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The US Commodity Futures Trading Commission (CFTC) filed a civil enforcement action against an Ohio man this week, alleging that he fraudulently solicited over $12 million and at least 10 bitcoins from customers as part of an apparent Ponzi scheme. The man also used cash to fund a “lavish lifestyle” complete with yacht rentals, a luxury car and the use of a private jet, according to the complaint. 

Rathnakishore Giri and his companies, NBD Eidetic Capital, LLC and SR Private Equity, LLC., are accused of fraudulently soliciting money from 150 customers and misappropriating customer funds intended for digital asset trading. The complaint also charges Giri’s parents as relief defendants “in possession of funds to which they have no legitimate interest.”

“Giri seized upon the contemporary fervor for digital asset investment opportunities and lured unwitting investors to contribute over $12 million in cash and bitcoins to his funds with the promise of exceptional returns without the risk of financial loss,” CFTC Commissioner Kristin Johnson said in a statement.

According to the complaint, the defendants solicited and accepted the money to invest in digital asset investment funds beginning in March 2019. Giri and his companies are accused of making false statements, including profit guarantees. The defendants also allegedly told customers they could withdraw their funds at any time, which was false, according to the complaint. Further, Giri is accused of commingling customer funds with his own funds and bank accounts belonging to his parents, Giri Subramani and Loka Pavani Giri.

“Rather than using customer funds to acquire and trade digital assets as promised, Giri simply pocketed customers’ money, using their invested funds to bankroll his lavish lifestyle — characterized by use of private jets, yacht rentals, an extravagant vacation home, a luxury car and expensive clothing,” Johnson said.

The CFTC filed its civil enforcement action in the US District Court for the Southern District of Ohio on Thursday. The CFTC is seeking restitution to defrauded customers, disgorgement of ill-gotten gains and civil monetary penalties. The commission is also seeking permanent trading and registration bans and a permanent injunction against further violation of the Commodity Exchange Act and CFTC regulations. 

© 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 crypto-friendly Democrat is on the ballot in Hawaii this weekend, and a pair of super PACs linked to the industry are spending cash to help him get elected.

Crypto PACs have spent well over a quarter of a million dollars to boost Hawaii Democrat Patrick Pihana Branco in the state’s congressional primary. Branco is one of six candidates running. Voters in Hawaii head to the polls on Saturday. 

PACs linked to the crypto industry are not the only outside groups spending in the congressional race, and the contest won’t hinge on crypto policy. But political spending by Web3 Forward PAC and DAO for America PAC signals that the crypto industry sees Branco as a potential ally in Congress — and could perhaps help him overcome a double-digit gap in the polls. 

Branco is a 35-year-old state lawmaker who previously served in the US Foreign Service as a commissioned diplomat. He was introduced to cryptocurrency when he was living in Colombia in 2019.

“I got added to a WhatsApp group one day of diplomats that was called Diplo Crypto. And they’re basically a group of diplomats that invest in crypto,” Branco said. “They text and talk about it all day.”

Branco was elected to the Hawaii state legislature in 2020, where he introduced legislation aimed at making Hawaii a more crypto-friendly state. He owns bitcoin and ether but did not say how much those assets are worth.

If elected to Congress, Branco said he would support legislation put forward by California Rep. Ro Khanna, a progressive who represents Silicon Valley. The bill, called the Digital Commodity Exchange Act (DCA), would create a new “regulatory framework for digital commodity developers, dealers and exchanges,” by filling regulatory gaps between the Commodity Futures Trading Commission and the Securities and Exchange Commission, according to a bill summary.

“What Ro Khanna is proposing, I think that’s kind of the gold standard,” Branco said. “The DCA would establish effective oversight over the digital commodity markets.” 

Branco faces an uphill climb in his primary, however. Former state Sen. Jill Tokuda is the frontrunner, according to a Honolulu Civil Beat/Hawaii News Now poll conducted at the end of June. Tokuda had 31% of support from Democratic primary voters, while only 6% supported Branco. Nearly two-thirds — 63 percent — said they had not decided who to vote for. Tokuda’s campaign did not respond to a request for comment. 

Web3 Forward PAC, which supports crypto candidates, reported spending more than $257,000 to support Branco, according to a recent Federal Election Commission report. Web3 Forward is funded primarily by GMI PAC, another super PAC founded by crypto industry leaders. 

