Nouriel Roubini Versus Blockchain: Notes from the Senate Floor

The famous crypto-hater testified to the US Senate committee alongside the blockchain advocate Peter Van Valkenburgh.

Normally, there is very limited room for drawing legitimate comparisons between a Senate hearing and an Mixed Martial Arts (MMA) fight. Yet the hearing entitled “Exploring the Cryptocurrency and Blockchain Ecosystem,” which took place on October 11, 2018 on the US Senate’s Committee on Banking, Housing & Urban Affairs’ floor, definitely bore quite a few similarities to a hyped sporting event that had made big waves just a few days ago. Two witnesses who were brought to testify on issues and promises of crypto stood by polarising views on the subject matter, albeit they expressed these views with varying intensity.

On the pro-crypto side, there was Peter Van Valkenburgh, Director of Research at Coin Center, a reserved yet very articulate speaker. In the opposite corner, there was Nouriel Roubini. Roubini or “Dr. Doom”, whose reputation is mainly founded on the prediction of the 2008 housing bubble crash, would be the fighter who does trash talking. In the buildup to the hearing, he fired a long series of vehement tweets, bashing blockchain and its supporters, picking local fights and bragging about having debated best crypto gurus and “beating them by a wide margin”.

Into the hearing

Chairman Mike Crapo, a Republican Senator from Idaho, opened the proceedings with a statement that gave a nod to Bitcoin’s unique status as the first ever digital asset, and highlighted how the bulk of the latest news on crypto has been negative, including falling prices and regulatory woes. Ranking member Sherrod Brown of Ohio weighed in to point out that it was almost Bitcoin’s tenth anniversary, yet the space is still rife with fraud and misconduct, while tangible applications are scarce. He mentioned regulatory issues and referenced the famous statement by Jay Clayton, the chairman of the US Securities and Exchange Commission, as well as the recent report by the Attorney General of New York that was anything but complementary to biggest crypto exchanges. Brown implied, however, that blockchain could be potentially useful for improving the lives of the unbanked and underserved.

Roubini’s testimony

In his speech, the New York University professor followed rather closely the rambling argument presented in his 30-page written statement. In addition to a constellation of derogatory terms – it is quite likely that for many senators this became the first encounter with terms like ‘shitcoin’ – Roubini developed several central talking points that he would reiterate dogmatically throughout his testimony and on to the Q&A session. He argued that the whole crypto ‘asset class is imploding’ now, following the steep decline of prices compared to late 2017, and educated senators on the study that identified 80 percent of initial coin offerings (ICOs) in the same year as scams. He added that digital assets are useless as currency, since they are unable to serve as unit of account, means of payment, or store value.

A recurrent theme in Roubini’s account was superiority of centralized payment systems to blockchain-based ones. Several times he brought up the claim that the Bitcoin network’s throughput is only five transactions per second, while Visa can process up to twenty-five thousand transactions per second. Other attacks included assertions that ‘nobody uses it for transactions,’ except for criminals and terrorists, while mining is an ‘environmental disaster.’

Roubini also offered a rather unconventional view of what constitutes the realm of fintech. He claimed that, indeed, there is a revolution in the financial services industry currently going on, yet it has nothing to do with blockchain. Instead, it is allegedly powered by artificial intelligence, big data, and the Internet of Things (IoT), and displays in proliferation of centralized digital payment systems.

Meanwhile, the crypto libertarian dream of total decentralization is ‘utter nonsense.’ In fact, Roubini claims, ‘crypto land’ is subject to the opposite trend: heavy centralization of mining – which is apparently controlled mainly by Chinese and Russian oligopolies, trading at the hands of centralized exchanges that are ‘hacked daily’, and development reserved for a narrow tech elite that arbitrarily changes code and forks coins whenever things go wrong.

Against this background, massive manipulation permeates the ‘crypto land,’ where pump & dump schemes, spoofing, and insider trading call the shots. In Roubini’s view, stable coins exist for the sole reason of manipulation; security tokens break all security laws, and utility tokens pave the way back to the Stone Age, where barter was prevalent. According to Roubini, even the “Flintstones knew better,” as they used clams as a universal currency.

Finally, corporate permissioned ledgers received their fair share of beating: according to Roubini, they are no more than ‘glorified databases,’ and they have no relation to the concept of blockchain.

