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Tag: Digital currencies

  • Vegan Sam Bankman-Fried is subsisting only on bread and water in jail, his attorneys say | CNN Business

    Vegan Sam Bankman-Fried is subsisting only on bread and water in jail, his attorneys say | CNN Business

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    New York
    CNN
     — 

    Sam Bankman-Fried pleaded not guilty Tuesday to amended fraud and money laundering charges, appearing in court for the first time since his bail was revoked and he was sent to a Brooklyn jail to await trial.

    Lawyers for the former crypto billionaire, who is vegan, said the detention center is not accommodating his diet and failing to regularly dispense his prescription Adderall.

    “He’s literally now subsisting on bread and water, which are the only things he’s served that he can eat, and sometimes peanut butter,” his attorney, Mark Cohen, told the court.

    Magistrate Judge Netburn said she would contact the Bureau of Prisons about the accommodations.

    Bankman-Fried, also known as SBF, has spent the past 11 days in the Metropolitan Detention Center in Brooklyn, a notoriously overcrowded facility that’s been regularly accused of keeping inmates in inhumane conditions. It’s a far cry from his house arrest, which he spent in the relative luxury of his parents Palo Alto home in California.

    On August 11, Judge Lewis Kaplan revoked SBF’s bail and remanded him to the facility, ultimately siding with prosecutors’ argument that he had attempted to intimidate potential witnesses against him, including his former business partner and ex-girlfriend, Caroline Ellison.

    Bankman-Fried, 31, has pleaded not guilty to multiple conspiracy and fraud charges relating to the collapse of his exchange, FTX, in November. He faces a potential life sentence if convicted on all the charges.

    Before its collapse, FTX was one of the largest crypto-trading platforms in the world, backed by A-list celebrities and featured in Super Bowl commercials. But the company came unglued in the span of a week as concerns about its financial ties to SBF’s crypto hedge fund, Alameda Research, spurred investors and customers to yank their funds. The company filed for bankruptcy and quickly became the center of the federal fraud investigation.

    While awaiting his trial, SBF will be granted a window of time, from 8:30 am to 3 pm, on weekdays to meet with his attorneys, according to a court filing released Monday.

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  • PayPal bets on crypto’s future with US-dollar-backed stablecoin | CNN Business

    PayPal bets on crypto’s future with US-dollar-backed stablecoin | CNN Business

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    New York
    CNN
     — 

    PayPal is rolling out its first stablecoin as it attempts to capitalize on the “emerging potential” of US dollar-backed digital tokens for consumer payments.

    The stablecoin, PayPal USD, is fully backed by the US dollar and is “designed to reduce friction” for payments within virtual spaces and provide faster, cheaper transfers of money across borders.

    For now, the use case for the new token appears limited to crypto-related and other “web3” applications. But PayPal is betting on a future in which digital currency is more mainstream and merchants may request payment in stablecoins to avoid credit card processing fees. Similarly, crypto holders can send money instantly across borders without incurring remittance fees charged by banks.

    “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar,” said PayPal CEO Dan Schulman.

    Stablecoins, as their name implies, are designed to hold their value steady, making them a vital tool for traders of cryptocurrencies, which are notoriously volatile. Most stablecoins are tightly pegged to a traditional fiat currency, such as the US dollar, or to a commodity like gold. Stablecoins also act as a sort of on-ramp, allowing investors to more easily cash out their crypto holdings for money that can be used in real life.

    Their purported stability has made stablecoins such as Tether a pillar in the infrastructure of the $1 trillion digital asset market.

    PayPal

    (PYPL)     said its stablecoin will be “compatible with that ecosystem from day one. It will be available “soon” on Venmo, the popular payments app owned by PayPal

    (PYPL)    .

    Stablecoins aren’t always as stable as they purport to be. In May 2022, the “algorithmic” stablecoin TerraUSD collapsed when the crypto token backing it, Luna, collapsed. That triggered a broader panic in the space, wiping about $40 billion from the crypto market. The Securities and Exchange Commission later charged its creator, Do Kwon, with misleading investors about the coin’s stability.

    The value of PayPal USD, or PYUSD, doesn’t rely on a complex algorithm the way Terra did. It is issued by Paxos Trust, a blockchain infrastructure firm, and is fully backed by US dollar deposits, Treasuries and similar cash equivalents, according to the companies.

    In other words: every PayPal USD should be worth $1.00, no matter what.

    With the launch of PYUSD, Paxos and PayPal are “proving the real-world value of blockchain technology,” Paxos CEO Charles Cascarilla said, calling the new token “the most significant leap forward for digital assets and the financial industry.”

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  • ‘This isn’t some random dude with a duffel bag’: To catch fentanyl traffickers, feds dig into crypto markets | CNN Politics

    ‘This isn’t some random dude with a duffel bag’: To catch fentanyl traffickers, feds dig into crypto markets | CNN Politics

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    Washington
    CNN
     — 

    The Biden administration has intensified its focus on tracing cryptocurrency payments that some of the most dangerous Mexican drug cartels use to buy fentanyl ingredients from Chinese chemical companies, the latest step in a renewed attempt to crack down on the multibillion-dollar fentanyl trade that kills thousands of Americans each year.

    The use of digital currency has exploded among fentanyl traffickers, with transactions for fentanyl ingredients surging 450% in the last year through April, according to data from private crypto-tracking analysis firm Elliptic.

    Federal agents are doing everything they can to catch up. While US diplomats have made fentanyl a point of emphasis in high-level talks with Mexican and Chinese counterparts, behind the scenes, a multi-agency effort is underway to keep pace with the rapidly changing nature of how fentanyl is financed and trafficked into the US. The work goes beyond the cartels to include tracking dark-web forums where Americans buy fentanyl.

    Current and former law enforcement officials from across the federal government described to CNN the digital-first tactics the administration is developing to disrupt the fentanyl trade.

    The Drug Enforcement Agency is investing in crypto-tracing software and identifying the cartels’ most sophisticated money launderers. The IRS has its most tech-savvy agents tracing payments on dark web forums. And a Department of Homeland Security investigations unit is leading a team of forensic specialists to pore over digital clues from stash houses near the Mexican border.

    Federal agents have been tracking the cartels’ finances and supply routes for years, but DHS, in particular, has ramped up its surveillance efforts in recent weeks, multiple US officials told CNN.

    There have been some notable busts recently, including nearly five tons of fentanyl seized this spring along the border. But there is still a lot of work left to do, officials caution, and the impact of the current surge may not be felt for months down the road.

    Agents have focused on the activities of two Mexican cartels, Sinaloa and Jalisco New Generation Cartel (CJNG), which officials say account for the majority of fentanyl on US streets. Sinaloa Cartel, in particular, has developed sophisticated crypto operations to finance its fentanyl business.

    “We’re dealing with a Fortune 50 company, which is what the Sinaloa Cartel is,” a US official with knowledge of the matter told CNN. “This isn’t some random dude with a duffel bag” selling fentanyl in daylight.

    Cryptocurrency has enhanced cartels’ ability to smuggle fentanyl into the US by allowing them to move vast sums of money instantaneously across a decentralized, digital banking system – all without having to deal with actual banks.

    “The speed the criminals can muster, it’s very hard for law enforcement to keep up,” said one top DEA official, who spoke to CNN on condition of anonymity to describe the agency’s counter-narcotics work.

    Cash is still king for the cartels and often preferred for local operations. But the expanded use of digital currency at both the supply and demand ends of the drug trade has made some traditional law enforcement methods obsolete. For example, drug dealers might hold fewer in-person meetings to hand over cash, reducing the opportunities for stakeouts by federal agents, said Jarod Koopman, head of the IRS’s Cyber and Forensics Services division.

    Cryptocurrency “eliminates the potential for hand-to-hand transactions,” said Koopman, whose team focuses on illicit financial flows, including dark-web purchases that are multiple steps removed from when the cartels get the drugs over the US border. “So now it’s … in a different world where some of the contacts might be online and we’re trying to facilitate or do transactions in a different manner.”

    But digital money also leaves a trail that investigators can follow.

    Federal agents have found cryptocurrency addresses written down on scraps of paper at stash houses in Arizona, Scott Brown, special agent in charge for Homeland Security Investigations (HSI) in that state, told CNN.

    In another case, DHS agents monitored a cartel-connected crypto account for over a year until it sent $200,000 to an accountant they were using to launder money, Brown said. After the accountant used the money to buy property in the US, federal agents are working to seize the property, he said.

    A “significant portion” of fentanyl is sold over the dark web and paid for in cryptocurrency, Brown said, adding: “That is a vulnerability that we can attack much like we attack the money movements in a traditional narcotics investigation.”

    Most of the fentanyl that enters the US comes from ingredients made in China that are then pressed into pills – or packed in powder – and smuggled in from Mexico by drug cartels, according to the DEA.

    A US indictment unsealed in June illustrates the scope of the problem. Just one Chinese chemical company allegedly shipped more than 440 pounds of fentanyl to undercover DEA agents in exchange for payment in cryptocurrency. It was enough drugs to kill 25 million Americans, according to prosecutors.

    The two cartels, Sinaloa and CJNG, have used their control of the fentanyl trade to develop sophisticated money-laundering techniques that exploit cryptocurrency, according to US officials.

    “We’ve identified people in the cartels that specialize in cryptocurrency movements,” the senior DEA official told CNN, describing longstanding efforts to surveil both the cartels.

    The Sinaloa Cartel has made hundreds of millions of dollars from the fentanyl trade, according to the Justice Department. Run by the sons of imprisoned drug lord Joaquín “El Chapo” Guzmán, the cartel has allegedly used airplanes, submarines, fishing boats and tractor trailers to transport fentanyl chemicals and other drugs. Four of the “Chapitos,” as Guzmán’s sons are known, are under indictment in the US for fentanyl trafficking, money laundering and weapons charges.

    With their father in jail, the younger generation of Sinaloa leaders is making more of an effort to cover their tracks and avoid law enforcement scrutiny, including by using cryptocurrency, the senior DEA official told CNN.

    In one case, the Sinaloa Cartel laundered more than $869,000 using cryptocurrency between August 2022 and February 2023, according to a US indictment unsealed in April. But that was likely just a fraction of the Sinaloa money laundered during that time, based on the huge profits the cartel has made in recent years.

    The scheme involved two of the cartel’s top money launderers directing US-based couriers to pick up cash from fentanyl traffickers and deposit the money to cryptocurrency accounts controlled by the cartel, the indictment said.

    “Not every seizure is going to get you to Chapo Guzman,” said Brown, the DHS official in Arizona. “It’s certainly more impactful when we can go after the people that are behind the production of the drugs, behind the production of the precursors, behind the movement of the money, behind running the transportation cells.”

    That’s why Brown and his colleagues are trying to make the most of a huge series of fentanyl busts in Arizona and California this spring, when agents seized nearly five tons of the deadly drug, worth over $100 million.

    Evidence was quickly shipped to a forensics lab in Northern Virginia, where DHS analysts hunted for digital clues – things like a common cell phone number called by drug runners near border towns or, better yet, a cryptocurrency account connected to one of the Mexican cartels, according to Brown.

