Coinbase Warned By SEC of Potential Securities Charges

The Securities and Exchange Commission issued crypto exchange Coinbase a Wells notice, warning the company that it identified potential violations of U.S. securities law. CNBC reports: “Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a regulatory filing. “The potential civil action may seek injunctive relief, disgorgement, and civil penalties.”

Coinbase described the investigation as “cursory,” and said the Wells notice provided relatively little information about potential violations. “Although we don’t take this development lightly, we are very confident in the way we run our business — the same business we presented to the SEC in order for us to become a public company in 2021,” Coinbase Chief Legal Officer Paul Grewal said in a blog post. The company said that until the resolution of any legal processes, the exchange’s offerings would continue to operate as usual.

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Microsoft Is Testing a Built-In Cryptocurrency Wallet For the Edge Browser

Microsoft appears to be testing a built-in cryptocurrency wallet for Edge, according to screenshots pulled from a beta build of the browser. Ars Technica reports: The feature, which the screenshots say is strictly for internal testing, was unearthed by Twitter user @thebookisclosed, who has a history of digging up present-but-disabled features in everything from new Windows 11 builds to ancient Windows Vista betas. According to the screenshots, the crypto wallet is “embedded in Edge, making it easy to use without installing any extension,” and it can handle multiple types of cryptocurrency. It will also record transactions and the value of your individual currencies as they fluctuate. An “explore” tab offers news stories relevant to cryptocurrency, and an “assets” tab will let you stare lovingly at your NFTs. The wallet is “non-custodial” (also called “self-custodial”), meaning that you have sole ownership of and responsibility for the passwords and recovery keys that allow access to your funds. Microsoft won’t be able to let you back in if you lose your credentials.

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Crypto Bank Silvergate Capital To Shut Down

Silvergate Capital, the publicly-traded parent of Silvergate Bank, said Wednesday that it would liquidate the bank, just days after saying future operations would be uncertain. Axios reports: “In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” a press statement reads. While the bank’s demise had everything to do with its choice of industry — FTX’s collapse sent the entire crypto world in hunt of liquidity, causing a run on deposits at Silvergate — balance-sheet problems in today’s high-rate environment is not a crypto bank-specific stumbling block. Silvergate’s troubles were in plain sight in that respect.

When customers pulled more than $8 billion from its platform late last year, the bank got a $4.3 billion assist in home loan advances from the Federal Home Loan Bank (FHLB). It effectively benefited from an implicit government backstop. But between having to pay those loans back right away and other investment losses, its outlook was grim, even before the company filed a registration statement saying so.

The overwhelming majority of bank liquidations are announced on a Friday afternoon, to give the FDIC a full weekend to shore up the institution and reassure depositors before the next business day. The fact this happened on a Wednesday is an indication of just how quickly Silvergate imploded. “Crypto exchanges, platforms and stablecoin issuers at least have the excuse that they don’t have direct access to central bank liquidity,” Frances Coppola, an economist and writer of blog Coppola Comment, said in a recent post about the bank. “But Silvergate does — and yet it didn’t use it.” That would appear to be an oversight for the bank, but also its regulator.

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Kraken Settles With SEC For $30 Million, Agrees To Shutter Crypto-Staking Operation

According to CoinDesk, Kraken has agreed to shut its cryptocurrency-staking operations to settle charges with the U.S. Securities and Exchange Commission (SEC). From the report: The SEC will discuss and vote on the settlement during a closed-door commissioner meeting on Thursday afternoon, and an announcement may come later in the day, the industry person told CoinDesk. Kraken offers a number of services under its staking umbrella, including a crypto-lending product offering up to 24% yield. This is also expected to shut down under the settlement, the industry person said. Kraken’s staking service offered a 20% APY, promising to send customers staking rewards twice per week, according to its website. Bloomberg reported that Kraken was close to a settlement with the SEC over offering unregistered securities on Wednesday.

SEC Chair Gary Gensler has previously said he believes staking through intermediaries — like Kraken — may meet the requirements of the Howey Test, a decades-old U.S. Supreme Court case commonly used as one measure of whether something can be defined as a security under U.S. laws. Staking looks similar to lending, Gensler said at the time. The SEC has brought and settled charges with lending companies before, such as now-bankrupt lender BlockFi. A Kraken settlement would help Gensler’s mission, giving his agency a big win as it continues its efforts to police the broader crypto ecosystem. The majority of people staking on Ethereum, for example, use services, according to Dune Analytics. CNBC reports that the crypto exchange has also agreed to “pay a $30 million fine to settle an enforcement action alleging it sold unregistered securities.”

“The SEC claims Kraken failed to register the offer and sale of its crypto staking-as-a-service program. U.S. investors had crypto assets worth over $2.7 billion on Kraken’s platform, the SEC alleged, earning Kraken around $147 million in revenue, according to the SEC complaint (PDF).” The SEC announced the charges in a press release.

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Binance To Suspend US Dollar Bank Transfers This Week

Binance, the world’s largest cryptocurrency exchange, will suspend U.S. dollar deposits and withdrawals, the company said Monday, without providing a reason for the decision. CNBC reports: Binance US, a unit of the company that’s regulated by the Treasury Department’s Financial Crimes Enforcement Network, said in a tweet that it’s not affected by the suspension. Thus the move applies only to non-U.S. customers who transfer money to or from bank accounts in dollars. Data from Arkham Intelligence shows that following the announcement, there was a sharp spike in outflows from Binance’s crypto wallets, as millions of dollar-pegged stablecoins such as tether and USDC flowed to rival exchanges or individual wallets.

