The Securities and Exchange Commission on Friday said that a social-media post on X falsely stating that it had approved spot bitcoin exchange-traded funds was created after an “unauthorized party” obtained control over the phone number connected with the agency’s account on the platform.
The markets regulator said its staff would “continue to assess whether additional remedial measures are warranted” in the wake of the breach, which occurred Tuesday and raised questions about cybersecurity at both the agency and the social-media platform, formerly known as Twitter.
The agency said it was coordinating with law enforcement on the matter, including with the FBI and the Department of Homeland Security.
“Commission staff are still assessing the impacts of this incident on the agency, investors, and the marketplace but recognize that those impacts include concerns about the security of the SEC’s social media accounts,” the SEC said in a statement.
The confusion began on Tuesday afternoon, when the hacked post appeared on the SEC’s X account.
“Today the SEC grants approval for #Bitcoin ETFs for listing on registered national securities exchanges,” the post read. “The approved Bitcoin ETFs will be subject to ongoing surveillance and compliance measures to ensure continued investor protection.”
A second post appeared two minutes later that simply read “$BTC,” the SEC noted in its statement. The unauthorized user soon deleted that second post, but also liked two other posts by non-SEC accounts, according to the agency. The price of bitcoin BTCUSD, -0.71%
rose sharply in the wake of the posts, before soon pulling back.
In response to the hack, SEC staff posted on the official X account of SEC Chair Gary Gensler announcing that the agency’s main account had been compromised, and that it had not yet approved any spot bitcoin exchange-traded products. Staff then deleted the initial unauthorized post, un-liked the liked posts and used the official SEC account to make a new post clarifying the situation, the agency said Friday.
The SEC also said that it had reached out to X for assistance Tuesday in the wake of the incident, and that agency staff believe the unauthorized access to the SEC’s account was “terminated” later in the day.
“While SEC staff is still assessing the scope of the incident, there is currently no evidence that the unauthorized party gained access to SEC systems, data, devices, or other social media accounts,” the agency said.
Wednesday’s move marked a breakthrough for the crypto industry, which for years has tried to get such ETFs off the ground in hopes of drawing more traditional investors to the digital-asset space.
Bitcoin was down 7.6% over a 24-period as of Friday evening.
After long-awaited spot bitcoin exchange-traded funds made their debut this week,investors are now weighing the prospects of eventual approval of similar ether ETFs.
The U.S. Securities and Exchange Commission on Wednesday greenlighted 11 spot bitcoin BTCUSD, -1.58%
ETFs for the first time. The products, which made its debut trading on Thursday, logged a relatively strong first day.
However, bitcoin fell 6.8% on Friday, leaving it with a 3.2% gain over the past seven days, according to CoinDesk data. It underperformed ether ETHUSD, +1.82%,
which rose 17.6% over the past seven days while it declined 1.2% on Friday.
The news about bitcoin ETFs was mostly priced in, while investors are now looking past it to a potential approval of ether ETFs, analysts said.
“I see value in having an ETH ETF,” Larry Fink, chief executive at the world’s largest asset manager BlackRock, told CNBC’s Squawk Box on Friday. BlackRock, which just launched its iShares bitcoin Trust IBIT,
in November filed an application for a spot ether ETF.
“It’s hard to know exactly what the U.S. regulators would do” about ether ETF applications, said Alonso de Gortari, chief economist at Mysten Labs, an internet infrastructure company.
However, “I would expect that once you open the door, it becomes easier and I think the industry is very excited about it,” de Gortari said. If bitcoin ETFs see an impressive institutional inflow in the coming months, it could make such products more established and set a good precedent for other crypto ETF applications, he said.
The enormous competition and huge inflows into bitcoin ETFs will only boost investors’ interests in an ether ETF, according to Paul Brody, EY’s global blockchain leader. “There’s no doubt that ETH is the next big market and has immediately become a priority for financial services companies,” Brody said in emailed comments.
Compared with bitcoin, the Ethereum blockchain offers more utility and has unique advantages, noted Fadi Aboualfa, head of research at digital assets custodian Copper.
Sandy Kaul, head of digital asset and industry advisory services at Franklin Templeton, said she eventually expects the arrival of ETFs that track a basket of cryptocurrencies. Such products, instead of those based on single crypto, would dominate the space if they are approved, she said.
