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Episode 62 of Season 4 of The Scoop was recorded remotely with The Block’s Frank Chaparro and Darin Feinstein, Ian McGinley, former U.S. Attorney’s Office for the SDNY .

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.

Last month, a grand jury indicted OpenSea’s former head of product in what amounts to the first insider trading enforcement in crypto. 

Nathaniel Chastain allegedly purchased and sold non-fungible tokens (NFTs) he knew would be listed on OpenSea’s homepage at a considerable profit. This alleged activity looks a lot like front running or insider trading, in which someone profits off of non-public information.

But insider trading is a securities violation, and NFTs are not currently classified as securities. For that reason, the Department of Justice is arguing a creative case theory that doesn’t include securities violations. Instead, the DOJ is seeking to stick Chastain with wire fraud and money laundering charges. 

In this month’s episode of Policy Scoop, Aislinn Keely sits down with Ian McGinley, former co-chief of the complex frauds and cybercrime unit in the U.S. Attorney’s Office for the Southern District of New York (SDNY) and current partner at Akin Gump’s white-collar defense and government investigations practice, to take a closer look at the case. McGinley breaks down:

• Implications for the enforcement of insider trading in crypto
• What wire fraud means in this context and how it’s been used in the past
• How the DOJ’s case theory could be used in future enforcements

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

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.

Tether, the company behind the biggest crypto stablecoin, announced on Friday that it had liquidated a loan to embattled crypto lender Celsius without incurring any losses.

Today’s announcement followed last month’s declaration that it did not have any exposure to Celsius, “apart from a small investment made out of Tether equity in the company.” Tether said it issued a bitcoin-denominated loan to Celsius that was overcollateralized to the tune of about 130%.

The issuer of the tether stablecoin (USDT) said the Celsius loan has since been liquidated, based on the terms of the agreement with the crypto platform. According to Tether, this liquidation was done in such a way as to have minimal impact on the market.

“Tether returned the remaining part to Celsius as per its agreement. Celsius position has been liquidated with no losses to Tether,” the announcement stated.

Celsius has been fighting for survival since freezing all withdrawals on June 12, citing “extreme market conditions.” Clients’ funds have remained stuck ever since. Celsius claimed 1.7 million customers and around $12 billion in assets under management in May.

Tether said the loan to Celsius represented a “minimal part of its shareholder’s equity” and had no impact on its reserves or stability. The company has been dealing with fears about the state of its reserves stemming from exposure to bad corporate debt in the form of Chinese commercial paper and loans to embattled crypto lenders like Celsius.

The firm’s most recent transparency report showed a 17% decrease in commercial paper holdings while also upping the proportion of US Treasury bills in its reserve. This reserve is used to back the company’s stablecoin assets, of which USDT is the most popular.

© 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.

Lael Brainard, vice chair of the US Federal Reserve, is calling for more regulation on crypto while it’s still contained.

“To date, crypto has not become sufficiently interconnected with the core financial system to pose broad systemic risk,” Brainard said in a July 8 speech at the Bank of England Conference. However, she continued: 

“It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”

Specifically, Brainard highlighted stablecoins and the increasing involvement of banks in crypto activities as areas of concern due to “heightened risks of spillovers to the core financial system.”

As to policy proposals, Brainard was relatively vague. She instead noted that many of the costs of traditional financial services were worthwhile. “When a service appears cheaper or more efficient, it is important to understand whether this benefit is due to genuine innovation or regulatory noncompliance,” she said.

Brainard’s comments come following months of shock and awe within the crypto industry. A bear market in crypto assets has led to the collapse of a series of crypto projects. The first major fall was TerraUSD, an algorithmic stablecoin that slipped its peg. The widespread issues across the crypto industry have led many policymakers to become keenly alert to any signs of further systemic contagion. 

© 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 leader within Russia’s State Duma has come out in support of a crypto market within the Moscow Stock Exchange, or MOEX.