GMI PAC has received donations from executives at Coinbase, FTX, Multicoin Capital, Messari and Andreessen Horowitz, among others. Web3 Forward and GMI PAC did not respond to a request for comment. 

Branco has also received a smaller boost from DAO for America PAC, which reported spending $37,000 on direct mail to voters in Branco’s race. The group reported two donors in the second quarter of the year. A donor named Charles Lee used Gemini Exchange to donate $87,228 worth of bitcoin to the PAC. The Miami-based Shrike Holdings gave $732,000. A third donor, Milton Chang, gave $20,000 to the PAC in April. 

Outside groups not linked to crypto are also spending heavily to influence the primary. Super PACs and other committees, including the crypto groups, have spent nearly $598,000 to boost Branco. Meanwhile, outside groups have spent $603,000 attacking Tokuda and $199,000 in support of her, according to OpenSecrets, a nonprofit that tracks political spending. 

The influence of outside spending has even become an issue in the primary. Branco recently came under fire from Tokuda’s campaign, which has alleged that his campaign has engaged in so-called red-boxing, a practice where campaigns skirt Federal Election Commission rules to signal messaging suggestions to super PACs.

“Don’t let anyone think Hawaii’s 2nd Congressional District is up for sale,” Hawaii’s Democratic Sen. Mazie Hirono wrote on Twitter earlier this month, urging voters to cast ballots for Tokuda.

Branco dismissed such allegations. “I cannot and will not and do not coordinate with any outside group that has come in,” 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.

The software developer arrested this week over suspected of involvement in the Tornado Cash crypto mixing service is Alexey Pertsev, his wife has told The Block today, confirming earlier speculation on Twitter. 

Ksenia Malik, who married Pertsev last September, said the Dutch Fiscal Information and Investigation Service (FIOD) arrested Pertsev on August 10 in Amsterdam city center. 

She went on to say that she’s in shock over her husband’s arrest and is currently working with lawyers. “My husband didn’t do anything illegal,” she said.

The FIOD, in its announcement today, said it arrested a 29-year-old man suspected of involvement in concealing criminal financial flows and facilitating money laundering through Tornado Cash, which allows users to obscure blockchain-based transactions.

A spokesperson for FIOD declined to comment on the arrested person’s identity when contacted by The Block.

This is a breaking story and will be updated.

© 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.

Crypto industry executives reacted with alarm at the arrest of a developer suspected of involvement in Tornado Cash.  

The Dutch Fiscal Information and Investigation Service (FIOD) arrested an unidentified 29-year-old man in Amsterdam, it said on Friday, alleging that he was involved in concealing criminal financial flows and facilitating money laundering through Tornado Cash, a crypto mixing service that allows users to obscure blockchain-based transactions. 

Ryan Sean Adams, founder of Mythos Capital and Bankless, was among the first to condemn the arrest. He tweeted about two hours after it was made public that the suspect may have written “code that served as a public good for people to maintain their privacy online.”

“They put a man in jail because bad people used his open source code,” Adams wrote. “This cannot stand in any free society.” 

The arrest was also seen as an assault on privacy by Cinneamhain Ventures partner Adam Cochran. “Code is free speech. Unless there is more to this story, then arresting someone for making a privacy tool that was misused is an insane government overreach,” Cochran tweeted. 

Robin Andre Nordnes, an analyst at Outlier Ventures, tweeted via his handle @degenroot that the arrest was a “dangerous” precedent and a pivotal moment in the crypto industry that might have “huge consequences.”

Aave founder Stani Kulechov echoed Nordnes, tweeting that an arrest for writing privacy-preserving code was out of line: “This arrest makes all privacy/encryption developers a target,” he said, adding that “people use privacy tools on a daily basis online.”

Yearn core developer Banteg likened the arrest to detaining the founders of a firearms manufacturing company for facilitating a public shooting, or a pressure-cooker company founder for terrorism. 

The arrest took place on Wednesday, just two days after the US Treasury added Tornado Cash and 44 associated Ethereum and USDC wallets to its Specially Designated Nationals list. The Treasury accused the crypto mixer of laundering more than $455 million for North Korea’s Lazarus Group amid Tornado Cash’s association with high-profile hacks including Ronin and Harmony. The sanction was believed to be the first by a US regulator against a DeFi operator. 

