SEC Charges 10 Banks, Stockbrokers for “Off-Channel Communications”

Leonardo Perez
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SEC Charges 10 Banks, Stockbrokers for “Off-Channel Communications”

SEC announces charges against ten banks and broker-dealers for reporting and record-keeping failures. Among them is Peralla Weinberg, the bank advising the fallen crypto exchange FTX in its complex restructuring. As the SEC cracks down on companies for technical violations, the question of regulatory overreach arises.

The latest enforcement action from the Securities and Exchange Commission (SEC) targets banks, broker-dealers, and investment advisors active in the cryptocurrency markets.

In its quest to crack down on decentralized finance (DeFi) and put companies’ operations under more direct oversight, the SEC has filed charges of “off-channel communications” by companies’ employees.

The SEC Strengthens Supervision of Communications to Banks

The agency announced Friday morning that it had filed charges against ten companies. Among them is Perella Weinberg, the bank advising bankrupt crypto exchange FTX on its restructuring. Other respondents include Interactive Brokers Corp., Robert W. Baird & Co., William Blair & Company, Nuveen Securities and Fifth Third Securities.

Interactive Brokers is very active in the crypto space and offers low commissions and 24/7 trading on their website. The others have varying degrees of exposure to cryptocurrencies. The defendants will not challenge the SEC in court. They have chosen to settle. In addition to paying a total of $79 million in penalties, the companies agreed to adopt new compliance policies.

The SEC took issue with these companies’ use of electronic communications and their failure to maintain complete records. According to the agency, its investigation of these companies uncovered “pervasive and long-lasting out-of-channel communications” across the companies. The companies’ employees used text messages to communicate about business matters, including some related to investment advice, the SEC charged.

In the agency’s view, this conduct was inconsistent with the Securities Act of 1934. The SEC also charged Baird, William Blair, Fifth Third, and Perella Weinberg with violating the recordkeeping provisions of the 1940’s Investment Advisers Act.

The Persistence of SEC Overreach in the “Communications” Case

The SEC has used the “stick” of reporting requirements to bring companies of many sizes and profiles more directly under its supervision.

Last week, the agency announced a $6 million fine against Goldman Sachs. The investment bank had not provided all the required daily information on securities trading or, in business terms, the “blue sheet data.”

It is significant that Goldman is emerging as a player in the crypto markets. The company’s global head of digital assets praised tokenization. And he has laid out a vision for broader engagement with digital currencies.

On Wednesday, SEC Chairman Gary Gensler flatly stated his agency’s right to exert control over companies in the crypto space. He argued that the “vast majority” of cryptographic tokens are classifiable as securities. Gensler nowhere mentioned a landmark ruling that contradicted this view and handed his agency a tough defeat in its lawsuit against Ripple Labs.

SEC Regulatory Clarity May Encourage Greater Crypto Adoption

The US market is huge and has lucrative potential. And some players in the crypto space have drawn valuable lessons from the legal troubles of Ripple, Coinbase, Gemini, FTX and others in the SEC’s crosshairs, argued Danny Okeyan, CEO of Blockfinex:

“The United States has a budding crypto market despite many companies restricting operations or halting them. New exchanges entering the market have learned the lessons that legacy companies face and are taking strategic actions to reduce their risk.”

By Leonardo Pérez

Brazil Will Issue Identity Cards Based on Blockchain Technology in November

Audy Castañeda
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Brazil Will Issue Identity Cards Based on Blockchain Technology in November

Serpro will offer the blockchain solution for the digital identity card in Brazil, to which different cities will be added in October. Rio de Janeiro, Paraná and Goiás will be the first to implement the digital ID backed with blockchain technology. Days ago, ZkSync announced that in alliance with Quark ID they will issue the digital identity for the inhabitants of Buenos Aires, Argentina.

One of the main pillars of Web3 is the protection of its users’ data; since they will have to offer sovereignty over the custody of themselves. For Almudena de la Mata, PhD in Law from the Max-Planck-Institut of the University of Hamburg and founder of Blockchain Intelligence, in her column Metaverses: Blockchain and legal security, she delves into this.

“The secure identification of the participants is essential to generate trust and reduce the risks of these virtual relationships, and thus expand the possibilities of action in the metaverses.”

The Brazilian government announced that starting November 6, all government offices will integrate blockchain technology in the issuance of Brazilian identity documents. The solution was developed by Serpro, who adapted it so that it can be used by all Civil Identification Organizations (OIC).

The Brazilian government explained that this is the new version of the Shared Federal Income Registry, which will cover the issuance of the National Identity Document. The data backed up in blockchain will be under the protection of the Federal Revenue Agency of Brazil.