    Based in Phoenix, Brown’s office oversees a recently announced federal task force that aims to thwart drug sales online by infiltrating dark-web forums and tracking crypto payments. The goal is to find “another vulnerability [in] the larger cartel infrastructure” that agents can attack, he said.

    The cartels “are very willing to invest in technology,” Brown said. “That’s one of the things that we need to be equally willing to do.”

    Crypto-based transactions can be traced publicly, giving US officials a much clearer picture of the Mexican cartels’ reliance on Chinese chemical companies to produce fentanyl.

    The Chinese government banned the sale of fentanyl in 2019. But Chinese chemical companies have since shifted to making fentanyl ingredients instead of the finished product, according to US officials and outside experts.

    A recent CNN investigation dug into the activities of US-sanctioned Chinese chemical companies that advertise fentanyl ingredients. When one sanctioned company shut down, another company launched, and told CNN it purchased the sanctioned company’s email, phone number and Facebook page to “attract internet traffic.”

    While the amount of fentanyl directly mailed to the US from China fell dramatically following the 2019 Chinese ban, according to a Brookings Institution study, US officials say Chinese companies are still producing and exporting large quantities of fentanyl ingredients.

    This January 2019 photo shows a display of fentanyl and meth that was seized by federal officers at the Nogales Port of Entry.

    Chinese companies selling ingredients to make fentanyl have received cryptocurrency payments worth tens of millions of dollars over the last five years, enough to potentially produce billions of dollars’ worth of fentanyl sold in the US and other markets, according to research from crypto-tracking firms.

    One of the firms, London-based Elliptic, found 100 China-based chemical companies touting fentanyl, fentanyl ingredients or equipment to make the drugs that accepted payments in cryptocurrency.

    Elliptic didn’t identify any cartel-controlled crypto accounts that sent money to the Chinese companies. That could be due to the cartels’ use of middlemen to buy ingredients and the fact that fentanyl traffickers in Europe also buy from the Chinese companies, according to US officials and cryptocurrency experts interviewed by CNN

    But that data is still only a partial picture of the problem. The Chinese chemicals industry is worth over a trillion dollars, according to some estimates, and comprises tens of thousands of companies, most of them doing legitimate business.

    “It’s impossible to know how many of [those companies] are actually sending chemicals over” to the US that can be used to make fentanyl, a former DEA agent who worked in Mexico told CNN. The former agent spoke on the condition of anonymity because they were not authorized to speak to the media.

    Barring more cooperation from the Chinese government on the issue, which US officials say has been limited, the Biden administration has sanctioned and secured federal indictments against several Chinese companies allegedly involved in the production of fentanyl. Federal agents, meanwhile, follow the money and look for opportunities to seize it.

    “You can at least try to pinch off the financial flow to [the Chinese companies] and then … follow that money trail to whether it’s the Mexican cartels or if it’s in Guatemala or other places, for the actual supply,” Koopman told CNN.

    Cryptocurrency has also allowed cartels to diversify the way they move money around the world. The cartels have a network of money launderers in dozens of countries, from Thailand to Colombia, the senior DEA official said.

    These money launderers, known as “spinners,” might receive drug money in one type of cryptocurrency and convert it to another to try to obscure the source of the funds.

    “They might take Bitcoin and then buy Ethereum with it, and then send the Ethereum to the cartel members,” the senior DEA official said, referring to different types of cryptocurrencies. “The cartels have insulated themselves so they’re not receiving the cryptocurrency directly.”

    The cartels also use “mixing” services, or publicly available cryptocurrency tools, to try to obscure the source of their digital money, the DEA official said. That process is also favored by North Korean hackers who launder stolen cryptocurrency to support Pyongyang’s weapons program, CNN investigations have found.

    The volatility of cryptocurrency means the cartels often quickly look to convert their crypto to cash by moving it through a series of virtual currencies, the senior DEA official told CNN.

    But there are moments in the laundering process where federal agents can strike. A cryptocurrency exchange serving a customer in Mexico might be headquartered in the US, allowing federal agents to issue a subpoena and potentially seize money.

    For Brown, the DHS agent in Arizona, the issue is personal: one of his employees had a family member who died of a fentanyl overdose after buying the drug online , he said.

    “My people are burned out, and yet they come to work and work exceedingly hard every day,” Brown told CNN.

    But he’s optimistic when the subject turns to high-tech methods to hunt the cartels.

    “Are they as anonymous as they think they are? Absolutely … not.”

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  • New York AG accuses crypto firms of deceiving investors in $1 billion fraud | CNN Business

    New York AG accuses crypto firms of deceiving investors in $1 billion fraud | CNN Business

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    CNN
     — 

    The fallout from the colossal implosion of Sam Bankman-Fried’s crypto business is still rippling through the digital asset industry nearly a year later.

    On Thursday, New York’s attorney general filed a lawsuit against three digital asset firms that were caught up in the collapse of Bankman-Fried’s empire last fall — Gemini Trust, Genesis Global Capital and Digital Currency Group, parent company of Genesis. The lawsuit accused the companies of lying to investors and covering up more than $1 billion in losses.

    The AG’s office said that an investigation found Gemini, the crypto firm founded by Cameron and Tyler Winklevoss, deceived investors about significant risks associated with a lending service it ran jointly with Genesis. The program, called Gemini Earn, marketed itself as a low-risk investment in which customers could lend crypto assets to Genesis while earning interest payments as high as 8%.

    “These cryptocurrency companies lied to investors,” Attorney General Letitia James said in a statement. “And it was middle-class investors who suffered as a result.” At least 29,000 New Yorkers were among the 230,000 investors whose money was lost, James said.

    James’ lawsuit is the latest effort among US officials to crack down on the trillion-dollar crypto industry, which for years has operated in the shadows of traditional financial regulation. Crypto advocates argue that regulators have dragged their feet in establishing guidelines for digital assets, which they believe are distinct from traditional securities like stocks or bonds.

    In the immediate aftermath of the FTX crash, Genesis froze customer redemptions in its lending unit, citing market turmoil. The lending unit later filed for bankruptcy.

    According to the latest lawsuit, Gemini knew that Genesis’ loans were risky and, at one point, “highly concentrated” with Bankman-Fried’s crypto trading house Alameda Research. Bankman-Fried is currently on trial in federal court in New York, where he has pleaded not guilty to seven counts of fraud and conspiracy.

    “Gemini hid the risks of investing with Genesis, and Genesis lied to the public about its losses,” James said.

    The lawsuit also names former Genesis CEO Soichiro “Michael” Moro and Digital Currency Group CEO Barry Silbert.

    Gemini’s owners, the Winklevoss twins, have said Genesis owed more than $900 million to some 340,000 customers using the Earn program.

    The AG’s lawsuit follows another civil action brought by the Securities and Exchange Commission, which in January sued Genesis and Gemini for offering unregistered securities through the Earn product.

    Gemini responded to the latest suit Thursday with a statement on X (formerly Twitter), claiming that Gemini itself was the victim of a “massive fraud.”

    “The NY AG’s lawsuit confirms what we’ve been saying all along” — that Gemini, its customers and other creditors were lied to about Genesis’ finances. But the company said it “wholly” disagrees with the lawsuit.

    “Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position.”

    A Genesis spokesperson said that “while there is no basis for the NYAG’s claims against Genesis, we have been cooperating with all authorities and intend to continue doing so.”

    “Genesis has not violated the law and continues to focus on maximizing recoveries for creditors in its Chapter 11 cases,” the spokesperson added.

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  • Crypto can’t just ‘burn out’, says top global regulator

    Crypto can’t just ‘burn out’, says top global regulator

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    This article is part of the Politicization of Central Banking special report.

    AMSTERDAM — Global regulators can’t afford to just let crypto “burn out,” according to Klaas Knot — the man overseeing international efforts to bring the sector to heel.

    The crypto industry has absorbed some crushing blows over the last year, including the collapse of the FTX exchange in November.

    That has led to calls in some quarters for regulators to sit back and let the crypto crater deepen, rather than applying regulation that might legitimize the speculative assets.   

    “That’s a little bit overdone,” Knot, chair of the Financial Stability Board, told POLITICO in an interview at the end of April. “This whole ‘let it burn out’ strategy, I don’t believe in it.”

    Indeed, expectations that crypto would die from its wounds have proved premature: the collapse of a string of U.S. regional banks has revived true believers’ faith that digital currencies will outlive mainstream finance. Bitcoin has risen nearly 50 percent since Silicon Valley Bank went under, while the stablecoin Tether’s market cap — a rough proxy for global exposure to crypto — is back where it was before the first of the big crypto scandals last year.

    The FSB, an international standard-setting body, is working on a global regulatory framework for crypto assets and stablecoins, with final recommendations due out in July.

    Under the proposals, which are not yet finalized, crypto would become subject to tougher supervision, along with firm rules on information exchange, disclosures, governance and risk management — like other financial markets.

    Knot, who also heads the Dutch central bank, said that reflects the reality that the crypto market exists, and that ordinary people are investing their money in it — despite regular warnings from officials about its riskiness, and the constant drumbeat of scams.

    “We live in a free world. If investors and consumers opt to invest in these crypto assets, then it behooves us to come forward with an appropriate regulatory response,” he said.

    It’s also because some of crypto’s blowups, including FTX, have replayed bad behavior from the world of traditional finance that securities regulation aims to prevent — including the basics, like dipping into customers’ funds.

    Knot highlighted enduring “serious issues” with the sector, such as conflicts of interests at crypto conglomerates and the need to keep leverage out of the system.

    “These are structural vulnerabilities that will not go away,” he added.

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  • Inside the international sting operation to catch North Korean crypto hackers | CNN Politics

    Inside the international sting operation to catch North Korean crypto hackers | CNN Politics

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    Watch Alex Marquardt’s report on the sting operation on Erin Burnett OutFront on Monday, April 10, at 7 p.m. ET.



    CNN
     — 

    A team of South Korean spies and American private investigators quietly gathered at the South Korean intelligence service in January, just days after North Korea fired three ballistic missiles into the sea.

    For months, they’d been tracking $100 million stolen from a California cryptocurrency firm named Harmony, waiting for North Korean hackers to move the stolen crypto into accounts that could eventually be converted to dollars or Chinese yuan, hard currency that could fund the country’s illegal missile program.

    When the moment came, the spies and sleuths — working out of a government office in a city, Pangyo, known as South Korea’s Silicon Valley — would have only a few minutes to help seize the money before it could be laundered to safety through a series of accounts and rendered untouchable.

    Finally, in late January, the hackers moved a fraction of their loot to a cryptocurrency account pegged to the dollar, temporarily relinquishing control of it. The spies and investigators pounced, flagging the transaction to US law enforcement officials standing by to freeze the money.

    The team in Pangyo helped seize a little more than $1 million that day. Though analysts tell CNN that most of the stolen $100 million remains out of reach in cryptocurrency and other assets controlled by North Korea, it was the type of seizure that the US and its allies will need to prevent big paydays for Pyongyang.

    The sting operation, described to CNN by private investigators at Chainalysis, a New York-based blockchain-tracking firm, and confirmed by the South Korean National Intelligence Service, offers a rare window into the murky world of cryptocurrency espionage — and the burgeoning effort to shut down what has become a multibillion-dollar business for North Korea’s authoritarian regime.