Ryan Selkis, co-founder and CEO of crypto research firm Messari, slammed the Treasury decision. He wrote on Twitter that the US government’s crypto policies “reward scammers and bad actors,” while punishing innovators. 

© 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 Tornado Cash DAO community has voted in favor of adding the DAO’s governance as a signatory to the treasury’s multi-signatory (multisig) wallet. The treasury looks after about $21.6 million across three different wallets.

This vote began on Wednesday, based on a proposal on the Tornado Cash DAO governance page, and ended today with 100% approval from all 12 participants. These 12 participants contributed 51,000 TORN tokens to push the vote to completion.

The voting process was hastily put together with the SnapShot initiated together with the proposal. Usually, there is a delay between a proposal being filed and the commencement on-chain. This lag is to create adequate time for the community to discuss the matter at hand. But it would have taken too long for the DAO.

“As it is very important, we need to move on fast on this subject. I will make a snapshot vote today so you guys can vote on it during 3 days,” said the Tornado Cash DAO member who filed the proposal.

With the vote passed, the DAO’s treasury will now become a four-of-six multisig instead of the previous four-of-five multisig arrangement. The Tornado DAO governance will now be added as a signatory to the treasury wallet. Multisig wallets require a specific minimum number of signatories to approve a transaction. In this case, four out of the six signers must approve any transaction from the treasury. 

In practice, this means that if the core developers want to make a transaction involving the treasury, they will need to get signatures from at least four of the six multisig holders. Since one of these holders is now the DAO, they may need to ask the DAO to approve a signature. This would require the DAO to vote on whether to do so.

The DAO’s decision to increase its multisig signers is in case something happens to two signatories. This is over fears that people associated with the DAO, including members of the multisig, could be targeted by law enforcement following the recently imposed US sanctions. As previously reported by The Block, one Tornado Cash developer has already been arrested in The Netherlands. It is unclear if he was arrested simply for being a Tornado Cash developer or for being a relayer on the network (officials said the person had made large-scale profits from the protocol).

Tornado Cash is also facing multiple cases of de-platforming. The protocol’s Discord and governance forum pages are no longer accessible. Its email, website, and GitHub pages have also been removed since the US sanctions were announced earlier in the week. Centralized blockchain node services Infura and Alchemy have also blocked access to the crypto mixer’s front-end, plus Circle has frozen all USDC that was in the sanctioned addresses.

With Tornado Cash’s governance forum now offline, it will be harder for the DAO to organize itself and vote on approving any treasury 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.

The team behind ETHPoW today published an open letter claiming its proof-of-work fork of Ethereum was “inevitable.”

ETHPoW is a planned fork of Ethereum. Led by a miner called Chandler Guo, it aims to split away from the Ethereum main network. Guo claims the fork will allow miners to continue their mining operations after Ethereum transitions to a proof-of-stake consensus during what’s called the merge. But it would result in two blockchains, each with their own versions of the protocols and tokens running on the chain.

ETHPoW issued an open letter addressed to ETC Cooperative, the development team behind Ethereum Classic. This came in response to ETC Cooperative’s prior letter addressed to Chandler Guo, discussing the reasons why ETHPoW fork would not succeed and that miners should simply migrate to Ethereum Classic

In the statement, it argued that Ethereum Classic will not accommodate all the existing Ethereum miners. Hence it claimed there’s need for not one but multiple PoW forks.

“The small pool of ETC cannot hold the entire computing power pool of ETH at all. This is a hard fact. In the face of such hard facts, this hard fork is inevitable,” the ETHPoW team said. 

The project also shed light on its preparations. The team said it had removed the “difficulty bomb” feature on its version of the Ethereum code, among many other development changes. 

The difficulty bomb is a mechanism designed by Ethereum core developers to prevent miners from interrupting the merge by making Ethereum blocks harder to mine. By removing this mechanism, ETHPoW is hoping to allow miners to readily produce fresh blocks when its fork takes place. 

In addition, the ETHPoW team provided details on other developments. It said it is planning an ETHPoW testnet where developers can test the fork code before it’s deployed. The team also updated the chain ID, a network identifier used to connect to crypto wallets and claimed to have added protection against replay attacks, a type of network exploit that may occur during blockchain forks.

