Tag: SEC

SEC Considers Filecoin a Security, Grayscale Disagrees

by Blockchain News

In a recent press release, Grayscale Investments, the world’s largest digital currency asset manager, announced it has received a comment letter from the U.S. Securities and Exchange Commission (SEC). According to the SEC, Grayscale’s Filecoin Trust’s underlying asset, Filecoin (FIL), should be classified as a security under federal securities laws. The regulatory body’s viewpoint has sparked a dispute, as Grayscale holds a differing opinion on the matter.

The SEC’s contention is that if Filecoin is considered a security, Grayscale’s Filecoin Trust would correspondingly qualify as an investment company under the Investment Company Act of 1940. Consequently, the SEC has requested that Grayscale promptly withdraws the registration statement it filed on April 14, 2023, for the Grayscale Filecoin Trust under Section 12(g) of the Securities Exchange Act of 1934.

Contrarily, Grayscale Investments believes that Filecoin does not meet the definition of security under federal securities laws. The company plans to respond expeditiously to the SEC, defending its position with a detailed legal explanation.

The outcome of this disagreement is uncertain, and much depends on whether Grayscale’s arguments can persuade the SEC. If the SEC stands firm in its belief that Filecoin is a security, Grayscale may be forced to seek alternative accommodations allowing the Trust to register under the Investment Company Act of 1940. Another potential, albeit drastic, alternative could involve dissolving the Trust altogether.

The stakes are high for both Grayscale and the broader cryptocurrency market. The SEC’s final decision may significantly impact the regulatory framework governing digital assets. 

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Grayscale Launches New Entity to Manage Growing Funds

by Blockchain News

Grayscale Investments, the cryptocurrency asset manager, has announced the launch of a new entity, the Grayscale Funds Trust, to manage its publicly traded financial products in-house. The move indicates the company’s growing confidence in its ability to manage its funds internally.

In addition to the launch of the new trust, Grayscale has filed a registration statement with the United States Securities and Exchange Commission (SEC) for three new cryptocurrency-focused exchange-traded funds (ETFs). The new funds include a Bitcoin Composite ETF, an Ethereum Futures ETF, and a Privacy ETF.

Grayscale’s Bitcoin Composite ETF will invest in exchange-traded products related to or backed by Bitcoin, including Bitcoin mining firms. The Ethereum Futures ETF will offer indirect exposure to the potential future value of Ether through shares that track ETH’s price. The Grayscale Privacy ETF will invest in companies working on blockchain-based privacy technology.

However, until the registration statement is approved by the SEC, the funds will not be available for public purchase. This move comes as Grayscale continues to navigate a conflict with the SEC over converting its $17 billion Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF product.

In January 2021, Grayscale sued the SEC for denying its application, arguing that the SEC acted unfairly in treating crypto spot traded exchange-traded products differently from futures products. Grayscale claims that there is a 99.9% correlation between prices in the Bitcoin futures market and the spot Bitcoin market. Despite the SEC’s approval of several Bitcoin Futures ETFs, it has so far rejected every application for a spot Bitcoin investment product due to concerns about exposing investors to potential fraud and market manipulation.

Despite these challenges, Grayscale’s move to launch new crypto ETFs and manage its publicly traded financial products in-house demonstrates the company’s commitment to the cryptocurrency market and its belief in the long-term potential of digital assets.

In conclusion, Grayscale Investments’ launch of the Grayscale Funds Trust and its filing of three new cryptocurrency-focused ETFs is a significant development for the company and the cryptocurrency market as a whole. While the SEC’s approval of these new ETFs is still pending, Grayscale’s continued efforts to introduce crypto-focused investment products is a positive sign for the industry’s growth and adoption.

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Grayscale Files for Three New Crypto ETFs

by Blockchain News

Grayscale Investments, the cryptocurrency asset manager, is seeking approval from the United States Securities and Exchange Commission (SEC) for three new cryptocurrency-focused exchange-traded funds (ETFs). The new funds include a Bitcoin Composite ETF, an Ethereum Futures ETF, and a Privacy ETF.

Grayscale’s Bitcoin Composite ETF will invest in exchange-traded products related to or backed by Bitcoin, including Bitcoin mining firms. The Ethereum Futures ETF, on the other hand, will offer indirect exposure to the potential future value of Ether through shares that track ETH’s price. The Grayscale Privacy ETF will invest in companies working on blockchain-based privacy technology.

