Tag Archives: cryptocurrency

New York Governor Signs Partial Cryptocurrency Mining Ban



New York will instate a two-year moratorium on new fossil fuel-powered cryptocurrency mining operations as the state works to balance its economic development and climate goals, Politico reported.

According to Politico, Governor Kathy Hochul on Tuesday signed the controversial measure into law that would create the first-in-the-nation temporary pause on new permits for fossil fuel power plants that house proof-of-work cryptocurrency mining, which is a process used in the transaction of digital money. Hochul, who had punted on the issues for months after the Legislature passed the bill in June, was elected to a full term Nov. 8.

Upstate New York has become attractive to companies that “mine” digital currencies, including Bitcoin, because of the availability of former power plants and manufacturing sites with unused electrical infrastructure, Politico reported. But, Governor Hochul said that the moratorium is an important step to avoid increased emissions from the industry restarting old power plants as she guides the state toward ambitious climate goals.

Politico also reported that the new law will trigger a study by state Department of Environmental Conservation to study the impacts of the cryptocurrency mining industry on the environment.

The bill is narrow in scope, Politico reported, despite its groundbreaking steps. The state’s roughly dozen operations that draw power from the grid would not be affected, nor would individuals purchasing or mining for cryptocurrency or other blockchain activities. And the moratorium on new or renewed permits doesn’t apply if the company has already filed paperwork to operate in New York.

The Wall Street Journal reported that New York has become the first state to restrict cryptocurrency mining after Gov. Kathy Hochul on Tuesday signed a two-year moratorium, calling the move necessary to help protect the environment.

According to The Wall Street Journal, sustainability groups generally object to cryptocurrency mining because of its intensive energy use and resulting environmental impacts. Business groups – including cryptocurrency companies – lobbied Ms.Hochul to veto the bill, which lawmakers approved in June. The groups argued it would have an effect on the industry’s growth in the state, and said the power plants are also a source of jobs in upstate communities.

The Wall Street Journal also reported that more than 160 crypto-related bills are up for consideration this year in 37 states, according to the National Conference of State Legislatures.

The Hill reported that the restrictions came after the collapse of cryptocurrency exchange FTX, which has led to growing scrutiny of the industry.

According to The Hill, the New York law takes aim at the technology’s environmental impact, establishing a two-year moratorium on permits for fossil fuel plants used for cryptocurrency mining that requires “proof-of-work authentication.”

The law has been described as a first-of-its kind. To me, this indicates that other state governors could potentially sign a similar bill (assuming their state legislature creates one that is similar to the New York law). I suspect that the FTX situation could influence legislation that would move to prevent that sort of thing from happening again.


U.S. Department of Treasury Took Actions Against Bittrex



The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) announced settlements for over $24 million and $29 million, respectively, with Bittrex, Inc. (Bittrex), a virtual currency exchange based in Bellevue, Washington. This is OFAC’s largest virtual currency enforcement action to date.

It also represents the first parallel enforcement actions by FinCEN and OFAC in this space. Investigations by OFAC and FinCEN found apparent violations of multiple sanctions programs and willful violations of the Bank Secrecy Act’s (BSA’s) anti-money laundering (AML) and suspicious activity report (SAR) reporting requirements. These enforcement actions emphasize to the virtual currency industry the importance of implementing appropriate risk-based sanctions compliance controls and meeting obligations under the BSA. The failure to take action can result in violations of OFAC and FinCEN regulations and expose exchanges and others in the virtual currency industry to potential abuse by illicit actors.

“When virtual currency firms fail to implement effective sanctions compliance controls, including screening customers located in sanctioned jurisdictions, they can become a vehicle for illicit actors that threaten U.S. national security,” said OFAC Director Andrea Gacki. “Virtual currency exchanges operating worldwide should understand both who – and where – their customers are. OFAC will continue to hold accountable firms, in the virtual currency industry and elsewhere, whose failure to implement appropriate controls leads to sanctions violations.”

“For years, Bittrex’s AML program and SAR reporting failures unnecessarily exposed the U.S. financial system to threat actors,” said FinCEN Acting Director Himamauli Das. “Bittrex’s failures created exposure to high-risk counterparts including sanctioned jurisdictions, darknet markets, and ransomware attackers.Virtual asset service providers are on notice that they must implement robust risk-based compliance programs and meet their BSA reporting requirements. FinCEN will not hesitate to act when it identifies willful violations of the BSA.”

The press release states that Bittrex has agreed to remit $24,280,829.20 to OFAC to settle its potential civil liability for 116,421 apparent violations of multiple program sanctions. As a result of deficiencies related to Bittrex’s sanctions compliance procedures, Bittrex failed to prevent persons apparently located in the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria from using its platform to engage in approximately $263,451,600.13 worth or virtual currency related transactions between March 2014 and December 2017.