    Over the last several years, North Korean hackers have stolen billions of dollars from banks and cryptocurrency firms, according to reports from the United Nations and private firms. As investigators and regulators have wised up, the North Korean regime has been trying increasingly elaborate ways to launder that stolen digital money into hard currency, US officials and private experts tell CNN.

    Cutting off North Korea’s cryptocurrency pipeline has quickly become a national security imperative for the US and South Korea. The regime’s ability to use the stolen digital money — or remittances from North Korean IT workers abroad — to fund its weapons programs is part of the regular set of intelligence products presented to senior US officials, including, sometimes, President Joe Biden, a senior US official said.

    The North Koreans “need money, so they’re going to keep being creative,” the official told CNN. “I don’t think [they] are ever going to stop looking for illicit ways to glean funds because it’s an authoritarian regime under heavy sanctions.”

    North Korea’s cryptocurrency hacking was top of mind at an April 7 meeting in Seoul, where US, Japanese and South Korean diplomats released a joint statement lamenting that Kim Jong Un’s regime continues to “pour its scarce resources into its WMD [weapons of mass destruction] and ballistic missile programs.”

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    “We are also deeply concerned about how the DPRK supports these programs by stealing and laundering funds as well as gathering information through malicious cyber activities,” the trilateral statement said, using an acronym for the North Korean government.

    North Korea has previously denied similar allegations. CNN has emailed and called the North Korean Embassy in London seeking comment.

    Starting in the late 2000s, US officials and their allies scoured international waters for signs that North Korea was evading sanctions by trafficking in weapons, coal or other precious cargo, a practice that continues. Now, a very modern twist on that contest is unfolding between hackers and money launderers in Pyongyang, and intelligence agencies and law enforcement officials from Washington to Seoul.

    The FBI and Secret Service have spearheaded that work in the US (both agencies declined to comment when CNN asked how they track North Korean money-laundering.) The FBI announced in January that it had frozen an unspecified portion of the $100 million stolen from Harmony.

    The succession of Kim family members who have ruled North Korea for the last 70 years have all used state-owned companies to enrich the family and ensure the regime’s survival, according to experts.

    It’s a family business that scholar John Park calls “North Korea Incorporated.”

    Kim Jong Un, North Korea’s current dictator, has “doubled down on cyber capabilities and crypto theft as a revenue generator for his family regime,” said Park, who directs the Korea Project at the Harvard Kennedy School’s Belfer Center. “North Korea Incorporated has gone virtual.”

    Compared to the coal trade North Korea has relied on for revenue in the past, stealing cryptocurrency is much less labor and capital-intensive, Park said. And the profits are astronomical.

    Last year, a record $3.8 billion in cryptocurrency was stolen from around the world, according to Chainalysis. Nearly half of that, or $1.7 billion, was the work of North Korean-linked hackers, the firm said.

    The joint analysis room in the National Cyber ​​Security Cooperation Center of the National Intelligence Service in South Korea.

    It’s unclear how much of its billions in stolen cryptocurrency North Korea has been able to convert to hard cash. In an interview, a US Treasury official focused on North Korea declined to give an estimate. The public record of blockchain transactions helps US officials track suspected North Korean operatives’ efforts to move cryptocurrency, the Treasury official said.

    But when North Korea gets help from other countries in laundering that money it is “incredibly concerning,” the official said. (They declined to name a particular country, but the US in 2020 indicted two Chinese men for allegedly laundering over $100 million for North Korea.)

    Pyongyang’s hackers have also combed the networks of various foreign governments and companies for key technical information that might be useful for its nuclear program, according to a private United Nations report in February reviewed by CNN.

    A spokesperson for South Korea’s National Intelligence Service told CNN it has developed a “rapid intelligence sharing” scheme with allies and private companies to respond to the threat and is looking for new ways to stop stolen cryptocurrency from being smuggled into North Korea.

    Recent efforts have focused on North Korea’s use of what are known as mixing services, publicly available tools used to obscure the source of cryptocurrency.

    On March 15, the Justice Department and European law enforcement agencies announced the shutdown of a mixing service known as ChipMixer, which the North Koreans allegedly used to launder an unspecified amount of the roughly $700 million stolen by hackers in three different crypto heists — including the $100 million robbery of Harmony, the California cryptocurrency firm.

    Private investigators use blockchain-tracking software — and their own eyes when the software alerts them — to pinpoint the moment when stolen funds leave the hands of the North Koreans and can be seized. But those investigators need trusted relationships with law enforcement and crypto firms to move quickly enough to snatch back the funds.

    One of the biggest US counter moves to date came in August when the Treasury Department sanctioned a cryptocurrency “mixing” service known as Tornado Cash that allegedly laundered $455 million for North Korean hackers.

    Tornado Cash was particularly valuable because it had more liquidity than other services, allowing North Korean money to hide more easily among other sources of funds. Tornado Cash is now processing fewer transactions after the Treasury sanctions forced the North Koreans to look to other mixing services.

    Suspected North Korean operatives sent $24 million in December and January through a new mixing service, Sinbad, according to Chainalysis, but there are no signs yet that Sinbad will be as effective at moving money as Tornado Cash.

    The people behind mixing services, like Tornado Cash developer Roman Semenov, often describe themselves as privacy advocates who argue that their cryptocurrency tools can be used for good or ill like any technology. But that hasn’t stopped law enforcement agencies from cracking down. Dutch police in August arrested another suspected developer of Tornado Cash, whom they did not name, for alleged money laundering.

    Private crypto-tracking firms like Chainalysis are increasingly staffed with former US and European law enforcement agents who are applying what they learned in the classified world to track Pyongyang’s money laundering.

    Elliptic, a London-based firm with ex-law enforcement agents on staff, claims it helped seize $1.4 million in North Korean money stolen in the Harmony hack. Elliptic analysts tell CNN they were able to follow the money in real-time in February as it briefly moved to two popular cryptocurrency exchanges, Huobi and Binance. The analysts say they quickly notified the exchanges, which froze the money.

    “It’s a bit like large-scale drug importations,” Tom Robinson, Elliptic’s co-founder, told CNN. “[The North Koreans] are prepared to lose some of it, but a majority of it probably goes through just by virtue of volume and the speed at which they do it and they’re quite sophisticated at it.”

    The North Koreans are not just trying to steal from cryptocurrency firms, but also directly from other crypto thieves.

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    After an unknown hacker stole $200 million from British firm Euler Finance in March, suspected North Korean operatives tried to set a trap: They sent the hacker a message on the blockchain laced with a vulnerability that may have been an attempt to gain access to the funds, according to Elliptic. (The ruse didn’t work.)

    Nick Carlsen, who was an FBI intelligence analyst focused on North Korea until 2021, estimates that North Korea may only have a couple hundred people focused on the task of exploiting cryptocurrency to evade sanctions.

    With an international effort to sanction rogue cryptocurrency exchanges and seize stolen money, Carlsen worries that North Korea could turn to less conspicuous forms of fraud. Rather than steal half a billion dollars from a cryptocurrency exchange, he suggested, Pyongyang’s operatives could set up a Ponzi scheme that attracts much less attention.

    Yet even at reduced profit margins, cryptocurrency theft is still “wildly profitable,” said Carlsen, who now works at fraud-investigating firm TRM Labs. “So, they have no reason to stop.”

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  • The US case against Binance calls out one of the worst-kept secrets in crypto | CNN Business

    The US case against Binance calls out one of the worst-kept secrets in crypto | CNN Business

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    Editor’s Note: A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here.


    New York
    CNN
     — 

    If you live in America, you’re not allowed to trade crypto derivatives. And if you’re a big international platform for trading crypto derivatives, you can’t let Americans trade those products if you haven’t registered with the boring-sounding but not-to-be-trifled-with federal regulator known as the Commodity Futures Trading Commission, or CFTC.

    Today, that regulator sued Binance, the world’s largest cryptocurrency exchange, for allegedly doing just that. (And if that name sounds familiar, it may because back in November, Binance briefly flirted with bailing out its smaller rival, FTX. Obviously, Binance took one look under the hood at FTX, now at the center of a massive federal fraud investigation, and promptly bailed.)

    Here’s the deal: The CFTC alleges that Binance and its CEO violated US trading laws by, among other things, secretly coaching “VIP” customers within the United States on how to evade compliance controls.

    The commission, which regulates US derivatives trading, said the company and its CEO, Changpeng Zhao, “instructed its employees and customers to circumvent compliance controls in order to maximize corporate profits.”

    Which, you know, isn’t something you want to be caught doing. The CFTC can’t bring criminal charges, but it can seek heavy fines and potentially ban Binance from registering in the US in the future.

    Binance said the lawsuit was “unexpected and disappointing,” adding that it has made “significant investments” in the past two years to ensure that US-based investors are not active on the platform.

    As news of the lawsuit broke Monday, Zhao, known as “CZ,” tweeted the number 4, pointing to a part of a previous statement: “Ignore FUD, fake news, attacks, etc.” (FUD is a commonly used acronym among crypto folks that stands for “fear, uncertainty, doubt.”)

    Binance has long argued that it isn’t subject to US laws because it doesn’t have a physical headquarters in America. Or anywhere, really — CZ claims that the company’s headquarters are wherever he is at any point in time, “reflecting a deliberate approach to attempt to avoid regulation,” according to the CFTC’s lawsuit.

    The CFTC’s lawsuit is certainly not great news for Binance, or for crypto more broadly. But it’s not quite the seismic event that was FTX’s collapse, or even the Terra/Luna meltdown. (You can read more about those here and here but, tl;dr: Those 2022 events were, to use a technical term, holy-crap-sell-everything-call-your-dad-and-cry moments for crypto investors.)

    Prices of bitcoin and ethereum, the two most popular cryptocurrencies, fell more than 3% Monday. Which is to say, it was just another day trading virtual currencies.

    Perhaps the most significant part of the lawsuit is the way the CFTC loudly calls out one of the worst-kept secrets in all of crypto: That not only are US customers gaining access to risky offshore crypto derivatives they shouldn’t be allowed to access, but it’s also pretty darn easy to do so. All anyone needs is a VPN and an iron stomach, because crypto derivatives are leveraged bets on wildly unstable assets. (And like everything in this newsletter, that shouldn’t be taken as any kind of advice.)

    The likely outcome, said Timothy Cradle, a crypto compliance and regulation expert at Blockchain Intelligence Group, will be that Binance ends up paying “hundreds of millions of dollars” in fines and will be prevented from registering a derivatives exchange in the future. That’s “a terminal blow for users of their service located in the US and a significant hit to Binance’s revenue” as the suit alleges US users make up 16% of the revenue for Binance’s derivatives product.

    Monday’s news adds yet another layer of regulatory scrutiny on crypto’s biggest players. The Internal Revenue Service and Securities and Exchange Commission are also reportedly also investigating Binance, per Bloomberg.

    Meanwhile, Coinbase, the largest US-listed crypto exchange, received a so-called Wells notice (typically a precursor to enforcement action) last week from the SEC for possible securities law violations.

    And just to pile on: The crypto industry earlier this month lost two of its biggest connections to the mainstream finance world — Silvergate and Signature Bank.

    All in all, not a great month for the industry that is perpetually straining credibility even when it’s hot. And right now, it is decidedly not.

