USA

US SEC Prioritizes Crypto Compliance in 2020, But Hints at Kinder Gentler Approach: The United States Securities Exchange Commission continues to scrutinize crypto as its compliance office adds fintech and digital assets to its annual priorities list.

Announcement from the SEC’s Office of Compliance Inspections and Examinations (OCIE), the agency has put new financial technologies including digital assets among major concerns in the coming fiscal year.

In the words of the regulator, new technological developments in capital formation and investment advice “warrant ongoing attention and review.”

OCIE 2020 Priorities:

Retail investors, including seniors and people saving for retirement

Market Infrastructure

Information security

Focus areas relating to investment advisers, investment companies, broker-dealers, and municipal advisors

Anti-money laundering programs

Financial technology (fintech) and innovation, including digital assets and electronic investment advice

Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) oversight

Trump Administration Slaps New Sanctions on Iran As Growing Instability Tests Bitcoin (BTC) and Gold: Rising geopolitical tensions between the United States and Iran took a decisively sharp turn with the US government slapping fresh sanctions against Iran following strikes on US targets. The sanctions are designed to land another economic blow to Iran, crippling the country’s major industries.

The penalties follow Iran’s missile attacks on two military bases in Iraq where American and Iraqi forces are based, in retaliation for the American airstrike last Friday in Baghdad that killed Qasem Soleimani, Iran’s top general.

While citizens in Iran are impacted by shifting narratives and the prospect of a much broader conflict between Washington and Tehran, the message from the US is clear: it will destabilize Iran’s economy by targeting its billion-dollar metal industry.

Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin announced that the new sanctions will specifically target Iran’s metal exports and eight senior Iranian officials, among other industries. According to the Trump administration, today’s action targets the 13 largest steel and iron manufacturers in Iran, who collectively generate billions in sales annually.

Speaking at a press briefing, Secretary Mnuchin stated,

“First, the President is issuing an executive order authorizing the imposition of additional sanctions against any individual owning, operating, trading with or assisting sectors of the Iranian economy including construction, manufacturing, textiles and mining. And let me be clear, these will be both primary and secondary sanctions. The EO also allows us to designate other sectors in the future as Secretary Pompeo and me think is appropriate. Second, we are announcing 17 specific sanctions against Iran’s largest steel and iron manufacturers, set three Seychelles-based entities in a vessel involved in the transfer of products. As a result of these actions, we will cut off billions of dollars of support to the Iranian regime, and we will continue our enforcement of other entities. Third, we are taking action against eight senior Iranian officials who advanced the regime’s destabilizing activity and were involved in Tuesday’s ballistic missile strike. Secretary Pompeo will comment more on this. Today’s sanctions are part of our commitment to stop the Iranian regime’s global terrorist activities. The President has been very clear. We will continue to apply economic sanctions until Iran stops its terrorist activities and commit that it will never have nuclear weapons.”

US Threatens to Shut Down Iraq’s Bank Account As Crypto Proponents Point to Censorship-Resistant Bitcoin: Iraqi officials tell The Wall Street Journal that the US government is threatening to cut off access to its central bank account held at the Federal Reserve Bank of New York. Such a move could further destabilize Iraq’s economy.

The Trump administration issued the warning last week, according to WSJ, in an effort to compel Iraq to think twice before booting American troops from the region. The threat follows heightened tensions between Iran and the US in the aftermath of the US military airstrike that killed top Iranian general Qassem Soleimani.

President Trump says Soleimani was orchestrating an attack on four US embassies, including the American Embassy in Baghdad. Soleimani’s death provoked a counterattack by Iran on two bases housing US troops, inciting fears of increasing military action and war.

But the Trump administration seemed to pull back and soften its rhetoric last week with a more conciliatory tone expressing the desire for peace in the Middle East. Instead of military action, it delivered the message by hammering Iran’s economy with harsh new sanctions on its multi-billion-dollar metal industry.

Crypto entrepreneurs and supporters are weighing in on the impact of the US strategy to pressure Iraq into maintaining the status quo of housing thousands of American troops, by commandeering its money supply.

US Treasury Department Trials Blockchain-Based Platform Using Tokens: The US Treasury Department is concluding a series of tests of a blockchain-based platform that monitors grant payouts. Program manager Craig Fischer reveals that the agency is nearing the completion of a proof of concept program that would track the letter of credit for recipients of financial grants.

The blockchain-based program tokenizes letters of credit which are transferred to grantees through peer-to-peer transactions, reports FCW. The process enables the Treasury Department to monitor the release of grant payouts from the government’s purse to qualified recipients. The tokens also store pertinent data including grant amount and grantee information. To securely receive the grant money, recipients would have an electronic wallet that’s linked to a bank account.

