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US prosecutors recommend minimum 1 year prison sentence for BitMEX co-founder Arthur Hayes

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US prosecutors recommend minimum 1 year prison sentence for BitMEX co-founder Arthur Hayes

BitMEX › Legal

The prosecutors claim crypto platforms will not achieve compliance if their operators believe there are no meaningful repercussions for violating the law.

2 min read

Updated: May 13, 2022 at 6:30 pm

Cover art/illustration via CryptoSlate

U.S. Prosecutors have filed a sentencing recommendation in the case against BitMEX co-founder Arthur Hayes seeking minimum one-year imprisonment.

The prosecutors submitted the sentence recommendation to U.S. District Judge John Koeltl in Manhattan on May 12.

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This suggestion comes after Hayes pled guilty to violating the U.S. bank secrecy law. His sentencing is set for later in May. Before this, Hayes signed a plea deal agreeing to serve six to 12 months in prison. The plea deal also involved him paying a $10 million fine.

Before accepting the plea deal, Hayes faced up to five years in prison for each count of his October 2020 indictment.

However, the prosecution said:

There is no question that this case has been extremely closely watched in the cryptocurrency industry. Compliance by cryptocurrency platforms will be unattainable if their operators believe there are no meaningful repercussions for failing to comply with the law.

Before this, Hayes’ lawyers requested that he serve no jail time. Additionally, they appealed to Judge Koeltl to let Hayes live abroad and travel freely.

Justifying their recommendation, Hayes’ lawyers argued that:

This is a landmark case that has already had an extraordinary and well-publicized impact on Mr. Hayes’s personal life and the BitMEX business that he co-founded.

On the other hand, the probation office said Hayes should be given a two-year probation sentence.

BitMEX co-founders tried to evade regulatory scrutiny

According to the prosecutors, Hayes and his co-defendants, Benjamin Delo and Samuel Reed, also BitMEX co-founders, did not integrate programs to prevent money laundering into BitMEX. Additionally, the prosecutors claimed that the trio established BitMEX in Seychelles to dodge regulatory scrutiny.

BitMEX denied the allegations at first. However, a group of firms that operated the exchange agreed to pay $100 million to end claims that they enabled illegal trades for years. Moreover, BitMEX said it had enhanced its compliance program and would be pleased to move beyond the investigations.

Delo and Reed also agreed to pay $10 million each. Their sentencing hearings are set for June 15 and July 13, respectively. 

Unlike BitMEX’s co-founders, Gregory Dwyer, the exchange’s first employee and former Head of Business Development, declined charges against him. His trial is set for August 2022.

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Legal

Tether’s $82.4B reserves exceed market cap of USDT

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Tether’s $82.4B reserves exceed market cap of USDT

Tether › Stablecoins

Tether quarterly report indicates that it is still fully backed by cash and cash equivalents including commercial paper and US treasuries.

2 min read

Updated: May 19, 2022 at 3:53 pm

Cover art/illustration via CryptoSlate

The world’s biggest stablecoin has just released its quarterly transparency report a day before the deadline of May 20.

The report indicates that Tether’s reserves were $82.4 billion as of March 31,  which “exceeds the amount required to redeem the digital tokens issued.” It is important to note that this report does not cover the past few week’s volatile events.

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Tether CTO Paolo Ardoino commented:

“This past week is a clear example of the strength and resilience of Tether. Tether has maintained its stability through multiple black swan events… it demonstrates a commitment by the company to reduce its commercial paper investments.”

Tether continues to commit to “a further reduction of 20% in commercial paper” amid concerns that the short-term loans may be linked to Chinese real estate. Ardoino remarks that “Tether’s growth in the market continues to validate the business.”

However, recent data suggest that there has been an 11% reduction in Tether’s market cap since the Terra attack. The report’s release is a part of Tether’s “ongoing commitment to transparency.” The transparency reports result from a court case requiring it to release attestation information through a third party four times per year.

Reduction in commercial paper

Source: Tether.to

The report indicates that the commercial paper used to back Tether’s issuance of its stablecoins has been reduced by 17%, from $24.2B to $19.9B. It also claims to have reduced this amount by a further 20% since April 1, a period not covered within this statement.

The total commercial paper allocation could be as low as $15.92B. However, market data shows the total market cap of Tether has decreased by over 11% since the start of May. The reduction is partly due to a decrease in confidence in the stablecoins sector following the collapse of UST.

Ratings of debt

The average rating of commercial paper & certificates of deposit has gone up from A-2 to A-1 since the last report. These represent the fifth-highest class a debt instrument can be awarded.

According to a report by Latham & Watkins, A-1 is the highest rating for short-term debt instruments suggesting that Tether may hold the highest quality liquid instruments available.

The rating is equivalent to companies like Goldman Sachs, GlaxoSmithKline, and Walt Disney. The report portrays that not only is Tether fully backed, but it holds more capital than is required to redeem all the Tether tokens in existence, and it is investing in companies equivalent to those that make up the S&P500 or Dow Jones.

