2024,” Subramanian stated in a Nov. 3 court filing.

U.S. prosecutors contested the motion for continuance but were unsuccessful. Subramanian also ordered United States prosecutors and Eisenberg's lawyers to submit a revised schedule for pretrial motions and submissions by Nov. 7.

Despite confessing his involvement in the Mango Markets exploit, Eisenberg plead not guilty to three criminal counts for commodities fraud, commodity manipulation and wire fraud in June.

*Judge Arun Subramanian granted Eisenberg’s motion for continuance (in blue writing) on Nov. 3. Source: Courtlistener*

In the motion, Eisenberg’s attorneys said they needed more time to sift through discovery materials submitted by U.S. prosecutors.

“The government has produced voluminous discovery in this case on a rolling basis [...] which the defense is still analyzing and conferring with the client about.”

The lawyers added that they lost time to prepare with Eisenberg when he was “unexpectedly” transferred to the Metropolitan Detention Center (MDC) in Brooklyn on Oct. 26.

Eisenberg wasn’t permitted to transfer the discovery materials, which he annotated along with other legal paperwork relevant to the trial.

“The move to the MDC has already, and will continue to, severely inhibit defense counsel’s access to Mr. Eisenberg,” the lawyers added.

MCD is the prison which former FTX CEO Sam Bankman-Fried returned to after he was convicted on all seven fraud-related charges on Nov. 2.

The Securities and Exchange Commission also charged Eisenberg on Jan. 20, alleging that he manipulated the Mango Markets governance token, MNGO, by taking out “massive loans” against its inflated collateral and draining Mango’s treasury of around $116 million.

Mango Markets is now also suing Avraham Eisenberg, seeking the return of the remaining $47 million he stole.https://t.co/7pDoHuigH4 https://t.co/H48nPPl13h
— web3 is going just great (@web3isgreat) January 26, 2023

It followed Eisenberg’s arrest in Puerto Rico about three weeks earlier on Dec. 27.

Eisenberg publicly confessed to the exploit on Oct. 15, 2022, arguing that his actions were completely legal. He initially sent back $67 million to Mango Markets' decentralized autonomous organization as part of a bounty deal. However the team behind Mango Markets later sued Eisenberg for $47 million in damages plus interest.

Magazine: Should crypto projects ever negotiate with hackers? Probably

Ripple Labs bites back against SEC’s request to file appeal

August 16, 2023 Coin Telegraph

Analisa Torres

Ripple’s chief legal officer said no “extraordinary circumstance” in the case exists which warrants the Court to accept the SEC’s request for leave.

Ripple Labs has voiced its opposition towards the United States securities regulator’s move towards filing an interlocutory appeal relating to the summary judgment laid down by U.S. District Court Analisa Torres on Jul. 13.

In an Aug. 16 letter to Torres of the Southern District of New York, Ripple’s lawyers explained that because the Securities and Exchange Commission failed to satisfy elements of the Howey test relating to Ripple’s distribution of XRP — a “legal question” — the Court should reject the SEC’s motion for leave to file an interlocutory appeal.

An interlocutory appeal occurs when a ruling by a trial court is appealed while other aspects of the case are still proceeding and are only allowed under specific circumstances.

Ripple’s lawyers believe it is more appropriate for the SEC to appeal the Court’s ruling after a final judgement with a full record.

*Ripple Labs officially opposes the SEC’s move to file an appeal in a letter to U.S. Judge Analisa Torres. Source: Court Listener*

Stuart Alderoty, Ripple’s chief legal officer, explained that no “extraordinary circumstance” exists in the matter that warrants the Court to depart from normal legal procedure:

“There is no extraordinary circumstance here that would justify departing from the rule requiring all issues as to all parties to be resolved before an appeal.”

We oppose the SEC’s request for an interlocutory appeal. There is no extraordinary circumstance here that would justify departing from the rule requiring all issues as to all parties to be resolved before an appeal. https://t.co/hjNIwEZkSt
— Stuart Alderoty (@s_alderoty) August 16, 2023

On Jul. 13, Ripple scored a partial victory over the securities regulator regarding the securities status of XRP.

Torres ruled that the XRP token was not in itself a security. She said, however, that sales of XRP tokens can be securities in certain circumstances, such as when sold to institutional investors but not when sold on exchanges to retail traders.

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

Breaking: Court victory for Ripple as judge denies SEC motion to seal Hinman docs

May 16, 2023 Coin Telegraph

Coin Telegraph

United States District Judge Analisa Torres made the order on May 16 in a win for Ripple.

A motion from the United States securities regulator to seal the controversial Hinman Speech documents has been denied — a move that has been seen as a win for the Ripple and crypto community.