Binance’s net U.S. dollar outflow was over $172 million for the day, based on data from DefiLlama. That represents a tiny amount of money for a company that has $42.2 billion worth of crypto assets, according to Arkham. “We’re still overwhelmingly net-positive on net deposits,” the spokesperson said. “Outflows always tick up when prices start to level off following a bullish market swing like we saw last week as some users take profits.” Bitcoin rose more than 38% in January, its best month since October 2021.

Regarding Monday’s suspension, a Binance representative told CNBC in an email that “Binance.US has its own banking partners and does not have any issues.” The main Binance exchange does not serve U.S. users. Binance said customers can still use other fiat currencies or payment methods to purchase crypto. For the small number affected, “we’ll have a new partner to announce for those users in the next couple weeks,” the spokesperson said.

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Three Arrows Capital Co-Founders Pitch To Raise $25 Million For New ‘GTX’ Exchange

Su Zhu and Kyle Davies, the founders of collapsed crypto hedge fund Three Arrows Capital (3AC), are hoping to raise $25 million to start a new crypto exchange called GTX, according to two separate pitch decks obtained by The Block. Three Arrows Capital was one of the largest hedge funds in crypto until last year’s collapse of the Terra ecosystem left it facing significant losses. The financial advisory firm Teneo has been handling the liquidation of 3AC’s assets and the hedge fund has filed for Chapter 15 bankruptcy in New York. From the report: News of the fundraise comes two months after exchange giant FTX imploded, leaving more than a million creditors out of pocket. The new exchange takes advantage of the situation offering depositors the ability to transfer their FTX claims to GTX and receive immediate credit in a token called USDG, the pitch deck said. The exchange’s name is even a spin on “FTX,” with one of the GTX pitch decks opening with the line “because G comes after F.”

The Three Arrows pair are partnering with Mark Lamb and Sudhu Arumugam, who founded CoinFlex, a crypto exchange which is in the process of restructuring. The exchange’s executive team is also made up of several CoinFlex executives including the firm’s general counsel and chief technology officer, per one of the decks. GTX will leverage Coinflex’s technology to build the exchange and a legal team will be responsible for overseeing the onboarding of claims for all the recent crypto bankruptcies such as Celsius and Voyager, according to the decks. The exchange is looking to launch as soon as possible — potentially as soon as February — and is estimating that the claims market is worth around $20 billion, according to the decks.

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SEC Alleges Gemini, Genesis Sold Unregistered Securities

The U.S. Securities and Exchange Commission (SEC) alleged crypto exchange Gemini and crypto lender Genesis Global Capital sold unregistered securities in a lawsuit filed late Thursday. CoinDesk reports: The investment regulator took aim at Gemini Earn, the troubled yield-bearing product that hundreds of thousands of U.S. investors entrusted with their crypto. Gemini generated yield on billions of dollars in crypto by loaning deposits to Genesis, which loaned them out again. But Genesis’ November closing of lending withdrawals left some 340,000 Gemini Earn customers and about $900 million in crypto in limbo, the SEC said. The regulator accused the popular program of being an unregistered security. “Defendants offered and sold the Gemini Earn Agreements through the Gemini Earn Program without registering” with securities regulators, the complaint said. “As a result, investors lacked material information about the Gemini Earn program that would have been relevant to their investment decisions.”

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FTX’s Sam Bankman-Fried Borrowed From Alameda To Buy Robinhood Shares

Former FTX chief Sam Bankman-Fried borrowed hundreds of millions of dollars from Alameda Research to purchase his stake in trading app Robinhood Markets (HOOD), according to court documents (PDF). CoinDesk reports: In an affidavit provided to a Caribbean court before his arrest, Bankman-Fried said he and FTX co-founder Gary Wang together borrowed over $546 million from Alameda via promissory notes in April and May. They used that money to capitalize Emergent Fidelity Technologies Ltd., the shell corporation that in May bought a 7.6% stake of Robinhood. The affidavit provides a new curveball in the three-way race to lay claim to the 56 million Robinhood shares. Crypto lender BlockFi, FTX Group and Bankman-Fried himself have all attempted to lay claim to the shares, which could be worth over $440 million.

Crypto lender BlockFi, which like FTX has filed for bankruptcy, alleged in a court document (PDF) that it was owed the rights to the Robinhood shares due to a deal Bankman-Fried made in early November. The shares were pledged as collateral against a loan taken out by Alameda Research — the same firm whose funds were used to purchase the shares to begin with, according to Tuesday’s filing.

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Bitcoin Hashrate Drops Nearly 40% as Deadly US Storm Unplugs Miners

FTX Asks Judge For Help In Fight Over Robinhood Shares Worth About $450 Million

FTX sought a U.S. bankruptcy court’s help amid a battle over ownership of about $450 million worth of stock in Robinhood Markets (HOOD), according to a filing (PDF) Thursday. CoinDesk reports: At issue are about 56 million shares of the brokerage owned by Emergent Fidelity Technologies Ltd., a corporate entity organized in Antigua and Barbuda and 90% controlled by former FTX CEO Sam Bankman-Fried, according to the filing. Three parties, the filing says, have tried to get control of those shares: BlockFi (a lender that FTX had helped prop up earlier this year), Yonathan Ben Shimon (an FTX creditor appointed as a receiver in Antigua and granted permission to sell the shares under supervision of a court there) and Bankman-Fried himself (who has legal bills).

FTX’s bankruptcy estate told ED&F Man Capital Markets, the brokerage where the shares are parked, to freeze the stock around the time the Chapter 11 case began on Nov. 11. FTX has determined that Emergent only “nominally” owns the shares and that they truly belong to FTX. “Emergent is a special-purpose holding company that appears to have no other business,” the crypto exchange said in the filing. The judge overseeing the bankruptcy case should force the shares to remain frozen while FTX tries to figure out how to repay all its creditors, FTX argued in the filing.

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