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U.S. 5th Circuit Court seeks regulation on lawyers’ AI use in legal filings

The suggested regulation would apply to attorneys and litigants without legal representation appearing before the court, obliging them to confirm that filings produced through the help of AI were assessed for precision.

A federal appeals court in New Orleans is considering a proposal that would mandate lawyers to confirm whether they utilized artificial intelligence programs to draft briefs, affirming either independent human review of AI-generated text accuracy or no AI reliance in their court submissions.

In a notice issued Nov. 21, the 5th U.S. Circuit Court of Appeals revealed what seems to be the inaugural proposed rule among the nation’s 13 federal appeals courts, focusing on governing the utilization of generative AI tools, including OpenAI’s ChatGPT, by lawyers presenting before the court.

Screenshot of the 5th Circle rule         Source: Fifth Circuit Court of Appeals

The suggested regulation would apply to attorneys and litigants without legal representation appearing before the court, obliging them to confirm that if an AI program was employed in producing a filing, both citations and legal analysis were assessed for precision. Attorneys who provide inaccurate information about their adherence to the rule may have their submissions invalidated, and sanctions could be imposed, as outlined in the proposed rule. The 5th Circuit is open to public feedback on the proposal until Jan. 4.

The introduction of the proposed rule coincided with judges nationwide addressing the swift proliferation of generative artificial intelligence programs such as ChatGPT. They are examining the necessity for safeguards in incorporating this evolving technology within courtrooms. The challenges associated with lawyers utilizing AI gained prominence in June, as two attorneys from New York faced sanctions for submitting a legal document containing six fabricated case citations produced by ChatGPT.

Related: Sam Altman’s ouster shows Biden isn’t handling AI properly

In October, the U.S. District Court for the Eastern District of Texas introduced a rule effective Dec. 1, necessitating lawyers utilizing AI programs to “evaluate and authenticate any computer-generated content.”

According to statements accompanying the rule modification, the court emphasized that “frequently, the output of such tools might be factually or legally incorrect” and highlighted that AI technology “should never substitute for the abstract thinking and problem-solving capabilities of lawyers.”

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Kraken co-founder hails ‘more fair’ playing field as DOJ fines Binance

Jesse Powell sees CZ’s and Binance’s legal proceedings as a positive change, as “going after the most egregious offenders offshore would require effort.”

Kraken co-founder Jesse Powell has welcomed the result of the Binance investigation in an X (formerly Twitter) post and has highlighted the need for long-term-oriented visionaries and shareholders.

Over the last 12 months, leaders of major crypto exchanges, such as FTX and Binance, have come under federal scrutiny by United States government agencies for allegations ranging from misappropriation of investors’ funds to bypassing Anti-Money Laundering (AML) regulations.

According to Powell, the probes provide much-needed answers to How are they going so fast? and How are they getting away with it?

Powell sees Binance and former CEO Changpeng “CZ” Zhao’s legal proceedings as a positive move, as “going after the most egregious offenders offshore would require effort.” He stated that U.S.-based crypto businesses such as “Kraken, Coinbase and Ripple are all easy targets, sitting right in their back yard.”

Hinting at CZ’s recent admission that Binance violated AML requirements, Powell stressed the need to self-police to improve the industry’s reputation:

“Each dodgy operation represents an opportunity for governments to scapegoat crypto and tighten the noose.”

He further asked the community to cooperate to restore the image of the crypto ecosystem by recommending reliable services that “are playing the long game.” He also supported the idea of the Know Your Customer (KYC) requirement as long as it helps legally onboard new users to crypto.

Related: Crypto community responds to Kraken lawsuit, Deaton slams ‘dishonorable’ Gensler

Despite Kraken’s long-term approach, the U.S. Securities and Exchange Commission sued Kraken on Nov. 20 for allegedly commingling customer funds and failing to register with the regulator as a securities exchange, broker, dealer and clearing agency.

