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Feds investigating FTX founder SBF for possible market manipulation: NYT

U.S. prosecutors are probing into whether FTX founder and former CEO Sam Bankman-Fried could have manipulated the prices of TerraUSD and Luna cryptocurrencies earlier this year to benefit his businesses, the New York Times reported. 

The prosecutors are looking into whether Bankman-Fried could have “steered” the prices of algorithmic stablecoin TerraUSD (UST) and its associated token Luna (LUNA), the report said, citing two people familiar with the matter.

Those two cryptocurrencies collapsed in May, about six months before Bankman-Fried’s crypto exchange FTX and more than 100 related entities filed for Chapter 11 bankruptcy protection. One of those entities was FTX’s sister trading firm Alameda Research, which was forced to wind down trading and is now the subject of scrutiny after The Wall Street Journal and Reuters reported that FTX had lent the firm billions in client funds.

The investigation into Bankman-Fried’s TerraUSD and Luna trading activity is still young, The New York Times reported, noting that it is “not clear whether prosecutors have determined any wrongdoing” by SBF or when investigators started looking into his company’s TerraUSD and Luna trades.

The report cites a statement from Bankman-Fried saying he was “not aware of any market manipulation and certainly never intended to engage in market manipulation.”

The probe into whether Bankman-Fried could have manipulated these cryptocurrency markets is just one aspect of ongoing investigations targeted toward his web of companies by authorities in the U.S. and beyond. The Wall Street Journal revealed that the The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are also examining FTX in the days ahead of its collapse, and Bloomberg reported that federal prosecutors were looking into the firm months before it filed for bankruptcy. Authorities in The Bahamas are also investigating the FTX Digital Markets subsidiary that was headquartered there.

Meanwhile, U.S. lawmakers also want Bankman-Fried to testify about how the bankruptcy of his companies unfolded before the year’s end. The U.S. Senate Banking Committee on Wednesday asked Bankman-Fried to present himself on Dec. 14. Meanwhile, senior members of the House Financial Services Committee are considering issuing a subpoena that would require him to testify.

© 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.

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Author: Kristin Majcher

CFTC and crypto lawyers duke it out over service in Ooki DAO case

How do you sue a DAO? The question has been at the heart of the case the Commodity Futures Trading Commission is bringing against Ooki DAO, a decentralized autonomous organization that the agency alleges was just feigning decentralization in order to facilitate old-fashioned commodities violations.

Controversially, the CFTC distributed legal service to DAO users via the DAO’s chat box. Most legal proceedings require physical, in-person delivery, but the CFTC got the court on board with a special exemption in October, as the case was kicking off. DeFi advocates reacted heatedly.

On Wednesday night, a San Francisco court heard virtual arguments over the mechanism of service. Arguing with the CFTC’s lawyers were not Ooki DAO’s lawyers.

Ooki DAO has not yet responded in a cohesive way to the suit by, for example, hiring an attorney to represent it in the case. Its architects, Tom Bean and Kyle Kistner, did. The CFTC settled with them in September.

Instead, four attorneys enlisted by outside crypto firms and allies a16z, LeXpunK, Paradigm and the DeFi Education Fund argued with the CFTC’s methods. The four had filed amici curiae briefs in the case before the U.S. District Court for the Northern District of California.

“We have really cool technology,” said LeXpunK’s representative council Stephen Palley. “But you still have to accept the concept of due process.”

Ooki’s erstwhile defenders did not deny that the platform had been used to facilitate unlawful trading. Instead, they argued that the mechanism of service was to target anyone who had ever used the platform.

“Because the stakes are so high and the novelty of the case — which I think we’ve all recognized here — we think it’s all the more important that the government be required to turn square corners on service here,” said James McDonald, representing advocacy group the DeFi Education Fund.

The judge, William Orrick, for his part, would not allow that Ooki DAO’s decentralization spares it from legal service – a hot topic in other active lawsuits. “Seems to me the CFTC is suing an entity, not a technology, Orrick said, continuing: “It seems to me the Ooki DAO is an unincorporated association under California law.”

The CFTC’s representatives pushed on the point that they didn’t need to prove that each member of the association served was criminally liable in order to serve them collectively. “So long as we can demonstrate that the association exists then that is sufficient to trigger the service provisions we have relied on,” said Anthony Biagioli, a trial attorney for the CFTC.  

Orrick now has to determine whether to overturn his prior motion to allow service, as the crypto advocates want, or allow the CFTC to proceed. “I’ll get an order out at some point relatively soon, I hope,” he concluded.  

© 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.

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Author: Kollen Post

Defense against an AI-bot apocalypse: Give them pets

One new company may have come up with our best hope of preventing AI bots from ushering in an apocalypse: Give them pets to play with.

That’s the concept behind augmented reality start-up Anima’s new project called Onlybots, a platform where bots — or humans masquerading as bots — can obtain AR-powered virtual pets. The pets, which are also NFTs minted on Ethereum, are now trading on OpenSea.