According to the letter, the ETHPoW would execute the fork in September, potentially around the same time as the merge.

© 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.

Crypto derivatives firm Paradigm is set to launch “one-click” futures spread trading in partnership with FTX.

Friday’s announcement means that Paradigm users will be able to trade the spread between spot, perpetuals and futures on a range of assets including bitcoin, ether, litecoin and others. FTX will guarantee atomic execution — meaning that trades involving two different blockchains are settled in one transaction — and clearing of both legs through its platform.  

The fee on spreads that are executed on Paradigm and then cleared on FTX will be 50% less than executing two separate outright trades. Investors looking for yield can now execute “cash and carry” trades leveraging FTX’s spot and futures instruments in a range of currencies and futures expirations. Cash and carry is a trading strategy where investors take advantage of price discrepancies across markets. 

The firms have a longstanding relationship, according to Paradigm CEO Anand Gomes, who added that he expects significant interest from both crypto-natives trading yield as well as new investors in crypto, who can now trade cash and carry as a single asset. 

“Looking ahead, combining the client base and product expertise of both companies will undoubtedly lead to more synergies and new product offerings further down the road,” Gomes said.  

Paradigm launched in 2019 and provides a platform for dealers and market makers to execute large trades in options and futures to settle across a wide range of venues. In December the firm announced it had raised $35 million in a funding round led by Jump Capital and FTX CEO Sam Bankman-Fried’s Alameda Research.  

© 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.

Tornado Cash’s Discord server has been removed following the imposition of US Treasury sanctions against the crypto mixing service.

It’s unclear whether the server was deleted by a Tornado Cash developer or removed by Discord itself. Its governance forum has also been taken down.

Multiple crypto developers reported on Twitter that the Discord server is no longer accessible. A Yearn core developer known as Banteg told The Block on Friday that they were in the Discord server at the time and it just vanished, along with the governance forum.

A Discord invite link from an archived version of the Tornado Cash website loads a page on desktop devices to sign into the server (which it says has 1,180 members) but it doesn’t appear to let anyone access it. On mobile, it simply says the link is invalid.

Members of the Tornado Cash DAO had been discussing on its governance forum whether they could establish a legal fund to fight against the sanctions — until it was taken down.

This comes on the same day that a suspected Tornado Cash developer was arrested in Amsterdam. The unidentified suspect is accused of involvement in concealing criminal financial flows and facilitating money laundering through the transaction mixing service.

Other Tornado Cash services have also been hit since the US sanctions were imposed. This includes its GitHub organization, where its open-source code was stored, personal GitHub accounts of Tornado Cash contributors, its GitCoin grant page and its main website.

The US Treasury placed the sanctions against Tornado Cash and its associated Ethereum addresses on August 8, accusing Tornado Cash of facilitating flows of stolen cryptocurrency on behalf of North Korea’s Lazarus Group.

Circle has also frozen all USDC held in Tornado Cash wallets due to the sanctions.

© 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.

Tornado DAO members are currently discussing ways the community can challenge the recent sanctions imposed on Tornado Cash by the US Treasury. This comes as one Tornado Cash developer was arrested today in Amsterdam.

Tornado DAO is the decentralized autonomous organization that governs the protocol’s treasury. It has over 9,000 members according to data from DeepDAO but only 163 members are active participants in its governance activities according to SnapShot data.

One of these active participants introduced a proposal titled “Saving Tornado Cash: Formally Challenging the US Treasury’s Sanctions.” The proposer advised the DAO to raise funds on behalf of Tornado Cash and hire a legal team to fight the sanctions. The proposal also called on the DAO to mount a legal challenge up to the US Supreme Court if necessary.

According to the proposer, successfully overturning the sanctions could set a precedent for other crypto privacy solutions like Tornado Cash. The proposal called on the DAO to leverage the US legal system even if crypto users are skeptical of government protocols.

Another community member suggested that the DAO’s governance should administer any legal defense fund on-chain. There were also calls for the DAO to hold an on-chain vote to select a suitable law firm to represent the community in the legal process. 

Some respondents to the proposal have, however, raised questions about this approach. MakerDAO delegate Chris Blec argued that since there is no legal entity called “Tornado Cash,” raising funds under such a banner for legal defense could “open up a whole new can of worms that is misleading and dangerous.” Blec stated that Tornado Cash is software code and that the best approach would be to fight for an individual’s right to privacy.