Despite previous roadblocks from the SEC over crypto-related ETFs, Grayscale has filed a registration statement for the new ETFs. However, until the registration statement is approved, the funds will not be available for public purchase.

Grayscale also announced the launch of the Grayscale Funds Trust, a new arm of its business that allows it to manage many of its publicly traded financial products in-house. This move indicates the company’s growing confidence in its ability to manage its funds internally.

While Grayscale continues to navigate a conflict with the SEC over converting its $17 billion Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF product, the company remains optimistic about the future of crypto ETFs. In January 2021, Grayscale sued the SEC for denying its application, arguing that the SEC acted unfairly in treating crypto spot traded exchange-traded products differently from futures products. Grayscale claims that there is a 99.9% correlation between prices in the Bitcoin futures market and the spot Bitcoin market.

Despite the SEC’s approval of several Bitcoin Futures ETFs, it has so far rejected every application for a spot Bitcoin investment product due to concerns about exposing investors to potential fraud and market manipulation. However, Grayscale’s move to launch new crypto ETFs and manage its publicly traded financial products in-house demonstrates the company’s commitment to the cryptocurrency market and its belief in the long-term potential of digital assets.

In conclusion, Grayscale Investments’ filing of three new cryptocurrency-focused ETFs and the launch of its Grayscale Funds Trust is a significant step forward for the company and the cryptocurrency market as a whole. While the SEC’s approval of these new ETFs is still pending, Grayscale’s continued efforts to introduce crypto-focused investment products is a positive sign for the industry’s growth and adoption.

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Coinbase Legal Chief Requests Revisions to SEC Rulemaking

by Blockchain News

Coinbase, the cryptocurrency exchange and owner of Coinbase Custody Trust Company, has called for revisions to the U.S. SEC’s proposed rulemaking on registered investment advisers’ (RIAs) responsibilities to store client assets with qualified custodians. In a letter addressed to the SEC on May 9, Coinbase’s chief legal officer, Paul Grewal, criticized the updated RIA custody rule, claiming that it unfairly targets crypto assets and makes improper assumptions about custodial practices based on securities.

Although the SEC acknowledges Coinbase Custody as a “qualified custodian,” Coinbase contends that the proposed rulemaking fails to safeguard other asset classes, such as cryptocurrencies. Coinbase’s custodian is responsible for protecting client assets from potential threats such as bankruptcy and cyber-attacks.

RIAs are firms that provide advice to clients on investments in securities and may handle their investment portfolios. These firms are registered with the SEC or state securities administrators.

Grewal’s letter advocates for an expansion of the custody obligations proposal to ensure that it remains adaptable to future investments and protects them appropriately. He called for a revision to the proposal and staff guidance, highlighting the need to safeguard all asset classes, including crypto assets, which haven’t been classified as securities until now.

Several revisions to the rule are suggested by Paul Grewal to protect investors, which includes defining state trust companies and other state-regulated financial institutions as qualified custodians, a longstanding Congressional and SEC policy. He also proposes allowing limited exposure to non-qualified custodians and removing the ban on RIA client trades on crypto exchanges that are not qualified custodians.

Coinbase’s Lawsuit Against the SEC

Coinbase filed a lawsuit in April 2022, requesting that the court compel the SEC to publicly disclose its stance on a petition submitted several months prior. In the petition, the exchange posed 50 specific questions about the regulatory treatment of certain digital assets. The U.S. SEC is expected to comply with the court order and respond to Coinbase’s writ of mandamus this week.

In conclusion, Coinbase has urged the SEC to revise its proposed rulemaking on RIAs’ responsibilities to store client assets with qualified custodians, claiming that it unfairly targets crypto assets and fails to safeguard them properly. The exchange has suggested several revisions to the rule to protect investors, including defining state trust companies and other state-regulated financial institutions as qualified custodians and removing the ban on RIA client trades on crypto exchanges that are not qualified custodians.

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Coinbase vs SEC: Legal Battle Heats Up

by Blockchain News

Coinbase, the largest US-based cryptocurrency exchange, has been embroiled in a legal battle with the US Securities and Exchange Commission (SEC) over regulatory clarity for trading digital assets. On May 4th, Coinbase’s chief legal officer Paul Grewal announced that the US Court of Appeals for the Third Circuit has responded to the complaint against the SEC, marking a significant development in the ongoing legal battle.