Brazil Promises Data Privacy in Digital Identity with Blockchain

The Brazilian government emphasized that blockchain technology in identification documents will begin to be implemented from the first week of October in cities such as Rio de Janeiro, Paraná and Goiás, and more entities will join before November.

Under decree No. 10,977, the Brazilian government set November 6 as the deadline for all organizations to integrate blockchain into their identity cards. Although citizen data will be secure and highly transparent, the truth is that all government agencies will have access to citizens’ tax or fine data.

The Brazilian government promises that the identity card will function as a fraud-proof QR code. In this regard, the president of Serpro, Alexandre Amorim, elaborated:

“Blockchain technology plays a fundamental role in protecting personal data and preventing fraud, providing a safer digital experience to Brazilian citizens. The use of the b-Cadastros blockchain platform is a great differentiator for the security and reliability of the National Identity Document project.”

The digital version of the Brazilian identity document will function as a national registration number, that is, no matter which state issues the document, the citizen will maintain that same number. Brazil is not the only country to adopt blockchain technology in the identity card, as Buenos Aires, Argentina recently did so.

Latin America Adds Blockchain to its ID Cards, such as Brazil and Argentina

Days ago, Ethereum’s Layer 2 protocol, ZkSync, announced that in alliance with Quark ID they will issue digital identity services. They will do it for the millions of inhabitants of the city of Buenos Aires, Argentina. Starting in October, citizens will be able to download their “QuarkID” wallet (identity) for procedures such as birth and marriage certificates.

The launch of the blockchain-based digital identification program was reported. It occurs in the context in which crypto projects such as Worldcoin seek to recover biometric data. He intends to do it without government help for cryptocurrencies like WLD.

With “QuarkID”, Buenos Aires reaffirms one of the principles of blockchain: data transparency. It will include personal documents, such as health data, and could even integrate tax and government payments.

By Audy Castaneda

Former Cryptocurrency Executive Sam Bankman-Fried Headed to Prison

Leonardo Perez
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Former Cryptocurrency Executive Sam Bankman-Fried Headed to Prison

Bankman-Fried is believed to have attempted to tamper with witnesses while out of prison.

Sam Bankman-Fried, the now-disgraced former executive of fallen cryptocurrency exchange FTX, is headed to jail. The judge overseeing his case has found him guilty of violating the terms of his bail too often.

Time to Go to Jail for Sam Bankman-Fried

At a hearing in New York, U.S. District Judge Lewis Kaplan said Sam Bankman-Fried has too often exceeded his bail limits. He stated the following:

“There is probable cause to believe that the accused has attempted to manipulate the witnesses at least twice.”

Lawyers for the former crypto chief have requested a motion that would allow him to spend time in their offices later this year to prepare for his impending trial, which is currently scheduled for next month. After the judge’s decision was read, Bankman-Fried was handcuffed and escorted out of the courtroom by U.S. Marshals while his mother held her head and cried.

Prosecutors in the case issued a statement offering more details about what led to the judge’s decision. He said that:

“Faced with a series of conditions designed to limit the defendant’s use of the internet and telephone, the defendant resorted to in-person machinations.”

FTX is likely to be considered one of the biggest debacles in the digital currency space. The exchange, which first opened its doors in 2019, rose to prominence three years later to become one of the top five digital currency trading platforms in the world. Its founder and CEO, Sam Bankman-Fried, was praised as a genius by many, and his net worth was in the billions as of the end of 2022.

A Great Collapse

Unfortunately, this reputation was short-lived, as in mid-November, SBF complained about a liquidity crisis on social media. He said he needed quick money to keep his business running and eventually turned to his biggest rival, Binance, for a possible purchase.

While things seemed to be moving in that direction for some time, Binance eventually backed away from the deal, claiming that the problems FTX was facing were simply too big to handle.

Thereafter, the company declared bankruptcy and SBF resigned from his position. Things would have been pretty bad if they had stopped there, but the trash meter kept going up.

It was later discovered that SBF had potentially used client funds to invest in luxury real estate in the Bahamas and to repay loans taken out by his other company, Alameda Research.

SBF was eventually arrested and extradited to the United States. He pleaded not guilty and until a few weeks ago was awaiting trial at his parents’ home in California.

How Long Could Sam Bankman-Fried Go to Jail?

Lawyer predicts former FTX CEO could face life in prison if convicted on all seven charges. After a jury selection process on October 3, the trial begins in earnest on October 4, with Bankman-Fried facing seven counts. If convicted on all counts, he faces a maximum sentence of 115 years in prison.

However, cryptocurrency lawyers have stated that the judge is unlikely to be lenient on him. With less than a week until the trial, Michael Kanovitz, a partner at law firm Loevy & Loevy, explained that the outlook does not appear to be very good for Bankman-Fried.

