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The U.S. DOJ also wants to ban the disgraced founder of FTX and all parties involved in the FTX case from making any out of court statements in the future.

A new lawsuit filed in bankruptcy court by FTX’s caretaker leadership against Sam Bankman-Fried and other senior FTX executives alleges that Bankman-Fried’s father is bankrolling the failed crypto mogul’s defense through an illegal loan from the company.

The complaint filed Thursday, the latest recovery-related lawsuit filed in the complex multinational bankruptcy process playing out in U.S. Bankruptcy Court for the District of Delaware, seeks to avoid payment or clawback hundreds of millions of dollars from Bankman-Fried, FTX co-founder Gary Wang, former Alameda Research head Caroline Ellison and senior FTX executive Nishad Singh.

Lawyers representing current FTX corporate group leadership have engaged in a series of multimillion dollar clawback attempts recently, aiming to take back funds they say were unlawfully invested or given to companies or individuals by Bankman-Fried and FTX executives.

Along with high-dollar instances that have already been reported, like a $546 million purchase of stock in the trading app company Robinhood, the complaint details other instances of self-dealing involving Bankman-Fried’s family.

According to lawyers for the FTX group, Bankman-Fried transferred $10 million of FTX US funds to a personal account of his on the platform, then one minute later sent that amount to an FTX US account under his father’s name. According to the complaint, Bankman-Fried’s father Joseph, a Stanford University law professor, then transferred nearly $7 million to his personal accounts at Morgan Stanley and TD Ameritrade; he lost over $1 million in the remaining FTX US account funds on failed cryptocurrency trades.

Lawyers for the company claim that Bankman-Fried is now using the remaining funds he gave his father to fund his own criminal defense.

The island of Mr. Bankman-Fried

In another instance detailed in the lawsuit, Sam Bankman-Fried’s younger brother, Gabriel, at one point outlined a plan to purchase Nauru, a sovereign island microstate within Micronesia, in order to create a post-apocalyptic haven for believers in effective altruism. Sam Bankman-Fried vocally espoused the philosophy, which essentially boils down to making as much money as possible in order to give away as much as possible to worthy causes. 

The younger Bankman-Fried also mused about using the sovereign nation to create a lab for experiments in human genetics.

“One memo exchanged between Gabriel Bankman-Fried and an officer of the FTX Foundation describes a plan to purchase the sovereign nation of Nauru in order to construct a ‘bunker / shelter’ that would be used for ‘some event where 50%-99.99% of people die [to] ensure that most EAs [effective altruists] survive’ and to develop ‘sensible regulation around human genetic enhancement, and build a lab there,’” the complaint quotes the younger Bankman-Fried as writing.

Adds the bankruptcy complaint: “The memo further noted that ‘probably there are other things it’s useful to do with a sovereign country, too.’”

According to the complaint, the FTX Foundation received money that included funds commingled with FTX customer money. Lawyers filing the complaint also claim that a majority of the $35 million Sam Bankman-Fried directed to Guarding Against Pandemics, another charity established by the Bankman-Frieds — one that unusually had its own political donation arm — came from Alameda Research accounts.

The complaint also echoes previous allegations that Bankman-Fried, Singh and another, unnamed FTX Group senior executive made over $100 million in political donations. Most of the money came from funds commingled with FTX customer money, the complaint claims, while occasionally funding for the donations came from “purported loans” from the FTX group.

Those donations relate to one of the criminal charges Bankman-Fried faces.

© 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 decline reflects an asset that has been stuck in a tight trading range. PLUS: Bitcoin plods below $30K amid another sluggish day for cryptos in which LINK was a rare bright spot.

The bill looks to set out clear rules for the digital assets ecosystem.

Senior House Republicans have formally introduced a bill that would change how crypto markets work in the U.S., including mandating that markets regulators issue rules defining “blockchain” and “digital asset” within existing financial laws and create new rules for digital asset exchanges.

Under terms of the over 200-page bill, titled “the Financial Innovation and Technology for the 21^st Century Act,” the Securities and Exchange Commission and Commodity Futures Trading Commission would be required to write digital asset-specific rules for trading platforms and exchanges. Regulators would be prohibited from making rules around how individuals can hold digital assets themselves.

Digital asset projects would be exempted from typical registrations for securities offerings, up to a point. Issuers could offer up to $75 million worth of tokens in a 12-month period, but with restrictions on sales to unaccredited investors, a category that most buyers belong to. Token issuers would still have to file information with the SEC, including annual and semiannual reports on the project, until or unless it is certified by regulators as decentralized to the point where the token would transition to being a commodity.