    Enjoying Nightcap? Sign up and you’ll get all of this, plus some other funny stuff we liked on the internet, in your inbox every night. (OK, most nights — we believe in a four-day work week around here.)

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  • The crypto ‘contagion’ that helped bring down SVB

    The crypto ‘contagion’ that helped bring down SVB

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    As U.S. banking regulators begin their post-mortem of Silicon Valley Bank, some pundits are pointing the finger at crypto markets, whose own collapse over the past year left the tech-focused lender hopelessly exposed.

    The conventional wisdom about crypto is that it’s “self-referential” — a separate universe to conventional finance — and that its inherent volatility can be contained. The emerging “contagion” theory is that there are enough linkages for extreme turmoil to spill over, much as a virus can sometimes jump from one species to another.

    That’s what happened here, according to Barney Frank, the former U.S. congressman who wrote sweeping new banking rules after the banking crisis in 2008, and joined the crypto-friendly Signature Bank as a board member in 2015.

    “I think, if it hadn’t been for FTX and the extreme nervousness about crypto, that this wouldn’t have happened,” Frank told POLITICO this week. “That wasn’t something that could have been anticipated by regulators.”

    FTX, the crypto exchange that collapsed in November amid allegations of massive fraud, capped a year of turmoil in crypto markets, as investors began withdrawing funds from riskier ventures in response to rising interest rates, which in turn exposed the shaky foundations underpinning the industry. The ensuing “crypto winter” saw the value of the industry plummet by two-thirds, from a peak of $3 trillion in 2021.

    Policymakers sought to reassure the public that volatility in the crypto market, blighted by scams and charlatans who sought to profit from investors’ fear of missing out, would naturally be contained. With the collapse of SVB, that claim is facing its biggest test yet.

    Patient zero

    Under the contagion theory, “patient zero” could be traced back to the implosion of TerraUSD, an “algorithmic stablecoin” that relied on financial engineering to keep its value on par with the U.S. dollar. That promise fell short in May last year following a mass sell-off, creating panic among investors who had used the virtual asset as a safe haven to park cash between taking punts on the crypto market. The origin of the crash is still subject to debate but rising interest rates are often cited as one of the main culprits. 

    TerraUSD’s demise was catastrophic for a major crypto hedge fund called Three Arrows Capital, dubbed 3AC. The money managers had invested $200 million into Luna, a crypto token whose value was used to prop up TerraUSD, which had become the third largest stablecoin on the market. A British Virgin Islands court ordered 3AC to liquidate its assets at the end of June.

    The fund’s end created even more problems for the industry. Major crypto lending businesses, such as BlockFi, Celsius Network and Voyager, had lent hundreds of millions of dollars to 3AC to finance its market bets and were now facing massive losses.

    Customers who had deposited their digital assets with the industry lender were suddenly locked out of their accounts, prompting FTX — then the third largest crypto exchange — to step in and bail out BlockFi and Voyager. Meanwhile, central banks continued to raise rates.

    The contagion seemed under control for a few months until revelations emerged in November that FTX had been using client cash to finance risky bets elsewhere. The exchange folded soon after, as its customers rushed to get their money out of the platform. BlockFi and Voyager, meanwhile, were left stranded.

    Outbreak widens

    This is the point where the outbreak of risk in the crypto industry might have jumped species into the banking sector. 

    Silvergate Bank and Signature Bank, two smaller banks that also failed last week, had extensive business with crypto exchanges, including FTX. Silvergate tried to downplay its exposure to FTX but ended up reporting a $1 billion loss over the last three months of 2022 after investors withdrew more than $8 billion in deposits. Signature also did its best to distance itself from FTX, which made up some 0.1 percent of its deposits. 

    FTX, the crypto exchange that collapsed in November amid allegations of massive fraud, capped a year of turmoil in crypto markets | Leon Neal/Getty Images

    SVB had no direct link to FTX, but was not immune to the broader contagion. Its depositors, including tech startups, crypto firms and VCs, started burning their cash reserves to run their businesses after venture capital funding dried up.

    “SVB and Silvergate had the same balance sheet structure and risks — massive duration mismatch, lots of uninsured runnable deposits backed by securities not marked to market, and inadequate regulatory capital because unrealized fair value losses excluded,” former Natwest banker and industry expert Frances Coppola told POLITICO.

    Eventually, the deposit drain forced SVB to liquidate underwater assets to accommodate its clients, while trying to handle losses on bond portfolios and an outsized bet on interest rates. As word got out, the withdrawals turned into a bank run as frictionless and hype-driven as a crypto bubble.

    Zachary Warmbrodt and Izabella Kaminska contributed reporting from Washington and London, respectively.

    This article has been updated to correct the value of the crypto industry.

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    Bjarke Smith-Meyer

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  • CBDCs Are Inevitable, and That’s a Good Thing | Entrepreneur

    CBDCs Are Inevitable, and That’s a Good Thing | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    In a recent research report by Bank of America, analysts concluded that “CBDCs (central bank digital currencies) appear inevitable.” According to their research, CBDCs have “the potential to revolutionize global financial systems and maybe the most significant technological advancement in the history of money.”

    While the contents of this report have been making waves in traditional media circles, those of us that have been researching and working with CBDCs over the past few years have been saying similar things for quite some time now. In this article, I will tackle some of the more prominent misconceptions about CBDCs, especially the ones concerning anonymity and the technology’s potential use as a means of totalitarian control.

    Related: How This Digital Currency Will Transform The World and Benefit Cashless Societies

    Anonymity is not part of the agenda

    Some of the most full-throated criticism of CBDC technology tends to come from the cryptocurrency community, where many consider the rollout of state-backed digital currencies to be an existential threat to anonymity. But if you think bitcoin and stablecoins are about privacy, they’re not. Somewhere around 90% of addresses and transfers, if not more, have long since been traced and identified, and even in DeFi, cybercrime gets investigated, and the culprits get caught fairly quickly.

    Those who are active in the cryptocurrency industry and those who are knowledgeable about it know this. What is much more likely to be behind this vein of criticism of CBDCs is the perception of the technology not as an existential threat to privacy but as an existential threat to existing cryptocurrencies. However, this too is unfounded.

    From working with regulators and countries in the process of launching CBDCs, it has to be said that privacy simply is not on the agenda in most cases. The central issues that are being dealt with currently revolve around what the legal framework should be, how the linkage to banks should work, how to move from stablecoin currencies to CBDCs, how to integrate the technology into international trade, how to incorporate CBDCs into “superapps” and so on.

    Related: Crypto vs. Banking: Which Is a Better Choice?

    Using CBDCs on the state level

    When we move beyond the idea that CBDCs are a power grab by institutions looking to eliminate financial privacy, the actual value of the technology comes into view. There are two levels on which CBDCs offer vast improvements to the current status quo, that of the state and that of the individual.

    On the state level, it is important to understand that every foreign trade transaction now goes through the dollar. For example, take Pakistan and the Arab Emirates. When these countries trade, there is constant pressure on the national currencies because they must constantly sell their currencies and buy dollars. However, the dirham is quite trusted in Pakistan. So, direct payments in dirhams and rupees could be possible, but currently, there is no infrastructure to support this kind of transaction. This is where CBDCs come into play.

    Regardless of how it’s done, cross-border transfers must be straightened out. This could be achieved via currency baskets, AMM pools or mutual correspondent banks. One way or another, this will make economic processes easier and cheaper for almost all countries because cross-border rates and long chains of intermediaries will disappear.

    Related: Cross-Border Business Is Becoming a Non-Negotiable. Are You Ready?

    CBDCs for the individual

    The main task facing CBDC development right now is building a basis for cross-border payments, which individuals do worldwide. The need for this to happen can be seen in how cross-border payments currently work in the Philippines and the Emirates.

    There are generally two ways of sending money from the UAE. The first is the old-fashioned “hawala” system. Here, the sender goes to their local community leader, gives him dollars, and then the leader’s counterpart in the recipient’s country gives the recipient the same amount in pesos.

    The second method involves transferring money through services like Western Union. Depending on cross-border rates, the round-trip commission is between 6% and 12%. You inevitably have to have a double conversion. As a result, the cost of the transfer is extremely high.

    This is the process we are trying to build: the sender comes with digital dirhams either to a transfer point or a special machine. He needs to convert the dirhams into pesos. Both currencies are digitally deposited as stablecoins in an AMM pool, where the exchange rate changes very little. Conversely, the pesos are received through a transfer operator, which charges only 0.1% for the exchange of digital currencies. Thus, the total fees do not exceed 3% of the transfer amount.

    This is one way you can use CBDCs. And it is convenient and cheap for those who do not have cards or bank accounts, which in Southeast Asia alone amounts to several hundred million people. The fees these people have to pay to add up to a significant burden on a demographic that should be better served by governmental and financial institutions. And this is just a small picture of how revolutionary this technology can be. As development continues, the bigger picture will come into focus, but it is important now to recognize the potential CBDCs have to improve the lives of billions of people worldwide and focus on bringing that potential to fruition.

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    Sergey Shashev

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  • Prosecutors want Sam Bankman-Fried to use a flip phone as part of a more restrictive bail package | CNN Business

    Prosecutors want Sam Bankman-Fried to use a flip phone as part of a more restrictive bail package | CNN Business

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    CNN
     — 

    The use of a flip phone, or some non-smartphone, is one of several restrictions that prosecutors and Sam Bankman-Fried’s attorneys are jointly asking the judge to approve.

    The lawyers have been working to satisfy concerns raised by Judge Lewis Kaplan, who said he could “conceivably” revoke Bankman-Fried’s bail after he found there was a “threat” of witness tampering.

    The crypto entrepreneur reached out to the former general counsel of FTX and used a virtual private network, or VPN, days after the judge said he wanted to restrict the use of encrypted devices.

    Bankman-Fried was charged with multiple counts of conspiracy and fraud in what prosecutors allege is one of the largest financial frauds in US history. He pleaded not guilty to charges he misused customer funds in FTX to prop up related hedge fund Alameda Research, make venture investments, and donate to political campaigns to influence policy.

    Bankman-Fried was released on a $250 million bond and is confined to the home of his parents, Stanford University law professors, in Palo Alto, California.

    Under the proposal, Bankman-Fried’s new laptop will “be configured so that he is only able to log on to the internet through the use of specified VPNs, and that the VPNs only permit the defendant to access websites that have been whitelisted through the VPNs.”

    Among the websites are programs he could use to prepare for his defense, including Zoom, Microsoft Office, Python, and Adobe Acrobat. Monitoring tools also would be installed on his laptop and he would be prohibited from buying electronic devices.

    Bankman-Fried also would be restricted from scrolling the internet, with his access limited to court-approved websites. The lawyers proposed several sites to help prepare his defense, including YouTube, read-only websites showing crypto prices, and research websites. Bankman-Fried also asked to view others for his personal use, including news sites, Netflix, Spotify, Uber Eats, Amazon and baseball and football sites.

    The judge previously raised concerns about Bankman-Fried’s access to his parents’ computers, cell phones and internet. Attorneys proposed the parents sign affidavits stating they won’t let their son use their devices, which would be password protected. In addition, each device would have software that would photograph or take video of the user.