Wednesday’s initial drop of unique AR creatures sold out almost immediately, according to Anima, causing the newly minted group of digital assets to crack OpenSea’s top 10 trending collections on its first day of availability. The company said the first two batches of about 500 pets sold out in less than an hour. At the time of writing, Openbots ranked fifth on OpenSea’s trending collections list.

“[Bots] are very much in the zeitgeist right now. Elon Musk was obsessed with them. ChatGPT is probably the biggest story in tech this week,” said Anima cofounder Alex Herrity. “But we don’t really think about ‘What do bots want? What would make them happy?’”




Kidding aside, Anima’s Onlybots project is the latest example of a company attaching added value and functionality to digital collectibles in an effort to spur wider adoption. While the current downturn across crypto has caused NFT trading volumes to plummet, the number of transactions has been steadily rising as more mainstream consumers embrace the buying and selling of digital assets with the advent of new web3 games and social media companies like Reddit, Instagram and Twitter rolling out initiatives aimed at introducing newcomers to the world of crypto.

Herrity believes the trend will continue and adoption and ownership will spread as use cases proliferate.

“We founded Anima really noticing that digital ownership and digital collectibles is exploding and will change, and continue to change, as a whole generation grows up used to owning digital goods from the beginning they’re interacting with products they care about,” said Herrity. “We wanted to bring that into AR because up until now AR has really been filters on SnapChat. It’s a distraction, it’s not something you can own.”

After having previously worked on Fortnite, Herrity founded Anima last year with $500,000 in pre-seed financing led by Coinbase. He’s joined by cofounder Neil Voss, who worked at Nintendo in the 1990s.

With Onlybots, human users capable of pretending to be AI bots by failing a questionnaire and reCAPTCHA can acquire chunky Lego-like, augmented-reality digital creatures that can then be superimposed over the real world using a smartphone. While technically Amina has created the pets for humans to enjoy, AI bots can also acquire the digital creatures, according to Herrity.

Although Wednesday’s initial launch quickly sold out, Anima plans to release more on top of adding additional functionality and animation based in part on what people choose to do with the virtual pets.

“This initial batch is aimed at the collectors,” said Herrity, adding that Anima’s long-term plan extends far beyond creating virtual NFT pets. He says Anima wants to build a platform people can use to create their own AR-powered digital assets.

Whether Anima’s virtual pets can save the world from a bot apocalypse remains to be seen.

© 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.

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Author: RT Watson

Senate Banking Committee calls on Bankman-Fried to testify on Dec. 14

The U.S. Senate Banking Committee wants Sam Bankman-Fried to testify on the collapse of his crypto exchange, FTX and linked trading firm, Alameda Research. 

“As the Founder and CEO of FTX Trading Ltd. at the time of its collapse and the founder, principal owner, and former CEO of Alameda Research, you must answer for the failure of both entities that was caused, at least in part, by the clear misuse of client funds and wiped out billions of dollars owed to over a million creditors,” reads a letter from Senate Banking Committee Chair Sherrod Brown, D-Ohio.

The letter requests Bankman-Fried’s presence on Dec. 14, the day after a scheduled House hearing where members of Congress also want the embattled former crypto CEO to testify. Brown sent the letter to Bankman-Fried through his attorney, New York-based Mark Cohen, and says he has the cooperation of Sen. Pat Toomey, R-Pa., the committee’s top Republican.

“Traditionally, witnesses who are invited to appear before the Committee make themselves available voluntarily,” the letter continues. “If you chose not to appear, I am prepared, along with Ranking Member Pat Toomey, to issue a subpoena to compel your testimony.”

Brown gives Bankman-Fried until 5 p.m. EST on Thursday, Dec. 8, to decide whether to willingly appear or face a congressional subpoena and potential referral for contempt of Congress if he fails to cooperate. 

The House Financial Services Committee is already weighing a subpoena of Bankman-Fried, whom they have publicly called on to testify. 

© 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.

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Author: Kollen Post

Bitcoin miner Marathon explores Compute North bid: Bloomberg

Marathon Digital Holdings Inc. has hired advisers to help navigate a potential bid for its partner Compute North, a troubled crypto miner currently going through bankruptcy, according to Bloomberg.

Marathon CEO Fred Thiel told Bloomberg his company had hired Guggenheim Partners and law firm Weil Gotshal & Manges to advise on both its exposure to Compute’s bankruptcy and a potential bid for the bankrupt data center.

Marathon utilizes an “asset-light strategy,” which requires it to use third-party companies that possess the machinery and infrastructure to mine cryptocurrency, Bloomberg said.

The Las Vegas-based miner recorded a loss for the third quarter thanks in part to an impairment charge of $39 million linked to Compute North’s bankruptcy, the report also 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.

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Author: RT Watson

Pro-fintech Republican McHenry officially named next House Financial Services chair

The House Republican Steering Committee, which determines committee leadership positions, made it official for McHenry, who currently holds the top Republican spot on the committee and was widely expected to become the next chair once Republicans won a majority in the House of Representatives after the midterm elections.

“As Chairman, I will pursue an innovation and opportunity agenda. We will focus our efforts on conducting appropriate and aggressive oversight of the Biden administration, as well as pursuing bipartisan legislation to put Americans back in control of their personal financial data, enhance capital formation opportunities, and develop a comprehensive regulatory framework for the digital asset ecosystem,” McHenry said in a statement.