The lawsuit claims that crypto assets are securities contracts under U.S. law.

“Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these crypto asset securities.”

A Kraken spokesperson told Cointelegraph it disagrees with the SEC’s complaint and plans to defend itself in court. “It is disappointing to see the SEC continue down its path of regulation by enforcement, which harms American consumers, stunts innovation and damages U.S. competitiveness globally,” the spokesperson added.

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No ‘mass exodus of funds’ following Binance-DOJ settlement — Nansen

Roughly 24 hours following the announcement of a settlement with U.S. officials, Nansen reported Binance’s total holdings increased to more than $65 billion.

Blockchain analytics firm Nansen reported that following a settlement for civil and criminal charges against Binance and CEO Changpeng “CZ” Zhao, outflows from the crypto exchange didn’t result in a “mass exodus of funds.”

In a Nov. 22 X post, Nansen said roughly 24 hours after the United States Department of Justice announced a $4.3-billion settlement with Binance, the exchange has experienced a $956 million net outflow on Ethereum. However, Binance’s total holdings increased to more than $65 billion.

“[W]ithdrawals are continuing, and we’re not seeing a mass exodus of funds,” said Nansen. “In the past, Binance has processed higher volumes of outflow and negative netflow: Jun 2023 after the SEC sued Binance, December 2022 after insolvency rumors, and the immediate aftermath of FTX.”

Nansen reported that holdings of Tether (USDT) on Binance had decreased the most over the last 24 hours by roughly $246 million. However, holdings of XRP and TrueUSD (TUSD) “remain steady,” according to the firm.

Related: Binance CEO’s downfall is 'the end of an era' — Charles Hoskinson

The report followed upheaval at Binance on Nov. 21 as the firm reached a plea deal with U.S. officials at the Justice Department, Treasury, and Commodity Futures Trading Commission allowing the exchange to continue to operate under regulatory scrutiny. CZ announced he had stepped down as CEO, replaced by Binance global head of regional markets, Richard Teng.

On Nov. 22, Teng said the fundamentals at Binance were “very strong” following the DOJ deal and change in leadership. The firm still faces a lawsuit from the U.S. Securities and Exchange Commission.

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Coinbase cites SEC action against Kraken in push for crypto rulemaking

The Nov. 22 letter claimed that "only mandamus will impel the [SEC] to fully, finally acknowledge that Coinbase's petition for rulemaking was pocket-vetoed long ago."

United States-based cryptocurrency exchange Coinbase has renewed its call to compel the Securities and Exchange Commission (SEC) to respond to the company’s petition to create rules on crypto, using the regulator’s recent enforcement action against Kraken to back up its claims.

In a Nov. 22 filing in the U.S. Court of Appeals for the Third Circuit, lawyers representing Coinbase filed a response to a Nov. 21 letter from the SEC saying it planned to provide a status report on the crypto rulemaking petition by Dec. 15. Coinbase filed its petition in July 2022, requesting the SEC “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods,” with subsequent responses suggesting delays.

“[O]nly an order by this Court will make the Commission act,” said the letter. “Although the agency’s fear of a court ruling spurred it to do something, its proffer of another ‘report’ — as it continues to hedge and delay — confirms that only mandamus will impel the Commission to fully, finally acknowledge that Coinbase’s petition for rulemaking was pocket-vetoed long ago.”

Related: Binance charges prove ‘following the rules’ was the right decision — Coinbase CEO

Coinbase cited the SEC’s enforcement action against Kraken filed on Nov. 20, in which the commission alleged the crypto exchange commingled customer funds and failed to register as a securities exchange, broker, dealer and clearing agency. The letter did not reference a Nov. 21 settlement of civil and criminal cases against major crypto exchange Binance, which did not include its ongoing case with the SEC.

“The Kraken action was necessarily approved by the Commission and [...] is further evidence that the Commission sees no need for regulatory Clarity.”