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  • Judge orders Sam Bankman-Fried back to court after learning how he accessed the internet remotely | CNN Business

    Judge orders Sam Bankman-Fried back to court after learning how he accessed the internet remotely | CNN Business

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    New York
    CNN
     — 

    A federal judge ordered Sam Bankman-Fried back to court this week after learning that the founder of crypto trading platform FTX accessed the internet in a way the government can’t track.

    Judge Lewis Kaplan set a hearing for Thursday after he was notified by prosecutors and attorneys for Bankman-Fried that the former so-called Crypto King used a virtual private network, or VPN, twice in the past month, including days after the judge expressed concern about the use of encrypted messaging apps.

    Bankman-Fried’s lawyers said in a letter to the judge that Bankman-Fried used the VPN to access an NFL Game Pass international subscription that he used when he lived in the Bahamas to watch NFL playoff and Super Bowl games while out on bail in the US.

    Bankman-Fried is currently under house arrest at his parents’ home in Palo Alto, Calif. He is released on a $250 million bond while awaiting trial on fraud and conspiracy charges. He pleaded not guilty.

    The judge noted that Bankman-Fried used the VPN at least once after he was ordered to refrain from using encrypted messaging apps, adding, “The defendant’s use of a VPN presents many of the same risks associated with his use of an encrypted messaging or call application.” The judge said Bankman-Fried could not use VPNs until the outcome of the hearing.

    Overnight Prosecutors alerted the judge to Bankman-Fried’s use of a VPN in late January and early February.

    “The use of a VPN raises several potential concerns. First, a VPN is a mechanism of encryption, hiding online activities from third parties, including the Government. Second, it is a means to disguise a user’s whereabouts because a VPN server essentially acts as a proxy on the internet,” prosecutors wrote in a letter to the judge. “It is well known that some individuals use VPNs to disguise the fact that they are accessing international cryptocurrency exchanges that use IPs to block U.S. users,” they wrote.

    Prosecutors and Bankman-Fried’s lawyers asked the judge for more time to work out new bail terms, but the judge rejected that, calling them back to court for the second time in a week.

    The judge previously expressed concern over Bankman-Fried’s use of encryption and whether the government could track what he was doing while out on bail.

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  • US regulator orders crypto firm to stop minting Binance stablecoin | CNN Business

    US regulator orders crypto firm to stop minting Binance stablecoin | CNN Business

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    Hong Kong
    CNN
     — 

    New York’s top financial regulator has ordered a crypto company to stop minting a major stablecoin, widening a clampdown on the embattled digital assets sector.

    Paxos, a blockchain company, announced Monday that it had been instructed by the New York State Department of Financial Services (NYDFS) to stop issuing BUSD, a Binance-branded stablecoin pegged to the US dollar.

    The firm said in a statement that it would stop issuing the token on February 21. The ones already circulating “have and always will be” backed one-to-one with US dollar reserves, it added.

    Paxos has told customers they will be able to redeem their BUSD through February 2024, with options to redeem funds in US dollars or to convert their tokens to Pax Dollar, another stablecoin issued by the company.

    Paxos also said it would “end its relationship” with Binance, the world’s largest crypto exchange. It did not give detail on why the regulator had ordered it to stop issuing BUSD.

    In a statement, the NYDFS told CNN the order was “a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

    “The department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols,” it said.

    BUSD is one of the world’s most popular stablecoins, with a circulation of 15.8 billion tokens, according to CoinMarketCap.

    Stablecoins are digital currencies that are designed to hold steady. They’re usually pegged to real-world assets such as gold or the US dollar.

    In a statement to CNN, Binance stressed that, although its name appeared on the coin, “BUSD is a stablecoin wholly owned and managed by Paxos.”

    “Binance licenses its brand to Paxos for use with BUSD, which is entirely owned by Paxos and regulated” by New York authorities, the exchange said.

    The BUSD news has unsettled investors. Binance suffered one of its worst-ever days in terms of withdrawals on Monday, with $873 million in net outflows, according to data provider Nansen.

    “Clearly there’s a number of traders and investors moving to take their funds off the exchange,” Andrew Thurman, Nansen’s content lead, told CNN.

    He noted that Binance had seen worse days. In December, a deluge of bad press caused investor jitters, sparking outflows of as much as $3 billion.

    This time, “investors are still trying to digest the news,” Thurman added.

    “We’re seeing some indecision from the market trying to decide if this is a case of agencies going after one bad instance of a stablecoin, or trying to shut stablecoins down entirely.”

    In its statement, Binance warned that the move to stop minting BUSD would hurt users and “only decrease” the token’s market capitalization over time.

    “Stablecoins are a critical safety net for investors seeking refuge from volatile markets, and limiting their access would directly harm millions of people across the globe,” the firm said.

    Martin Lee, a data journalist for Nansen, told CNN that Binance had few options to counter the ban.

    “Over time, the supply will drop as redemptions happen,” he said.

    But “in terms of confidence in the exchange as a whole,” Binance will likely retain users as long as customer deposits continue to be protected and users can still convert BUSD to other stablecoins, Lee added.

    Starting last year, the digital financial assets sector has been weathering a so-called “crypto winter,” sparked by the collapse of TerraUSD, an algorithmic stablecoin, in May.

    Then FTX, one of the world’s biggest crypto exchanges at the time, went bankrupt in November, deepening the crisis in the industry.

    As a result, digital asset companies are facing tighter regulatory scrutiny around the world.

    Last week, the US Securities and Exchange Commission said overseeing crypto assets was a key priority for 2023.

    The SEC also reached a $30 million settlement with cryptocurrency platform Kraken last Thursday. The agreement will force the company to unwind a program offering investment returns to US users who committed their digital assets to the company.

    That practice, known as “staking,” reflected an unregistered offer and sale of securities, the SEC alleged in a complaint.

    Hong Kong has also announced plans for new regulations. The city, which hopes to become a virtual assets hub, announced plans last month to adopt new rules for stablecoins, including licensing requirements for businesses.

    According to crypto advocates, the growing global clampdown could undermine the ecosystem for digital assets.

    — CNN’s Brian Fung contributed to this report.

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  • A twisted tale of celebrity promotion, opaque transactions and allegations of racist tropes | CNN Business

    A twisted tale of celebrity promotion, opaque transactions and allegations of racist tropes | CNN Business

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    CNN
     — 

    Sitting across from Jimmy Fallon on “The Tonight Show,” Paris Hilton, wearing a sparkling neon green turtleneck dress and a high ponytail, looked at a picture of a glum cartoon ape and said it “reminds me of me.” The audience laughed. It did not look like her at all.

    Hilton and Fallon were chatting about their NFTs – non-fungible tokens, typically digital art bought with cryptocurrency – from the Bored Ape Yacht Club. The camera zoomed in on framed printouts of the ape cartoons. “We’re both apes,” Fallon said. Hilton, with her signature vocal fry, replied, “Love it.”

    “The Tonight Show” episode from January 2022 is a YouTube time capsule showing the temporary alliance between celebrity marketing and the crypto industry. Bored Ape Yacht Club was not the biggest crypto phenomenon, but it was one of the top beneficiaries of celebrity hype. That celebrity hype, in turn, helped draw new consumers to crypto — an industry rife with manipulation and fraud, and one that US regulators are now giving more scrutiny in the wake of the collapse of crypto exchange FTX. But for a time, when crypto’s prices seemed to have no limit, the money appeared too good for some to ask questions — questions like: Why are some of those apes wearing prison clothes?

    “That was a very significant moment, because the audience for that show is very different from the typical crypto person,” explained Molly White, a software engineer and a fellow at the Harvard Library Innovation Lab. The Bored Apes — a computer-generated collection of 10,000 cartoons — were being presented as a status symbol, membership in an exclusive club. Hilton, Fallon, and other celebrities had joined — and viewers could join, too, if they bought an NFT.

    A class action lawsuit, filed in December, alleges Hilton, Fallon, and other celebrities conspired in a “vast scheme” to artificially inflate the price of Bored Ape NFTs and enrich themselves, the crypto payments company they used to get the apes, MoonPay, and the company that made the Bored Apes, Yuga Labs.

    Hilton and Fallon did not respond to requests for comment.

    In April 2021, Yuga Labs released the Bored Ape Yacht Club collection of cartoon apes with a computer-generated combination of features and accessories, such as gold fur, a sailor hat, laser eyes, 3-D glasses, a cigarette, as well as “hip hop” clothes, a “pimp coat,” a prison jumpsuit, a pith helmet, and a “sushi chef” headband. The founders were anonymous, known only by their online screen names.

    That fall, Hollywood agent Guy Oseary reached out to Yuga Labs, eventually investing in the company and joining its board. Soon celebrities started posting their Bored Apes on social media — including Oseary’s client Madonna, along with Steph Curry, Lil Baby, DJ Khaled, Snoop Dogg, Gwyneth Paltrow, and more. Bored Apes started selling for hundreds of thousands of dollars. Justin Bieber bought an ape for $1.3 million. By March 2022, Yuga got a $450 million venture capital investment, and was valued at $4 billion.

    Guy Oseary and Madonna at a 2016 Billboard Women In Music event. Oseary said both bought NFTs from Bored Ape Yacht Club.

    The class action lawsuit claims, “this purported interest in” Bored Apes “by high-profile taste makers was entirely manufactured by Oseary at the behest of” Yuga Labs. “In order to make the promotion of, and subsequent interest in, the BAYC NFTs appear to be organic (as opposed to being solely the result of a paid promotion), the Company needed a way to discreetly pay their celebrity cohorts.” The suit alleges they did this through MoonPay.

    When Jimmy Fallon introduced his audience to crypto, he also presented a frictionless way to buy in: MoonPay, a payments company that allows customers to buy crypto through most major payment systems like with a credit card. In November 2021, Fallon said on “The Tonight Show” that he’d bought his first NFT through MoonPay. “MoonPay? MoonPay! I did my homework — Moonpay, which is like PayPal but for crypto,” Fallon said. The following January, when Hilton showed her ape on the show, she said, “You said you got it on MoonPay, so I went and I copied you.”

    A few months later, in April 2022, MoonPay announced more than 60 celebrities and influencers had invested in the firm. MoonPay spokesman Justin Hamilton told CNN that Hilton became an investor, but not until after she spoke with Fallon on “The Tonight Show.” The FTC generally requires an endorser to disclose when they have a financial interest in promoting a company.

    The celebrity hype and unbelievable prices generated enormous media interest. “Rolling Stone” minted NFTs of the magazine with Bored Apes on the cover. Guy Oseary was on the cover of “Variety” under the headline “NFT King.”

    Independent journalists, under the names of Coffeezilla and Dirty Bubble Media, noticed blockchain ledger records suggesting not everything was as it appeared. Cryptocurrency is traded on the blockchain, a permanent and public ledger of every transaction. That means it can reveal financial relationships, if you figure out the right questions to ask.

    Hours before Justin Bieber bought an ape for the equivalent of $1.3 million on January 29, 2022, Bieber received Ethereum worth about $2.5 million in his crypto wallet, the blockchain shows. A couple weeks before Post Malone released a music video in November 2021 in which he bought a Bored Ape through MoonPay, MoonPay transferred cryptocurrency then worth about $760,000 into the artist’s wallet, and sent two more payments, worth about $640,000, a couple weeks after. MoonPay admits it paid for the placement in Post Malone’s video but says other celebrities paid full price for their service in US dollars.