The court’s response was a text-only order, instructing the SEC to respond to Coinbase’s writ of mandamus within ten days. A writ of mandamus is a court order that compels an inferior government official to fulfill their official duties properly. The court also granted Coinbase the right to file a reply to the SEC’s response within seven days of the filing.

Coinbase filed a lawsuit in April, requesting that the court compel the SEC to publicly disclose its stance on a petition submitted several months prior. The petition posed 50 specific questions about the regulatory treatment of certain digital assets, covering topics such as how tokens are classified as securities and seeking clarification on various other matters.

Despite the lack of public response to the petition, the SEC has increased enforcement and issued warnings to crypto exchanges. The commission has even issued a Wells notice to Coinbase in the past, warning the company that the SEC may follow with an enforcement action.

Due to the ongoing regulatory issues faced by the company, US investment bank Citigroup has downgraded the shares of the crypto exchange from “buy” to “neutral,” and has also lowered its price target. The bank has cited “too many unknowns” as the reason for this downgrade. According to Citi analyst Peter Christiansen, the downgrade will remain in place until the regulatory “rules of the road” are better established in the United States.

The legal battle between Coinbase and the SEC highlights the need for greater regulatory clarity in the cryptocurrency industry. While the industry has seen rapid growth in recent years, the lack of clear guidelines from regulatory bodies has led to confusion and uncertainty for businesses and investors alike. As the battle between Coinbase and the SEC continues, it remains to be seen how the regulatory landscape for digital assets will evolve in the United States and beyond.

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Coinme Fined $4 Million by SEC

by Blockchain News

The US Securities and Exchange Commission (SEC) has fined Coinme, a cryptocurrency exchange, nearly $4 million for allegedly offering unregistered securities and making “misleading statements” about its crypto token, UpToken. Coinme, its subsidiary Up Global SEZC, and its CEO, Neil Bergquist, were charged by the SEC on April 28, with Up Global agreeing to pay a $3.52 million penalty, for which Coinme was also held liable. The SEC alleged that Coinme’s Initial Coin Offering (ICO) of UpToken between October and December 2017 was an investment contract under the Howey test and was an unregistered securities offering. The ICO raised around $3.6 million to expand Coinme’s fleet of Bitcoin ATMs, with the funds used to add 30 ATMs, and UP holders received benefits such as discounted fees and cashback when using the ATMs. However, in January 2019, Coinme changed its offering and partnered with Coinstar to use its cash-counting kiosks to facilitate cash-to-crypto transactions instead of its own ATMs. Coinme shut down all of its ATMs by July 2019, and there is currently no use for UpToken, with its market cap falling to around $50,000 and 24-hour trading volumes topping just over $180.

Coinme was found to have offered unregistered securities, and the SEC handed down fines totalling almost $4 million to the company, its subsidiary Up Global SEZC, and the CEO of both firms, Neil Bergquist. The SEC found that Coinme’s ICO of UpToken between October and December 2017 was an unregistered securities offering, and the ICO was considered an investment contract under the Howey test. Coinme raised approximately $3.6 million through the ICO to expand its fleet of Bitcoin ATMs, adding 30 ATMs with ICO funding. UP holders received discounted fees and 1% cashback in UP when using the ATMs. However, in January 2019, Coinme changed its offering, partnering with Coinstar to use its cash-counting kiosks for cash-to-crypto transactions instead of its own ATMs. Coinme shut down all of its ATMs by July 2019, rendering UpToken unusable. The SEC also found that Bergquist and Up Global made false and misleading statements about the demand for UpToken and the amount raised in the ICO.

The SEC’s action against Coinme underscores the agency’s increased scrutiny of the cryptocurrency market, particularly with regard to ICOs and the sale of unregistered securities. The SEC has warned repeatedly that ICOs are subject to federal securities laws, and that any token offered or sold in an ICO must be registered or qualify for an exemption from registration. Failure to comply with these laws can result in enforcement action, as demonstrated in the case of Coinme.

Coinme’s ICO of UpToken highlights the risks associated with investing in ICOs, particularly those that are not registered with the SEC. Investors should conduct thorough due diligence and carefully review the offering materials before investing in any ICO. The case also highlights the importance of transparency and accurate disclosure in the cryptocurrency market, with companies facing enforcement action if they make false or misleading statements.

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Nigeria Plans to Regulate Digital Asset Platforms

by Blockchain News

Nigeria, one of the most curious nations about cryptocurrencies, is preparing new industry regulations for digital asset platforms. The Nigerian Securities and Exchange Commission (SEC) is considering new regulations that would allow licensed digital exchanges to list tokens backed by certain assets, according to a report by Bloomberg.