Fischer, who unpacks his thoughts on blockchain in a Nextgov article where he deliberates the billions of dollars governments and private corporations have made in the “technology that underpins Bitcoin,” affirms that the new US Treasury platform is a private system, as opposed to a decentralized open network that can be viewed by the public.

Says Fischer,

“This isn’t the Bitcoin network where everything is visible to everyone.”

US Lawmakers Urge FCC to Step Up Its Action Against SIM Swaps: United States lawmakers have appealed to the Federal Communications Commission (FCC) to hold telecoms providers to account for failing to protect consumers against SIM swap attacks.

SIM-swapping — alternatively known as a port-out scam — involves the theft of a cell phone number in order to hijack online financial and social media accounts, enabled by the fact that many firms use automated messages or phone calls to handle customer authentication.

On Jan. 9, six Democrats from the U.S. House of Representatives and Senate sent a letter to FCC Chairman Ajit Pai, requesting that the agency impose more robust requirements on mobile carriers to mitigate the risks of such attacks.

Kik Continues Legal Battle With SEC, Requests Trial Date Definition: Kik Interactive Inc. requested the formal definition of a trial date for its lawsuit with the SEC, as revealed by a Jan. 9 court document. The company was charged by the SEC in June 2019 for conducting an unregistered security issuance with its $100 million initial coin offering (ICO).

Kik Interactive is the Canadian developer of the Kik messenger app. It launched a successful ICO in 2017, releasing the Kin token. Though it was presented as a utility token for accessing some features of the Kik messenger, the SEC placed the company under scrutiny since early 2019.

The regulatory pressure caused Kik to significantly downsize its operations in September 2019 to focus on the legal battle. CEO Ted Livingstone pledged to fight the SEC until it “didn’t have a dollar left,” though this became unnecessary following a buyout by MediaLab.

US SEC Seeks $16 Million Penalty from Token Sales Platform Operator: The United States Securities Exchange Commission is seeking a default judgement against token sale platform ICOBox and its founder Nikolay Evdokimov.

Documents filed with the Central District Court of California on Jan. 9 order the defendants to pay over $16 million in disgorgement to the agency within 14 days of the judgement’s entry.

In a complaint filed on Sept. 18, 2019, the SEC had sued ICOBox and Evdokimov for operating an unregistered securities offering of roughly $14.6 million worth of digital assets in 2017, and operating as an unregistered securities broker.

According to proposed judgment, the SEC’s disgorgement penalty is calculated on the basis of $14.6 million in the firm’s ill-gotten gains plus prejudgement interest of just over $1.4 million. Evdokimov is personally ordered to pay a civil penalty of $189,426.

Former Bakkt CEO and New US Senator Loeffler Will Help Oversee CFTC: Former Bakkt CEO and Georgia’s new Senator Kelly Loeffler will help oversee major financial regulator, the Commodity Futures Trading Commission (CFTC).

Sworn into the United States Senate on Jan. 6, the crypto-friendly businesswoman has joined the Senate Agriculture Committee, which oversees the CFTC. The news was first reported by farm and policy publication Agri-Pulse on Jan. 6, while the official announcement was released on Jan. 7.

Loeffler’s appointment to the agriculture committee is potentially setting up a conflict of interest as the new Senator is spouse of Jeffrey Sprecher, founder and CEO of Intercontinental Exchange (ICE), one of the biggest U.S. exchange operators regulated by the CFTC. According to a report by The Wall Street Journal, Sprecher owns a 1.1% stake in ICE that is worth nearly $600 million as of press time.

In this regard, the new Senator has subsequently noted that she keeps doing her best to comply with “both the letter and the spirit of the Senate’s ethics rules,” adding that she will recuse herself if needed on a case-by-case basis.

While agriculture committee chairman Pat Roberts has welcomed the committee’s latest addition, praising Loeffler’s farming roots, some policy analysts have raised concerns over the appointment. Gregg Gelzinis, a policy analyst for public policy research and advocacy organization, Economic Policy at American Progress, argued that Loeffler’s committee assignment “a cause for concern.” He said:

“It’s particularly important for her to either say that she’ll be recusing herself from that piece of the ag committee’s jurisdiction or providing some sort of clear commitment to the public that this isn’t going to get in the way of her conducting official business.”

New York Will Launch Its Own Digital Currency If This Proposal Passes: A pair of state lawmakers and a Cornell Law School professor are teaming up to push a proposal that would establish a statewide public alternative to banking in New York, as well as a state digital currency.

Nationwide, more than 14 million American adults lacked bank accounts in 2017, according to data from the US government’s Federal Deposit Insurance Corporation. The reasons vary, ranging from personal choice to a host of prohibitive factors like lack of personal identification and unemployment, or lack of an ability to afford minimum balances and/or transport to banks during working hours.