    Many celebrities who got apes thanked MoonPay on social media. Gwyneth Paltrow tweeted, “Joined @BoredApeYC ready for the reveal? Thanks @moonpay concierge.” The rapper Gunna posted on Instagram, “I Bought A @boredapeyachtclub NFT worth 300K No Cap ! His Name is BUTTA Thanks @moonpay !” Lil Baby mentioned MoonPay in his song “Top Priority.”

    The blockchain shows MoonPay paying high prices for the apes, and then transferring them to purported celebrity wallets for free. MoonPay explains this as a service that helps wealthy people buy NFTs without setting up their own crypto wallet.

    The company says the “white-glove” service was created because MoonPay’s CEO, Ivan Soto-Wright, had a lot of celebrity friends, and many of them asked how they could get an NFT. Jimmy Fallon, Lil Baby — they were Soto-Wright’s friends, Hamilton said.

    CNN spoke to several former MoonPay employees who said they were skeptical the celebrities paid for their NFTs, because there was no evidence on the blockchain.

    The company’s ape purchases have been significant. Since 2021, one of its wallets, “MoonPayHQ,” has spent at least $25 million on NFTs — 60% or about $15 million of that was spent on Bored Apes. The company told CNN they had 14 apes in a cold storage wallet, which offers more safety. It said that five of those NFTs were “purchased by concierge clients that are in the process of being transferred.” The last ape was purchased in April 2022, 10 months ago, according to blockchain records.

    One influencer has said he was approached about an ape. In a Twitter Spaces audio chat last year, celebrity jeweler Ben Baller said, “Real talk: not once, not twice, three times, I’ve been offered a Bored Ape through MoonPay. … The fact that some of these super top-tier all-star NBA players have them? And I was like, ‘Yo this is all cap [lies.]’ They didn’t buy this sh*t.” Baller did not respond to CNN’s request for comment. MoonPay’s spokesman said this didn’t happen.

    Oseary, the Hollywood agent and MoonPay/Yuga investor, texted CNN in response to a question: “NO ONE is paid to join the club and Yuga do NOT and have NOT given away any apes.” He said he paid full price for his Bored Ape, and so did Madonna.

    Yuga Labs declined an on-the-record interview with CNN. In a statement, the company said, “In our view, these claims are opportunistic and parasitic. We strongly believe that they are without merit, and look forward to proving as much.” Hamilton, MoonPay’s spokesman, said of the lawsuit, “We look forward to it being dismissed.”

    “The fine art market is a scam – that’s OK, at least there’s art going on,” said Max Gail, who’s been a blockchain developer since 2010, and founded Omakasea and Eth Gobblers.com. (Gail hosted the Twitter Space in which Baller discussed Bored Apes.) The NFT market, he said, “is like a parody of the fine art market. They took the same strategies that had been employed in the fine art market, but then distorted it with some strange crypto economics.”

    Anonymous buyers and sellers dealing in items whose values are difficult to calculate has made the fine art market susceptible to money laundering, a Senate investigation found in 2020. In 2022, an average of more than half of NFT trading volume on the Ethereum blockchain was “wash” trading, according to an analysis at Dune Analytics. (Most NFTs are on Ethereum.) Essentially, wash trades are a transaction in which the buyer and seller are the same person, or they’re working together. Wash trading has been illegal in traditional finance since the Great Depression, because it can distort the market by making people believe there is a high volume of interest in the investment. The ability to open many anonymous cryptocurrency wallets makes wash trading NFTs easier. A Chainalysis report found one “prolific NFT wash trader” made 830 sales to self-financed wallets in 2021.

    Though NFTs have been celebrated as the future of digital art, and a way for artists to earn royalties, many NFT collections operate more like securities — a financial instrument, like stocks or bonds, that hold some monetary value. “People will say that the technology itself has provided this whole new way of creating digital art,” Harvard’s Molly White said. “It’s not that unique. The unique part of it is the speculative bubble.”

    Mad Dog Jones' SHIFT// goes on view as part of 'Natively Digital: A Curated NFT Sale' at Sotheby's in June 2021. NFTs have been celebrated as the future of digital art.

    The NFT marketplace does not always make sense even to those who benefit from it. “Bored Apes have gone from $100 to $100,000 in a year. Nothing appreciates that fast,” a successful NFT artist said. The artist’s own works had gone from a couple hundred dollars to tens of thousands. One of the artist’s major collectors “treats me as a commodity and my art is a commodity and he’s always pumping and dumping it. … It’s being treated as a financial vehicle.”

    But there is pressure not to raise questions about the system. The NFT artist did not want to go on the record, saying it would be career suicide. “The big collectors watch for artists that FUD. And as soon as an artist FUDs, they get cancelled,” the artist said. FUD is “fear, uncertainty, and doubt,” or criticism of crypto.

    Beyond how the Bored Ape NFTs are traded, what they depict is at issue in yet another Yuga Labs legal battle.

    In the fall of 2021, accusations began swirling on social media that the Bored Ape Yacht Club contained visual references to racist memes from the troll site, 4chan. The artist Ryder Ripps — who’s worked with stars like Kanye West and Tame Impala — started tweeting about the claims of racist imagery. Ripps claims Guy Oseary, the Hollywood agent on Yuga’s board, called to pressure him to stop talking about the claims. (Oseary told CNN, “I can’t speak on active litigation.”)

    Ripps doubled down and made a website cataloging the claims. Then, in an act he says was meant to protest the alleged racism and comment on the idea you can’t copy an NFT, Ripps made copycat NFTs he sold as RR/BAYC. Yuga sued Ripps for trademark infringement, and argues that his maligning of the Yuga apes is nothing more than a profiteering tactic. Ripps says Yuga is trying to silence its critics, and has doubled down on his claims as part of his defense in the trademark suit.

    Yuga Labs called the accusations “the incoherent ramblings of a small group of for-profit conspiracy theorists.” However, the Yuga lawsuit against Ripps could affect the class action lawsuit against Yuga. Ripps’s lawyers have issued subpoenas to Paris Hilton and Jimmy Fallon.

    To assert its trademark rights, Yuga must show that consumers associate its logos with its products, and it did so in a legal filing, in part, by pointing to celebrity owners “including TV host Jimmy Fallon…”

    Ripps’s lawyer, Louis Tompros, asserts Yuga compensated celebrities for promoting its NFTs, and they did not disclose it. “And by doing that, in our view, they have gotten this public notoriety for their brand improperly,” Tompros told CNN. “And so having gotten it improperly, they now can’t go and assert that they have these rights.”

    This week Yuga co-founder Wylie Aronow published a 24-page letter explaining that he was stepping back from the company and addressing widespread rumors that the company and its products were connected to the alt-right.

    “I will soon call out this utter bullsh*t under oath,” he wrote.

    So what are the racist references alleged by Ripps and others? To start, there’s what’s right on the surface: some of the NFTs are pictures of apes in “hip hop” clothes, a “pimp coat,” a prison uniform, a bone necklace, gold and diamond grills. Record executive Dame Dash, a crypto enthusiast, pointed out on a podcast last year that monkeys and apes are old racist tropes.

    “Think if you were a racist, like ‘Guess what I’m gonna do? I’mma get Black people to love monkeys so much that they gonna buy them, wear them on their neck… go to something called ApeFest and they’re gonna like it!’ Wouldn’t that sound funny?” Dash said on the podcast. “That’s what’s happening.”

    Dash told CNN he hadn’t intended to target Yuga directly. But he’d started to wonder if he was being trolled, given the ubiquity of apes in crypto. “Racism is different these days — you can’t be so overt about it. You have to kind of troll,” Dash said.

    This week Yuga agreed to settle a lawsuit with a developer who worked with Ripps, with the developer agreeing to pay them $25,000 and saying he would reject all disparaging statements against Yuga Labs.

    Ryan Hickman, a software engineer who also worked with Ripps on RR/BAYC, is also being sued separately by Yuga. Hickman, who is Black, thought the Bored Apes looked like stereotypical portrayals of Black people as stupid or lazy. He said he thought this would be obvious to most people the second they saw an image of a Bored Ape. But, he said, “then somebody says, ‘Well, it’s worth $100,000.’ They say, ‘Okay well, tell me more.’”

    In a statement, Yuga said, “Our company and founders strongly condemn the spread of hate, in any form, against any group.” Hollywood agent Oseary said he’d never been on the troll site 4chan.

    The crypto community has adopted a lot of terms — rekt, frens, wagmi — that were popularized on 4chan, and it’s not always clear if the person using them understands where they came from. “I doubt that they were a massive alt-right troll campaign,” Harvard’s Molly White said. “I do think it’s likely that the creators of the project basically included some nods to 4chan.”

    “It’s not one thing that makes it racist. It’s everything together as a package,” programmer and 8chan founder Fredrick Brennan said, looking at comparisons between Pepe the Frog memes and Bored Apes. Brennan took an interest in the claims that Yuga referenced 4chan memes, because he’d seen them so often when he was running 8chan, a similar troll site. He quit 8chan in 2016, and in 2019 pushed for it to be taken down because it had become a hub for extremist violence. He began to suspect the Yuga founders were like the people he used to know.

    Take one of the apes’ characteristics, which Yuga calls a “sushi chef headband.” Brennan reads and speaks Japanese, and saw the headband actually said “kamikaze,” which has been used as a slur against Japanese people. A similar headband appeared on a Pepe meme. “That one was the most shocking,” he told CNN.

    In a legal filing connected to the Ripps case, Yuga said the apes reflected a combination of many traits, “not any person’s purported racism.”

    “I was hoping, in my eternal optimism,” Brennan said, “that people would become a lot more skeptical of tech bros. … And that liberal — so-called — celebrities in Hollywood would view these people with suspicion. Apparently not.”

    – CORRECTION: This story has been updated to clarify when Paris Hilton invested in MoonPay. Jimmy Fallon is not an investor, a company spokesman said.

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  • Record $3.8 billion stolen in crypto hacks last year, report says | CNN Business

    Record $3.8 billion stolen in crypto hacks last year, report says | CNN Business

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    New York
    CNN
     — 

    A record $3.8 billion worth of cryptocurrency was stolen from various services last year, with much of those thefts driven by North Korean-linked hackers, according to a report Wednesday from blockchain analytics firm Chainalysis.

    The increase in crypto heists, from $3.3 billion in 2021, came as the overall market for cryptocurrencies suffered significant declines. The value of Bitcoin, for example, fell by more than 60% last year.

    North Korea was a key driver for the surge in thefts, according to the report. Hackers linked to the country stole an estimated $1.7 billion worth of crytopcurrency through various hacks in 2022, up from $429 million in the prior year, Chainalysis said.

    Some of the biggest crypto hacks of the year have since been attributed to North Korea. The FBI has blamed hackers linked to the North Korean government for more than $600 million hack of video game Axie Infinity’s Ronin network in March and a $100 million Harmony, a cryptocurrency firm, in June.