Abdulkadir Abbas, the head of securities and investment at the Nigerian SEC, noted that the authority plans to only authorize listings of tokens based on assets such as equity, debt, or property. Cryptocurrencies like Bitcoin and Ether will not be among those assets. The aim is to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market.

License applicants would undergo a year of “regulatory incubation,” during which the SEC would study their operations and render their services in the country, according to Abbas. He added that by the 10th month, the SEC should be able to make a determination whether to register the firm, extend the incubation period, or even ask the firm to stop operation.

The Central Bank of Nigeria had banned local banks from providing services to cryptocurrency-related platforms in early 2021. On the ban, the regulator cited high risks associated with trading cryptocurrencies such as Bitcoin. The central bank also promised to impose strict penalties for any lender or financial institution failing to comply with the directive.

Despite the ban, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies. Nigeria ranks second by search interest for the keyword “Bitcoin,” behind El Salvador, which adopted Bitcoin as legal tender in 2021, according to data from Google Trends. Other jurisdictions in the top-five crypto-curious countries list include Slovenia, Netherlands, and Switzerland.

Nigeria was also among the top 20 countries in terms of crypto adoption in 2022, according to Chainalysis’ crypto adoption index.

While prohibiting cryptocurrencies, the Central Bank of Nigeria has been actively promoting its central bank digital currency known as the eNaira. The eNaira reportedly saw increased adoption due to national fiat reserves facing severe shortages.

In conclusion, Nigeria is taking steps to regulate digital asset platforms, with the SEC considering allowing licensed digital exchanges to list tokens backed by certain assets. The country aims to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market. Despite the ban on cryptocurrencies, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies.

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Terraform Labs CEO Asks for Dismissal of SEC Charges

by Blockchain News

In a recent motion filed to dismiss the charges leveled against him by the Securities and Exchange Commission (SEC), Do Kwon, co-founder and CEO of Terraform Labs, argued that the claims are invalid and that the SEC lacked proper jurisdiction to bring charges against him and his company. Kwon’s counsel stated that the tokens and projects developed by Terra were “aimed at the world” and did not specifically target U.S. investors, making the SEC’s claims invalid.

The SEC had previously claimed that tokens including MIR, LUNA (LUNA), and UST are securities, but Kwon pushed back against this argument in his motion to dismiss the charges. The South Korean district court recently dismissed security violation charges against the co-founder of Terraform Labs, Hyun-seong Shin, deeming LUNA as a non-security under Korea’s Capital Markets Act. This ruling makes Kwon’s motion right only in connection to LUNA.

However, recent developments suggest that Kwon’s legal troubles may not be over. In a press conference after the Seoul Southern District Prosecutor’s office indicted 10 people involved in the collapse of the Terra stablecoin ecosystem, the prosecutor reportedly identified Signum as the Swiss bank account where Kwon transferred more than 10,000 Bitcoin (BTC) from the Terra platform and the Luna Foundation Guard to a cold wallet, which was then converted to fiat.

The Financial and Securities Crime Joint Investigation Unit of the Seoul Southern District Prosecutor’s office is reportedly monitoring Bitcoin owned by Luna Foundation Guard and has determined that the transferred amount, which aligns with the SEC complaint, is approximately $100 million (equivalent to 130 billion won). The prosecutors clarified that the $100 million was not kept solely in the Signum account and was dispersed in various locations. It was verified that a portion of the funds was transferred to the Kim & Chang law firm account to cover legal fees, while the rest amounted to billions of won.

Kwon’s legal troubles began when the SEC filed charges against him and his company, which preempted his arrest in Montenegro, where he currently faces extradition. South Korean authorities had issued an arrest warrant for Kwon in September, and U.S. federal prosecutors unveiled criminal charges against him shortly after he was arrested a month ago.

In conclusion, while Do Kwon has requested the dismissal of SEC charges against him, recent developments suggest that his legal troubles may not be over yet. It remains to be seen how this situation will develop and how it will affect the future of Terraform Labs.

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Hydrogen Technology Corporation Settles Crypto Manipulation Lawsuit

by Blockchain News

Hydrogen Technology Corporation, a firm accused of manipulating the price of cryptocurrencies, has settled a seven-month-long lawsuit with the Securities and Exchange Commission (SEC) for $2.8 million. The SEC had filed a complaint against Hydrogen and its former CEO, Michael Ross Kane, in September, alleging that they manipulated the volume and price of the firm’s ERC-20 token, Hydro (HYDRO), by using its market maker, Moonwalkers Trading Limited.