Robert Hockett, who joined Cornell’s law faculty in 2004, has created a proposal on the topic of creating a state payments platform and currency in New York that aims to alleviate economic issues for individuals and small businesses without bank accounts. The professor was commissioned by State Assemblyman Ron Kim (D-Queens).

The payments system and currency would also be used to provide monetary assistance for workers who are historically underpaid, reports Vice.

NY Governor Wants Crypto Firms to Cover Costs for NYDFS Oversight: Cryptocurrency entities licensed under the New York’s Financial Services Law (FSL) should pay the costs of regulatory oversight, Governor Andrew Cuomo believes.

The Democratic Governor purportedly wants the state authorities to amend the FSL in order to require virtual currency-related entities within the FSL jurisdiction to foot the bill for examination and oversight conducted by New York State Department of Financial Services (NYDFS).

The NYDFS is one of primary regulatory agencies for crypto-related businesses in New York state as the regulator issues a major business license for cryptocurrencies, the BitLicense. As the home of the financial capital of the United States, the NYDFS is often at the front line of new regulation.

SEC on ‘Unfounded Fishing Expedition’ — Telegram Lawyers Tell Judge: Lawyers representing encrypted messaging app Telegram have requested a United States court throw out regulator demands for its bank accounts.

In a letter to Judge P. Kevin Castel at the Daniel Patrick Moynihan United States Courthouse in New York on Jan. 3, Skadden, Arps, Slate, Meagher & Flom LLP described the request from the Securities and Exchange Commission (SEC) as an “unfounded fishing expedition.”

The SEC had demanded Telegram hand over details of how it spent the proceeds of its initial coin offering (ICO), which raised $1.7 billion.

A letter to Judge Castel dated Jan. 2 resulted in Castel giving Telegram less than a single business day to respond.

“On behalf of Defendants, we write in opposition to the letter motion filed by (the SEC), seeking to compel the production of voluminous and highly sensitive bank records that have little to no bearing on the claims and defenses in this action and would impose undue burdens on Defendants,” the latest letter reads.

The lawyers continue:

“Plaintiff’s letter misconstrues the legal issues in the case and omits critical facts. Defendants respectfully submit that Plaintiffs motion to compel constitutes an unfounded fishing expedition and should be denied.”

US SEC Settles in Long-Running Fraud Case Against Longfin CEO: The United States Securities and Exchange Commission announced that it has agreed to a settlement with the CEO of purported cryptocurrency company Longfin in a statement, Jan. 3.

Venkata Meenavalli agreed to pay $400,000 in disgorgement and penalties to resolve the SEC’s fraud action against him, subject to court approval.

The SEC’s complaint alleged that Longfin and Meenavalli falsely claimed that the company was based in the U.S. in order to gain a regulation A+ qualification for its offering. Over 400,000 Longfin shares were then allegedly distributed to Meenavalli’s affiliates, which was again misrepresented in order to gain a Nasdaq listing.

The complaint also states that over 90% of Longfin’s reported 2017 revenue “was fictitiously derived from sham commodities transactions.”

$1M Bond to Keep Alleged North Korea Sanctions Violater Griffith in Alabama for Now: After having been denied bail on Dec. 26, Ethereum foundation researcher Virgil Griffith has now been released on a $1 million bond on the condition that he stay out of California.

On Dec. 30, the Inner City Press reported that the 36-year-old Griffith has been released after a bail appeal hearing earlier today. The hearing took place in front of United States District Court for the Southern District of New York Judge Vernon S. Broderick, who granted a $1 million bail and ordered Griffith released, on the condition that he stay with his parents in Alabama for “moral suasion.”

Despite the fact that Griffith attempted to procure a St. Kitts passport, the bail conditions allow for Griffith to use his passport card to travel to countries such as Canada, Mexico and certain regions of the Carribean including St. Kitts and Nevis. He will also be able to use email to stay in touch with his lawyers. The $1 million bond is reportedly secured by relatives’ homes.

Law Enforcement Requests to Kraken Hit All-Time-High, Up 49% in 2019: Law enforcement requests to cryptocurrency exchange Kraken hit their highest ever volume in 2019, rising 49% to 710 as compared with 475 the previous year.

The data was revealed in a tweet from the exchange on Jan. 6, which included a snapshot taken from the new 2019 Transparency Report from Kraken’s compliance team.

As the snapshot reveals, Kraken received a total of 710 information requests from global law enforcement agencies in 2019, marking a sharp increase as compared with both 475 in 2018 and 160 in 2017.

The lion’s share of these requests — 61% — were from United States agencies, slightly down from 66% in 2018. In its tweet, Kraken noted that even while the U.S. remains ahead of other countries, “other geos are gaining fast.”