    “North Korea’s total exports in 2020 totalled $142 million worth of goods, so it isn’t a stretch to say that cryptocurrency hacking is a sizable chunk of the nation’s economy,” Chainalysis noted in the report.

    US officials worry Pyongyang will use money stolen from crypto hacks to fund its illicit nuclear and ballistic weapons program. North Korean hackers have stolen the equivalent of billions of dollars in recent years by raiding cryptocurrency exchanges, according to the United Nations.

    In addition to hacking cryptocurrency firms, suspected North Koreans have posed as other nationalities to apply for work at such firms and send money back to Pyongyang, US agencies have publicly warned.

    In general, decentralized finance (DeFi) protocols were the main target of hackers, accounting for more than 80% of all cryptocurrency stolen for the year, according to the report. These protocols are used to replace traditional financial institutions with software that allows users to transact directly with each other via the blockchain, the digital ledger that underpins cryptocurrencies.

    Of the attacks on DeFi systems, 64% targeted cross-chain bridge protocols, which allow users to exchange assets between different blockchains. Bridge services typically hold large reserves of various coins, making them targets for hackers. (The thefts on Axie Infinity and Harmony were both bridge hacks.)

    While crypto hacks continued to rise last year, there is some cause for hope. Law enforcement and national security agencies are expanding their abilities to combat digital criminals, such as the FBI’s recovery of $30 million worth of cryptocurrency stolen in the Axie Infinity hack.

    Those efforts, combined with other agencies cracking down on money laundering techniques, “means that these hacks will get harder and less fruitful with each passing year,” according to Chainalysis.

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  • Superbowl LVI was crypto’s coming out party. This year, the party’s over | CNN Business

    Superbowl LVI was crypto’s coming out party. This year, the party’s over | CNN Business

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    New York
    CNN
     — 

    Super Bowl LVI was the crypto world’s coming out party. Buzzy firms made bold pitches last year, and shelled out millions of dollars on ads encouraging viewers not to be afraid of this new-fangled digital investment — and for God’s sake don’t miss out on this exciting opportunity!

    You can expect a lot less noise from Team Crypto during Super Bowl LVII next Sunday.

    In the year since those celebrity-packed ads debuted, the entire crypto industry has been rattled by a collapse in digital asset values. Bankruptcies began to pile up over the summer.

    Then the real pain started.

    Of the four crypto or crypto-affiliated companies that advertised in the Super Bowl last year, one (FTX) has collapsed completely. The others (Coinbase, Crypto.com and eToro) have fought against industry headwinds. Shares of Coinbase, the only publicly traded company in the group, have fallen more than 60% since its “floating QR code” ad became one of the most talked-about spots.

    Don’t expect any of those companies to be back this year. FTX is bankrupt and under criminal investigation by federal prosecutors. Etoro, a multi-asset trading platform, confirmed to CNN it would not be splurging on an ad this year, saying that while it continues to invest heavily in marketing, “we dial up or down specific channels based on many factors including market conditions.”

    Coinbase declined to comment. Representatives for Crypto.com — the company behind the ad featuring LeBron James telling his younger self to “call your own shots” — didn’t respond to requests for comment.

    But there will be at least one crypto-adjacent newcomer. Limit Break, a blockchain-based game developer, has secured a spot and intends to give away 40,000 NFTs, or non-fungible tokens (aka one-of-a-kind digital collectibles) to viewers who scan its QR code. Limit Break, founded in 2021, said it has already raised $200 million and expects to grow “a massive global audience.”

    Despite what is being called a “crypto winter,” sports advertising remains a crucial avenue for the digital curency, marketing experts say, as their target demographics share significant overlap — sports fans and crypto traders tend to be mostly male and mostly young.

    But turmoil in the crypto space means marketers are changing their tactics.

    “The tone has shifted towards Web3-driven fan engagement over crypto-specific advertising,” said Silvia Lacayo, head of marketing at crypto exchange Bitstamp US. (Web3 refers to a future internet framework that is decentralized and gives consumers more control over their own data).

    “Crypto firms are focusing less on crypto advertising and more on investing in better user experiences, products, and customer service,” Lacayo added.

    Although we don’t yet know the final lineup of advertisers for the Super Bowl, the usual suspects — beer, snacks, cars — are on deck as usual.

    “The fact that the crypto players are not going to be on the Super Bowl reflects the fact that that world has profoundly changed,” Calkins said. “Last year it was an exuberant time for crypto … This year, everything is different.”

    A year ago, FTX fetched a private valuation of around $32 billion. Its Super Bowl ads featured Tom Brady and Gisele Bundchen. Another FTX ad featured Larry David in a role that, a year later, appears prescient, with David sarcastically predicting that FTX won’t make it.

    In November, nine months after the ad debuted, FTX filed for bankruptcy. Several former executives have been charged with wire fraud and conspiracy over allegations FTX misappropriated customer funds.

    “It’s amazing how you can look back one year you realize we were in such a different place,” Calkins said. “Last year we had a Super Bowl advertiser saying, ‘fly me to the moon,’” he said, referencing the music in eToro’s ad, which many read as a nod to the meme-stock traders’ rally cry.

    But a year of higher inflation, the end of pandemic-era stimulus and higher interest rates has put a damper on financial markets — not only crypto, but traditional markets as well.

    That shift in mood will likely show up in the kinds of advertisers we see and in their messaging.

    “Our economy’s in a strange place,” Calkins says. “So if you’re an advertiser, it’s hard to know — how do you play that?”

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  • We finally know whom FTX owes money to: Wall Street elite, Big Tech, airlines, and many more | CNN Business

    We finally know whom FTX owes money to: Wall Street elite, Big Tech, airlines, and many more | CNN Business

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    New York
    CNN
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    Newly unsealed bankruptcy documents revealed thousands of creditors to whom FTX owes money after the once-mighty crypto exchange collapsed in November.

    Wall Street heavyweights including Goldman Sachs and JPMorgan were named in the creditor list, which includes businesses, charities, individuals and other entities in a 116-page document filed late Wednesday. FTX is now at the center of a massive fraud investigation.

    Also included in the creditors list are media companies, such as the New York Times and Wall Street Journal, commercial airliners, including American, United, Southwest and Spirit, as well as several Big Tech players, including Netflix, Apple and Meta.

    On Thursday, lawyers for FTX filed an additional document advising the court that the list — known as a creditor matrix — is “intended to be very broad” and “includes parties who may appear in the Debtors books and records for any number of reasons.” Being on the list does not “necessarily indicate that the party is a creditor” of FTX or its affiliates, they wrote.

    Goldman Sachs, for one, is named in the creditor matrix but doesn’t appear to be a creditor. In a statement to CNN on Wednesday, the bank said it had not filed a claim against FTX.

    “This type of creditor matrix is prepared by the debtors for the purpose of providing notice to interested parties in a bankruptcy proceeding and is not necessarily evidence of a creditor relationship,” a spokesperson said.

    The document doesn’t disclose the amount or nature of the debt, and names of individual creditors — mostly customers who deposited funds on FTX — remain redacted at FTX’s request. Inclusion on the creditor list doesn’t necessarily mean the parties had an FTX account.

    FTX is believed to have more than a million creditors, the top 50 of whom are collectively owed more than $3 billion.

    The crypto platform was once of the most popular crypto exchanges on the planet, fueled by celebrity endorsements and high-profile partnerships with sports teams. It marketed itself as a beginner-friendly crypto platform, allowing customers to deposit fiat currency and trade it for digital assets. But FTX came unraveled in November as speculation about its balance sheet sparked investor panic. In the midst of a liquidity crisis, the company filed for bankruptcy, leaving customers in limbo.

    Federal prosecutors investigating FTX say that its founder and former CEO, Sam Bankman-Fried, orchestrated a massive fraud by stealing customer funds to cover losses at his hedge fund, Alameda Research. They also accuse him of using stolen money to buy luxury real estate and contribute to US poltical campaigns.

    Bankman-Fried, who was indicted in December and remains under house arrest at his parents’ California home, pleaded not guilty to eight criminal counts earlier this month. He has repeatedly denied committing fraud, and is scheduled to go to trial in October.

    Two of his former business partners have pleaded guilty to fraud and conspiracy charges and are cooperating with prosecutors from the Southern District of New York. Both associates have implicated Bankman-Fried in the alleged crimes.

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  • Opinion: Miami is one step closer to the implosion of its crypto dreams | CNN

    Opinion: Miami is one step closer to the implosion of its crypto dreams | CNN

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    Editor’s Note: Jake Cline is a writer and editor in Miami whose work has appeared in The Washington Post, The Atlantic and other national outlets. He was a member of the team that won the 2019 Pulitzer Prize in Public Service for the South Florida Sun Sentinel’s coverage of the mass shooting at Marjory Stoneman Douglas High School. The opinions expressed here are his own. Read more opinion on CNN.



    CNN
     — 

    Thanks in large part to bitcoin evangelism by top officials in Miami, the city has spent the past couple of years in full-blown cryptomania.

    In the vision of Mayor Francis Suarez – the city’s chief cheerleader for digital currency – Miami will one day become the national capital for cryptocurrency.

    Two years ago, Miami published its “Bitcoin White Paper” – a blueprint for its transformation into a 21st century city. Around the same time, prominent crypto figures began relocating to the city, and Miami began hawking its own digital currency, MiamiCoin.

    As the fever quickened, cryptocurrency exchanges began advertising on Miami billboards. Bitcoin ATMs were installed at neighborhood gas stations and convenience stores.

    And perhaps the most visible symbol allowing Miami to flex its crypto bragging rights was the announcement in March of 2021 by Miami-Dade County that it had sold naming rights for its main sports arena – home of the beloved Miami Heat NBA franchise – to FTX, the now bankrupt cryptocurrency exchange founded by disgraced crypto entrepreneur Sam Bankman-Fried.

    That partnership, which is not even two years old, came to an unhappy end last week. On Wednesday, the beleaguered company and Miami’s local government finalized an agreement to terminate the deal and remove the now tarnished FTX logo from the sports venue.

    Over the past few months, as the scale of Bankman-Fried’s alleged fraud became clear, some city elders and the business community scrambled to unwind what many of us had suspected from the start was a simply terrible business deal. Bankman-Fried, who has maintained his innocence, pleaded not guilty to federal fraud charges during a court appearance in New York earlier this month.

    We now know just what a fiasco Miami’s love affair with crypto has been. The financial costs of last year’s crypto crash have been enormous for the many thousands of investors who invested – and then lost funds they could ill afford to forgo.

    But my own reservations were not rooted in certain knowledge that crypto would crumble, although its collapse was far swifter and more spectacular than even most skeptics anticipated.

    My opposition to crypto is based on its deleterious effects on the environment. The fact that Miami, considered “the most vulnerable major coastal city in the world,” would go all in for a currency created by a climate-wrecking technology always seemed to me to be a particular kind of madness.

    Many people don’t understand how a currency that exists largely in the digital space can have real-life destructive impacts on our environment. Bitcoin mining uses vast amounts of resources. As the New Yorker’s Elizabeth Kolbert wrote in an April 2021 article, “bitcoin-mining operations worldwide now use … about the annual electricity consumption of the entire nation of Sweden.”