“Just like the S&P 500 has 500 stocks in it, right? You don’t have just one stock.” Kaul said in a phone interview. The arrival of a bitcoin ETF, is just a “baby step into really beginning to think about the future market structure of crypto,” Kaul added.
However, not everyone is that optimistic. Will McDonough, founder and chairman of Corestone Capital, said the approval of an Ethereum ETF has “a long way to go.”
SEC chairman Gary Gensler previously said bitcoin was the only cryptocurrency he was prepared to publicly label a commodity, rather than a security.
The agency also went after companies that offered crypto staking, which allows investors to earn yields by locking their coins to secure blockchains such as Ethereum. The SEC shut down crypto exchange Kraken’s staking business in the U.S. last year.
One possibility is that “companies will be able to offer an ETH ETF, but they will not be allowed to stake that ETH and earn yield,” noted EY’s Brody.
Bitcoin has extended its rally on Friday, rising to the loftiest level since May 2022, pushing its yearly gain up to over 130%, on pace to be one of the best performing assets this year.
The crypto BTCUSD, +1.28%
rose about 2.5% over the past 24 hours to around $38,676 Friday afternoon, as excitement about the potential approval of bitcoin exchange-traded funds continues to build. Bitcoin is still 44% down from its all-time high in 2021.
Risk assets in general performed well in November, as concerns eased around several pressure points, including the surge in long-term Treasury yields and inflation, analysts at Grayscale Research wrote in a Friday note.
Despite outperforming many major assets year-to-date, bitcoin underperformed long-term Treasurys and the S&P 500 in November on a volatility-adjusted basis, gaining 9% for the month.
Bloomberg; Grayscale Investments
Sam Callahan, market analyst at Swan Bitcoin, said he expects bitcoin to trade between $36,000 and $40,000 by the end of the year, “provided that the macroeconomic environment doesn’t take a turn for the worse, and barring any significant positive development, such as the approval of a Spot Bitcoin ETF or the adoption of Bitcoin by a major corporation, sovereign-wealth fund, or nation-state.”
Despite bitcoin’s rally so far this year, December has historically been a particularly volatile month for the crypto, since it was created in 2009. It rose seven out of 13 times in December, according to Dow Jones Market Data.
In years when bitcoin gained more than 100% through November, the digital asset saw an average gain of 20% in December, rising four of the six times it occurred, according to Dow Jones Market Data.
To be sure, bitcoin has a relatively short history and was particularly volatile during its early years.
Ever since the collapse of crypto currencies last year, the lawsuits have been flying.
But a series of class-action suits targeting celebrity endorsers of crypto exchanges like FTX and Binance have been piling up in federal court in Miami, all filed by the same group of south Florida lawyers.
The latest suit names global soccer superstar Cristiano Ronaldo for allegedly promoting “the mass solicitation of investments in unregistered securities” sold by Binance, the crypto exchange that was hit with a $4 billion fine last week after pleading guilty to violating the bank secrecy act.
The suit was filed in federal court in the southern district of Florida this week and centered around Ronaldo’s role in a global marketing campaign launched in 2022 for a series of Binance NFTs — or non-fungible tokens, a form of blockchain-backed art works that were, for a brief time, wildly popular.
A representative for Ronaldo didn’t immediately respond to a message seeking comment.
The filing against Ronaldo on Monday came alongside similar class action suits naming Major League Baseball, Formula 1 racing, Mercedes Benz and the advertising giants Dentsu and Wasserman, who created much of FTX’s global promotion campaign.
Messages left with representatives for MLB, Formula 1, Mercedes Benz, Dentsu and Wasserman weren’t immediately returned.
Those suits are the latest in a series of similar class action suits starting last year against celebrity endorsers of failed crypto exchanges such as Voyager and FTX, in which customers lost billions of dollars in deposits.
Over the past 18 months, a group of south Florida lawyers led by Adam Moskowitz have brought the suits on behalf of investors who lost money in last year’s crypto collapse, against paid celebrity endorsers including Shaquille O’Neal, Mark Cuban, Tom Brady, Gisele Bundchen, Shohei Ohtani, Larry David, Steph Curry and Naomi Osaka.
“All of these celebrities were paid hundreds of millions of dollars taken directly from customer deposits,” Moskowitz said in a statement. “Some of the most famous and wealthiest groups in the world may now be held responsible for the dramatic $20 billion dollar crypto collapse and biggest financial scandals in U.S. history.”