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Terra faces litigation from South Korean investors over failed UST investment

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Terra faces litigation from South Korean investors over failed UST investment

Korea› Terra › Legal

The law firm is applying to the Seoul Metropolitan Police Agency to seize all Do Kwon’s properties in the country.

2 min read

Updated: May 18, 2022 at 5:04 pm

Cover art/illustration via CryptoSlate

After the abrupt crash of Terra’s UST last week, a popular South Korea-based law firm, LKB & Partners, is set to sue Do Kwon on behalf of South Koreans who invested in the asset, according to local media reports

The law firm is applying to the Seoul Metropolitan Police Agency to seize all Do Kwon’s properties in the country.

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Interestingly, the firm says it represents all Koreans who have lost money to the “Ponzi” scheme. LKB is yet to decide whether it will be suing Terraform co-founder Daniel Shin. 

Government agencies target Terra

Meanwhile, South Korea’s new minister for the Department of Justice has vowed to take on the investigation of the TerraLuna event as his first official task.  Plans are already in motion for the minister to create a financial crime investigation team to oversee the inquiry. 

Another politician, Yun Chang-Hyun, has reportedly called for a parliament hearing on the crash of Terra’s UST. 

Chang-Hyun said:

We should bring related exchange officials, including CEO Do Kwon of Terra, which has become a recent problem, to the National Assembly to hold a hearing on the cause of the situation and measures to protect investors.

Officials in the US have also used the opportunity to call for stricter regulations surrounding the crypto space.

Terraform Labs’ legal team quits the company 

In another development, members of Terra’s legal team have reportedly resigned their position. 

A look at the LinkedIn pages of Marc Goldich, who served as the general counsel, alongside others like chief corporate counsel Lawrence Florio, and regulatory counsel Noah Axler shows that they have left the company.

While the reason they left the company remains clouded, many within the crypto community have attributed it to the crash of the ecosystem.

Last week, the crypto industry witnessed a massive price, and Terra’s UST and LUNA value plummeted to new lows pulling the overall market along with it.

A spokesperson for the company said:

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The past week has been challenging for Terraform Labs, and a small number of team members resigned in recent days. The vast majority of team members remain steadfastly committed to carrying out the project’s mission. Terra is more than $UST, with an incredibly passionate community and a clear vision of how to rebuild. Our focus is now on executing our plan to revive the Terra ecosystem.

Posted In: Terra, Korea, Legal

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Customers sue Coinbase for promoting and trading the GYEN token

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Customers sue Coinbase for promoting and trading the GYEN token

U.S.› Coinbase › Legal

The complaint claims that investors placed GYEN orders believing its value was pegged to the Japanese yen, but the price soared seven-fold before plunging 80%.

2 min read

Updated: May 14, 2022 at 4:17 am

Cover art/illustration via CryptoSlate

Coinbase customers have sued the exchange over the promotion and trading of GYEN, a stablecoin that crashed. A report unveiled this news earlier today, noting that the lawsuit targets both Coinbase and the issuer of the GYEN stablecoin, which turned out to be anything but stable.

According to the report, Coinbase’s customers filed a class-action lawsuit yesterday in a federal court in northern California. The lawsuit alleges that Coinbase and Tokyo-based GMO-Z.com, GYEN’s issuer, misled investors about the token’s stability. As a result, investors incurred losses worth millions of dollars.

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The complaint pointed out that GMO-Z.com issued GYEN with a 1:1 peg to the Japanese yen. However, GYEN’s value slipped below that of the Japanese yen in November last year after Coinbase listed and started trading it.

The complaint further noted that,

“Investors placed orders believing the coin’s value was, as advertised, equal to the yen, but the tokens they were purchasing were worth up to seven times more than the yen. Just as suddenly, the GYEN’s value plunged back to the peg — falling 80 percent in one day.”

Coinbase prevented customers from trading GYEN after the crash

Following the 80% crash, Coinbase halted GYEN’s trading. The complaint alleges that the exchange exacerbated the harm already caused by denying customers the opportunity to sell the asset. As a result, GYEN holders on Coinbase lost millions in a few hours.

The investors that filed the lawsuit asked to represent all GYEN investors. However, they did not specify the amount of compensation they seek.

At the time of writing, GYEN is trading at $0.007732. This amount is equivalent to the level the Japanese yen is trading against the U.S. dollar.

This news comes after Coinbase recently published its Q1 2022 earnings report. The report detailed that the exchange’s net revenue plunged 53% to hit $1.165 billion. Coinbase also recorded a net loss of $430 million.

Moreover, Sophia Zaller, a crypto underwriter at Relm Insurance, discovered a bankruptcy disclosure statement in the report. The statement noted that Coinbase could treat customers as general unsecured creditors in the event of bankruptcy. Zaller added that this is a red flag.

New disclosure in today’s $COIN (Coinbase) 10-Q: 👀

“In the event of a bankruptcy…..customers could be treated as our general unsecured creditors.” 🚩🚩🚩

🚨Get your #Bitcoin off exchanges.🚨 pic.twitter.com/KDBiAvYcog

— Sophia Zaller (@sophiamzaller) May 10, 2022

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As a result, investors started moving their funds off the exchange resulting in a sharp drop in COIN’s price.

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