The press release also stated that Bittrex has agreed remit $29,280,829.20 for its willful violation of the BSA’s AML program and SAR requirements. FinCEN will credit the payment of $24,280,829.20 as part of Bittrex’s agreement to settle its potential liability with OFAC. FinCEN’s investigation found that, from February 2014 through December 2018, Bittrex failed to maintain an effective AML program. This included deploying inadequate and ineffective transaction monitoring on its platform resulting in significant exposure to illicit finance. Further, Bittrex failed to file any SARs between February 2014 and May 2017, a period of over three years.

To me, it sounds like Bittrex either intentionally chose not to do the things that would have prevented them from having to settle with both OFAC and FinCEN, or the company hoped that it wouldn’t be noticed by the U.S. Department of Treasury. Either way, it is clear that Bittrex is going to be paying a very large amount of money due to their inadequate actions.


U.S. Justice Department Announced Digital Asset Coordinator Network



The U.S. Department of Justice announced significant actions regarding digital assets, including the public release of its report, pursuant to the President’s March 9 Executive Order on Ensuring Responsible Development of Digital Assets, on The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets; and the establishment of the nationwide Digital Asset Coordinator (DAC) Network, in furtherance of the department’s efforts to combat the growing threat posed by the illicit use of digital assets to the American public.

“As digital assets play a growing role in our global financial system, we must work in tandem with departments and agencies across government to prevent and disrupt the exploration of these technologies to facilitate crime and undermine our national security,” said Attorney General Merrick B. Garland. “The efforts announced today reflect the commitment of the Justice Department and our law enforcement and regulatory partners to advancing the responsible development of digital assets, protecting the public from criminal actors, and meeting the unique challenges these technologies pose.”

The White House released a FACT SHEET regarding cryptocurrency. From the Fact Sheet:

…Digital assets pose meaningful risks for consumers, investors, and businesses. Prices of this assets can be highly volatile: the current global market capitalization cryptocurrencies is approximately one-third of its November 2021 peak. Still, sellers mislead consumers about digital assets features and expected returns, and non-compliance with applicable laws and regulations remains widespread. One study found that almost a quarter of digital coin offerings had disclosure or transparency problems – like plagiarized documents or false promises of guaranteed returns. Outright fraud, scams, and theft in digital asset markets are on the rise: according to FBI statistics, reported monetary losses from digital asset scams were nearly 600 percent higher than in 2021 than the year before…

The Wall Street Journal reported that the Justice Department has tapped more than 150 federal prosecutors across the country to bolster law enforcement’s efforts to combat the rise in crime linked to the use of cryptocurrencies, such as bitcoin, officials said.

According to The Wall Street Journal, The Digital Asset Coordinators Network is intended to designate subject-matter experts in U.S. attorneys’ offices on the complex and technical and legal complications posed by cryptocurrency cases, the officials said.

Regulators, lawmakers and law-enforcement officials have said some cryptocurrency platforms afford users anonymity that helps them to launder criminal proceeds, finance terrorism, or engage in public corruption. Sanctions and other tools have been deployed with more frequency in recent months, but criminal prosecutors remain a key part of the administration’s strategy to police against bad actors, The Wall Street Journal reported.

Personally, I can see why it is necessary for the federal government to crack down on cryptocurrency, especially since it has been used in frauds, scams, and theft. It will be interesting to see how effective The Digital Asset Coordinators Network will be on cracking down on cryptocurrency.


U.S. SEC To Set Up Offices For Crypto Filings



The U.S. securities regulator will set up two new offices to deal with filings related to crypto assets and the life sciences sector, Reuters reported. According to Reuters, the “Office of Crypto Assets” and the “Office of Industrial Applications and Services” will join seven other existing offices under the Securities and Exchange Commission (SEC) department, which handles corporate disclosure findings.

The Securities And Exchange Commission (SEC) posted a press release titled: “SEC Division of Corporation Finance to Add Industry Offices Focused on Crypto Assets and Industrial Applications and Services”. From the press release (posted September 9, 2022):

The Securities and Exchange Commission today announced plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to the Division of Corporation Finance’s Disclosures Review Program (DRP). The DRP has long had offices to review company filings by issuers. The two new offices will join the seven existing offices that provide focused review of issuer filings and that are grouped by industry experts to further the Division’s work to promote capital formation and protect investors. The DRP anticipates the new offices to be established later this fall…

According to the press release, The Office of Crypto Assets will continue the work currently performed across the DRP to review filings involving crypto assets. Assessing companies and filings to one office will enable the DRP to better focus its resources and expertise to address the unique and evolving filing review issues related to crypto assets.

