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Sam Bankman-Fried was charged with fraud by the U.S. Securities and Exchange Commission over the collapse of FTX, the crypto exchange he founded. 

The former CEO was accused of “orchestrating a scheme to defraud equity investors in FTX Trading Ltd.,” according to an SEC statement. Bankman-Fried was arrested in the Bahamas yesterday, just one day before he was scheduled to testify virtually before the U.S. House Financial Services Committee for its first hearing on the collapse of the company.

“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” wrote SEC Chair Gary Gensler. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”

The SEC is charging Bankman-Fried with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. 

Here are eight things we learnt about the way FTX conducted business from the SEC complaint filed today.

1) The fraud started from day one

One of the biggest claims was that this was a fraud from the start. The SEC allege that Bankman-Fried had always improperly diverted FTX customer assets to his majority controlled hedge fund Alameda Research, and hid that information from FTX equity investors.

2) Alameda Research had an “unlimited” line of credit on the exchange

The SEC allege that Bankman-Fried told investors that its sister company Alameda Research was “just another platform with no special privileges.”

“In truth, Bankman-Fried had exempted Alameda from the risk mitigation measures and had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited ‘line of credit’ funded by the platform’s customers,” the complaint said.

3) Bankman-Fried directed customer funds to bank accounts that hid their links to Alameda

Some of the bank accounts that received customer funds were not in Alameda’s name but were still, in fact, Alameda’s subsidiaries, the SEC allege.

An example provided is North Dimension, which did not disclose any connection to Alameda.

“Bankman-Fried directed FTX to have customers send funds to North Dimension in an effort to hide the fact that the funds were being sent to an account controlled by Alameda,” the complaint said.

4) FTX hid Alameda’s multi-billion dollar liability in an account called fiat@ftx.com

Alameda’s multi-billion dollar liability with the exchange was stored in an internal account in the FTX database as fiat@ftx.com.

“Characterizing the amount of customer funds sent to Alameda as an internal FTX account had the effect of concealing Alameda’s liability in FTX’s internal systems,” the complaint said.

Alameda was not required to pay interest on the liability, according to the complaint.

In 2022, FTX started trying to separate out Alameda’s portion of the liability in the “fiat@ftx.com” which meant separating out the Alameda-controlled bank accounts from deposits sent to FTX controlled bank accounts, the SEC allege.

5) Alameda had an exemption from FTX’s “touted” risk management engine

The SEC cites numerous pieces of evidence that show Bankman-Fried touting FTX’s superior risk management engine, including to  the U.S. House of Representatives Committee on Financial Services and to the the Commodity Futures Trading Commission.

“These statements were materially false and misleading because of a critical omission: Bankman-Fried did not reveal that the automatic risk engine did not apply to the accounts of its most important customer—Alameda,” the SEC complaint said.

6) Top FTX executives took nearly $2.2 billion in personal loans, many were poorly documented

Bankman-Fried and top executives Gary Wang and Nishad Singh borrowed close to $2.2 billion from commingled funds at Alameda. Some of the money was used to purchase Bahamian real estate and make political donations in the U.S. Some of those loans were in mid-2022 when FTX was already in a precarious financial position, the SEC allege.

The loans were often poorly documented and at times not documented at all, the SEC allege.

“Neither the fact of the loans and purchases, nor the poor documentation of significant company liabilities and expenditures, was disclosed to investors,” the complaint said.

7) Alameda was allowed to maintain a negative balance on FTX

The SEC allege that Alameda was able to maintain a negative balance in its customer account at FTX.

“Bankman-Fried directed software code to be written in or around August 2019, and updated in or around May 2020, that ultimately allowed Alameda to maintain a negative balance in its account, untethered from any collateral requirements,” the complaint said. “No other customer account at FTX was permitted to maintain a negative balance.”

8) Two $100 million FTX investments were made by using customer funds diverted to Alameda

FTX told investors that its investments did not involve the assets of FTX or its customers, the complaint said.

“Contrary to that representation, two $100 million investments made by FTX’s affiliated investment vehicle, FTX Ventures Ltd., were funded with FTX customer funds that had been diverted to Alameda.”

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Layoffs at crypto firms have grabbed the headlines in the aftermath of FTX’s collapse, but it’s not all grim news in the sector. None of the staking firms the The Block spoke to reported dismissals, and a few are actively hiring.

The Ethereum network has yet to introduce a means for the withdrawal of staked ETH, so those who do stake are in relatively long positions. Staking providers still see hundreds of millions of dollars in assets locked or under management. With an operational runway otherwise secured by funding for most organizations, most staking providers appear to be focused on growth and increasing revenue streams  — without staff cuts.

Here’s a look at six staking firms and how they’re faring in the current market.

Everstake

Everstake, a decentralized staking provider, is no stranger to crypto winters, having been founded in the last downturn. The self-funded — and profitable — business said it took “top-notch” risk management “to overcome the hurdles associated with recession,” head of growth Vlad Likhuta told The Block.

“The company never ceased to be profitable, even now, even after the fall of Terra, and other major shocks that stressed the market this year,” he said, adding that Everstake validates more than 70 blockchains.