Van Valkenburgh’s testimony

Right after Roubini’s furious charge, a composed account that Coin Center’s Van Valkenburgh delivered sounded almost soothing. The crypto advocate decided not to overcomplicate things, and dedicated a huge share of his time to explaining what Bitcoin is, what it does, and why is it revolutionary. Unlike cash, which only works face-to-face, Bitcoin is the world’s ‘first globally accessible public money.’ It is not yet ‘perfect or stable,’ yet it is working. Similar to the early years of the internet, the technology is full of loopholes and inefficiencies, but this is by no means a reason to abandon it.

Various kinds of human interactions, Van Valkenburgh maintained, are riddled with state or corporate chokepoints. Like the internet had removed such chokepoints from the realm of communication, blockchain’s promise is to do away with single points of failure that are inherent to other interaction systems’ designs – such as that of monetary transaction systems. Giant private corporations are increasingly prone to security failures, such as electronic bank robberies and massive personal data leaks. The rise of IoT makes such concerns even more grave, as even cars and pacers can now be targeted. According to Van Valkenburgh, no critical infrastructure has to have a single point of failure, and to achieve that, we need a ‘light-touch, pro-innovation’ policy in place.

Questions

Chairman Crapo opened up the floor for questions on where the crypto markets are headed next year, and what conditions need to converge in order for them to stabilize. Van Valkenburgh responded that volatility is raging due to the markets having a hard time with finding a level, a fair price for something very new and disruptive. However, institutional money have already brought some sense of stability: it’s been beneficial to have  Commodity Futures Trading Commission (CFTC) regulated crypto derivatives enter the market, but it would be even better if the SEC allows the trading of crypto-based exchange-traded funds. Having a nationally chartered bank for crypto custody would bring even more rationality to the market.

Criticisms thrice told

Roubini responded to this point with the argument that cryptocurrencies are not scalable, not decentralized, and not secure, seasoning his response with the same points about five transactions per second, widespread oligopolies, and no authority to go to in case if one’s funds get stolen. Crapo pressed on, asking what hinders faster development of decentralized computing technologies’ real-world applications. Van Valkenburgh deflected this with a reference to email, which first appeared in 1972 and took a couple of decades before going mainstream, while Roubini said that no government or corporation will use permissionless decentralized systems. The idea of decentralization, he maintained, “won’t fly, because it’s nonsense”.

Ranking member Brown inquired whether there are blockchain-based applications ‘on a broader scale,’ which Roubini took as a chance to dismiss permissionless blockchains again, grudgingly admitting that there is some useful innovation in the sphere of private distributed ledgers. Again, he lauded payment systems like Paypal, China’s WeChat Pay, and African M-Pesa as the ‘real revolution,’ dismissing decentralized crypto systems as being losing users and transactions. While the internet had a billion users after a decade in existence, he added, cryptocurrencies command the following of just 22 million.

As Senator Brown asked to describe a typical crypto investor, Van Valkenburgh painted a portrait of a young, tech-savvy person, and quickly moved to a more policy-relevant conversation. After praising the US Financial Crimes Enforcement Network’s (FinCEN) trailblazing efforts in laying the groundwork for crypto investors’ protection, he criticized the current state-by-state approach to money transmission licenses’ issuance to crypto enterprises, and called for federal licensing system.

Bridging gender gaps & standing up to totalitarians

Senator John Kennedy of Louisiana demanded how the world got better since cryptocurrencies came into existence. Van Valkenburgh offered a story of an Afghani female entrepreneur who used crypto to pay her mostly female employees’ wages, which was the only way to do it in a society where women are especially underserved by banks, while few accounts that exist are often controlled by male relatives. Roubini, once again, brought up superiority of centralized payment systems and Bitcoin’s meager five transactions per second. He then went on to complain about concentration of miners in places like China, Russia, and – for some reason – Belarus and Georgia, claiming that these nations will use their alleged oligopolistic dominance to manipulate the US.

Van Valkenburgh retorted that with payment infrastructures like the Chinese WeChat Pay, users’ transaction records and personal details reside without encryption in centralized repositories, ready to be hacked or surveilled by the government, if needed. Such systems, he argued, are ‘tools for totalitarians.’

A word on security

Doug Jones of Alabama was concerned with the extent to which ‘bad guys’ and rogue nations can exploit the decentralized design of public blockchains. Van Valkenburgh noted that every worthy technology, especially at the early stages of development, gets exploited by shady characters – if it does not, it is probably not very useful. At the same time, he contended, US law enforcement is already quite comfortable for tracking illicit transactions on open ledgers. Roubini took to bemoaning the dangers of blockchains’ anonymity.