The Office of Industrial Applications and Services will be responsible for the non-pharma, non-biotech, and non-medical products companies currently assigned to the Office of Life Sciences. In recent years, the life sciences industry has experienced significant growth, which has added to the number of filings and companies assigned to that office. Transitioning a subset of these companies to a separate group will allow the DRP staff to build better specialized expertise.

Reuters reported that cryptocurrencies and other digital assets have soared in popularity over recent years and are getting increasingly intertwined with the regulated financial system, saddling policymakers with monitoring risks in a largely unregulated field. Allegations of money laundering against some crypto firms as well as consumer data violations in the United States, the biggest market for digital assets, have also affected demand.

In March of 2022, President Joe Biden signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies, CNBC reported. According to CNBC, that order was signed by President Biden. The order called on federal agencies to take a unified approach to regulation and oversight of digital assets (according to a White House fact sheet).

Personally, I am not surprised that the U.S. federal government wants to put in place specific offices that can review filings of crypto assets. Cryptocurrency, after all, is a form of currency. As such, it appears to fall under rules similar to that of other types of currency or assets.


FDIC Sent Cease and Desist Letters to Crypto Companies



The Federal Deposit Insurance Corporation (FDIC) issued letters demanding five companies and their officers, directors, and employees cease and desist from making false and misleading statements about FDIC deposit insurance and take immediate corrective action to address these false or misleading claims.

Here is more information from the FDIC’s post:

Based upon evidence collected by the FDIC, each of these companies made false representations – including on their websites and social media accounts – stating or suggesting that certain crypto-related products are FDIC-insured or the stocks held in brokerage accounts are FDIC-insurance. In one case, a company offering a so-called cryptocurrency also registered a domain name that suggests affiliation with or endorsement by the FDIC. These representations are false and misleading.

The Federal Deposit Insurance Act (FDI Act) prohibits any person from representing or implying that an uninsured product is FDIC-issued or from knowingly misrepresenting the extent and manner of deposit insurance. The FDI Act further prohibits companies from implying that their products are FDIC-insured by using “FDIC” in the company’s name, advertisements, or other documents. The FDIC is authorized by the FDI Act to enforce this prohibition against any person.

The FDIC sent cease and desist letters to the following crypto-companies: Cryptonews.com, Cryptosec.info, SmartAsset.com, FTX US, and FDICCrypto.com.

The FDIC provided examples of the misinformation posted by Cryptonews:

“Coinbase is one of a few exchanges which is actually regulated and insured by FDIC”

“Coinbase is FDIC insured exchange, meaning that all the funds are kept online (remaining 2%) are protected against theft.”

“eToro’s US users will be glad to know that their cash funds up to USD 250,000 are FDIC-insured, meaning you are guaranteed to get your funds back even in the event of eToro’s failure.”

“Gemini is described as “one of the biggest regulated crypto exchanges with the FDIC insurance for USD deposits, a user-friendly platform, and zero publicly known large scale hacks”

The FDIC also wrote the following in the letter to SmartAsset:

“Among other false and misleading statements, SmartAsset published an article on its website entitled, “List of FDIC-Insured Crypto Exchanges”… “This article includes, among other statements, the claim that “[w]ith those [purportedly insured] exchanges, if you lose your money on deposit the FDIC will reimburse those losses up to the program’s cap.” The article also includes a list of cryptocurrency exchanges that it claims offer FDIC insurance.”

The FDIC also wrote the following in the letter to FDICCrypto.com:

“The FDIC demand that you cease use of the domain name www.fdiccrypto.com, as well as any similar website domain names, immediately. This demand applies to the use of the website with the domain name www.fdiccrypto.com as well as advertising or consumer-facing documenting referencing fdiccrypto. The FDIC further demands that, within fifteen (15) business days of receipt of this letter, you provide written confirmation to the undersigned that you have complied with this demand.”

CNBC reported that in a letter specifically sent to FTX US, the FDIC said it appeared that on July 20, Brett Harrison, the president of FTX.US, published a tweet stating that direct deposits from employers are stored in FDIC-insured accounts in the user’s name.

According to CNBC, Harrison tweeted on Friday that he deleted the post and didn’t mean to indicate that crypto assets stored in FTX are insured by the FDIC, but rather “USD deposits from employers were held at insured banks.”

In my opinion, it is incredibly unwise to make it sound as though the FDIC has endorsed, or will pay back losses of cryptocurrency, when it is abundantly clear that the FDIC wants no part of that. These types of shenanigans are deceitful and potentially harmful to those who engage with disingenuous crypto companies.


Dutch Detain Suspected Developer Of Crypto Mixer Tornado Cash



Dutch Authorities said they had arrested a 29-year-old man believed to be a developer for the crypto mixing service Tornado Cash, which the United States put on its sanctions list recently, Reuters reported. According to Reuters, the U.S. sanctions followed allegations that Tornado Cash was helping conceal billions in capital flows, including for North Korean hackers.

