FreeCryptoCurrency.Me

Former CEO of FTX Sam Bankman-Fried directed company executives to reallocate Alameda Research’s large liability with the exchange to “the weird Korean account” to mask its liability with the firm, according to a complaint by the Commodities Futures Trading Commission.

The CFTC, the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney’s Office for the Southern District of New York (SDNY) all brought numerous charges of fraud against Bankman-Fried on Tuesday over the collapse of FTX and Alameda. Bankman-Fried is currently being held in jail in the Bahamas awaiting an extradition hearing, after not receiving bail.

The regulators allege that Bankman-Fried operated a fraud from day one, improperly diverting FTX customer assets to his majority controlled trading firm Alameda Research and hiding that information from FTX equity investors and customers.

‘The weird Korean account’

In the spring of 2022, following a significant downturn in the crypto markets, Alameda experienced a large number of margin and loan recalls and the trading firm “greatly increased” its usage of customer funds to meet its external debt obligations, the CFTC complaint alleges. By mid-2022, Alameda’s total fiat liability with FTX was around $8 billion, the complaint said.

Bankman-Fried directed company executives to reallocate funds to a Korean account he referred to as “our Korean friend’s account” and “the weird Korean account.”

The Korean account belonged to Alameda but was not tagged with an Alameda identifier, which enabled Alameda’s negative balance to be hidden on FTX ledgers, the CFTC said. The account was instead described as “FTX fiat old,” the complaint said.

The SEC complaint noted that Alameda’s multi-billion dollar liability with the exchange was stored in an internal account in the FTX database as fiat@ftx.com. In 2022, the company  started trying to separate out Alameda’s portion of the liability in the “fiat@ftx.com” account, the SEC allege.

Alameda’s special privileges

The regulators allege that Alameda received numerous privileges from an “unlimited” line of credit on the exchange to an exemption from FTX’s heavily touted risk management system.

The Korean account had privileges to execute a transaction even if it did not have the funds to do so, through a piece of code labeled as “allow negative flag,” the CFTC alleges. This was also applicable to the main Alameda account and the Alameda sub accounts, according to the complaint.

Former FTX executive Nishad Singh, who was responsible for overseeing engineering at FTX, annotated code linked to the Korean account, according to a report from Bloomberg, which cited contributions from Singh’s Github account.

Bloomberg said Singh didn’t immediately respond to a request for comment.

Bankman-Fried contemplated closing Alameda Research in September citing the fact that Alameda was not making enough money to justify its existence, according to the CFTC charges.

“I only started thinking about this today, and so haven’t vetted it much yet,” wrote Bankman-Fried at the time. “But: I think it might be time for Alameda Research to shut down. Honestly, it was probably time to do that a year ago.”

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.

Presidents of the European Parliament, Council and Commission have signed a joint agreement outlining priorities before the next European elections in 2024. On the list of 164 legislations — some are already in negotiations, and others are yet to be put forward — is a central bank digital currency.

The European Commission promised to develop legislation for a digital euro “soon.” A spokesperson confirmed that the Commission plans to put forth a proposal in the second quarter of 2023.

The European Union’s anti-money laundering package also featured on the list of priorities. The AML regulation is in negotiations between policymakers in the European Parliament. Discussions have brought decentralized finance, DAOs and NFTs into scope. An EU-wide anti-money laundering authority to oversee provisions, including on crypto firms, is anticipated. 

As for the digital euro, the European Central Bank is currently working on a prototype with a selection of partners, including the contested Amazon. The design phase will wrap up in March 2023, followed by a decision on whether to implement a euro CBDC anticipated in October.

ECB executives say that a digital euro will likely have limited individual transactions and caps on store-of-value.

© 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.

Representatives at the G20 are looking to develop a streamlined policy agreement for crypto assets to inform global regulation.

“One of the priorities which have been put on the table is to help countries build a consensus for policy approach to the crypto assets,” Ajay Seth, India’s federal economic affairs secretary, said at a press conference on Wednesday, Reuters reported. 