Moskowitz, who has been joined in the suits by lawyers with the firms Mark Migdal & Hayden and Boies Schiller and Flexner, headed by famed litigator David Boies, is seeking at least $5 billion in damages from those who helped promote the crypto exchanges.
The cases from last year are ongoing and each of the celebrities named have been fighting the suits in court.
Moskowitz, who specializes in class-action lawsuits, says issues revolving around crypto first got his attention more than two years ago, before the entire market crashed, when he came to believe that the special tokens each exchange was minting amounted to an unregistered security.
He first filed a lawsuit against Voyager early last year, before the exchange collapsed and the Securities and Exchange Commission began filing suits against many in the industry accusing them of dealing in unregistered securities.
“Right then what we were doing started to gain traction,” he said.
A series of favorable court rulings have allowed his cases to gain steam, he said, and has allowed to him to take the lead in such actions.
The Securities and Exchange Commission charged cryptocurrency trading platform Kraken with operating as an unregistered securities exchange.
The charges are the latest effort by regulators to crack down on crypto companies, some of which the SEC views as illegally selling securities without registering with the commission.
Going back decades, if you wanted to buy or sell a stock on the open market, you had to pay a 2% commission to buy and a 2% commission to sell. Then the advent of discount brokerage, led by Charles Schwab Corp. SCHW, +1.64%,
made lower commissions available until eventually, with improved technology and efficiency, the entire industry changed to enable the average investor to avoid commissions completely.
But the internet hasn’t done much to reduce the cost of selling a home in the U.S. Sellers typically pay a 6% commission to a real-estate agent to list and sell a home, with the seller’s agent splitting that commission with the buyer’s agent. But all of that may change because of a verdict this week in a class-action lawsuit in federal court against the National Association of Realtors.
Aarthi Swaminathan covers the case, what may happen next and the implications for home sellers and buyers:
Real-estate advice from the Moneyist
MarketWatch illustration
Quentin Fottrell — the Moneyist — works with three readers to answer tricky real-estate questions:
Jon Gray, the president of Blackstone Group, spoke with MarketWatch Editor in Chief Mark DeCambre and said he expected the Fed to succeed in bringing down inflation without pushing the U.S. economy into a deep recession.
The U.S. Treasury yield curve has been inverted for nearly a year.
FactSet
Normally, longer-term bonds have higher yields than those with short maturities. But the yield curve has been inverted for nearly a year, with 3-month U.S. Treasury bills BX:TMUBMUSD03M
having higher yields than 10-year Treasury notes BX:TMUBMUSD10Y.
There has been elevated demand for long-term bonds, as investors have anticipated a recession and a reversal in Federal Reserve interest-rate policy. When interest rates decline, bond prices rise and vice versa.
As you can see on the chart above, the yield curve was narrowing until mid-October. Yields on 10-year Treasury notes were close to 5% on Oct. 19, but they have been falling the past several days as the three-month yield has remained close to 5.5%.
In the Bond Report, Vivien Lou Chen summarizes the action as investors react to the Federal Reserve’s decision not to change its federal-funds-rate target range this week and to other economic news.
For income-seekers looking to avoid income taxes, here’s a deep dive into municipal bonds, with taxable-equivalent yields and a deeper look at those within four high-tax states.
Ford’s good news — in the bond market
Ford Motor Co.’s debt rating has been lifted by S&P to investment-grade.
By now you have probably heard the term “Magnificent Seven” used to describe stocks of the tremendous tech-oriented companies that have led this year’s rally for the S&P 500 SPX
: Apple Inc. AAPL, -0.52%,
Microsoft Corp. MSFT, +1.29%,
Amazon.com Inc. AMZN, +0.38%,
Nvidia Corp. NVDA, +3.45%,
Alphabet Inc. GOOGL, +1.26%
GOOG, +1.39%,
Meta Platforms Inc. META, +1.20%
and Tesla Inc. TSLA, +0.66%.
With Tesla’s recent decline, that company is now the ninth-largest holding in the portfolio of the SPDR S&P 500 ETF Trust SPY,
which tracks the benchmark index. Here are the top 10 companies held by SPY (11 stocks, including two common-share classes for Alphabet), with total returns through Thursday:
Five of these stocks (including the two Alphabet share classes) are still down from the end of 2021. SPY itself has returned 14% this year, following an 18% decline in 2022. It is still down 7% from the end of 2021.