The push for rulemaking came as reports suggest the SEC may be nearing a decision on a spot Bitcoin (BTC) exchange-traded fund for listing on U.S. markets. An approval would likely be one of the most significant positive trends toward the mainstream adoption of crypto.

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New Binance CEO Richard Teng pitches ‘very strong’ foundation to skeptics

Teng’s tenure will focus on three aspects of the business as CEO: reinstating investor confidence, collaborating with regulators and driving Web3 adoption, he said.

Amid ongoing confusion, uncertainty, and rumors around the recent departure of Changpeng “CZ” Zhao as Binance CEO, his replacement, the new Binance CEO Richard Teng, took to X (formerly Twitter) to attempt to boost investor confidence.

Soon after CZ announced he was stepping down, Binance critics on X shared their opinions on what lies ahead for the crypto exchange. While some sought details on the source of funds for CZ’s and Binance’s legal proceedings that exceed $4 billion in total, others claimed mistrust due to discrepancies in Binance’s previously shared proof of reserves (PoR).

Coinbase director Conor Grogan estimates that Binance can pay off the hefty fines imposed by the United States Department of Justice (DOJ) without selling any crypto assets.

“The fundamentals of our business are very strong,” reassured Teng as he retweeted Grogan’s analysis. He said the crypto exchange generates robust revenues and profits despite low platform fees.

In his introductory tweet as Binance’s new CEO, Teng stated that “the foundation on which Binance stands today is stronger than ever.” For starters, Teng said he will focus on three aspects of the business — reinstating investor confidence, collaboration with regulators, and driving Web3 adoption.

Related: Breaking: Binance’s CZ to plead guilty to violating Anti-Money Laundering requirements — WSJ

In his exit note, CZ confirmed his plans to remain associated with Binance as a shareholder, adding, “I will remain available to the team to consult as needed, consistent with the framework set out in our U.S. agency resolutions.”

While mentoring several startup entrepreneurs, CZ will also focus on decentralized finance (DeFI) initiatives.

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Binance, CZ settlement with US DOJ ‘bullish for Bitcoin ETF,’ crypto community says

Many on Twitter compared the Binance settlement with the U.S. Department of Justice to the deal with BitMEX crypto exchange, whose then-CEO was also forced to step down.

The crypto community on social media has greeted the news of the deal between Binance, CZ and the United States Department of Justice (DOJ) mostly positively, hoping it removes one of the last remaining obstacles before the long-awaited approval of a spot Bitcoin ETF.

The $4.3 billion settlement between the U.S. and the world’s largest crypto exchange, Binance, for violating U.S. anti-money laundering laws includes a plea deal whereby the former CEO Changpeng “CZ” Zhao, has agreed to step down as the CEO of the exchange.

The news of the deal and CEO's departure led to a market correction that saw some $175 million worth of leveraged crypto positions liquidated, while close to $1 billion in crypto assets flowed out of the crypto exchange.

Apart from a slight market correction, most in the crypto community saw the settlement with the DOJ and the plea deal for CZ as a big win for the exchange and the crypto industry. Many critics had previously claimed that the U.S.’s pursuit of Binance would end the crypto exchange’s rein.

Many others called Binance’s settlement with the DOJ the last step before the U.S. Securities and Exchange Commission approves a Bitcoin exchange-traded fund (ETF). On the whole, the crypto community sees the deal as a win-win scenario for the crypto ecosystem and a bullish catalyst for the next bull run.

Not everyone in the crypto community was as bullish on the Binance-DOJ settlement. Some commented that the crypto community is still awaiting the action from the Securities and Exchange Commission and that the SEC is likely to be a harder battle, as it refuses to settle with Binance along with other agencies.

However, the SEC lawsuit is a civil one, and analysts believe that the DOJ settlement means that Binance and the crypto industry have removed the biggest obstacle to the launch of a bull market.