Potential for scaling

Pennsylvania senator Pat Toomey jumped in, showing off his intimacy with blockchain fundamentals and jargon. He said that while crypto assets are riddled with flaws, central banks do not have a flawless record of frictionless operations either. He suggested that an asset being a currency or not is just an issue of scale, and asked whether cryptocurrencies are fundamentally not scalable. Toomey was also interested whether the oligopolistic tendencies in mining really mattered for cryptocurrencies’ capacity to operate securely.

Van Valkenburgh delved into an overview of various scaling solutions, particularly highlighting the potential of batch settlement. He added that with oligopoly, you cannot really do much more to the network than denial-of-service attacks. Roubini’s response was anything but surprising:  five transactions per second, centralized mining, not secure. He explained that 51 percent attacks are a reality – they happen ‘every day’ with minor coins. Transactions costs “have gone through the roof,” while massive economies of scale implicit to mining operations incentivize cartelization.

ICO woes

Elizabeth Warren of Massachusetts was wondering how the theft of an aggregate $1.1 billion in the first half of 2018 was possible, as well as what could be done with the 80 percent rate of scam ICOs.  Van Valkenburgh explained that most of the funds stolen were in obscure alternative coins from overseas exchanges that failed to scale up their security systems to match the value they came to store. He also said he was on the same page with those who identify ICOs as securities, but added that it is entirely possible to have an ICO and comply with all the relevant securities regulations.

Maryland’s Chris Van Hollen appeared to be marginally interested in crypto affairs specifically. He lamented how the Fed was sluggish in moving towards a real-time payment system, blockchain-based or not, and moved on to solicit Roubini’s advice on the overall state and near perspectives of the US economy. The famed economist did not sound optimistic, suggesting that it’s possible that growth would stall by 2020.

Global KYC standards

Catherine Cortez Masto from Nevada was the last to pose questions. She asked if there are any provisions in the bitcoin protocol that enable detection of payments that go to human trafficking, drug trafficking, or money laundering. Van Valkenburgh responded that policing such activities is incumbent upon the businesses that operate on top of the blockchain, as well as law enforcement. Roubini noted that such policing won’t be efficient unless there is a globally ratified set of rules in place. Van Valkenburgh agreed that such a unified approach to know your customer (KYC) procedures are needed, marking a rare moment of solidarity with the opponent.

Finally, Cortez Masto asked Roubini whether he believed in blockchain technology’s successful applications beyond finance, to which he responded, once again, that no serious government or corporation would ever entrust an open, trustless, permissionless distributed system with any sensitive information. ‘It’s just nonsense!’ – he concluded.

Chairman Mike Crapo reminded senators that additional questions to witnesses, if any arise, are due within one week, and adjourned the hearing.

Continue Reading

Report: SEC Expands Crackdown on ICOs, Regulatory Ambiguity Remains

Despite recent calls from Congress to provide regulatory clarity on ICOs, the SEC continues is crackdown on hundreds of ICOs, according to a joint report.

The U.S. Securities and Exchange Commission (SEC) has expanded its crackdown on Initial Coin Offerings (ICOs), putting “hundreds” of projects at risk, according to a recent joint investigation by Yahoo Finance and Decrypt Media published, Oct. 10.

The authors of the report stressed that hundreds of crypto and blockchain startups that conducted token sales have eventually found that they had violated securities laws despite their endeavors to comply with regulations. In response to SEC pressure, dozens of firms have reportedly “quietly agreed” to refund investors’ money and pay fines, rather than attempt to reach a legal compliance.

According to Yahoo and Decrypt’s conversations with more than 15 industry sources, many startups that were subpoenaed by the SEC did not know how to satisfy the commission’s demands, and were unable to consult with other firms on how to handle the matter.

The sources — who are represented by employees of subpoenaed companies or their attorneys — preferred to stay anonymous due to an SEC restriction from disclosing the issue.

An anonymous securities attorney at a high-profile Silicon Valley firm told Yahoo and Decrypt that while “everybody’s holding their breath,” waiting for new rules, the SEC is not going to provide them. According to the anonymous attorney, while dealing with the recently emerged industry, the SEC still applies the “same laws, the same statutes, the same rules, to stocks and bonds and everything else.”

