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BlockFi fined $943,000 for not registering securities in Iowa; to pay $100M in settlement

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BlockFi fined $943,000 for not registering securities in Iowa; to pay $100M in settlement

BlockFi fined $943,000 for not registering securities in Iowa; to pay $100M in settlement Monica Noronha · 8 hours ago · 2 min read

U.S.› Lending

A multi-state investigation in the U.S. found that BlockFi has sold unregistered securities and misrepresented facts about its loan risks.

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2 min read

Updated: June 14, 2022 at 6:40 pm

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Cryptocurrency trading and lending platform BlockFi has been fined $943,000 by the Iowa Insurance Division for failing to register securities in the state and offering and selling securities in Iowa without being registered as a broker-dealer or agent, according to a June 14 press release.

The order was released after the conclusion of a multi-state investigation conducted by the U.S. Securities and Exchange Commission (SEC) and securities regulators from 53 jurisdictions, that were part of the North American Securities Administrators Association (NASAA).

According to the press release, BlockFi will also pay settlements of $50 million to the SEC and another $50 million to the 53 investigating jurisdictions. The company has also been ordered to cease and desist from making false claims regarding securities.

Iowa Insurance Commissioner Doug Ommen said in the press release:

“While innovations, like cryptocurrencies, may provide for growth and evolution in the financial system, it is important that regulators ensure this occurs within an appropriate framework that protects investors while still facilitating responsible capital formation.”

The investigation found that BlockFi offered and sold unregistered securities and misrepresented the risk level in its loan portfolio. In various website posts, BlockFi claimed that its institutional loans were “typically” over-collateralized, which was found to be false, the press release stated.

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Only 24% of BlockFi’s institutional crypto loans in 2019, 16% of the loans in 2020, and 17% of the loans in the first half of 2021 were over-collateralized, according to the investigation. Therefore, BlockFi’s claim of over-collateralized loans “suggested to investors that they had secured more protection from default than BlockFi had actually secured,” the press release stated.

Ommen said:

“Whatever investors’ knowledge or interest in cryptocurrency, investors need accurate information to base their decisions on.

“Iowans are encountering new innovations in the investment area with the advent and greater adoption of cryptocurrencies, however, speculative investments such as these should be handled just as such – as speculative.  Iowans should make sure they are only investing what they may be willing to lose.”

As of December 31, 2021, BlockFi held around $14.6 million in assets from Iowa residents, increasing from around $267,000 at the end of 2019, the press release said.

BlockFi did not respond to requests for comment at the time of publishing.

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Bitcoin

Proposed Gillibrand-Lummis crypto Bill uploaded to GitHub for recommendations

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Proposed Gillibrand-Lummis crypto Bill uploaded to GitHub for recommendations

Proposed Gillibrand-Lummis crypto Bill uploaded to GitHub for recommendations Oluwapelumi Adejumo · 6 hours ago · 2 min read

Senator Lummis has opined that the bill is seeking comments from industry stakeholders so that it can properly reflect the innovations in the crypto space.

2 min read

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Updated: June 24, 2022 at 6:53 am

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The proposed Responsible Financial Innovation Act (RFIA) bill has been uploaded to GitHub for the crypto community to give their recommendations about the bill.

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In a Twitter post by Senator Cynthia Lummis, one of the two bipartisan senators responsible for the bill, the decision to update it on GitHub is to get the grassroots opinion about the bill.

Plebs! As promised, you can now contribute comments on my bill establishing a framework for digital assets with @SenGillibrand via GitHub. Civil comments and criticisms welcome. Please share widely. We want to get this right. Help us iterate publicly on policy. https://t.co/1eOb6jfKaA

— Cynthia Lummis 🦬 (@CynthiaMLummis) June 22, 2022

According to a press statement from the Senator’s office, the bill seeks comments from industry stakeholders to reflect the space’s innovations properly.

The bipartisan had suggested that Bitcoin and Ethereum be classified as commodities while other altcoins should be labeled as securities. The bill also proposed that the Commodity Futures Trading Commission should be tasked with regulating the industry.

However, the bill has faced criticism from the community over its blanket classification of other crypto assets as securities. Some argue that Bitcoin should be considered separately from other digital assets.

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Crypto community makes recommendations

As of press time, there have been only nine comments on the bill, with most of them being constructive recommendations.

One of the comments called for a separate Bitcoin Bill that is different from the crypto Bill. Stduey explained that Bitcoin is different from other risky assets even though the current market downturn might make it feel like both are the same.

In his words,

If you buy 5,000 satoshis for $1, you will have 5,000/2.1 quadrillion satoshis forever, and no one can change that. People cannot understand the magnitude of this yet, but this subtle difference is what separates bitcoin from every other crypto, fiat, precious metal, and commodity. Absolute scarcity. Nothing else has this feature.