A few others compared Binance’s settlement to the BitMEX exchange settlement, in which the then-CEO Arthur Hayes pleaded guilty to violating anti-money-laundering laws and stepped down as the CEO. He was later sentenced to two years probation, avoiding a possible prison term of six to 12 months.

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FTC enhances investigative procedures to deal with AI-related lawbreaking

The Federal Trade Commission (FTC) unanimously approved a measure to streamline its staff’s ability to issue civil investigative demands (CIDs) in AI investigations while retaining its authority to determine when CIDs are issued.

The U.S. Federal Trade Commission (FTC) has announced the approval of a new streamlined process for investigating cases involving the unlawful use of artificial intelligence (AI), marking an increased focus on addressing potential legal violations related to AI applications.

The commission unanimously approved a measure to streamline FTC staff’s ability to issue civil investigative demands (CIDs), which are a form of compulsory process similar to a subpoena, in investigations relating to AI, while retaining the Commission’s authority to determine when CIDs are issued.

The FTC issues CIDs to obtain documents, information and testimony that advance FTC consumer protection and competition investigations. According to the FTC’s statement, the omnibus resolution will be effective for ten years.

In conjunction with other measures, this action underscores the FTC’s commitment to investigating cases related to artificial intelligence. Detractors of the technology have expressed concerns that it could amplify fraudulent activities.

According to a report, during a September hearing, Commissioner Rebecca Slaughter, a Democrat nominated for another term, aligned with two Republicans at the agency. They concurred that the focus should be on challenges such as the use of AI to enhance the persuasiveness of phishing emails and robocalls.

Related: OpenAI to rehire Sam Altman as CEO with new initial board members

The emergence of artificial intelligence has opened up new avenues for human expression and creative capabilities. However, the capacity to perform various tasks with a digitally generated AI identity has also brought about new challenges to address. As per Sumsub data, the proportion of fraud attributed to deep fakes more than doubled from 2022 to Q1 2023, witnessing a notable increase in the United States, from 0.2% to 2.6%.

On Nov. 16, the agency unveiled a competition to determine the most effective method to safeguard consumers from fraud and other risks associated with voice cloning. Voice cloning technology has grown more sophisticated as text-to-speech AI technology has improved. The technology holds promise for consumers, such as medical assistance for those who may have lost their voices due to accident or illness.

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OpenAI to rehire Sam Altman as CEO with new initial board members

OpenAI says it has reached an agreement in principle for Sam Altman to return as CEO, with a new board including Bret Taylor as chairman, Larry Summers, and Adam D'Angelo.

Just two days after Microsoft CEO Satya Nadella hired former OpenAI CEO Sam Altman to lead a new advanced AI research team, OpenAI backtracked on its decision to let go t

On Nov. 22, OpenAI announced a new agreement that would see the return of Altman as the company CEO. The company confirmed this decision through an official tweet.

According to OpenAI, the company and Altman "are collaborating to figure out the details.” Sam Altman reciprocated his willingness to join OpenAI by retweeting the onboarding announcement with a ‘heart' emoji.

Additionally, Altman openly shared his "love" for OpenAI as he decided to withdraw from his new role at Microsoft, adding

"I’m looking forward to returning to OpenAI, and building on our strong partnership with Microsoft."

Nadella supported Altman and president Greg Brockman’s decision to move back into OpenAI, and how it is essential for ensuring OpenAI continues to thrive and build on its mission.

Altman’s short-lived departure from OpenAI revealed his role in unifying the team. On Nov. 20, 505 out of 700 OpenAI employees reportedly signed a letter stating that the board undermined the company’s mission by firing Altman. 

Related: Emmett Shear new CEO of OpenAI: A timeline of Sam Altman’s ousting

“The process through which you terminated Sam Altman and removed Greg Brockman from the board has jeopardized all of this work and undermined our mission and company,” the letter stated.

The backlash from OpenAI employees, coupled with Microsoft's timely job offer, recemented Altman's dominant position across the AI ecosystem.

