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International crypto giant Binance has asked a federal judge to dismiss charges brought against the firm by the Commodity Futures Trading Commission. 

In motions filed late Thursday, Binance and former chief compliance officer Samuel Lim claimed that the CFTC did not have jurisdiction for several of the charges it levied against the company, principal owner and CEO Changpeng ‘CZ’ Zhao and Lim in a March enforcement action.

“What little the complaint says about Mr. Lim relates to things he is supposed to have done or failed to do abroad,” a 17 page memorandum in support of Lim’s motion to dismiss reads. “None of those allegations make the necessary link between Mr. Lim, this country, and this case.”

Binance also claims that some of the charges brought against the company by the CFTC are “impermissibly extraterritorial” because the main company is not based in the U.S.

The civil case, brought in March, largely revolves around allegations that Binance’s main trading platform knowingly operated in the U.S. illegally, as well as accusing the company of allowing other types of illegal transactions to happen on its platform. The motion to dismiss is a standard tactic by defendants in cases brought against them in the U.S., and occasionally results in charges being dropped over technical issues. 

In addition to monetary penalties the suit could effectively ban the company and its executives from doing business in the U.S., which could further disrupt Binance US operations. Binance US, as well as Binance and CEO Changpeng ‘CZ’ Zhao, is also the target of a Securities and Exchange Commission enforcement action. Both suits use an unusual amount of internal communication obtained by regulators to support their allegations, including an exchange between Binance executives in the CFTC’s initial complaint that appears to show them facilitating transactions by the Palestinian group Hamas, a sanctioned terrorist organization in the U.S. 

Redirecting billions 

Among other issues, the SEC accuses Binance and Binance US of redirecting billions in customers assets in a manner similar to how rival executive Sam Bankman-Fried and his trading platform FTX are accused of misappropriating billions of customer funds.

The CFTC’s case against Binance is in the U.S. District Court for Northern District of Illinois. An initial hearing was scheduled for Thursday but the judge waived the need for that hearing due to the filings presented by both sides in the case. 

© 2023 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 amendment takes aim at crypto mixers and “anonymity-enhancing” crypto assets.

Solana-based protocol Parrot Finance will buy PRT tokens from all sellers at $0.0045 apiece.

The U.S. Commodity Futures Trading Commission (CFTC) is reaching beyond its jurisdiction in trying to sue Binance, the global crypto exchange said in a motion to dismiss the regulator’s lawsuit against it.

A senior Securities and Exchange Commission official warned accounting firms that they could be held legally liable for statements made by crypto companies that tout partial reviews of their finances as “audits.”

“Following the recent waves of scandal and insolvency in the crypto industry, there has been a renewed focus on the firms, including accounting firms, that have been retained by companies in the crypto-asset space—in particular, crypto asset trading platforms,” said SEC Chief Accountant Paul Munter in a prepared statement on Thursday. “Certain crypto asset trading platforms, with others in the crypto industry, have marketed to investors their retention of third parties, sometimes accounting firms, to perform some sort of review of certain parts of their business, often presented as a purported ‘audit.’”

Accounting firm Mazars ceased work with crypto clients after public criticism around a partial review of Binance’s books late last year, which Binance owner and CEO Changpeng ‘CZ’ Zhao touted as an “audited proof” of reserves. The report came in the wake of FTX’s collapse following revelations that it did not have enough reserves to support the company’s FTT native token. Mazars also pulled the partial financial report that Zhao touted from its website.

Included in the SEC’s lengthy enforcement filings from last month against Zhao, Binance, and Binance US is an allegation that an auditor found Binance US did not have enough assets to cover customer redemptions. The non-public report suggested they were held with Binance as of Dec. 1, 2022, shortly before Zhao touted the Mazars non-audit on Twitter, and despite claims that Binance US operates independently of Binance.

The scope of work

In his remarks on Thursday Munter elaborated that accounting firms could be legally liable under antifraud laws for statements made by their clients, if the clients mislead about the extent of a financial review or the “scope of work” done by the accounting firm.

“In addition, any person that knowingly or recklessly provides substantial assistance to another person in violation of a provision of the Securities Act or the Exchange Act, or of any rule or regulation issued thereunder, shall be deemed to be in violation of such provision to the same extent as the person to whom such assistance is provided,” Munter continued.

SEC Commissioner Hester Peirce questioned the statement on Twitter.

“Crypto platforms & their accountants should be clear about what proof of reserves is and isn’t & customers should understand the limitations, but why would we want to discourage good-faith efforts to provide more transparency?,” she posted, with a link to Munter’s statement.