Requirements on token issuers

Issuers would have to limit purchases to five percent or less of an individual’s annual income or net worth, whichever is greater. Regardless of income, in order for the exemption to apply, an issuer could not sell more than 10 percent of its tokens to any one purchaser, and the transaction could not involve other digital assets or traditional debt or equity.

The bill also contains language explicitly prohibiting the commingling of customer assets, an accusation levied against FTX and other large crypto firms, and other requirements for the safeguarding of customer funds and property.

Token issuers would have to be organized in the U.S., would have to have a business plan and not be subject to any enforcement order from the SEC in the five years before it offers a token under the exemption.

Digital assets securities could be traded on alternative trading systems under the supervision of the SEC. Digital commodities would be traded on digital commodity exchanges under supervision of the CFTC.

Setting the table for next week

“This is a pivotal moment for America’s standing as the global leader in innovation and technology adoption. Not only can digital assets revolutionize our financial system, but their underlying blockchain technology holds promise as the building blocks for the next generation of the internet,” House Financial Services Chair Patrick McHenry, R-N.C., said in a statement heralding the bill.

“Today’s introduction of the Financial Innovation and Technology for the 21st Century Act marks a significant milestone in the House Committees on Agriculture and Financial Services efforts to establish a much-needed regulatory framework that protects consumers and investors and fosters American leadership in the digital asset space,” House Agriculture Committee Chair Glenn ‘G.T.’ Thompson, R-Pa., the listed lead author of the bill, said in a release.

The bill comes amid an unusually contentious regulatory atmosphere between the industry and markets regulators. Aside from nearly 150 enforcement actions taken by the SEC relating to digital assets, Coinbase has sued the SEC over a response to a petition for rules specific to crypto, while the SEC has its own lawsuit against the trading platform over allegations of listing unregistered securities, among other parts of the U.S. crypto giant’s business.

The House Financial Services and Agriculture Committees plan to debate and vote on advancing the bills to the full House of Representatives next week. The Financial Services Committee will hold a meeting on the bill, as well as a bipartisan comprehensive framework for stablecoins in the U.S., on Wednesday while the Agriculture Committee is expected to hold its debate on its portion of the markets bill on Thursday.

It’s unclear whether the bill will garner enough Democratic support to become law, as Democrats control the Senate and White House. Rep. Maxine Waters, the top Democrat on the Financial Services Committee, demurred when asked by The Block on Tuesday if members of her party might support the legislation.

House Republicans say they have not yet received the cooperation from the SEC that they hoped to get, a sign that gaining enough Democrat support for the market bill to become law could be difficult.

© 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.

Coinbase will shut down the Borrow program for retail customers that enabled them to obtain cash loans using bitcoin as collateral.

In May, Coinbase said customers would no longer be able to take out new loans with Borrow. Now the company says loan holders have until November 20 to pay any outstanding balances or the crypto exchange will sell the bitcoin collateral to close the loans, according to an email it sent to customers that was seen by The Block.

“We have decided to fully close Coinbase Borrow for retail users effective November 20, 2023 in order to focus our resources on the products and services that our customers care about most,” a Coinbase spokesperson told The Block. “We have notified impacted loan holders and are taking extra measures to ensure a smooth transition for them, including providing a four month loan repayment period and access to prioritized customer support through Coinbase One.”

Coinbase Prime, institutional customers not affected

Notably, the move only applies to retail customers of Coinbase and not its Prime or institutional customers.

The full termination of the Borrow program comes amid a legal battle between Coinbase and the U.S. Securities and Exchange Commission. The SEC sued Coinbase last month for failing to register with the agency and selling many tokens that are allegedly unregistered securities.

© 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.

Tech stocks such as Tesla and Netflix, which crypto prices tend to correlate with, sold off during the day as investors shied away from risk assets.

The Twitter account of Hayden Adams, creator of the DeFi crypto exchange Uniswap, was breached on Thursday afternoon, with several tweets sent from the account containing links to scam websites.

“Hayden’s account was hacked,” The Uniswap Foundation said in a tweet. “Do not click this link – or links in similar tweets which might go up.”

A suspect tweet sent from Adams’ account had called on UniswapX users to check if they were eligible for gifted $UNI tokens by going to a site hosted in Russia. That website had been registered the day of the hack, a Twitter user noted.

The message claiming to gift $UNI tokens has since been deleted, although subsequent tweets sent from the account as late as 4:43 p.m. in New York continued to appear to contain scam links. 

Uniswap did not immediately respond to a request for comment from The Block. 

© 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.

Coinbase Borrow, a program that allowed customers to receive fiat loans of up to $1 million against as much as 30% of their bitcoin (BTC) holdings, will be shutting down over the coming months as the company focuses its resources on products that “customers care about most,” a spokesperson said.