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Binance settles with U.S. government: Timeline of US enforcement actions

U.S. government agencies have spent months, sometimes years, investigating Binance in the lead-up to unsealing an indictment against the exchange.

Binance and its founder Changpeng"CZ" Zhao has admitted to violating United States laws around money laundering and terror financing — agreeing to pay $4.3 billion in fines.

The Justice Department's probe into Binance started years earlier, and in the meantime, other U.S. regulatory agencies launched their own actions against the crypto exchange.

Here's what happened.

Feb. 15: Binance was under suspicion since 2018

Reports emerged that Binance is the target of several United States law enforcement investigations — some dating back to 2018.

March 1: Congress involved — Elizabeth Warren leads the charge

Binance came under U.S. Congress scrutiny on March 1 as Senators Elizabeth Warren, Chris Van Hollen and Roger Marshall sent a letter to Binance CEO Changpeng “CZ” Zhao and Binance.US CEO Brian Shroder requesting answers to several allegations and the companies’ balance sheets. The Senators were not satisfied with the responses and the executives were later accused of lying.

Sen. Warren and company's letter to CZ. Source: Office of Sen. Elizabeth Warren

March 27: CFTC strikes with 7 charges

The Commodity Futures Trading Commission (CFTC) filed suit against Zhao, chief compliance officer Samuel Lim and Binance, naming seven counts of trading irregularities and market manipulation. The CFTC investigation reportedly began in 2021. Zhao vehemently denied the charges.

May 5: DOJ also has eyes on Binance

Bloomberg reported that Binance is under investigation by the Justice Department for violations of sanctions against Russia. Binance maintained a presence in Russia through September.

June 5: SEC strikes with 13 charges

The Securities and Exchange Commission filed suit against Binance, Binance.US and Zhao on June 5 with 13 charges, including unregistered securities sales, allowing U.S. customers to use the Binance exchange, intermingling customer and corporate funds and wash sales.

The SEC suit against Binance, Binance.US and CZ. Source: Court Listener

The SEC got an emergency restraining order against Binance.US and the exchange drastically cut back its U.S. activities.

July 6: Binance leadership exodus starts

Four senior members of the Binance.US team left the company, starting a wave of departures that continued for months.

Aug. 2: DOJ mulls move on Binance

The Justice Department was reported to be considering fraud charges against Binance. To avoid a run on the exchange, the department was leaning toward fines or non-prosecution agreements at that time.

Aug. 14: Binance.US scrambles to block SEC

Binance.US sought a protective order against the SEC, accusing the SEC of launching a “fishing expedition” in its discovery process. Binance insisted it was acting in good faith in the process.

Sept. 13-14: Binance.US cuts staff, CEO quits and SEC responds

Binance.US laid off a third of its workforce — about 100 people and its CEO Brian Shroder also departed. The SEC complained to the court about a lack of cooperation from Binance in its discovery process.

Sept. 19: Binance.US notches minor win against SEC

Binance.US scored a minor victory when the court denied the SEC access to the exchange’s software. Instead, the judge suggested that the SEC should be more specific in its discovery requests.

Sept. 21: Binance wants SEC suit tossed

Zhao, Binance and Binance.US asked the court to dismiss the SEC case against them. They claimed the SEC misinterpreted securities law and was imposing its authority retroactively. The SEC retorted that Binance had a “tortured interpretation of the law.”

Oct. 23: Binance wants CFTC suit tossed

Binance filed a motion to dismiss the CFTC’s suit. If the CFTC prevailed, it “would allow it to regulate any activity in cryptocurrency [...] related to a derivatives product” worldwide, Binance said. “Congress did not make the CFTC the world’s derivatives police, and the Court should reject the agency’s effort to expand its territorial reach beyond what is permitted by the law,” the exchange added.