As previously reported by Cointelegraph, there has been a “cascade of uncertainty,” associated with the existing ICO token classification, which only further complicates the development of desperately needed regulations for ICOs.

While major altcoin Ethereum (ETH) was launched back in July 2015, the SEC stated that the cryptocurrency would be regulated as a security only in June this year. Despite calls for regulatory clarity and comments from lawakers that the ICO industry needs “light touch” regulation, the SEC continues its crackdown on ICOs.

According to a recent study by financial research firm Autonomous Research, ICOs raised $20 billion since the start of 2017, which is $18 billion more than the previous year. With that, more than 80 percent of ICOs that were conducted in 2017 have been identified as scams by the ICO advisory firm Statis Group in July. Still, the U.S. is ranked the “most favorable” country for the ICO market, based on amount of funds raised by top companies in the field.

Continue Reading

Crypto Regulations for UK Could Take Two Years, Says Legal Expert

An expert from major British law firm RPC stated that the introduction of a crypto regulatory framework in the U.K. could take two years.

Jeff Kaufmann, Legal Director at British law firm Reynolds Porter Chamberlain (RPC), said that the introduction of cryptocurrency market regulations in the U.K. could take two years, according to an RPC press release published Oct. 11.

RPC is a London-based corporate and insurance law firm with offices in Bristol, Singapore, and Hong Kong, and staff amounting to 720 people, including over 80 partners and 330 other lawyers. Since 2014 the firm has been named Law Firm of the Year three times.

Kaufmann said that the implementation of crypto market regulations in the U.K. would take about two years, given that proposals in a recent House of Commons Treasury Committee (HM Treasury) report begin to move forward. Kaufmann notes that past precedents show that even minor changes to the current regulatory regime can take years.

Per Kaufmann, the introduction of new regulations would lead to increased involvement of the country’s financial watchdog, the Financial Conduct Authority (FCA), raising concerns as to whether the FCA has the necessary expertise and funding to regulate the crypto industry.

The regulation of cryptocurrencies is “going to be a difficult and lengthy process,” per Kaufmann, who noted the need to strike a balance “between protecting retail participants and allowing the U.K.’s cryptocurrency market to thrive.” He added:

“The race to establish a workable and regulated regime for cryptocurrencies is surely worth winning as their usage becomes more widespread across Europe and globally. The creation of a cryptocurrency trading hub may also have positive knock-on effects for businesses serving these markets, such as brokers, investment banks, and custodians as well as a potential increase in tax revenues for authorities.”

In September, the Treasury Committee of the House of Commons called for a resolution to certain issues surrounding digital currency such as listing price volatility, poor consumer protection, the risk of hacker attacks, and money laundering. The Committee also urged the FCA to supervise cryptocurrencies, though presently the FCA is not legally enabled to regulate either issuers of digital assets or crypto exchanges.

Continue Reading

Indian Gov’t Is ‘Evaluating’ the Launch of Its Own Cryptocurrency, Sources Say

The panel that was set up by India’s Ministry of Finance in 2017 will reportedly evaluate the possibility of issuing a state-backed cryptocurrency.

Indian government is “evaluating” the possibility of issuing a state-backed cryptocurrency, sources have told local news outlet Quartz India on Wednesday, Oct. 10.

An unnamed “senior official” has told Quartz that the government has set up a panel that will discuss questions regarding cryptocurrencies and blockchain. While, according to Quartz’s source, the government is looking to “encourage” blockchain studies, the launch of a state-backed cryptocurrency is only an option to be considered.

The source has also said that the panel will discuss new amendments to the existing draft bill on cryptocurrencies. One of the proposals is reportedly to make any possession of cryptocurrency without the government’s approval a punishable crime.

The panel was created in December 2017 by India’s Ministry of Finance to discuss crypto regulations in the country, Quartz notes. It is expected to present its report by the end of 2018.

The Reserve Bank of India (RBI) first announced its ban on providing banking services to any cryptocurrency users in early April. Within a day, RBI revealed that it was exploring ways to issue its own digital currency. Despite the government’s interest in launching its own crypto, the ban did come into power July 6.

The Supreme Court of India has received several petitions against the RBI’s decision, the last of which were set to be examined in late September.

Venezuela was the first country in the world to launch a state-backed cryptocurrency. Petro, a digital asset that is reportedly backed by oil, gold, iron and diamonds, was first announced by the country’s president Nicolas Maduro on Dec. 4, 2017.