© 2023 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 House Financial Services Committee passed a comprehensive regulatory framework for stablecoins in the U.S., but along party lines after longterm bipartisan negotiations around the bill broke down.

House Financial Services Committee Chair Patrick McHenry, R-N.C., blamed the White House for the impasse, while committee Democrats argued Republicans were rushing the process.

The bill was approved by the committee by a vote of 34-16, with a handful of Democrats bucking their senior members on the panel, in addition to unanimous Republican support for the legislation. The vote was similar to a vote yesterday in the panel to advance the crypto market regulatory overhaul.

Democrats protested the vote on the bill earlier in the day through a series of procedural maneuvers to slow down proceedings, while saying that Republicans could wait to vote on the bill until September or later. A bipartisan compromise on the bill looked likely as recently as earlier this week. It remains to be seen whether talks could be revived to give the bill a substantial chance of becoming law.

A separate crypto-related measure around self-custody also advanced past the panel on a party-line vote, indicating it is unlikely to advance into law due to the split control of Congress.

© 2023 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.

House lawmakers cleared stablecoins legislation for the next step in its route through Congress on Thursday, though the House Financial Services Committee moved the bill toward a potential floor vote without bipartisan support as Chair Patrick McHenry (R-N.C.) blamed White House objections for the stalemate.

PLUS: BTC continued to trade above $29.2K, slightly down over the past 24 hours amid another day of low volatility.

Asset management company Grayscale used a Thursday letter to the Securities and Exchange Commission to pour cold water on excitement that has been mounting about a wave of new applications for spot bitcoin ETFs, arguing that so-called surveillance-sharing agreements with Coinbase would neither satisfy or be necessary under the current standard used by the regulator.

The SEC is currently reviewing applications for the spot funds from fund managers including BlackRock, Ark Invest, Invesco, Fidelity, VanEck and Valkyrie. It has yet to approve one and previously rejected a proposal from Grayscale to convert its flagship GBTC fund into a spot bitcoin ETF, the cause of a lawsuit by the investment firm against the SEC.

“The possibility of a surveillance-sharing agreement between a listing exchange and a spot bitcoin trading venue is not a new idea,” Grayscale lawyer Joseph Hall wrote in the letter, pointing out that Coinbase is not registered with markets regulators as either a national securities exchange, broker-dealer or futures exchange.

The lawyer argued that the SEC is already in a position to approve a spot fund, if it wanted to, using the standard it’s already used to approve bitcoin futures ETFs. He said that any move to approve only the recent wave of applications would “reflect a positive but sudden and significant change in the Commission’s application of the relevant statutory standard, and as such would improperly grant an unfairly discriminatory and prejudicial first-mover advantage to these proposals.”

Hall added that any approval, if one comes, should include all previous ones that have been disapproved. He said the company supports a regulatory approval that would facilitate the approval of all spot bitcoin ETF proposals.

Surveillance-sharing agreements

“The Commission has previously questioned the relevance of pricing data produced by what it views as unregulated bitcoin trading venues,” Hall said, referring to the surveillance-sharing agreements with Coinbase that have been heralded as a breakthrough in the quest for a spot bitcoin fund.

Coincidentally, SEC Chair Gary Gensler once again expressed skepticism about crypto markets when asked about the pending applications during a televised interview on Thursday.

Earlier this month, Grayscale lawyers criticized the SEC for allowing the first leveraged bitcoin exchange-traded fund while having rejected its previous efforts for a spot fund.

“The fact that the Commission has allowed a leveraged bitcoin futures ETP to begin trading demonstrates that the Commission continues to arbitrarily treat spot bitcoin ETPs differently than bitcoin futures ETPs,” lawyer Donald Verrilli said.

© 2023 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.

Sequoia Capital has cut back the size of its crypto investment fund to $200 million from $585 million, the Wall Street Journal reported on Thursday, citing people familiar.  

The venture capital firm also cut back an ecosystem fund that invests in other venture funds to $450 million from $900 million, according to the report. Sequoia told investors about the cuts in March, saying they were being made to reflect market conditions that have been typified by a prolonged downturn.

The company plans on focusing on backing young startups with the pared down crypto fund as opposed to larger companies that have faced challenges given current conditions, according to the report. 

Sequoia Capital reshuffle

The two funds affected by the cuts were first announced in 2022. Its first-ever crypto-focused fund had planned to set aside up to $600 million for investments in “liquid tokens.”

The firm recently parted ways with two crypto investors amid a VC team reshuffle, Bloomberg News reported earlier this month. Last year, it was forced to write down its investment in the failed crypto exchange FTX to zero. 

© 2023 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.