The North Carolina Republican has been especially active on financial technology policy, helping craft early crowdfunding legislation, the JOBS Act. He more recently has played a lead role in negotiations to pass a comprehensive framework around stablecoins.

McHenry also has served in House leadership, as chief deputy whip, but declined to run for a leadership post in favor of maintaining his position on the committee to lead it in the next Congress, which starts in early January.

© 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.

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Author: Colin Wilhelm

Celsius must return $44 million in crypto to users, judge orders: Bloomberg

Crypto lender Celsius Network must return around $44 million worth of crypto back to customers, even if it didn’t enter Celsius’s interest-bearing accounts. 

Chief Bankruptcy Judge Martin Glenn issued the order on Wednesday after parties involved in the case concluded that funds belong to users, not Celsius, Bloomberg reported.

Celsius moved more than $200,000 in assets into custody accounts before its bankruptcy this summer, which opened the possibility that it could claim ownership of those funds. However, Glenn ruled that Celsius doesn’t have to return crypto if the transfers were less than $7,500, equaling about $11 million in assets. 

Celsius filed for Chapter 11 bankruptcy protection in July, when the firm revealed it had between $1 billion and $10 billion in liabilities and claimed more than 100,000 creditors. 

Earlier this week, Celsius won an extension on its exclusivity period for the right to submit a Chapter 11 reorganization plan until Feb. 15.

© 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.

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Author: MK Manoylov

Judge dismisses crypto lawsuit against Kim Kardashian, Floyd Mayweather Jr.: CNBC

A federal judge dismissed a proposed class-action lawsuit against EthereumMax founders and celebrity promoters, including Kim Kardashian and boxer Floyd Mayweather Jr., CNBC reported.

Plaintiff Ryan Huegrich earlier this year brought the suit on behalf of all investors who purchased EthereumMax tokens between May 14-June 17, 2021.

Judge Michael Fitzgerald ruled that customers should have known better, even though he said he worried about “celebrities’ ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach.”

“While the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment,” Fitzgerald wrote in the ruling from the U.S. District Court in Los Angeles. 

The judge said the allegations were insufficiently backed given heightened pleading standards for fraud claims, but he said lawyers could refile the suit after amending some of the claims. 

“We’re pleased with the court’s well-reasoned decision on the case,” CNBC cited Kardashian lawyer Michael Rhodes as saying.

Kardashian in October was charged with unlawfully promoting the EthereumMax token by the U.S. Securities and Exchange Commission. She didn’t admit to or deny any of the regulator’s findings and agreed to pay $1.3 million.

Last month, Tom Brady, Gisele Bundchen, Steph Curry and Larry David were named in a class action lawsuit brought against promoters of the collapsed FTX crypto exchange. 

© 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.

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Author: Nathan Crooks

Bitcoin mining report: Marathon shares fall 7% after November operational update

Almost all of the bitcoin mining stocks tracked by The Block traded lower on Wednesday, and three firms saw double-digit declines.

Bitcoin was trading at around $16,800 by market close, according to data from TradingView.

BTCUSD Chart by TradingView

SAI.TECH led the declines with shares falling 14.5%. It was followed by Cipher Mining (-12.6%), and Terawulf (-10.6%).

Marathon Digital’s price dropped 7.3% a day after it provided its November operational update after the close on Tuesday. The company said its production was “negatively impacted by curtailment at the King Mountain
site in Texas,” and that it produced 472 bitcoin in the month compared to a record 615 in October.  

Here’s how crypto mining companies performed on Wednesday, Dec. 7:

© 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.

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Author: Sam Venis

Feds have contacted former FTX employees as part of investigation

Federal law enforcement is in touch with former FTX employees as part of a criminal investigation into the failed exchange and its sister hedge fund Alameda Research. 

Two former FTX employees have been contacted by federal authorities as part of what they believe to be a broader effort to collect information about the inner workings of the failed exchange and hedge fund, they confirmed to The Block. The contact is still at the request for information stage, rather than court-issued subpoenas for records or other information. The employees did not provide details on what information authorities sought. 

The outreach is one piece of a broader federal probe into the companies involving the Justice Department, the Securities and Exchange Commission, the Commodity Futures Trading Commission and state regulators. FTX’s bankruptcy lawyers have also said in court that new CEO John Ray III is cooperating with law enforcement and regulators

In bankruptcy court proceedings, Ray lamented a lack of substantial record-keeping at the company, a common red flag for prosecutors, who reportedly had an ongoing investigation into the company well-before its public collapse.

Bankman-Fried claimed statements made by Ray and company lawyers in court were false in a recent interview with The Block, but has also claimed not to remember certain details. 

The House Financial Services Committee has invited Bankman-Fried to testify next week at a hearing on FTX’s collapse. He has so far declined, saying he might appear after he has “finished learning and reviewing what happened,” at his own companies. The committee is weighing a subpoena to compel his appearance, though one remains unlikely due to complications around enforcement. 

© 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.

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Author: Kollen Post and Frank Chaparro