After the market close on Wednesday, PayPal Holdings Inc. PYPL, +1.89%
announced quarterly results that came in ahead of analysts’ expectations, and the stock soared 7% on Thursday even though the company lowered its target for improving its operating margin.
Consumers drive mixed reactions to earnings results
Apple Inc. reported mixed quarterly results.
Mario Tama/Getty Images
Here’s more of the latest corporate financial results and reactions. First the good news:
And now the news that may not be so good:
Harsh verdict for SBF
FTX founder Sam Bankman-Fried.
AP
It might seem that some legal battles never end, but it took only a year from the collapse of FTX for the cryptocurrency exchange’s founder, Sam Bankman-Fried, to be convicted on all seven federal fraud and money-laundering charges brought against him. The charges were connected to the disappearance of $8 billion from FTX customer accounts.
Here’s more reaction and coverage of the virtual-currency industry:
Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.
Federal prosecutors on Monday sought to chip away at FTX founder Sam Bankman-Fried’s credibility, pointing to discrepancies between his public comments and actions taken behind the scenes as the company collapsed.
In a steady drumbeat of questions, Assistant U.S. Attorney Danielle Sassoon tried to paint Bankman-Fried, the 31-year-old former wunderkind of the crypto world, as someone who lied to his customers about the safety of their investments, while secretly raiding their accounts to fund his own risky investments, luxury real estate purchases, costly celebrity endorsements and political contributions.
In his second day of testimony before a jury in his criminal fraud trial in Manhattan’s federal court, Bankman-Fried repeatedly said he couldn’t remember exactly what he had said in numerous media interviews in the days and weeks after FTX had declared bankruptcy and $8 billion in customer deposits had vanished.
He also sought to distance himself from decision-making at FTX’s sister investment firm, Alameda Research, whose risky bets helped bring the crypto trading platform down.
Sassoon pointed to multiple public comments by Bankman-Fried in which he claimed FTX’s risk management protocols made it safer than other crypto currency trading platforms, while the company allowed its own investment arm, Alameda Research to make risky bets without limit.
FTX ultimately collapsed largely as a result of the billions in loans it had extended to Alameda, which prosecutors allege was done using customer money.
Federal prosecutors have alleged that Alameda was effectively granted carte blanche to use FTX customer money to make risky bets. One key element was that certain risk-management systems that FTX used to to liquidate customer accounts that had entered into negative territory were disabled for Alameda, allowing it unfettered ability to make high-risk moves.
Throughout his testimony, Bankman-Fried claimed he had limited visibility as to what was happening at Alameda, which he founded and mostly owned, but which had ceased running day-to-day in 2021, when his ex-girlfriend Caroline Ellison took over as CEO.
He said he only became aware of how bad a liquidity issue Alameda faced well after a financial crisis began sweeping through the crypto industry in the summer of 2022. Bankman-Fried said he had told Ellison, who had pleaded guilty and testified against him, that she should have taken hedge positions earlier to lessen the company’s risk.
But he said he continued to believe up until just days before the companies collapsed, that both Alameda and FTX were on firmer financial footing.
“I viewed Alameda as solvent and FTX as solvent and decently liquid,” he testified. “Had that analysis come up any other way, I would have been in full on crisis mode. But in my view at the time that wasn’t the case.”
Bankman-Fried did admit that he consulted frequently with Ellison about moves that Alameda made and even signed off on several billion-dollar investments.
“I think a few billion of them were my decision,” he said when asked about several large investments made by Alameda in 2021 and 2022.
Bankman-Fried is expected back in court for further cross examination on Tuesday. The judge in the case said he expected the case may go to the jury as early as Friday.
FTX founder Sam Bankman-Fried was sent to jail Friday to await trial after a bail hearing for the fallen cryptocurrency wiz left a judge convinced that he had repeatedly tried to influence witnesses against him.
U.S. District Judge Lewis A. Kaplan ordered Bankman-Fried’s bail revoked after prosecutors said he’d tried to harass a key witness in his fraud case last month when he showed a journalist her private writings and in January when he reached out to the general counsel for FTX with an encrypted communication.
His lawyers insisted he shouldn’t be jailed for trying to protect his reputation against a barrage of unfavorable news stories.
Kaplan said he had concluded there was probable cause to believe Bankman-Fried had tried to “tamper with witnesses at least twice” since his December arrest.
A defense lawyer said an appeal of the incarceration order would be filed and asked for an immediate stay of the order.