On April 20, a New York District Court Judge ordered Hydrogen and Kane to pay $2.8 million in remedies and civil penalties. The payment comprises approximately $1.5 million in “disgorged” profits, which refers to gains made from unlawful conduct, as well as a penalty of more than $1 million. Additionally, Kane agreed to pay an individual fine of approximately $260,000, and the remaining amount is made up of prejudgment interest.

The SEC’s complaint alleged that Kane and Moonwalkers CEO Tyler Ostern worked together to manipulate the volume and price of Hydro’s token, following its distribution through airdrops, bounty programs, and direct-to-market sales in 2018. According to the complaint, Ostern sold the tokens in an “artificially inflated market,” which allowed Hydrogen to net more than $2 million in profit.

A day after the complaint was filed, Ostern settled the case for $41,000. Both Hydrogen and Kane are now bound by the conditions of the settlement, which prevents them from disputing the charges levied against them by the SEC.

As part of the settlement, Hydrogen and Kane are also prohibited from selling any additional cryptocurrency until the Hydro tokens have passed the Howey test and received further approval from the SEC. However, Kane is still permitted to participate in the wider cryptocurrency market, meaning he can still buy and sell crypto assets for personal gain.

The settlement of the lawsuit marks a significant win for the SEC, which has been cracking down on cryptocurrency-related fraud and misconduct. The case also serves as a reminder to cryptocurrency companies and their executives to comply with securities laws and regulations.

It is worth noting that the Howey test mentioned in the settlement is a legal test used to determine whether an asset is a security. If an asset meets the criteria of the test, it is considered a security and must comply with securities laws and regulations. This means that Hydrogen and Kane cannot sell any additional cryptocurrency until the SEC approves the Hydro tokens as a security.

In conclusion, the settlement of the cryptocurrency manipulation lawsuit brought against Hydrogen Technology Corporation and its former CEO is a significant development in the ongoing effort to regulate the cryptocurrency market. The settlement serves as a reminder to companies and their executives to comply with securities laws and regulations to avoid legal action by regulators.

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SEC Charges Bittrex for Unregistered Securities Trading

by Blockchain News

The US Securities and Exchange Commission (SEC) has charged crypto asset trading platform Bittrex and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency. In a separate charge, Bittrex Global is also facing charges for its operation of a single shared order book with Bittrex.

The SEC has filed four charges of Exchange Act violations against the companies and Shihara in the US District Court Western District of Washington. According to the SEC’s complaint, tokens traded on Bittrex, including OMG, Dash, Algorand, Monolith, Naga, and IHT, are securities. The agency has been criticized in the past for its “regulation by enforcement” approach, which claims tokens are securities only at the time of filing complaints and not before.

The SEC’s charges against Bittrex highlight the regulatory uncertainty surrounding the crypto industry, especially when it comes to determining whether digital assets qualify as securities. The agency has previously filed charges against several companies for unregistered securities trading, including Telegram and Ripple.

Bittrex is not the first cryptocurrency trading platform to face legal action from the SEC. In 2019, the agency took legal action against EtherDelta, a decentralized exchange, for operating an unregistered securities exchange. The SEC has also previously warned investors about the risks associated with investing in cryptocurrencies and initial coin offerings (ICOs).

Bittrex has been a prominent player in the crypto industry since its launch in 2014. The platform currently supports trading in over 300 cryptocurrencies, making it one of the largest crypto exchanges in the world. However, the SEC’s charges against the company and its former CEO could have significant implications for the broader crypto industry, especially when it comes to determining whether certain digital assets qualify as securities.

In response to the SEC’s charges, Bittrex issued a statement saying that it had been in “close communication” with the agency over the past two years and had been “cooperating with them in an effort to address their concerns.” The company also said that it “disagrees” with the SEC’s assessment that certain tokens traded on its platform are securities and plans to “vigorously defend” itself against the charges.

In conclusion, the SEC’s charges against Bittrex and its former CEO highlight the ongoing regulatory uncertainty surrounding the crypto industry. While the agency has taken legal action against several companies for unregistered securities trading, questions remain about how to determine whether certain digital assets qualify as securities. The outcome of this case could have significant implications for the broader crypto industry and how it is regulated moving forward.

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