Another recommendation for the bill was made by Asherhopp, who said that the legislation should include language that will limit the Federal Reserve from creating unlimited CBDC, the same way fiat currencies are minted.

He added that the bill should compel the Fed to add crypto to its balance sheet, apply tariffs to the digital yuan, and ban any CBDC.

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One of the recommendations touched on the subject of airdrops and unrealized gains.

According to the recommendation,

Airdrop receivers should only have to pay short or long-term taxes on the coins they cash out assuming the initial value is $0 because they do not realize the gains until they trade or sell.

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Crime

South Korean prosecutors have banned Terra employees from leaving the country

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South Korean prosecutors have banned Terra employees from leaving the country

South Korean prosecutors have banned Terra employees from leaving the country Monica Noronha · 3 hours ago · 1 min read

Terraform Labs employees are banned from leaving South Korea as the prosecutors office explores charging Do Kwon with fraud and other crimes.

1 min read

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Updated: June 20, 2022 at 8:01 pm

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South Korea’s prosecutor’s office has restricted key employees of Terraform Labs from leaving the country, according to a report by local media outlet JTBC on June 20.

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The travel ban has been imposed to prevent Terra employees from fleeing the country to avoid investigation, according to JTBC.

The Seoul Southern District Prosecutor’s Office levied the departure ban in connection with the ongoing investigation against Terraform Labs for its role in the collapse of TerraUSD(UST).

JTBC reported that Terra founder and CEO Do Kwon is currently residing in Singapore. Therefore, the prosecutor’s office is looking to invalidate Kwon’s passport before further investigation. The prosecutors are also exploring whether Kwon and other Terra employees can be charged with crimes such as fraud.

The travel ban encompasses even former employees of Terra, as pointed out by Daniel Hong, a former developer at Terra.

stop asking me why i couldn’t make it to NYC frens, this is why: the Korean government imposed an exit ban for all ex-@terra_money employees today pic.twitter.com/5Jds99ZNwQ

— Daniel Hong 🪄 (@unifiedh) June 20, 2022

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In the short Twitter thread, Hong went on to say that he and other employees were not notified about the ban. When Hong contacted the prosecutor’s office, he was informed that such bans are not announced to prevent investigation targets from destroying evidence.

Hong said that being treated as “potential criminals” is “absolutely outrageous and unacceptable.” He added that the travel ban might lead some employees to change their minds about cooperating with the authorities.

South Korean authorities launched investigations into Terraform Labs and its employees after the collapse of UST and its sister token LUNA, which left over 200,000 Koreans affected.

In addition, South Korea’s top crypto exchanges have agreed to form a consultative body to ensure stringent coin listing rules and avoid a repeat of the Terra-LUNA fiasco.

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DeFi

Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network

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Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network

Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network Anthony Clarke · 9 hours ago · 2 min read

A number of states in the United States, including Texas and Alabama, are looking into the decision made by Celsius Network to suspend client withdrawals.

2 min read

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Updated: June 17, 2022 at 1:57 am

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The move by Celsius Network (CEL) to block consumer withdrawals is being looked at by several US jurisdictions, including the states of Texas, New Jersey, and Alabama.

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The cryptocurrency lending platform said in a blog post that it would temporarily halt withdrawals and its swap and transfer products on June 12, citing “extreme market circumstances” as the reason for the decision. Celsius said that doing this would put them “in a better position to honor, over time, its withdrawal obligations.”

Massive market sell-offs were brought on by rumors that the corporation was about to go bankrupt, which quickly circulated over social media.

Joseph Borg, the director of the Alabama Securities Commission, confirmed that his agency, along with those of Texas, New Jersey, and Kentucky, is conducting an investigation into the situation.

He stated that although the probe is still in its early stages, Celsius has responded to the inspectors’ inquiries. Borg continued by saying that the United States Securities and Exchange Commission has also been in touch with Celsius.

Operating in a grey area

In September, Celsius was issued a stop and desist order by authorities in the states of Kentucky, New Jersey, and Texas. The officials said that Celsius’s interest-bearing products need to be registered as securities. In February, the SEC and those same state authorities levied a fine of $100 million on BlockFi for the company’s failure to register its cryptocurrency lending product.

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Celsius operates in a manner that is comparable to that of a bank in that it collects cryptocurrency deposits from retail clients and invests those funds in a market that is similar to the wholesale cryptocurrency market.

These investments may be made in “decentralized finance,” often known as “Defi,” which refers to websites that utilize blockchain technology to provide services such as loans and insurance outside the conventional financial sector.

Earlier this month, Celsius pumped over 500% within 5 minutes amongst its liquidity issues. The company also hired restructuring lawyers to help them with their liquidity problems earlier this week.

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