The U.S. Securities and Exchange Commission filed the motion to seal the documents on Dec. 22, 2022, arguing that its mission outweighed the "public's right" to access documents that have “no relevance” to the Court’s summary judgment decision, among other arguments.

However, as per the most recent order, Judge Analisa Torres for the U.S. District Court ruled that the documents are "judicial documents" subject to a strong presumption of public access.

"The Hinman Speech Documents “would reasonably have the tendency to influence [the Court’s] ruling on a motion," she added.

Judge Torres said the court has also rejected the SEC's argument that sealing the documents is necessary to preserve "openness and candor" within the SEC, stating:

"The Hinman Speech Documents are not protected by the deliberative process privilege because they do not relate to an agency position, decision or policy."

The Hinman Speech documents refer to the speech given by former SEC Corporation Finance Division Director William Hinman at the Yahoo Finance All Markets Summit in June 2018, where he reportedly stated that Ether (ETH) is not a security.

Ripple has considered the speech a key piece of evidence in its ongoing legal battle with the SEC, which alleges that sales of Ripple's XRP (XRP) violated U.S. securities laws.

The price of XRP spiked on the news, jumping around 2.6%. It is currently trading at $0.43.

Hinman Speech docs will not be sealed; p.5. Judge makes clear they should be open regardless of their impact in a decision. States it neither stifles SEC deliberation nor is the SEC's "prophylactic" concern it could be priveleged in the future convince.https://t.co/tCS5cpgsQO pic.twitter.com/73YXhZszNY
— WrathofKahneman (@WKahneman) May 16, 2023

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

Update (May 16, 10:50 pm UTC): This article has been updated to include background information and further details from the May 16court filing.

Mainstream media renew push for non-US FTX user identities

May 4, 2023 Coin Telegraph

Bankruptcy Code

A May 3 filing to the United States Bankruptcy Court brings new objections to a motion that aimed to redact customer identities.

Four media outlets in the United States have continued efforts to get the identities of non-U.S. FTX customers revealed, filing new objections to a previous motion to seal their identities.

Bloomberg, Dow Jones, The New York Times and the Financial Times first filed a motion objecting to FTX and the Official Committee of Unsecured Creditors being authorized to redact and withhold customer information on Jan 11.

While the court previously had heard similar arguments by the four firms, the May 3 filing made a new objection to the Committee’s motion to seal the identities of non-U.S. customers.

*The four media firm’s most recent filing against FTX and the Committee. Source: Kroll.*

The media outlet's most recent argument is that there is no legal basis to redact the names pursuant to non-U.S. data privacy laws.

The media giants argued that under section 105 of the Bankruptcy Code — the provision which grants the bankruptcy court judicial power — there is no part that permits foreign law to override the right of access to information under U.S. constitutional and statutory law:

“At bottom, Movants desire to avoid ‘enforcement of the public disclosure requirements of U.S. bankruptcy law’ [...] furnishes no basis for sealing.”

“The law of the United States — constitutional and statutory — guarantees the public a strong presumptive right to inspect bankruptcy filings. That right cannot be abrogated by a party’s assertion of legal obligations under foreign law,” the media firms added.

The first argument raised — which was claimed in an earlier filing — was that the names of FTX’s creditors do not constitute “confidential commercial information.”

The second — also raised in an earlier filing — is that such disclosure wouldn’t subject the creditors to “undue risk.”

FTX and the committee have until May 4 at 4:00 pm Eastern Time to submit an objection.

The hearing date for the filing will take place on May 17 at 1:00pm.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

Coinbase supports new court action to remove Tornado Cash ban

April 6, 2023 Coin Telegraph

Alexey Pertsev

The motion is part of a broader effort to restore internet privacy rights for U.S. citizens.

The United States Treasury faces a renewed legal challenge that aims to overturn the decision to sanction the crypto mixer Tornado Cash from six individuals backed by cryptocurrency exchange Coinbase.

A motion for a partial summary judgment was filed on April 5 in a Texas District Court, the Coinbase-backed plaintiffs moved for the U.S. Office of Foreign Asset Control (OFAC) to settle for the first two counts from its original complaint filed in September 2022.

If granted, it would see the Judge rule on some of the factual issues while leaving others for the trial.

The counts claimed OFAC exceeded its statutory powers under the International Emergency Economic Powers Act (IEEPA) and violated the Free Speech clause under the U.S. Constitution’s First Amendment.

A few months ago, Coinbase backed a legal challenge to sanctions imposed by the US govt against Tornado Cash. Today the plaintiffs filed a motion for summary judgment, asking the court to reopen TC for all. Their arguments are simple but powerful. 1/10 https://t.co/xSngWKxM3x
— paulgrewal.eth (@iampaulgrewal) April 5, 2023

The plaintiffs firstly claimed OFAC breached a section of the IEEPA that allows the Treasury to take action against the property in which a foreign country or foreign national has an interest.