Oct. 26: CZ’s wealth drops, Congress wants DOJ to strike

The Bloomberg Billionaires Index dropped Zhao from 11th place among the richest people in the world to a somewhat more modest 95th. His personal wealth was said to have been reduced from $96.9 billion to $17.3 billion. His standing had risen to 68th place in the November list, however.

CZ in 68th place on the November Bloomberg Billionaires Index. Source: Bloomberg

The same day, Senator Cynthia Lummis and Representative French Hill called on the Justice Department to move against Binance and Tether for enabling sanctions evasion. This was two weeks after Binance froze accounts linked to Hamas.

Nov. 21: CZ and Binance indicted

The government filed indictments against Binance and Zhao in Washington state on Nov. 14. The documents were unsealed on Nov. 21. Zhao steps away from Binance as part of the deal.

Nov. 14 charges against Binance, unsealed Nov. 21. Source: CourtListener

Penalties totaled over $4 billion, including fines imposed on Zhao and Lim personally.

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US officials announce $4.3B settlement with Binance, plea deal with CZ

Officials with the U.S. Justice Department, Treasury, and CFTC alleged Binance “lacked basic safeguards” to protect against sanctions and Changpeng Zhao committed criminal acts.

Officials with the United States Department of Justice announced that Binance CEO Changpeng “CZ” Zhao will plead guilty to one felony charge as part of a settlement over criminal and civil cases with the exchange.

“In a Nov. 21 press conference, Attorney General Merrick Garland announced that CZ entered his plea in person in U.S. federal court despite residing outside the country. He added that a $4.3-billion settlement with Binance and CZ would cover "civil regulatory enforcement actions” by government departments including the U.S. Treasury and Commodity Futures Trading Commission (CFTC).

According to Garland, Binance’s policies allowed criminals involved in illicit activities to move “stolen funds” through the exchange. He alleged the exchange “pretended to comply” with U.S. federal laws by offering paths for certain users to access Binance despite their ties to illicit funds. The attorney general said the exchange would be subject to monitoring and reporting requirements and required to file suspicious activity reports for past transactions.

“Binance prioritized its profits over the safety of the American people,” said Garland. “Using new technology to break the law does not make you a disruptor — it makes you a criminal.”

U.S. Treasury Secretary Janet Yellen addressing reporters. Source: DOJ

Following Garland, Treasury Secretary Janet Yellen said Binance would pay more than $3.4 billion in penalties to the Financial Crimes Enforcement Network and roughly $1 billion to the Treasury’s Office of Foreign Assets Control as part of the settlement. CFTC Chair Rostin Behnam said Binance would pay $2.7 billion in civil monetary penalties and disgorgement, CZ would pay $150 million, and former compliance chief Samuel Lin would pay $1.5 million under the proposed settlement. The Justice Department will credit roughly $1.8 billion toward the latter resolutions.

In a Nov. 21 blog post, Binance said it was “pleased” to have reached the resolution with U.S. authorities, claiming the exchange “never faltered in upholding [its] core values of user security and safety.” CZ announced on X that he had stepped down as CEO and that Binance’s global head of regional markets, Richard Teng, will assume the position.

“I made mistakes, and I must take responsibility,” said CZ. “This is best for our community, for Binance, and for myself. [...] I have not had a single day of real (phone off) break for the last 6 and half years.”

Related: Court unseals indictments against Binance and CZ, detailing expected guilty pleas

According to the indictment against CZ filed under seal on Nov. 14, the Binance CEO faced one charge for failure to maintain an effective Anti-Money Laundering program at the crypto exchange, violating the Bank Secrecy Act. Court records concerning charges against Binance and CZ had been kept under seal from Nov. 14 to 21 following motions from prosecutors in agreement with both parties.

The settlement between U.S. officials and Binance largely concluded many of the civil and criminal investigations into the exchange going back months. The crypto exchange still has a pending civil case with the U.S. Securities and Exchange Commission, which charged Binance, Binance.US and CZ for securities law violations in June.

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