New York State Attorney General Letittia James has sued Celsius ex-CEO Alex Mashinsky for defrauding hundreds of thousands of investors by making false statements beginning in 2018 about the condition of the company. The state intends to ban Mashinsky from doing business, in addition to seeking damages and restitution. This comes as a federal judge ruled that Celsius customers’ assets in interest-bearing “Earn” accounts are part of the company’s bankruptcy estate – dealing a blow to those looking to recoup some $4.2 billion in deposits. Elsewhere, crypto banking firm Juno has advised customers to self-custody or sell their crypto as the firm migrates funds out of failed custodian Wyre. Finally, Silvergate Capital, one of crypto’s most important banks, has cut 40% of its staff as well as its plans for a Diem-like stablecoin amid an outflow of deposits, according to an SEC filing.
Binance Banged
The U.S. Securities and Exchange Commission (SEC) has filed a limited objection to Binance.US’s proposed $1.02 billion purchase of bankrupt crypto lender Voyager’s assets – which will go before a bankruptcy trial today. The agency questioned Binance.US’s disclosures and ability to “consummate a transaction of this magnitude” and raised concerns over customer safety. Oddly enough, SBF’s defunct trading firm Alameda Research is opposing the Binance.US offer as a substantial investor in Voyager. Separately, Arcane Research found Binance’s market share of bitcoin trading volume jumped to 92% by the end of 2022.
Crimes Commited?
Daniel Friedberg, a former FTX lawyer, is reportedly cooperating with the U.S. Department of Justice (DOJ), the Federal Bureau of Investigation (FBI) and SEC’s investigations, Reuters reported, citing a person familiar with the situation. In a Delaware court, U.S. federal government officials said they are seizing assets linked to FTX, including SBF’s contested Robinhood stock. Meanwhile, the Mango Markets attacker Avraham Eisenberg will be detained until his pending trial. Finally, the SEC claims to have uncovered a $45 million blockchain fraud as two high profile Web3 developers claim to be victims of an NFT phishing exploit.
Sound Bites
“The House Financial Services Committee is pivoting towards FTX fact finding.”
– Blockchain Association director of government relations Ron Hammond, discussing forthcoming crypto legislation, on CoinDesk TV’s “First Mover”
The Takeaway: Fixing a Fraud
(Getty Images)
In his testimony before the House Financial Services Committee current FTX CEO Jay J. Ray III laid out the most convincing case that fraud was committed while former FTX chief executive Sam Bankman-Fried held the reins at the bankrupt crypto exchange. Evidence strongly suggests FTX user funds were commingled, Ray wrote, in part to fund a lavish “spending binge” by the “FTX Group” beginning in late 2021.
Some $5 billion alone was spent by SBF’s “hedge fund” Alameda Research, with billions more currently unaccounted for as Ray traces outflows from FTX, SBF and various shell companies. Some of that money – used to invest in startups, line politicians’ pockets and pay out personal loans to employees – conceivably came from profits made by the exchange and trading shop.
The rest, presumably, were misappropriated funds from customers and financiers – FTX, since its founding, had raised at least $2 billion (supposedly from some of the sharpest investors around). This is just one leg of the case brought by U.S. investigators against Bankman-Fried on Dec. 13, in addition to claims of money laundering, campaign financing violations as well as wire and securities-related conspiracies. (He has pleaded not guilty.)
To a large extent, these allegations are now concerns for the court to weigh. But there is a separate, extra-judicial question for those bankrolled by Bankman-Fried to decide: whether to proactively return the money they received from the millennial Bernie Madoff. FTX liquidators have said they’ll be pursuing clawbacks in and out of court, though the legal situation is murky if people accepted and spent funds in good faith.
Ethically, however, things could not be more clear: Anyone who took funds from Bankman-Fried should feel compelled to return them. Upwards of a million customers were impacted by the collapse of FTX. Their money was likely misappropriated to fuel one of the largest financial frauds in history. If “dollars were fungible” in Mr. Bankman-Fried’s universe, then all money that flowed out of his coffers should be considered tainted.
As the demand for trustworthy and comprehensive trading services increases in the wake of the FTX collapse, Gate US is looking to fill the void after obtaining several licenses and approvals, with plans to become authorized to operate in more US states before commencing services in 2023. Continue here.
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Off-Chain Signals
Are there any links between crypto and Andrew Tate? (Protos)
Machine Learning Best Way to Defend Web3 From Exploits (The Defiant)
2022 saw 51% fewer “losses” due to things like hacks, according to Immunefi (TechCrunch). Though others have said it has been the busiest year for attacks (Fortune, Oct. – paywalled)