The G20 is holding its first central bank deputies meeting this week in Bengaluru. India took up the presidency of the G20 at the start of December for a one-year term, taking over from Indonesia.

To inform the consensus on crypto regulation, Seth added that monetary policy, the banking sector and implications of crypto on the economy need to be studied. 

This is not the only global organization stepping up its work on crypto. The Organisation for Economic Co-operation and Development released a report calling urgent policy action on crypto assets yesterday.

The collapse of FTX crypto exchange has spurred urgency in regulators around the world to regulate the crypto sector, following what has been dubbed “one of the biggest frauds in American history.”

© 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.

Paradigm, the crypto derivatives trading platform, cut salaries company-wide by 15 percent.

The OTC firm — not to be confused with the crypto investment firm with the same name — blamed the pay reduction on contagion stemming from the collapse of crypto exchange FTX in a tweet.

Paradigm also claimed that salary cuts “reduce the need for layoffs seen across the ecosystem” and will impact the organization’s momentum less.

“These are tough times but we must do the hard thing and retain the financial flexibility to navigate the turbulent times we find ourselves in as an industry,” it added.

Layoffs have hit the wider industry hard in recent months. In December, Fintech firm Plaid laid off roughly 260 employees. The month prior, crypto exchange Kraken reduced its headcount by 1,100, or 30 percent of its workforce.

Paradigm raised $35 million in Dec. 2021 in a round co-led by Alameda Research, the trading firm at the heart of the collapse of Sam Bankman-Fried’s crypto empire. 

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.

The collapse of the crypto exchange FTX wasn’t the most impactful event for crypto investors this year — at least from a market-wide perspective. That award is shared by the de-pegging of Terra’s algorithmic stablecoin and the subsequent collapses of crypto lender Celsius and hedge fund Three Arrows Capital.

Terra’s UST de-pegged and ultimately collapsed in May. Contagion stemming from the collapse then contributed to Celsius filing for bankruptcy and the implosion of Three Arrows Capital in July. FTX later experienced a liquidity crunch after allegedly misusing customer funds and filed for Chapter 11 bankruptcy protection in November. Former CEO Sam Bankman-Fried has since been arrested in The Bahamas and charged with criminal fraud. 

According to crypto analytics firm Chainalysis, UST’s collapse caused $20.5 billion in realized losses for investors. Meanwhile, the failure of Celsius and Three Arrows Capital caused $33 billion in losses. FTX’s collapse caused ‘only’ $9 billion in realized losses.

Chainalysis’s report admits that FTX was the most personally impactful event for some, as they will “likely lose any funds they kept on the exchange, and the likelihood of recovering them is unknown.” However, the firm notes that “the heaviest hitting crypto events of 2022 were already behind investors by the time the FTX debacle took place” — from a market-wide point of view.

Chainalysis conclusions come after measuring realized gains and losses for a set of personal wallets in a given period — which provides “a directional sense of when investors lock in gains and losses.”

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.

One of Sam Bankman-Fried’s top lieutenants told Bahamian authorities that customer funds from the firm were used to plug holes in the balance sheet of his investment fund, Alameda Research.

In a Nov. 9 call with Bahamian regulators, FTX Digital Markets co-CEO Ryan Salame told Bahamas Securities Commission Executive Director Christina R. Rolle that client assets possibly held by FTX were transferred to Alameda Research to cover the hedge fund’s financial losses.

The transfer of customer assets was “contrary to normal corporate governance and operations at FTX Digital,” Rolle wrote in a Nov. 11 court document filed to the Supreme Court of the Bahamas, seeking an emergency intervention for the regulator to seize control of the company’s remaining assets. “Put simply, that such transfers were not allowed or consented to by their clients.” 

Salame’s comments to the regulator also prompted her to alert the Bahamian police, requesting an investigation into the company, “on an urgent basis.” The request to police notes that Salame was in Washington, D.C. on Nov. 9. 