According to Interfax, Anatoliy Aksakov said at a Thursday news conference: “Of course there should be a crypto market that is founded on the strict requirements of the central bank. I suggest that it be a subdivision of the Moscow Stock Exchange.”

He continued to say that such a market within the traditions of MOEX and in collaboration with the central bank would “better than any manage the tasks of fulfilling trading with cryptocurrency.”

The leader of the State Duma Committee on Financial Markets, Aksakov has long played a key role in establishing the country’s cryptocurrency policy. Earlier this year, the Russian Central Bank seemed to be toying with the idea of a blanket ban on crypto, which President Vladimir Putin intervened to stop. 

Subsequently, Russia invaded Ukraine. Resulting sanctions have racked Russia’s markets, even leading MOEX to stop trading for a time shortly after the invasion. Many leaders in countries imposing sanctions have spotlit crypto as a means for evading those sanctions, despite doubts that Russia could do so at a meaningful scale. 

© 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.

Quick Take

• Last month, fintech startups raised $5.9 billion in funding from investors. 
• This continues the malaise in investment in fintech seen for the majority of this year. 

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Crypto exchange giant Binance’s Spanish subsidiary, Moon Tech Spain, has clinched registration as a Virtual Asset Services Provider (VASP) from the Bank of Spain, the business announced on Friday. 

The registration will allow Binance to offer crypto asset exchange and custody services in Spain in compliance with the requirements of its central bank’s anti-money laundering and counter-terrorist financing (AML/CTF) rules.

The approval had been pending since the end of January and follows European registrations with both France and Italy. The company also recently received licenses to operate in Bahrain and Dubai.

The exchange’s CEO and founder Changpeng Zhao noted in a news release that the exchange has “invested significantly” in compliance and has introduced AMLD 5 and 6 compliant tools and policies.

Moon Tech director Quim Giralt added that the business would significantly expand its team in the region. “Over the coming years we will be hiring local talent to serve the Spanish-speaking market and helping to grow the local crypto ecosystem,” 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.

Ashley Alder, CEO of Hong Kong’s financial regulator, will be the next chairman of the UK’s Financial Conduct Authority (FCA), the Treasury confirmed on Friday.

Alder will assume the role in January 2023, succeeding Richard Lloyd, who has served as interim chair since Charles Randell left in May. The former lawyer brings a wealth of experience in financial regulation, having overseen Hong Kong’s Securities and Futures Commission (FSC) since 2011.

The Block reported on Thursday that Alder was a frontrunner for the role, following a report from Sky News.  HM Treasury confirmed the story today. 

Alder said it would be great privilege to chair the FCA, adding that he he values “the opportunity to contribute to a crucial phase in the FCA’s history as it helps chart the UK’s post-Brexit future as a global financial centre which continues to support innovation and competition through its own world-leading regulatory standards.”

The chair of the FCA plays a crucial role in the financial and economic regulation of Britain, monitoring the conduct of about 51,000 financial services firms and financial markets across the UK.

The appointment of a new chair requires the approval of both the chancellor and the prime minister. Still, amid ongoing uncertainty in Westminster, it is unclear when the confirmation will take place. The UK Treasury, which handles appointments to the FCA, didn’t immediately respond to a request for comment from The Block, nor did the FCA.

© 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 former Celsius contractor has filed a lawsuit against the troubled crypto lender, accusing the firm of mismanagement and fraud—claiming it is owed money based on hundreds of millions in profits generated.

According to a filing with the New York state court on Thursday KeyFi Inc., a company founded by Jason Stone, has accused Celsius of fraud as well as owing KeyFi millions of dollars from a profit sharing agreement. Stone was also an employee of Celsius Network during 2021.

Here’s a passage from the suit:

Twitter user 0b1x—which sources close to The Block confirmed is Stone’s anonymous account—took to the social media site to say, “given the public speculation about the company’s solvency, and my observation of Celsius’ loose relationship with the truth, I feel it is only prudent to finally set the record straight. I have brought legal action against Celsius to settle this issue once and for all.”