However, a recent report by Reuters claimed that there is no sign of Petro’s existence in Venezuela, while a U.S. culture magazine Wired has called the Venezuelan cryptocurrency “a stunt.”

Iran and China are also considering creating their own state-backed digital currencies. Iranian Minister of Information and Communications Technology presented the idea in February, stating that the country’s ban on crypto dealings would not apply to the government-issued coin. Meanwhile, an expert from China’s central bank has recently urged the country’s government to consider launching its own stable cryptocurrency (stablecoin).

Continue Reading

Crypto Exchange Huobi’s ‘Strategic Partner’ HBUS Hires Ex-PWC and Intuit Compliance Director as CCO

HBUS, the U.S.-based “strategic partner” of sixth largest crypto exchange Huobi, has hired a new Chief Compliance Officer, formerly of PwC and Intuit.

HBUS, the U.S.-based “strategic partner” of sixth largest crypto exchange Huobi, has hired a new Chief Compliance Officer (CCO). The company has revealed this in a press release shared with Cointelegraph Oct. 11.

The new CCO, Megan Monroe-Coleman, was formerly MTL Compliance Officer at U.S. software giant Intuit, following the company’s acquisition of financial software firm Mint, where Monroe-Coleman had also served as a compliance officer.

Before her work at Intuit, she worked over seven years at “Big Four” auditor PricewaterhouseCoopers (PwC), five years of which she spent as compliance director, according to her LinkedIn profile.  

According to the press release, Monroe-Coleman has spent over 15 years in the compliance sector in total, with a focus on fintech and financial services. At Intuit, she is said to have developed and implemented the anti-money-laundering (AML) compliance programs for Mint, and to have directed the money transmission licensing strategy for Intuit’s regulated payments products.

Monroe-Coleman’s statement emphasized that she is “a compliance professional in an industry that does not always embrace regulation.” However, she emphasized the firm would ensure its operations were “safe and secure” for crypto trading in a “fully compliant” manner.

As previously reported, HBUS is headquartered in San Francisco, and was established by Huobi as its “strategic partner” U.S.-based digital assets marketplace this June.

As it vies with rival crypto exchanges Binance and OKEx, Huobi has been actively diversifying its investment products and services and expanding worldwide. Alongside the HBUS venture, the firm has recently bought a majority stake in Japanese FSA-licensed crypto exchange BitTrade, as well as acquiring a controlling stake in Hong Kong exchange publicly-listed Pantronics Holdings this September.

Earlier this year, Huobi launched a South Korean subsidiary, and opened an office in London, with over-the-counter (OTC) trading tests slated to begin in Q3 this year.

Huobi has seen $415.3 million in trades over the 24 hours to press time, according to CoinMarketCap: HBUS has seen around $1.5 million over the same period.

Continue Reading

South Korea to Announce Its ICO Stance in November, Top Official Says

Top South Korean official says the government will announce its official position on ICOs in November, based on the results of recent discussions.

South Korean government is “likely” to announce its official position on Initial Coin Offerings (ICOs) in November. A local business newspaper The Investor reported this on Thursday, Oct. 11, citing a “top official,” Hong Nam-ki.

As per the chief of the office for Government Policy Coordination Hong Nam-ki, South Korean officials have already held several discussions on ICOs. As soon as the results are in, the government will finalize and reveal its official stance, he said.

South Korea first banned ICOs back in September 2017, saying that the practice of raising funds via the issuance of cryptocurrency tokens was almost “a gamble.”

According to The Investor, Hong Nam-Ki has revealed that the government has held a survey, because some companies are still trying to conduct ICOs despite a country-wide ban. The results of the poll are expected to be ready by late October, the official has said.

Korea’s government considered reallowing ICOs in August 2018, amid plans to create its own “blockchain island” based in Jeju Island Resort. Back then, the South Korean National Assembly, along with the Ministry of Science and Information and Communications Technology discussed the potential legal framework for ICOs and possible investor protection measures.

As reported by Cointelegraph, South Korea has recently launched a six-month youth training programme that includes courses on blockchain and other technologies. The announcement came after the news of the government’s plans to invest $4.4 billion in a number of areas of the domestic economy, including blockchain.