“The obvious upside to that is the fact that the large number of blockchain networks we support allows us to wait when some of them face a hard time,” Likhuta said. “So, we keep evolving no matter what.”

Everstake neither owns nor manages its delegator’s assets; however, Likhuta said “more than 625,000 users delegated over $1 billion worth of different tokens to us.”

To grow revenue, in addition to keeping developers focused on uptime, Everstake is exploring new wallet partnerships, joining new protocols and cultivating communities across the blockchains it supports, he said.

Luganodes

Non-custodial staking provider Luganodes is still in a growth phase and is hiring despite industry-wide restructuring, CEO Anuj Shankar told The Block via email. The company has more than a year of runway and $500 million in staked assets under its management, and it is building out channels to grow.

Otherwise, Luganodes is seeking to increase revenue by gauging which liquid staking protocols it should engage with — if any — and building its staking platform to offer institutional and retail customers portfolio transparency, he said.

With enough demonstrated customer demand, Luganodes will also explore building a Staking API Platform.

InfStones

Staking service provider InfStones is operating above break-even and doesn’t need external capital, the platform’s head of global marketing Al Leong told The Block.

The team is expanding with a continued focus on developers and sales, Leon said, but it is also “consistently trying to minimize expenses.”

To increase profit margins, the company is “continuously integrating more blockchain protocols on our platform so that we can serve more customers in different ecosystems,” Leon said.

Figment

Staking company Figment raised $110 million in a Series C round, led by Thoma Bravo in late 2021, said its director of protocol strategy Clayton Menzel, adding that the company continues to be well funded.

However, in an effort to “deliver the best-in-class staking product to institutions,” Figment “made the decision to pause serving application developers with full nodes and staking and developer APIs,” he said. The service remains available to staking customers.

Figment is looking to liquid staking and rewards optimization through MEV solutions to boost revenue, Menzel added.

StakeWise

If it charged money on Ethereum, StakeWise would be profitable, said co-founder Kirill Kutakov, who estimates that company currently has more than two years of runway.

Although there are no staff cuts, the company is extending “more oversight over expenditure,” Kukatov said.

The total value locked on StakeWise stands at 82,000 ETH ($104 million) with another 64,000 ETH ($81 million) locked on the company’s StakeWise Labs arm, he said.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Montreal-based Lighthouse rolled out an open metaverse navigation engine that allows users to find places to visit in virtual worlds.

The platform indexes information about experiences and events from more than 20 blockchain-friendly virtual worlds, including Decentraland, The Sandbox, Voxels and Mona. It’s releasing the platform following a successful beta in which over 40,000 testers registered, according to the company.

Backed by the likes of Accel, BlockTower, White Star Capital and Animoca Brands during a $7 million funding round in May, Lighthouse uses indexing tools and direct partnerships with metaverse companies to collect and curate data for its platform. 

“The biggest critique around the metaverse, which is a very fair one, is that it feels empty,” said co-founder and CEO Jonathan Brun, adding: “Everyone that jumps in these worlds feels alone and there’s never anyone around.” But that’s not because of a lack of cool experiences, he said. “We talk to creators every day and we see what they’ve built. There’s super exciting stuff.”

Lighthouse believes that the empty metaverse problem is a search issue. Truly social experiences in the metaverse are lacking not because there’s not enough quality content to discover but because creators, friends and audiences simply can’t find each other. It hopes its platform will solve this issue by highlighting and recommending popular spots to visit across different worlds. It also plans to include a social element — in which users can track friends through the metaverse, follow creators and save their favorite projects and places. 

“As you create friends on Lighthouse and they go inside those worlds, regardless of where they are, you can actually find them, click on their name and jump to meet them within those worlds, which is an amazing coordination tool as people plan these explorations,” said Brun.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin and crypto prices soared following lower-than-expected U.S. inflation data for November. Crypto stocks bounced in line with U.S. stock futures.

Bitcoin was hurtling toward $18,000 shortly after U.S. CPI data was released today. The price of the leading cryptocurrency by market cap jumped by over $700 following the release at 8:30 a.m. EST. Bitcoin was trading at $17,890 at 8:40 a.m. today. 

BTCUSD chart by TradingView

Ether rose 6% following the news, trading at about $1,327. Binance’s BNB token was little changed on the information as withdrawal issues continue to hamper the token. Dogecoin and Ripple’s XRP jumped over 4%, while Cardano’s ADA tacked on 1.7%. 

Interest rate traders are now pricing in an 81% chance of a 50 basis point increase by the FOMC tomorrow, according to the CME’s FedWatch tool. 

Crypto stocks and structured products

 U.S. stock futures jumped on the news, with the S&P contract gaining 2%, while those of the Nasdaq 100 were up 2.7%.

Coinbase soared 6.92% to trade at $45.52 by 8:45 a.m. in pre-market trading. 

Jack Dorsey’s Block rose 6.34% to trade above $70 for the first time since early November. MicroStrategy gained 5.17% to trade around $206.