By Leonardo Pérez

SEC Delays Decision on BlackRock Again, Valkyrie and Bitwise Bitcoin ETFs

Audy Castañeda
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SEC Delays Decision on BlackRock Again, Valkyrie and Bitwise Bitcoin ETFs

The United States SEC has again delayed the approval of Bitcoin ETFs due to possible fraud in the market.

The United States Securities and Exchange Commission (SEC) has once again taken a step back regarding its decision on Bitcoin ETF applications that were submitted by three major financial entities: BlackRock, Valkyrie and Bitwise. This delay increases uncertainty around the relationship between traditional finance and cryptocurrencies.

The reason behind this delay by the SEC is related to concerns about possible fraudulent activities. As well as the manipulations that may exist in the crypto market. Now, the SEC is requesting a deeper review of the legal and policy ramifications surrounding these applications. The agency has also invited the public to submit additional comments, expressing doubts about the robustness of liquidity in the Bitcoin market.

VanEck Is Already Promoting the Launch of Its Ethereum Futures ETF

Investment management firm VanEck has begun promoting its upcoming Ethereum futures Exchange Traded Fund (ETF). As we previously reported, some analysts have indicated that it could be available this week.

In this sense, VanEck made two television advertisements with the title “Enter the Ether” in which he reported on the upcoming arrival of his Ethereum Strategy ETF, identified with the symbol EFUT. These announcements coincided with a press release from VanEck about the EFUT ETF, which will be listed on the Chicago Board Options Exchange.

Circle Interferes in Binance and SEC Case Arguing That Stablecoins Should Not Be Considered Securities

Stablecoin issuer Circle has intervened in the SEC case against cryptocurrency exchange Binance. Circle maintains that financial trading laws should not apply to stablecoins whose value is pegged to other assets.

Likewise, Circle now claims that dollar-pegged assets, such as BUSD and its own currency USDC, cannot be considered securities, in part because its users do not expect to profit from independent purchases.

In the presentation cited by news outlet CoinDesk, Circle noted the following:

“Payment stablecoins, on their own, do not have the essential characteristics of an investment contract. Decades of case law support the view that an asset sale (unrelated to any post-sale promise or obligation on the part of the seller) is not sufficient to establish an investment contract.”

The US Securities and Exchange Commission (SEC) sued Binance and its CEO Changpeng Zhao in June accusing them of multiple violations of federal laws for operating without registration and facilitating the trading of cryptocurrencies as unregistered securities, including Solana (SOL), Cardano (ADA) and the BUSD stablecoin.

The CIA Will Include AI in Its Own Chatbot

Artificial intelligence (AI) is making its way into US intelligence agencies, and the CIA has announced its foray into this field by developing its own AI chatbot, similar to the popular ChatGPT. Although still unnamed, this tool will be trained using publicly accessible data and aims to provide quick support to US spies to efficiently verify information.

North American intelligence agencies are preparing to obtain a new tool with which to filter all the information that can be handled on the network. According to Bloomberg, the CIA is in the final phase of developing a chatbot similar to the proposals known today, such as ChatGPT or Bing Chat. However, its purpose is very different from that intended for these platforms.

By Audy Castaneda

SEC Delays BlackRock Bitcoin Spot ETFs, Here’s Why

Leonardo Perez
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0
SEC Delays BlackRock Bitcoin Spot ETFs, Here’s Why

The US Securities and Exchange Commission (SEC) has postponed its decision on BlackRock, Invesco, Bitwise and Valkyrie’s Bitcoin spot ETF applications.

The United States Securities and Exchange Commission (SEC) has once again deferred its decisions regarding multiple spot Bitcoin exchange-traded fund (ETF) proposals from major financial institutions, including BlackRock. This action by the SEC precedes an imminent government shutdown, which is expected to influence the functioning of the country’s financial regulators and other federal agencies.

Bloomberg ETF analyst James Seyffart has been actively providing updates on the situation via his X (formerly Twitter). account. Among the companies mentioned in Seyffart’s tweets, BlackRock, Bitwise Invest, Invesco and Galaxy Digital have already received delay orders from the SEC. Previously, the SEC had already postponed consideration of documentation for the launch of ARK Invest and 21Shares’ Bitcoin spot ETFs.

Seyffart predicts that the remaining applications from WisdomTree, VanEck, and Fidelity will likely be postponed today as well, especially given the looming possibility of a government shutdown. He said, “It’s okay. Guess the SEC ended for the night. We expect the other 3 Bitcoin ETFs to delay orders tomorrow before the government shuts down.”

While many market participants expected responses from the SEC by mid-October, the advanced delays (two weeks before the second expected deadline) have been attributed to the possible US government “shutdown” that will occur on 1 October. and the Senate has yet to reach consensus on several funding bills, the urgency to avoid a shutdown has intensified.