Continue Reading

Crypto Assets Pose No Risks to Financial Stability, International Bankers Claim

The Financial Stability Board has presented its final report on cryptocurrencies, stating they pose no threats for global markets, at least for now.

International central banks and financial officials think that cryptocurrencies pose no significant risks to global economic stability, according to a report published by the Financial Stability Board (FSB) Wednesday, Oct.10.

The FSB — an international agency consisting of 68 local institutions such as central banks, watchdogs, and ministries of finance that prepares recommendations for global financial systems  — published a document called “Crypto-asset markets: Potential channels for future financial stability implications” with their findings.

As per the report, the bankers see no significant dangers in cryptocurrencies, as their total market capitalization was at $830 billion at its peak and has since dropped to $210 billion, which barely reaches 2 percent of the global value of gold. Still, the FSB urges regulators to watch the digital coins market closely amid its quick growth.

As well, the FSB includes a warning about possible price manipulations related to crypto, noting:

“Illiquidity, concentrated ownership, fragmented market structure, and other issues also make crypto assets potentially susceptible to price manipulation.”

In addition, the international agency stressed that the crypto industry raises some policy questions, such as consumer and investor protection.

The paper follows a previous FSB report from July that was presented to the G20 finance ministers and central bank governors. The organization had stated that cryptocurrencies would need in-depth monitoring due to the rapid development of the market, although they didn’t pose any threat at the moment.

In May, the International Monetary Fund (IMF) also stated it saw no risks from cryptocurrencies in regards to global markets financial stability. However, the IMF pointed out that they could pose some threats if they become more widespread without the relevant regulation.

Continue Reading

SEC Files Subpoena Enforcement Against Alleged ‘Pump-and-Dump’ ICO Scheme

The U.S. SEC has filed a subpoena enforcement action against the perpetrators of an alleged “pump-and-dump” scheme involving claims of a $100 million ICO.

The U.S. securities agency has filed a subpoena enforcement action against the perpetrators of an alleged “pump-and-dump” scheme involving claims of a $100 million Initial Coin Offering (ICO), according to an Oct. 9 filing.

The Securities and Exchange Commission (SEC) states it filed the subpoena application Oct. 5 at the U.S. District Court for the Central District of California against the “Saint James Holding and Investment Company Trust and its sole trustee, Jeffre Jame.”  The filing came following the agency’s action to suspend trading in a penny-stock firm dubbed “Cherubim Interests, Inc.” this February.

According to yesterday’s statement, the SEC believes that Cherubim issued false public statements, claiming that the company had “executed a $100,000,000 financing commitment” to launch an ICO for St. James Trust.” The filing continues:

“After Cherubim’s stock price and trading volume increased on this news, certain individuals associated with the company may have ‘dumped’ their overvalued Cherubim stock for significant profits.”

The SEC’s archives contain a memorandum of understanding (MoU) dated Jan. 5 that outlined Cherubim’s alleged ICO financing commitment, describing a so-called Self Sustaining Intentional Communities Coin (SJT) that would generate enough capital “to create self-sustaining intentional communities across the US and across 57 nations.”

The SEC yesterday stated that it had first acted to suspend trading in Cherubim securities after it had reason to doubt the accuracy of the firm’s disclosures. According to the February suspension order, Cherubim is alleged to have issued press releases in January claiming it had acquired “AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology.”

The SEC has also pointed to the firm’s failure to file reports for the fiscal year ending August 2017, as well as a quarterly report last November.

The SEC stated yesterday that despite issuing subpoenas to both St. James Trust and James in June 2018, and having “personally served” the trustee with copies of the subpoenas, and extended deadlines “multiple times,” neither the trust nor the trustee responded to the agency, nor produced the necessary documents. The agency therefore seeks an order from the court compelling both to produce all responsive documents.

The agency emphasizes, however, that it continues its fact-finding investigation in this matter and, “to date, has not concluded that anyone has violated securities laws.”

At the end of September, Cointelegraph reported that the SEC had filed charges against an international securities dealer that was offering Bitcoin-funded security-based swaps, in an alleged violation of federal securities laws.

Continue Reading

SEC Files Subpoena Enforcement Against Alleged ‘Pump-and-Dump’ ICO Scheme

The U.S. SEC has filed a subpoena enforcement action against the perpetrators of an alleged “pump-and-dump” scheme involving claims of a $100 million ICO.