The FTX DM co-CEO told officials that only three people had passwords necessary for the transfer: Bankman-Fried, Nishad Singh and Gary Wang. A Monday court filing by FTX’s representatives in bankruptcy proceedings named Bankman-Fried and Wang as responsible for a separate shift in funds, as well as the minting of new tokens, after they had filed to start the bankruptcy process.

Rolle’s request, which was granted by the court, was included in a new filing in the bankruptcy case today made by the Bahamian government in response to arguments in the U.S. Bankruptcy Court for the District of Delaware, suggesting that it is coordinating with Bankman-Fried.

Lawyers for FTX, representing the company’s new leadership, have argued that Bankman-Fried, Wang and Bahamian authorities, including the Securities Commission, may have violated bankruptcy law around movement of assets after initiating the process. The Bahamian regulator has vigorously denied coordination with Bankman-Fried, and filed these documents as evidence in support of its argument. The judge presiding over the case will hear further arguments on Friday, with a full hearing on the issue scheduled for Jan. 6. 

The request came the day that Binance pulled out of its proposal to acquire FTX. Earlier this week, Bankman-Fried was arrested by Bahamian police, denied bail and indicted by a U.S. federal grand jury on several charges of fraud or conspiracy to commit fraud. 

In her Nov. 9 request to the Bahamas Supreme Court, Rolle raised similar concerns to those raised now by FTX’s lawyers: That Bankman-Fried offered in an email to the country’s attorney general to fully refund Bahamian customers.

“Particularly, SBF has advised that FTX has “segregated funds for Bahamian customers” and are willing to allow those customers to withdraw those funds,” Rolle wrote on Nov. 9. “The question that ultimately arises is whether such transactions would be characterized as voidable preferences under the insolvency regime and subsequently result in attempts to claw back funds from Bahamian customers.”

“In any event, the Commission cannot condone preferential treatment of any investor or client of FTX Digital or otherwise,” she added. 

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.

Ashley Alder, the UK’s next Financial Conduct Authority chair, had harsh words for crypto platforms as he addressed members of parliament, the Financial Times first reported.

Speaking at a cross-party Treasury select committee, Alder suggested that crypto “should be regulated further,” adding that crypto companies “are deliberately evasive” and “a method by which money laundering happens” at scale, according to the newspaper.

The criticism from Alder comes as anti-money laundering tests held by the FCA ruled out 85% of firms that applied, according to FCA chief executive Nikhil Rath, who spoke earlier this year at a banking summit.

Expected UK Treasury regulations are set to introduce consumer protections, impose limitations on foreign sellers, restrict product advertising and offer provisions when companies fail.

© 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 miner CleanSpark is lowering its 2023 hashrate guidance from 22.4 EH/s to 16 EH/s because of build-out delays coming from its infrastructure partner, Lancium.

“Just recently, they informed us of capital constraints affecting their ability to meet their commitments,” the company’s CEO Zach Bradford during an earnings call Wednesday said.

CleanSpark did, however, meet its 5.0 EH/s year-end hashrate in October and is now projecting to reach 6.0 EH/s by Dec. 31.

Lancium was expected to provide first 50 megawatts this month and the next 150 megawatts in the spring, Bradford said. Instead, that capacity only will be available in late 2023 — or even later, given current market conditions.

Margins in the industry are hurting amid higher costs and lower bitcoin prices. Some of the largest players are cash-strapped and struggling to pay bills.

CleanSpark, however, has been on the acquiring side, buying up two sites and several thousands of machines from competitors in recent months.

“We have very little leverage on the balance sheet,” said CFO Gary A. Vecchiarelli. “While debt markets are currently closed for most mining companies. We continue to have positive conversations with lenders primarily because of our balance sheet and financial position.”

The company reported a net loss was $42.3 million and revenue of $26.2 million for the three months ending in September, missing analyst estimates on both.

It’s shares were down about 4% in after-hours trading, as of publication time.

© 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.