The SEC’s Official Reasoning for Delaying Bitcoin ETFs

The SEC has raised several concerns and considerations about the proposed Bitcoin spot ETFs. Among them are legal and political issues that the proposal has raised that require further analysis. The SEC also focuses on ensuring that national securities exchange rules are robustly designed to prevent fraudulent and manipulative acts. This is done to ensure investor protection and public interest.

Additionally, the SEC has expressed fears about bitcoin markets’ liquidity, transparency, and susceptibility to manipulation. They are interested in understanding the relationship between the Bitcoin spot market and the CME Bitcoin futures market, exploring how one might influence the other.

An additional factor being considered is the surveillance sharing agreement the Exchange intends to have with Coinbase, Inc. The SEC is questioning the effectiveness of such an agreement in deterring malicious practices.

The regulator also argued that Bitcoin, due to its continuous and geographically diverse trading nature, could be vulnerable to price manipulation. Therefore, the SEC is seeking comments on this particular claim to determine its validity.

Industry Comments

Scott Johnsson, financial attorney at Davis Polk, offered his thoughts on the situation, by stating that “The leeway for the SEC to further deny the BTC Spot ETF is MUCH smaller than I think many believe.”

Johnsson also alluded to the impending government shutdown and its potential impact, noting: “The SEC will have a ‘skeletal staff’ in a shutdown,” and added that “They are clearly trying to get their house in order for an extended break.”

Eric Balchunas, another Bloomberg ETF analyst, previously estimated a 75% chance that a Bitcoin spot ETF will be approved by the end of 2023. However, the probability increases to 95% by the end of 2024. The decisive ruling by the US Court of Appeals in favor of Grayscale against the SEC is a major factor in this optimistic projection.

By Leonardo Pérez

Argentina: Buenos Aires Will Implement “QuarkID” Identification System Based on Blockchain

Audy Castañeda
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Argentina: Buenos Aires Will Implement “QuarkID” Identification System Based on Blockchain

The city of Buenos Aires will launch the blockchain-based digital identity “QuarkID” starting in October, and at the end of the year they will present a roadmap. ZkSync will act as a settlement layer for QuarkID and allow every resident of Buenos Aires to have the correct credentials. According to ZkSync, the digital identity starts in Buenos Aires and will progressively be available to all Argentines.

Ethereum’s Layer 2 protocol, ZkSync, announced that, in alliance with Quark ID, they will issue digital identity services for the millions of inhabitants of Buenos Aires, Argentina. Starting in October, citizens will be able to download their “QuarkID” wallet (identity) for procedures such as birth and marriage certificates.

ZkSync explained that it will be the anchor protocol for the initiative in Buenos Aires, where more than 15 million people live. The digital identity will also include proof of income and academic verification, although the latter will not be ready until November.

“QuarkID” Identification System of Buenos Aires Will Include Personal Data

The “QuarkID” digital ID will include personal documents, such as health data, and could even integrate tax and government payments. Buenos Aires gradually enters Web 3.0, since privacy solutions will be provided by ZkSync.

In this regard, the CEO of Extrimian (creator of QuarkID) Guillermo Villanueva, explained the following:

“This is a monumental step towards a safer and more efficient future for government services in Latin America. “QuarkID creates a closer relationship between a government and its citizens and, at the same time, brings digital identity practices and security standards to Latin America.”

ZkSync will act as a settlement layer for QuarkID and will allow each Buenos Aires resident to have the correct credentials and interact with administrative services. He pointed out that by having Ethereum technology, personal data stored on chain would mitigate identity theft, as well as hacks that involve the theft of information.

At the end of 2022, the Secretary of Innovation and Digital Transformation of the Government of the City of Buenos Aires, Diego Fernández, confirmed to BeInCrypto that they were fine-tuning details of the digital identity with the “Quark ID” blockchain. From its design, digital identity sought to give people control over their information.

Diego Fernández pointed out that Buenos Aires will become a pioneer in Web 3.0 identity with “Quark ID”:

“With this development, Buenos Aires becomes the first city in Latin America, and one of the first in the world, to integrate and promote this new technology and set the standard for how other countries in the region should use blockchain technology to benefit of its people.”

Blockchain Credential “Quark ID” Will Reach 2.5 million People in Buenos Aires

According to ZkSync, the digital identity starts in Buenos Aires and will progressively be available to all Argentines. By November, the local government will establish a future “Quark ID” roadmap to provide service to more than 2.5 million citizens.

Diego Fernández pointed out that the security of personal data was essential from the design of “Quark ID”:

“We believe that the important thing is for QuarkID to function as a public infrastructure. This is so that anyone can build value, and to transform and simplify the way the State and society relate, while empowering people.”

By Audy Castaneda

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