Silvergate’s gains were more modest, adding 1.2% to trade at $21.50.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Inflation in the U.S. came in at 7.1% in November, compared to the 7.3% year-on-year forecast. The month-on-month increase was 0.1%, down from 0.4% in October. 

Cryptocurrencies and traditional stock markets rose in response as yields dropped.

While inflation shows signs of easing, interest rates remain elevated. The market is watching to see how much the Federal Reserve will raise interest rates tomorrow, with the expectation that it will slow down the pace from its recent increases of 75 basis points to 50 basis points on the assumption that inflation is taking a bit of a breather. 

While today’s data is unlikely to sway the Fed in its rate decision being announced tomorrow, U.S. core and headline inflation figures will likely set the tone for the central bank, and by extension, the upcoming year, said David Stritch, a currency analyst at Caxton.

“Today’s U.S. CPI data will give us an idea on how the market pricing for the Fed’s terminal rate will clash with the dot plot projections that will come out tomorrow, and that will, in all cases, hammer any potentially optimistic market sentiment,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank wrote.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The European Parliament voted to terminate crypto-friendly vice-president Eva Kaili’s term of office by a double majority.

625 votes favored Kaili’s termination, while only one voted against and two abstained. The action was unanimously approved today after the Conference of Presidents triggered the procedure.

Kaili’s termination results from ongoing investigations involving some European Parliament members and staff.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Sam Bankman-Fried was charged with fraud by the U.S. Securities and Exchange Commission over the collapse of FTX, the crypto exchange he founded. 

The former CEO was charged with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd.,” according to an SEC statement. It said investigations into other securities law violations and other individuals are ongoing.

Bankman-Fried was arrested in the Bahamas yesterday, just one day before he was scheduled to testify virtually before the U.S. House Financial Services Committee for its first hearing on the collapse of the company.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Canada’s financial regulator is expanding the provisions crypto trading platforms are expected to adhere to in light of the FTX exchange collapse last month. Licensing will also see tighter enforcement, including firms based outside of the country but accessible to citizens.

The Canadian Securities Administrators (CSA) outlined stricter requirements for crypto firms in a statement published on Monday. Measures include separating client and proprietary business assets, ensuring client assets are held with an “appropriate custodian,” and prohibiting offering margin or leverage for Canadian users. 

Platforms outside of Canada that offer services to Canadians will fall under the same requirements. 

The CSA required crypto firms to commit to acquiring registration in August by obtaining a pre-registration undertaking (PRU) license. This meant the same requirements applied as registered platforms. 

Now, the CSA is not cutting any slack. If a platform does not show a PRU to its regulator, the CSA “will consider all applicable regulatory options to bring the platform into compliance with securities law, including enforcement action,” the statement said. A deadline will be issued soon.

The watchdog also noted that it regards stablecoins as “securities and/or derivatives,” which are prohibited. Canadian traders cannot trade or be exposed to such crypto assets on registered or pre-registered platforms.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A new report from JPMorgan Chase & Co. concludes that the U.S. crypto market exhibits characteristics of “herd-like behavior” after many investors bought the top.

Titled “The Dynamics and Demographics of U.S. Household Crypto-Asset Use,” the report finds that crypto transfers were largely timed around significant price increases, noting: “A wide range of U.S. households transferred money into crypto accounts when those assets were trading near their highest levels.”

“The majority of U.S. households were likely facing significant losses in percentage terms at cryptocurrency prices prevailing in late-2022,” it adds.

The report — with a sample size of almost 5 million active checking account customers — finds that the COVID-19 pandemic was the primary driver for pushing nearly 15 percent of U.S. households into the crypto market.

It also finds that men participate more broadly and deeply in the crypto market, as well as Asian individuals and younger individuals with higher incomes.

Other takeaways include findings that crypto holdings for most individuals are relatively small.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A federal judge ordered the Commodities Future Trading Commission (CFTC) to serve the decentralized trading platform bZeroX’s founders Tom Bean and Kyle Kistner as part of an ongoing lawsuit against Ooki DAO.

bZeroX is the predecessor to the decentralized autonomous organization Ooki DAO.

The lawsuit follows already-settled charges against Bean and Kistner with the CFTC from September regarding bZeroX’s commodities offerings. Because the pair hold Ooki DAO tokens — and the CFTC has also charged Ooki DAO holders — they will be served with the lawsuit.

“It seems clear in this case that Ooki DAO has actual notice of the litigation,” wrote District Judge William Orrick, continuing: “But to provide the best practicable notice, the CFTC should serve at least one identifiable Token Holder if that is possible.”

“The CFTC is now ORDERED to serve Bean and Kistner, in their roles as Ooki DAO Token Holders,” he said.

The question of how to properly sue a decentralized organization has been a big issue in this case. Initially the CFTC distributed legal service to DAO users via the DAO’s chat box. But this was met with strong opposition by crypto lawyers — not representing the DAO itself — who argued that this didn’t count as due process. By serving two token holders, the CFTC is now trying to demonstrate that it has directly served two members of what it sees as an unincorporated association.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.