Digital asset custodian BitGo refused to allow Alameda Research to unwind $50 million worth of wrapped bitcoin days before the latter firm went into bankruptcy, BitGo CEO Mike Belshe said today in a Twitter Spaces hosted by crypto personality and MakerDAO delegate Chris Blec.

BitGo is the custodian for WBTC, a tokenized version of bitcoin that can be deployed on the Ethereum network. Belshe said that someone from Alameda contacted BitGo about unwrapping 3,000 WBTC ($50 million) to get back bitcoin days before the Nov. 11 bankruptcy filing. He noted that the redemption request was unusual because it came from an Alameda representative that BitGo had not dealt with previously.

The BitGo custodian knows all operative personnel of each firm that owns WBTC, according to Belshe. He also said that the Alameda representative did not pass its security verification process and was not familiar with WBTC burns — the process in which wrapped bitcoin is redeemed for BTC by sending it to the burn address, which then triggers the release of the bitcoin that was used to mint it.

“So, we [Bitgo] held it up and said this is not what a burn looks like and we need to know who this person was,” Belshe said. “While we were holding it, waiting for a response on those issues, they [Alameda] went bankrupt and of course, once they went bankrupt, everything halted.”

Screenshot showing the attempt by Alameda to redeem 3,000 WBTC is still pending. Image: WBTC dashboard

Still pending

Alameda attempted to unwind the 3,000 WBTC anyway, and on-chain data from Etherscan shows 3,000 WBTC were sent from an Alameda wallet to the WBTC controller contract on Nov. 9. The tokens were sent to the burn address and so have effectively been destroyed.

Under normal circumstances, that would have triggered a redemption of 3,000 BTC from BitGo to Alameda’s coffers, but BitGo has to approve any redemption requests before any bitcoin is released. The WBTC dashboard still shows this particular redemption attempt as pending, and WBTC is thus presently overcollateralized by 3,000 BTC. The WBTC dashboard currently shows that BitGo holds 202,255 BTC in custody against 199,238 WBTC in circulation.

Belshe hailed BitGo’s handling of the matter as indicative of the company’s robust security apparatus. The BitGo chief said, however, that the redemption attempt could have been legitimate but did not meet established protocols. Belshe said the company will not do anything with the 3,000 BTC that corresponds to the WBTC in question, adding that he expects the tokens will be dealt with by the trustees handling the Alameda bankruptcy proceedings.

BitGo did not immediately respond to The Block’s request for additional comment.

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.

The Consumer Financial Protection Bureau is not planning an immediate crypto crackdown, its director said today, while choosing his words carefully.

“Crypto is not a product. Certain electronic consumer transactions are,” CFPB Director Rohit Chopra told The Block after an hours-long congressional hearing.

Digital asset policy came up frequently during a regular appearance by Chopra before the House Financial Services Committee, including further prodding around whether a recently published consumer alert bulletin related to crypto meant the bureau would step up enforcement on crypto companies. 

“Do you anticipate expanding your enforcement in this area?” asked Rep. Bill Huizenga, R-Mich., referring to those reports.

“No,” answered Chopra.

The bureau has also moved ahead on an inquiry into crypto lender Nexo, which led to the company’s announcement that it would gradually leave the U.S.

When asked after the hearing about the Nexo investigation, Chopra would not comment beyond what the regulator had already filed on the case.

Stablecoin framework

Asked by committee Chair Maxine Waters, D-Calif., what legislation he thought Congress should pass around digital assets, Chopra agreed with Waters’ own prioritization of a regulatory framework around stablecoins.

“I think with respect to stablecoins, that’s the number one issue that I think would affect consumers and consumer financial protection,” said the CFPB director, adding that stablecoins could “very, very rapidly scale” in size, requiring policymakers to “make sure that there are not runs like we’ve seen in money market funds or even the recent FTX situation. How do we make sure that fraud protections are in place?”

“You know when Libra was proposed in 2019, I think that was a sign that something like a stablecoin could very, very rapidly scale,” Chopra continued.

© 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.