The Tornado Bay

Other respondents also called for Tornado Cash to be forked — using the protocol’s code to create other variants of the service. Proponents of this approach say it will help to further decentralize users’ right to privacy in using a crypto mixing service.

This approach does have one major disadvantage. Tornado’s effectiveness as a privacy tool for crypto transactions comes from its significant “anonymity set.” An anonymity set is a large number of similar entities that are not easily distinguished from one another by an observer.

In Tornado Cash’s case, the anonymity set is the collection of similar transaction inputs and outputs being mixed together. Before the sanctions, Tornado Cash functioned as a central hub for crypto mixing which allowed for large liquidity. This significant liquidity is what creates the anonymity set for users to ensure privacy. Yet the protocol has already seen a 79% decline in deposits since the sanctions were imposed.

“For a privacy protocol like Tornado Cash to be effective you need a ‘central’ implementation that as many people are using as possible, if multiple implementations are being used and liquidity is fractured it’s much easier to de-anonymize individual users,” said the DAO member who submitted the proposal.

As a result, it’s unlikely that such alternative versions of the protocol would be able to generate enough liquidity quickly enough to succeed — and other protocols and exchanges might be wary to interact with them since they could end up facing the same sanctions.

© 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.

Episode 76 of Season 4 of The Scoop was recorded remotely with The Block’s Frank Chaparro, Audius Co-Founder Roneil Rumburg and Grammy award winning DJ and Audius Advisor, RAC.

Listen below, and subscribe to The Scoop on Apple, Spotify, Google Podcasts, Stitcher or wherever you listen to podcasts. Email feedback and revision requests to podcast@theblockcrypto.com.

Over the course of the past two decades, Grammy Award-winning DJ, André Allen Anjos (also known as RAC) has noticed a growing trend.

“There’s been a trend since 2005 in the MySpace era, and all of that has been a trend towards sovereignty of an artist, of putting the artists on top,” he says.

RAC is an advisor to Audius — a decentralized music streaming platform that raised $5 million last September from big names including Coinbase Ventures and Pantera Capital, along with popular artists such as Jason Derulo and Katy Perry.

In this episode of The Scoop, RAC and Audius Co-Founder and CEO Roneil Rumburg examine the limitations of centralized music streaming platforms and explain how data ownership in web3 allows artists to redefine their relationship to their fans. 

Rumburg argues that centralized streaming platforms prevent artists from establishing a direct connection with their fanbase.

“There shouldn’t be this sense of ‘platform lock-in’ that we have today on Spotify or places like that where, as a creator, you don’t really know who your fans are, and you don’t have the ability to port that fan base between experiences.”

RAC has first-hand experience with this problem: while the DJ has 5.5 million followers on SoundCloud, his fanbase is “locked” into the platform. Artists “don’t own that connection in any way,” he says.

Audius is designed to avoid that, according to Rumburg.

“Our company could go away tomorrow, and all of this would keep working… From the artist’s perspective, there’s no lock in here. You can take your following and your data that you have here and use it anywhere else.”

During this episode, Chaparro, RAC, and Rumburg also discuss:

• How token price affects user growth
• Recovering from the $AUDIO hack
• RAC’s personal crypto journey

This episode is brought to you by our sponsors Chainalysis & IWC Schaffhausen

About Chainalysis
Chainalysis is the leading blockchain data platform. We provide data, software, services, and research to government agencies, exchanges, financial institutions, and insurance and cybersecurity companies in over 60 countries. Backed by Accel, Addition, Benchmark, Coatue, Paradigm, Ribbit, and other leading firms in venture capital, Chainalysis builds trust in blockchains to promote more financial freedom with less risk. For more information, visit www.chainalysis.com.

About IWC Schaffhausen
IWC Schaffhausen is a Swiss luxury watch manufacturer based in Schaffhausen, Switzerland. Known for its unique engineering approach to watchmaking, IWC combines the best of human craftsmanship and creativity with cutting-edge technology and processes. With collections like the Portugieser and the Pilot’s Watches, the brand covers the whole spectrum from elegant timepieces to sports watches. For more information, visit IWC.com

© 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.