The 31-year-old has been under house arrest at his parents’ home in Palo Alto, California, since his December extradition from the Bahamas on charges that he defrauded investors in his businesses and illegally diverted millions of dollars’ worth of cryptocurrency from customers using his FTX exchange.
Bankman-Fried’s $250 million bail package severely restricts his internet and phone usage.
Two weeks ago, prosecutors surprised Bankman-Fried’s attorneys by demanding his incarceration, saying he violated those rules by giving The New York Times the private writings of Caroline Ellison, his former girlfriend and the ex-CEO of Alameda Research, a cryptocurrency trading hedge fund that was one of his businesses.
Prosecutors maintained he was trying to sully her reputation and influence prospective jurors who might be summoned for his October trial.
Ellison pleaded guilty in December to criminal charges carrying a potential penalty of 110 years in prison. She has agreed to testify against Bankman-Fried as part of a deal that could lead to a more lenient sentence.
Bankman-Fried’s lawyers argued he probably failed in a quest to defend his reputation because the article cast Ellison in a sympathetic light. They also said prosecutors exaggerated the role Bankman-Fried had in the article.
They said prosecutors were trying to get their client locked up by offering evidence consisting of “innuendo, speculation, and scant facts.”
Since prosecutors made their detention request, Kaplan has imposed a gag order barring public comments by people participating in the trial, including Bankman-Fried.
David McCraw, a lawyer for the Times, had written to the judge, noting the First Amendment implications of any blanket gag order, as well as public interest in Ellison and her cryptocurrency trading firm.
Ellison confessed to a central role in a scheme defrauding investors of billions of dollars that went undetected, McGraw said.
“It is not surprising that the public wants to know more about who she is and what she did and that news organizations would seek to provide to the public timely, pertinent, and fairly reported information about her, as The Times did in its story,” McGraw said.
Funds associated with Cathie Wood’s ARK Investment continued to cull shares of Coinbase Global Inc. and Tesla Inc. on Monday, according to recent trade disclosures.
The ARK Fintech Innovation ETF ARKF, +1.58%
dumped 76,788 Coinbase shares COIN, +0.23%
on the day, while the ARK Innovation ETF ARKK, +2.29%
sold 127,266 and the ARK Next Generation Internet ETF ARKW, +2.23%
sold 44,784 shares.
Coinbase represents 0.78% of the Fintech Innovation ETF, along with 0.15% of the Innovation ETF and 0.30% of the Next Generation Internet ETF. ARK disclosed the transactions and weightings in the daily trade notifications it posts to its website.
Meanwhile, the ARK Innovation ETF shed 38,329 Tesla shares TSLA, +3.20%
on Monday, while the ARK Next Generation Internet ETF sold 6,855. Those shares were worth $13.1 million based on Tesla’s Monday closing level of $290.38. Tesla represents about 0.12% of both funds as they continue to unload shares.
ARK scooped up 455 shares of Meta Platforms Inc. META, +0.57%
within its Next Generation Internet ETF and bought up 3,729 shares within the ARK Innovation ETF. That amounted to $1.3 million worth of stock based on Meta’s $310.62 Monday close.
Two ARK funds bought a combined $790 million in Robinhood Markets Inc.’s stock HOOD, +0.89%,
with the fintech fund scooping up 25,641 shares and the Next Generation Internet ETF buying 37,630 shares. ARK added 4,608 shares of SoFi Technologies Inc. SOFI, +4.41%
to the fintech fund, worth $43,683 based on Monday’s close.
ARK was also active in shares of Twilio Inc. TWLO, -0.63%,
buying 15,702 within the Fintech Innovation ETF, 133,499 within the Innovation ETF and 22,748 within the Next Generation Internet ETF. That amounted to $11.4 million in Twilio’s stock based on Monday’s $66.47 closing price.
BlackRock, the world’s largest asset manager, has filed an application for a spot bitcoin exchange-traded fund.
There are currently no such products in the U.S. The SEC approved several bitcoin BTCUSD futures-based ETFs in the past, but has yet to greenlight anything that is backed by bitcoin itself.
Nestle appointed Anna Manz from the London Stock Exchange Group to succeed Francois-Xavier Roger as chief financial officer after he decided to step down in pursuit of new professional challenges.
The Swiss packaged-foods giant said Tuesday that Manz would take over as soon as she is released from her present duties as chief financial officer and board member at the London Stock Exchange Group. Roger will remain in place until then, Nestle said.
