DOJ doubles crypto team
DOJ moves, FTX liquidation, UK rules reaction, Celsius exec flips, North Korean hack +More
Good morning. In this month’s edition of the Token Word:
The DOJ goes full tilt on crypto crime.
Bankrupt FTX is to liquidate billions.
New UK rules prompt exchange rethink.
Japan tweaks startup funding rules to accommodate crypto.
Celsius executive flips ahead of fraud trial
North Korean hackers tap Russian exchanges.
The Feds know I clap heat felonies on my rap sheet.
DoJ crackdown
The US Justice Department is doubling the size of its crypto team and piling resources into enforcement following a boom in crimes connected to digital assets.
We going big: The National Cryptocurrency Enforcement Team (NCET) will become a permanent fixture within the section of the DOJ that investigates computer-related crimes, and will get a brand new boss.
Launched nearly two-years ago to investigate cryptocurrency-related crimes, the team’s workload has grown so much it is more than doubling the number of prosecutors on hand.
A crypto market downturn and the collapse of FTX caused the team’s work and profile to expand dramatically. Its prosecutors charged the exchange’s founder Sam Bankman-Fried with stealing billions of dollars from customers while misleading investors and lenders.
The NCET has also played a significant role in other Justice Department’s crypto-related cases, including probes into the current largest crypto exchange, Binance.
Pitch shifter: Experts said the move is a recognition by the DOJ that cryptocurrency and other emerging technologies are central to criminal and national security-related threats facing the US.
“I think over the last couple years what the DOJ has realized is that we’ve moved to a digital battlefield, where wars are fought on blockchains,” said Ari Redbord, a former federal prosecutor and current global policy lead at blockchain analytics firm TRM Labs.
“The reality is if this is in fact the future, every prosecutor, every investigator, is going to need to understand these cases.”
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FTX liquidation
As its former chief exec prepares to stand trial for fraud, collapsed cryptocurrency exchange FTX is to liquidate its crypto assets, worth about $3.4bn, following approval from the US Bankruptcy Court in the District of Delaware.
Little Green Bags: In a filing on September 11, FTX revealed its four top holdings, with Solana (SOL) being its largest at $1.16bn. It holds $560m in Bitcoin, $192m in Ethereum and $137m of Aptos.
Brokerage assets, cash, and government-recovered assets are also included in the company’s funds.
The bankrupt crypto exchange selected Galaxy Digital to sell, stake and hedge its crypto in order to reduce price volatility and ensure customers are repaid in US dollars.
The judge overruled objections by two FTX customers who opposed the liquidation, stating they failed to “establish their ownership interests” in any particular Bitcoin or cryptocurrency that the debtors might hold, given that other parties agreed to the motion.
Former FTX chief Sam Bankman-Fried is scheduled to face trial on October 3, 2023, on criminal fraud and money-laundering charges.
Bankman, who has pleaded not guilty, recently failed to win a temporary release from jail to prepare for the upcoming trial.
UK rules reaction
Another business is considering its future in the UK ahead of changes to promotional rules for crypto businesses that enter force next month.
Make up your mind: Crypto exchange Bybit told CoinDesk it is exploring ways to stay in the UK, despite an earlier report in The Block citing words from CEO Ben Zhou saying the business may have no choice but to pull out of the market.
Zhou said the firm was negotiating with regulators over its future activity in the UK.
The UK’s financial marketing rules extend to wrap in crypto firms from October 8, requiring businesses to register with the Financial Conduct Authority. Businesses can apply for an extra three months to embed the rules, but uptake has been low, the regulator said.
Having extended the original registration deadline by a month, the FCA said this is the final warning.
Another exchange, Luno, has stopped serving many UK clients, and PayPal has also halted some of its UK-facing crypto offerings.
Celsius charges
A former executive at doomed cryptocurrency lender Celsius Network has pleaded guilty to US criminal charges and is cooperating with prosecutors.
Feds watching: Roni Cohen-Pavon, a senior lieutenant of Alex Mashinsky’s now-bankrupt lender Celsius Network, admitted to four charges, including manipulating the price of the exchange’s crypto token Cel, at a hearing in Manhattan.
He agreed to assist the US Attorney and FBI with their investigations and to testify in court if called to do so, according to a copy of his plea agreement seen by Reuters.
Along with Mashinsky, he was charged in July with market manipulation and wire fraud for artificially pumping Cel’s value.
Both are accused of cashing out their personal holdings prior to Celsius’ July 2022 collapse, with Mashinsky, who reaped about $42m from his sales.
Celsius imploded amid a flurry of customer withdrawals as cryptocurrency prices fell, and was among the earliest wave of collapses, including FTX.
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Japan’s pro-token moves
Japan is gearing to tweak its financial regulations to allow domestic startups to raise funds by issuing digital assets to investors.
Ready to receive: The update will apply to Japanese-based startups receiving investments from investment funds, which may get their stakes in digital assets instead of traditional stocks or securities.
Prime Minister Fumio Kishida told the WebX Asia conference his government was committed to promoting Web3 as a force for social transformation, aligning with his broader vision of fostering a “new capitalism”.
The country recently lifted bans on foreign-issued stablecoins, launched a central bank digital currency pilot program and funded metaverse and NFT-related projects.
It also toughened requirements around customer information sharing by crypto exchanges to hinder money-laundering activities.
India framework
India’s new crypto regime will be a blend of recommendations by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), and could take effect in the next six months.
Something changed: The Asian country, which recently conducted the G20 summit, has leant into crypto heavily over the last year, and is nearing a full U-turn on its previous stance of a total ban on digital assets.
Domestic businesses have confirmed they are working with the Indian government on a “five-point crypto legislative framework with a global approach”.
Last year, the country introduced a 30% capital gains tax on crypto earnings, which drew scorn from the market.
The IMF–FSB crypto recommendations outlined a set of capital requirements, customer protection rules and call for specific regulations to clarify the tax treatment of crypto, including value-added taxes or levies on income or wealth.
North Korea hack
Top blockchain analytics firm Chainalysis says hackers from North Korea are laundering money from stolen assets through Russian crypto exchanges.
Dirty laundry: The US-headquartered firm’s latest report of on-chain data says hacking groups linked with North Korea are washing funds stolen from the exploitation of decentralized app project Harmony One earlier this year
International sanctions monitors are raising concerns about North Korea’s evolving tactics in cyber warfare.
UN reports have warned that DPRK is using increasingly sophisticated cyberattacks to fund its nuclear missile programs, with ‘state-sponsored’ hacking groups targeting cryptocurrency and financial exchanges worldwide.
Chainalysis data revealed that $21.9m in cryptocurrency stolen from Harmony Protocol was recently transferred to a Russia-based exchange known for processing illicit transactions.
While not in danger of exceeding last year’s “catastrophically high” theft of $1.65bn in crypto funds, hackers inside the dictatorship have already stolen $340.4m this year, on track to be its second-largest annual haul ever.
Calendar
Sep 19-21: SBC Summit
Oct 10-12: G2E
Oct 16: Gaming in Germany, Berlin
Oct 26: Reputation Matters, London
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