Stone declined to comment further on the record. 

KeyFi Inc worked with Celsius between August 2020 and April 2021 staking and deploying DeFi strategies for the lending platform, according to Stone’s post. Throughout this period KeyFi “generated hundreds of millions of dollars in profits for the parties’ mutual benefit” according to Thursday’s filing.

The filing goes on to say that Celsius had assured Stone its risk management team was monitoring its activity and their trading teams were “adequately hedging any potential impermanent loss from our activities in liquidity pools.”

According to the post and per the filing Celsius had lied to KeyFi about this, with Stone’s company alleging Celsius’s portfolio had “naked exposure to the market.”

The filing goes on to claim that Celsius suffered severe losses during the 2021 crypto bull run, beginning in January 2021, as it had recklessly and fraudulently failed to hedge its investments. 

It then goes on to add that the lender began offering high interest rates as it faced a liquidity crisis in order to “lure new depositors” becoming a Ponzi scheme in the process. 

Celsius has come under intense scrutiny over the past month after halting withdrawals on June 12, a month to the day after the Terra blockchain began to collapse.

Following the collapse of the Terra blockchain and against a choppy macroeconomic backdrop that has affected broader financial markets cryptocurrencies have plunged in price. The troubled market has led to liquidity issues for several crypto companies, including other lenders such as Voyager Digital and BlockFi.

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

© 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.

Binance announced on Thursday that it has resumed deposits and withdrawals for Brazilian customers, following a change in payment providers that interrupted crypto transactions between the exchange and the country’s instant payment system Pix for nearly three weeks.

Several local media outlets reported on June 17 that Binance had stopped deposits and withdrawals in reais via Pix. That day, the cryptocurrency exchange announced it was no longer doing business with Barueri, Brazil-based bank Capitual for payment services in the country. 

Binance, which has been expanding its local presence in Brazil over the past few months, then announced that it had picked Latam Gateway as its new payment provider on June 24.

Earlier this week, local media outlets including Folha de São Paulo reported that a São Paulo court ordered that $451.6 million Brazilian reais (about $84.6 million) of Capitual’s funds be blocked. However, many details about the issue are still unclear.

A Capitual spokesperson told The Block that the amount relates to the purchase and sale of assets made by Brazilians on the Binance platform. It said the funds were blocked after Capitual adapted its platform to meet new requirements from Brazil’s central bank, and that withdrawals were suspended when Binance did not implement those changes. 

“Capitual does not comment on the decision of the São Paulo Court of Justice (TJSP), resulting from the ongoing judicial process filed by Binance, for running in secrecy of Justice,” the company said in a statement to The Block on June 5.

Meanwhile, Binance reiterated in a July 4 media statement that it is no longer doing business with Capitual. 

“On June 24, the exchange announced that it had signed a contract with a local partner more committed to its values ​​and to Brazilian users,” Binance said in response to an article in the publication Valor Econômico mentioning the blocked funds. “Binance also stresses that it has taken all necessary and reasonable steps towards Capitual to protect users and their resources and ensure they are not adversely affected by the change.”

© 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.

Hidden Road Partners announced on Thursday that it has closed a $50 million Series A round led by Castle Island Ventures.

Citadel Securities, FTX Ventures, Uncorrelated Ventures, Greycroft, XBTO Humla Ventures, Wintermute, SLN Capital, Profluent Trading, Coinbase Ventures among others also joined the round, per the release. 

According to the statement, Hidden Road hopes to solve “many of today’s problems in credit intermediation and prime brokerage caused by legacy technology, archaic workflows and conflicts of interest.” 

The firm’s platform is “quantitatively-driven” and provides real-time risk management and “seamless credit across, products and asset classes.” Hidden Road offers prime brokerage, clearing and financing services for both traditional and digital assets.

Matt Walsh, general partner at Castle Island Ventures told The Block: “Hidden Road is offering a range of products that we see as essential for institutions entering the digital assets market. We are excited to be investing behind this great team.”

© 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.