The Dutch FIOD posted information on its website that included the following:

“On Wednesday 10 August, the FIOD arrested a 29-year-old man in Amsterdam. He is suspected of involvement in concealing criminal financial flows and facilitating money laundering through the mixing of cryptocurrencies through the decentralized Ethereum mixing service Tornado Cash. Multiple arrests are not ruled out.

“These advanced technologies, such as decentralized organizations that may facilitate in money laundering are receiving extra attention from the FIOD. Also in the cryptocurrency domain, the FIOD stands for a safe financial Netherlands and investigates with effect and impact. Today the suspect is brought before the examining judge.”

In addition, the FIOD stated that FACT (the Financial Cyber Team of the FIOD) started a criminal investigation against Tornado Cash, that is offered on the Internet by means of a decentralized autonomous organization (DAO).

The FOID also wrote:

“… FACT suspects that through Tornado Cash has been used to conceal large-scale criminal money flows, including from (online) thefts of cryptocurrencies (so-called crypto hacks and scams). These included funds stolen through hacks by a group believed to be associated with North Korea. Tornado Cash started in 2019 and according to FACT it has since achieved a turnover rate of at least seven billion dollars. Investigations showed that at least one billion dollars worth of cryptocurrencies of criminal origin passed through the mixer. It is suspected that persons behind this organization have made large-scale profits from these transactions….”

Previous to the FOID’s statement, on August 8, the U.S. Department of the Treasury posted a press release titled: “U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash”.

Here are some key points from the Press Release:

“Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019. This includes over $455 million stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019, in the largest known virtual currency heist to date. Tornado Cash was subsequently used to launder more than $96 million of malicious cyber actors’ funds derived from the June 24, 2022 Harmony Bridge Heist, and at least $7.8 million from the August 2. 2022. Today’s action is being taken pursuant to Executive Order (E.O.) 13694, as amended…”

Financial Times reported: The US sees mixing services as money transmitters that must comply with money laundering rules. It’s the second time this year that the US has hit a crypto mixing service for helping North Korean hackers after it imposted sanctions against blender.io in May.

According to Financial Times: Now, all property and interests belonging to Tornado Cash in the US are blocked. All transactions passing through Tornado Cash’s virtual desk are blocked too, if they involve US users or are conducted anywhere in or through the country.

It appears that whomever the Dutch authorities alleged to be involved with Tornado Cash could – potentially – be facing legal problems in not one, but two, countries.


DFR Says Celsius Network Is “Deeply Insolvent”



Vermont Department of Financial Regulation (DFR) said it believes cryptocurrency lender Celsius Network is “deeply insolvent” and does not have assets and liquidity to honor its obligations to customers and other creditors, Reuters reported.

According to Reuters: The crypto lender has been involved in an unregistered securities offering, selling cryptocurrency interest accounts to retail investors including investors in Vermont. Celsius also lacks a money transmitter license and until recently was operating largely without regulatory oversight.

The Vermont Department of Financial Regulation (DFR) posted information titled: “DFR Encourages Celsius Network Investors To Proceed With Caution”.

Here are some key points from that information:

“Celsius Network is a cryptocurrency company, unlicensed in Vermont, that offered its customers interest-bearing accounts. Celsius promised customers high interest rates (up to 17%) on deposits of cryptocurrencies. On June 12, 2022, Celsius announced that it was pausing all withdrawals, swaps, and transfers between customer accounts. This action impacts hundreds of thousands of customers and billions of dollars of cryptocurrencies, including accounts of some Vermonters.

“The Department believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors. Celsius deployed customer assets as collateral for additional borrowing to pursue leveraged investment strategies. Additionally, some of the assets held by Celsius are illiquid, meaning they may be difficult to sell, and a sale may result in financial losses. The company’s assets and the investments are probably inadequate to cover its outstanding obligations.

“In addition, the Vermont Department of Financial Regulations also stated that Celsius Network had been operating in multiple jurisdictions, including Vermont. The Department believes that Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interests to retail investors. Celsius also lacks a money transmitter license.”

CNBC reported that Celsius has started the process of filing for Chapter 11 bankruptcy protection after a month of turmoil. CNBC also reported that, In a Wednesday statement, Celsius said it would look to stabilize its business by restructuring in a way “that maximizes value for all stakeholders.” Celsius said it has $167 million in cash on hand to support operations in the meantime.

According to CNBC, “Wednesday’s news marks the latest high-profile crypto bankruptcy as prices plummet.”

Personally, I don’t think people who put a lot of cryptocurrency into Celsius are ever going to be able to obtain it. A bankruptcy filing could potentially mean that Celsius could get out of paying whatever it owed to customers.