The motion argued that as the provision only allows the pursuit of property-related action against a foreign “national” or “person,” it doesn’t apply to open-source software.

To strengthen its claim, the plaintiffs argued the 20 or so smart contracts that provide the functionality to Tornado Cash should not be considered property under IEEPA because they cannot be owned:

“An immutable smart contract is incapable of being owned, it is not property and the Department lacks authority under IEEPA and the North Korea Act to prohibit transactions with those smart contracts.”

“No one has the right to alter them. No one has the right to delete them,” they added.

The second main argument put forth is that by banning the open-source code, OFAC is violating the Free Speech Clause of the First Amendment under the U.S. Constitution.

The plaintiffs noted OFAC has authority to take action against “crypto thieves” like North Korea’s Lazarus Group, but a “total prohibition is thus grossly disproportionate” as money laundering only accounted for 0.05% of crypto transactions in 2021.

“To ban all uses of Tornado Cash is akin to banning the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon,” they added.

The motivation behind the motion is part of a broader effort to restore internet privacy rights for U.S. citizens, the plaintiffs explained. It is the most recent filing since the individuals first sued the U.S. Department of Treasury in September.

The six plaintiffs behind the filing are Joseph Van Loon, Tyler Almeida. Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. The filing details most of the group had previously interacted with Tornado Cash.

The legal battle comes as Alexey Pertsev, the creator of Tornado Cash, faces his own in The Netherlands. He has been held since Aug. 18 on a series of money laundering charges.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

FTX seeks to claw back $460M from Bankman-Fried-backed VC firm

March 23, 2023 Coin Telegraph

FTX seeks to claw back 0M from Bankman-Fried-backed VC firm

$460M

While the funds represent a small portion of FTX’s overall asset shortfall, the settlement means the firms can avoid a costly legal battle.

Bankrupt crypto exchange FTX is seeking to recover $460 million of allegedly misappropriated customer funds from venture capital (VC) firm Modulo Capital, which received a sizeable investment from Alameda Research last year.

As previously reported, FTX’s sister trading firm, Alameda Research was understood to have invested around $400 million in Modulo in 2022 — one of the biggest investments undertaken by FTX under Bankman-Fried’s leadership.

In a March 22 filing, FTX claim the investment from Alameda Research was under the direction of Sam Bankman-Fried, with Alameda investing $475 million in Modulo in a series of transfers beginning in May 2022.

On June 16, Alameda entered into a limited partnership agreement with Modulo, according to the filing, which resulted in Alameda transferring the aforementioned funds to Modulo in exchange for ownership of 20% of Modulo’s Class A shares.

In bankruptcy proceedings, payments made to entities prior to the bankruptcy filing may be eligible to be clawed back and redistributed to creditors. While the claw-back period is 90 days for most unsecured creditors, it is one year for “insiders,” a term that includes general partners.

As per the settlement agreement, Modulo has agreed to repay $404 million in cash and will give up its claim to $56 million worth of assets held on FTX’s crypto exchange, representing nearly 97% of FTX’s initial investment.

FTX is settling with Modulo Capital for $460 million.

First big "clawback". pic.twitter.com/JNHn2bhNLb
— FTX 2.0pium (FTX Creditor) (@AFTXcreditor) March 22, 2023

The settlement would also result in Alameda losing any claim to its Modulo shares.

Modulo Capital was founded in March 2022 by three former executives at Jane Street, a New York-based firm that once employed Bankman-Fried and Alameda CEO Caroline Ellison.

Bankman-Fried is also rumored to have been in a romantic relationship with one of its founders, Xiaoyun “Lily” Zhang, which some have theorized was the motivation behind his push to invest in the obscure VC firm. This rumor has not been verified.

Bankman-Fried's girlfriend? Xiaoyun "Lily" Zhang, used to be romantically involved with Bankman-Fried, according to four people familiar with their relationship. her partner, Duncan Rheingans-Yoo, had only graduated from Harvard two years before SBF's investment. That's textbook
— 9:29 (@GuitarSunCat) January 25, 2023

The deal will still need to be confirmed by United States Bankruptcy Judge John Dorsey, with a motion hearing set for April 12.

In its latest presentation to creditors on March 17, FTX noted claims against it surpassed $11 billion, compared to just $4.7 billion in assets for a total shortfall of nearly $7 billion, so while the $460 million settlement would be a huge win for creditors it still only represents less than 7% of the current shortfall.

*FTX’s summary of claims vs assets in a presentation to creditors. Source:* *Kroll*

Magazine: Best and worst countries for crypto taxes — plus crypto tax tips

motion

Share this video