“Anna has spent her career growing businesses and improving operational efficiencies,” said Chief Executive Mark Schneider. “Her deep knowledge of the consumer goods industry, combined with her extensive experience across many corporate functions, make her uniquely positioned to help lead Nestle into its next phase of value creation.”
Write to Mauro Orru at mauro.orru@wsj.com; @MauroOrru94
Deutsche Boerse SE said Thursday it would make a voluntary takeover offer for Danish software company SimCorp AS for a total 3.9 billion euros ($4.31 billion).
The all-cash offer of DKK735 ($108.86) per share represents a 38.9% premium over the closing price of DKK529, and a 45.3% premium over the three-month volume-weighted…
Popular crypto exchange Coinbase COIN, -7.27%
late Monday asked a federal court to force the U.S. Securities and Exchange Commission to respond yes or no to its petition from July 2022 to make formal rules around digital-asset regulation.
Coinbase’s petition requested that the “Commission propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
In March, Coinbase was hit with a Wells notice from the SEC, identifying potential violations of securities laws that might spur it to take legal action. The notice came after nine months of back-and-forth between the SEC and Coinbase, CEO Brian Armstrong said in March.
Coinbase was expected to respond to the notice by the end of April, but Monday’s filing reveals that Coinbase believes the SEC’s approach doesn’t provide enough regulatory guidance for crypto companies in the U.S. to operate.
“The SEC at a minimum must set forth how those inapt and inapposite requirements are to be adapted to digital assets. But the SEC has refused to do even that,” the filing says. “It has not conducted any rulemaking to provide the regulatory clarity and process that companies need to determine which digital asset products and services to register and how to make the registration that the SEC now demands.”
Coinbase shares slid more than 7% on Monday but are up 55% year to date. Still, the stock is down nearly 60% over the past 12 months. In comparison, the S&P 500 SPX, +0.09%
is up nearly 8% in 2023 and has declined almost 4% over the past year.
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
Sam Bankman-Fried, the founder and former chief executive of bankrupt crypto exchange FTX, is facing new charges for bribery, according to an indictment on March 28.
It claims Bankman-Fried in 2021 transferred over $40 million worth of cryptocurrency to Chinese government officials. The founder allegedly made the transfer to “influence and induce them to unfreeze the accounts” of Alameda Research, which contained over $1 billion in cryptocurrency that Beijing had frozen, according to the document.
The indictment contains 12 charges that Bankman-Fried previously was facing, plus the additional one for conspiracy to violate the Foreign Corrupt Practices Act, bringing the new tally to a 13-count indictment.
Bankman-Fried’s lawyer didn’t immediately respond to a MarketWatch request for comment.
Bankman-Fried has been restricted from using messaging apps, but prosecutors and Bankman-Fried’s attorneys have asked U.S. District Judge Lewis Kaplan to approve a new set of proposed restrictions that would limit his access to electronic devices and the internet.
He has pleaded not guilty to eight counts over the collapse of FTX and is currently under house arrest with his parents in Palo Alto, Calif.
U.S. District Judge Lewis Kaplan set a new hearing for Thursday.
Shares of Coinbase Global Inc. dropped 15.8% in the extended session Wednesday after the crypto exchange disclosed a warning from regulators that it may have broken securities laws.
Coinbase COIN, -8.16%
said it received a Wells notice from the Securities and Exchange Commission, which could lead to formal charges.
“We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead,” Coinbase said in a blog post detailing the action. “Rest assured, Coinbase products and services continue to operate as usual — today’s news does not require any changes to our current products or services.”
Based on discussions with the SEC, Coinbase said that the potential charges relate to the company’s spot market, its staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.
The crypto exchange said it asked the regulators to detail which assets in its platforms the SEC believes may be securities, but the SEC declined to do so. Coinbase called it a “cursory investigation.”
SEC representatives declined to comment Wednesday.
The company said that the investigation is “still at a very early stage,” and that it has turned in documents and provided two witnesses for testimony, “one on the basic aspects of our staking services and one on the basic operation of our trading platform.”
Embattled crypto lender Genesis announced that it had filed for bankruptcy late Thursday, the latest firm to be taken amid a widespread rout among crypto companies driven by plunging prices and charges of fraud at major players like FTX.
Genesis, which froze customer withdrawals in November following the collapse of FTX, filed for Chapter 11 bankruptcy protection in federal court in Manhattan for its lending units, saying it was the best way for it to achieve “an optimal outcome for Genesis clients.”