The U.S. securities agency has filed a subpoena enforcement action against the perpetrators of an alleged “pump-and-dump” scheme involving claims of a $100 million Initial Coin Offering (ICO), according to an Oct. 9 filing.

The Securities and Exchange Commission (SEC) states it filed the subpoena application Oct. 5 at the U.S. District Court for the Central District of California against the “Saint James Holding and Investment Company Trust and its sole trustee, Jeffre Jame.”  The filing came following the agency’s action to suspend trading in a penny-stock firm dubbed “Cherubim Interests, Inc.” this February.

According to yesterday’s statement, the SEC believes that Cherubim issued false public statements, claiming that the company had “executed a $100,000,000 financing commitment” to launch an ICO for St. James Trust.” The filing continues:

“After Cherubim’s stock price and trading volume increased on this news, certain individuals associated with the company may have ‘dumped’ their overvalued Cherubim stock for significant profits.”

The SEC’s archives contain a memorandum of understanding (MoU) dated Jan. 5 that outlined Cherubim’s alleged ICO financing commitment, describing a so-called Self Sustaining Intentional Communities Coin (SJT) that would generate enough capital “to create self-sustaining intentional communities across the US and across 57 nations.”

The SEC yesterday stated that it had first acted to suspend trading in Cherubim securities after it had reason to doubt the accuracy of the firm’s disclosures. According to the February suspension order, Cherubim is alleged to have issued press releases in January claiming it had acquired “AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology.”

The SEC has also pointed to the firm’s failure to file reports for the fiscal year ending August 2017, as well as a quarterly report last November.

The SEC stated yesterday that despite issuing subpoenas to both St. James Trust and James in June 2018, and having “personally served” the trustee with copies of the subpoenas, and extended deadlines “multiple times,” neither the trust nor the trustee responded to the agency, nor produced the necessary documents. The agency therefore seeks an order from the court compelling both to produce all responsive documents.

The agency emphasizes, however, that it continues its fact-finding investigation in this matter and, “to date, has not concluded that anyone has violated securities laws.”

At the end of September, Cointelegraph reported that the SEC had filed charges against an international securities dealer that was offering Bitcoin-funded security-based swaps, in an alleged violation of federal securities laws.

Continue Reading

Coinbase Exec Says Japanese Crypto Crackdown a ‘Good’ Thing, Awaits Operating License

As it awaits its Japanese operating license, Coinbase has made positive remarks about the country’s toughened stance towards the crypto industry.

As it awaits its Japanese operating license, an executive from leading U.S. crypto exchange Coinbase has made positive remarks about the country’s toughened stance towards the crypto industry.

In an interview with financial newspaper Nikkei Asian Review published Oct. 10, Coinbase chief policy officer Mike Lempres said that talks for obtaining the license are “going well” with the country’s top financial watchdog, adding that the regulator’s focus on security is “good for us.”

As previously reported, Japan’s Financial Services Authority (FSA), has intensified its scrutiny of crypto exchanges in the wake of January’s industry-record-breaking $532 million hack of domestic crypto exchange Coincheck.

The regulator has just recently announced plans to apply yet more rigorous oversight of applications from exchanges hoping to receive an official license: some 160 are reported to currently be awaiting a decision.

Lempres is today quoted as saying that “the Japanese government is more focused on security,” in the crypto space, yet he added that it is “good for us.” The CPO emphasized that the exchange is firmly set on getting the regulator’s green light, noting:

“We are… committed to getting it done. It will certainly be in 2019.”

Nonetheless, Lempres pointed to a key question still to be resolved in its application, namely whether the FSA will require Coinbase’s system to be operated in Japan. Lempres said that such a condition would significantly raise security risks, stating:

“We have everything built to protect our storage… in the U.S. We won’t do anything to even raise possibility of a hack. It would be hard for us to duplicate what we do in the U.S. today in Japan and other countries.”

Lempres noted that the exchange currently has “dozens” of U.S.-based employees dedicated to security.

As previously reported, Coinbase first revealed its plans to enter the Japanese crypto market in June, stating at the time it hoped to receive a license “within a year.”

While a license has been mandatory for all crypto exchanges operating within the country since the amendment of Japan’s Payment Services Act in April 2017, the FSA has continued to ratchet up requirements for applicants.

Earlier this month, the regulator revealed it would fortify the process of risk screening for exchanges, stating it had increased “the number of questions asked when screening applications to about 400 items, up fourfold.”

Continue Reading