“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, Genesis’ interim chief executive, in a statement on the company’s website.
According to its bankruptcy filing, Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion and had over 100,000 creditors. The firm said it had about $150 million in cash on hand to support its operations during restructuring.
Genesis was the main partner of Gemini’s “earn” program, in which its retail investors received payments for allowing their crypto assets to be loaned out to others.
Cameron Winklevoss welcomed Genesis’ bankruptcy filing, saying it would provide Gemini a better venue for getting its clients’ money back.
“We will use every tool available to us in the bankruptcy court to maximize recovery for Earn users and any other parties within the bankruptcy court’s jurisdiction,” he wrote in a post on Twitter.
Both Genesis and Gemini were charged by the Securities and Exchange Commission last week with illegally selling securities to investors through the Earn program.
Genesis and its parent company, Digital Currency Group, had said they were seeking outside investment to help bolster the books and pay customers back in the months before filing for bankruptcy.
As part of its restructuring, Genesis said it would seek to possibly sell the company and also continue to look for additional investment.
U.S. securities regulators on Thursday charged Genesis Global Capital and crypto exchange Gemini Trust Co. with offering and selling of unregistered securities to retail investors, bypassing disclosures and other requirements aimed at protecting market participants.
Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors through unregistered offers, using a crypto asset-lending program called Gemini Earn, the Securities and Exchange Commission said.
The complaint seeks the return of any “ill-gotten gains” plus interest, and any civil penalties, the SEC said.
The SEC is also investigating whether other securities-law violations were committed and whether there are other companies or people relating to the alleged misconduct.
The Winklevoss twins were early champions of cryptocurrencies, using the money and fame they won in legal wrangling with Facebook parent Meta Platforms Inc. META, +2.87%
and Meta’s founder Mark Zuckerberg over their role in creating the social-media giant to launch Gemini.
According to the SEC complaint, the Gemini Earn agreement between Genesis, part of a subsidiary of Digital Currency Group, and Gemini started in December 2020.
Gemini customers, including U.S. retail investors, were to have an opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay a high interest rate.
Gemini deducted agent fees that were as high as 4.29%, the SEC alleges.
“Genesis then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors,” the SEC said.
By November, however, Genesis announced it would not allow the Gemini Earn investors to withdraw their crypto assets because of a liquidity crunch following volatility in the crypto market after FTX’s bankruptcy filing, the SEC said.
At the time, Genesis held about $900 million in investor assets from 340,000 Gemini Earn investors, the SEC said. Gemini ended the Gemini Earn program earlier this month.
“As of today, the Gemini Earn retail investors have still not been able to withdraw their crypto assets,” the SEC said in a statement.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said in a statement.
The charges “build on previous actions to make clear to the marketplace and the investing public that crypto-lending platforms and other intermediaries need to comply with our time-tested securities laws,” Gensler said.
The SEC’s complaint was filed in the U.S. District Court for the Southern District of New York.
FTX founder Sam Bankman-Fried is likely to plead not guilty to fraud and other charges at his arraignment next week, according to people familiar with the matter.
The U.S. attorney’s office for the Southern District of New York earlier this month charged Mr. Bankman-Fried with engaging in criminal conduct that contributed to the cryptocurrency exchange’s collapse, alleging that he oversaw one of the biggest financial frauds in American history. Mr. Bankman-Fried is likely to appear in person in New York to enter his plea on Jan. 3, one of the people said.
Before his arrest, Mr. Bankman-Fried blamed the loss of customer funds on sloppy record-keeping and a bank-account issue that allowed Alameda Research, an affiliated trading firm, to cover large losses with money destined for FTX. His not guilty plea was widely expected.
Mr. Bankman-Fried stands at odds with his associates—Caroline Ellison, the former chief executive of Alameda Research, and Gary Wang, FTX’s former chief technology officer—who both pleaded guilty to criminal offenses similar to those Mr. Bankman-Fried was charged with. Both are cooperating with federal investigators.
The collapse of FTX and its sister trading firm Alameda have rattled the nascent world of crypto. Prosecutors allege that Mr. Bankman-Fried took billions of dollars of FTX.com customer money to pay the expenses and debts of his trading firm Alameda Research. Both companies filed for bankruptcy last month. Individual traders who entrusted FTX with their crypto are likely facing lengthy bankruptcy proceedings before they have a chance at seeing any of their funds back.