    Citing data scientist Alex de Vries’ Digiconomist website, Kolbert reported that “a single bitcoin transaction uses the same amount of power that the average American household consumes in a month.” Similar reporting could be found at The New York Times, The Washington Post and CNN.

    Bitcoin mining hardware has ramped up as the cryptocurrency’s popularity has increased. Between January 1, 2016, and June 30, 2018, the mining operations for four major cryptocurrencies released an estimated three to 15 million metric tons of carbon dioxide, according to a study in the research journal Nature Sustainability.

    Even China, the world’s largest polluter, banned bitcoin mining in 2021, citing its high carbon emissions. Now we are in what has been called “crypto winter” after enthusiasm has plummeted for cryptocurrencies worldwide. Nevertheless, the carbon footprint of bitcoin, still the world’s most valuable digital currency, continues to be enormous.

    This past September, a report from the White House Office of Science and Technology Policy found that crypto mining in the United States emits as much greenhouse gas as the nation’s railroads and cautioned that “depending on the energy intensity of the technology used, crypto-assets could hinder broader efforts to achieve net-zero carbon pollution consistent with U.S. climate commitments and goals.”

    But despite all that data, Suarez remains convinced that it’s possible to produce bitcoin in an environmentally friendly way.

    “I’d love to sort of dispel some of the, I think, myths — I call them myths — of [crypto] mining as a not-environmentally-friendly activity,” the mayor said during his Crypto Conference, a live-streamed event held in June 2021.

    And because there are renewable-energy sources in South Florida, his argument goes, crypto miners could eventually be incentivized to stop contributing to the destruction of our planet. He has argued, in effect, that because renewable energy sources exist, miners might just in the future opt to use them. It’s an extraordinarily weak argument. It would be a wonderful outcome, if only we could interest bitcoin miners in abandoning their pursuit of cheap and dirty energy sources.

    But he’s not wrong – it is entirely possible to mine bitcoin responsibly, as bitcoin’s leading competitor, ethereum, proved last year. A decentralized global network used for verifying billions of dollars of cryptocurrency transactions, ethereum in September completed a system-wide transformation known as the Merge.

    Essentially, ethereum moved to a mining process, known as proof of stake, that requires significantly less computing power than bitcoiners’ preferred process, proof of work. In doing so, ethereum appears to have reduced its worldwide energy consumption by more than 99%.

    While some bitcoin miners say they want their industry to go green, the majority resist calls to adopt the proof of stake system over fears it would eat into their profits. Meanwhile, residents of Miami seem torn on environmental matters. According to a survey conducted by Yale University, as well as George Mason University, they believe that local officials, and state officials, including the governor “should do more to address global warming.”

    But Miami voters helped to propel a “red wave” that installed Republican supermajorities in both chambers of the Florida legislature — a body that under GOP control allows fossil-fuel companies to write its bills.

    Residents of Miami-Dade County this past November also voted to reelect Gov. Ron DeSantis, who has said that while he doesn’t consider himself a “climate change denier” he hopes never to be mistaken for a “climate change believer.”

    And despite everything that has happened with the digital currency’s plummeting value, Suarez, who is also president of the United States Conference of Mayors, remains a bitcoin believer.

    Miami-Dade County will once again play host later this year to Bitcoin 2023, the next installment of the annual conference. And Suarez told a Miami TV station that he continues to receive his government salary in bitcoin, as he has since November 2021.

    Some dreams, it would seem, die hard.

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  • How CBDCs Will Transform The World As We Know It

    How CBDCs Will Transform The World As We Know It

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    Opinions expressed by Entrepreneur contributors are their own.

    Over the past couple of years, I have been working with my team at Broxus to develop the infrastructure necessary for central banks to deploy digital versions of their currencies. While we have been doing this work, and other projects have been engaged in similar endeavors, the dialogue around CBDCs has taken on something of a life of its own, colored by misconceptions about what Central Bank Digital Currencies (CBDCs) are and their purpose.

    At their essence, CBDCs are digital versions of a country’s fiat currency that are pegged at a 1-1 ratio with the original currency. For example, if the US were to release a CBDC, that would be in the form of a digital dollar that is always equal to its fiat counterpart. While CBDCs are related to cryptocurrencies and blockchain technology, some key distinctions exist.

    CBDCs are, by definition, recognized digital legal tender. That means that, unlike other similar digital assets like stablecoins, CBDCs carry the equivalent legal weight as fiat currencies. This is important as one of the main drivers of CBDC expansion is the shift occurring globally to cashless societies. As more societies become increasingly cashless, the current economic infrastructure has struggled to support local and international economies. CBDCs are a potential way of solving these issues.

    Much of the disconnect has arisen from many’s perceptions concerning cryptocurrencies, and the association CBDCs have in the public’s eye with cryptocurrencies. The truth is, while cryptocurrencies remain primarily speculative, CBDCs are something else entirely. Here, speculation plays no role. CBDCs, if instituted correctly, would be able to optimize financial systems that have grown outdated and been failing to meet the needs of the world’s most vulnerable demographics from a financial perspective.

    While the value of cryptocurrency is often tied to future developments and use cases, with CBDCs, the value is in the here and now. The utility of these digital currencies is something real, something that addresses shortcomings that are palpable around the world right now. I believe that the framework in which we discuss CBDCs needs to change so that ongoing efforts to integrate this technology into the fabric of the world economy may come to fruition.

    Related: $465 Million of Robinhood Shares Linked to FTX’s Sam Bankman-Fried Are in Question — What Now?

    CBDCs and universal basic income

    Social security systems of the 19th and 20th centuries have all required the construction of a significant state body to redistribute wealth. These bloated governance structures have generally not been able to adequately assist the people who find themselves in the more vulnerable spheres of society. To address this issue, an experiment was conducted in Finland that sought to provide a Universal Basic Income (UBI) to generally unemployed people. Rather than using a welfare model, benefits were given out in Finland through a €560 direct cash deposit each month. On the one hand, this provided direct support to those in need and, on the other hand, reduced the costs of collecting, accounting and spending funds that run high in welfare programs.

    The final results of the Finnish experiment are now in, and the findings are intriguing: the UBI in Finland led to a modest increase in employment, greatly improved results in the material well-being of recipients, and increased positive individual and societal feedback.

    CBDCs can be uniquely positioned to improve the performance of Universal Basic Income (UBI) programs. Since most of the launched pilot projects and prototypes for CBDCs are focused on a 0% deposit rate, i.e., a situation where CBDCs are subject to inflation and depreciation, central banks could gain more effective leverage in managing aggregate demand in the economy by collecting taxes and distributing part of them to UBI recipients. By issuing currency in digital form, central banks will be able to radically reduce the costs of the state to ensure the circulation of the national currency and social support for the population.

    Related: Regulated Blockchain: A New Dawn in Technological Advancement

    Reaching the unbanked

    In 2021, according to the World Bank Group, 1.4 billion adults were still unbanked. That is a massive portion of the world’s population, and the failure to provide these people with adequate banking services is likely to prolong poverty cycles and have a stunting effect on global economic growth.

    This problem is acute in South East Asia, and a good example of it can be seen in The Philippines, an area that we have focused on in our work. Just over half of the adult population in The Philippines has access to banking services. In a healthy economy, small and medium-sized businesses need access to banking services to thrive. With just over half of the population having access to those services, the Filipino economy cannot flourish, leaving the less affluent to bear most of the brunt.

    Related: Crypto vs. Banking: Which Is a Better Choice?

    Lowering the cost of money transfers

    The lack of banking services has led Filipinos to utilize alternative financial methods and seek work in other countries. Nowadays, remittances from Filipinos working overseas and sending money home account for 10% of the Philippine GDP or roughly 70-80 billion dollars. At the same time, the cost of money transfers is approximately 8-10% of the total amount of the transaction.

    Even here, CBDC technology can be effective in improving the situation. As part of our work in CBDC development, we have established a partnership between the Everscale network and DA5, one of the leading authorized direct agents of Western Union in the Philippines. The blockchain remittance service created by Everscale and DA5 will be the first technology in the Philippines capable of speeding up and lowering the cost of this process. As a result, people will no longer have to pay such high fees on their transactions once the service is launched.

    The first phase of the partnership will see the launch of Everscale’s new stablecoin, which will be tied to the Philippine peso. After the stablecoin is released, users in the Philippines can immediately exchange fiat for its digital counterpart at industry-low rates. But this is just a stablecoin; if The Philippines were to launch a CBDC, there would be benefits for all sectors of the economy.

    The privacy debate

    A common argument against CBDCs is their lack of privacy. However, this is only partially true: it can be shown that more centralized systems can allow more privacy than decentralized protocols. The bad privacy properties of Ethereum, in which states are made up of reused addresses, are widely known. In addition, users sometimes use uniquely linked domain names, making their transactions transparent to outside observers.

    There is a trade-off when designing decentralized protocols: complete on-chain privacy can lead to an inflation problem within the protocol that cannot be tracked – because the recipient and quantities are not known. A sidechain like Liquid gets around this problem quite simply: no more bitcoins can be created inside the protocol than were received at the input. In a centralized system, one trusted oracle can be provided that determines the boundaries of the issue.

    Centralized solutions based on Chaumian e-cash could use more advanced cryptographic methods to hide counterparties and quantities and selectively disclose this information at the request of the parties involved in transactions. In addition, there is no limitation on how privacy-enhancing features can be implemented since they are not bound to decentralized protocols with limited network resources and free space on the blockchain.

    Related: Web3, Crypto, Cybersecurity, Rural Fintech: Trends To Look Out For In 2023

    CBDCs as a vehicle for real and necessary economic change

    The issues above are not going away, and as countries worldwide continue to develop, the people affected by them are likely to continue to suffer. Quite simply, governments have never had the tools necessary to implement adequate benefits programs for those who need them. Now, however, that opportunity is here.

    That is the real utility that all of the efforts towards developing CBDCs are based upon, and that should be at the center of the discussion around this new technology.

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    Sergey Shashev

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  • Inflation fears fade as geopolitical risks rise | CNN Business

    Inflation fears fade as geopolitical risks rise | CNN Business

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    New York
    CNN
     — 

    Inflation fears roiled the markets in 2022. Now, investors may have scarier things to worry about in 2023, according to a report from global research and consulting firm Eurasia Group. Most notable? Concerns about the increasingly chaotic geopolitical landscape.

    “Inflation shockwaves” still feature as one of Eurasia’s top political risks for 2023 in a new report.

    But perhaps surprisingly, inflation ranks fourth on the list, behind worries about a rogue Russia under the leadership of Vladimir Putin and Xi Jinping’s consolidation of power in China.

    Eurasia’s third biggest fear — the increased use of artificial intelligence technology to wreak havoc on the global economy — only adds to jitters about disruption from Russia and China. Eurasia called AI “a gift to autocrats.”

    Eurasia, led by political scientist and author Ian Bremmer, pointed out that Russia’s war with Ukraine may become an even bigger problem for the United States and Europe.

    “Nuclear saber-rattling by Moscow will intensify. Putin’s threats will become more explicit,” Eurasia said in its report. It is also concerned that “Kremlin-affiliated hackers will ramp up cyberattacks on Western firms and governments.”

    That could mean attempts to disrupt oil pipelines, American and European satellites and other telecom and tech infrastructure, as well as further efforts to influence and sabotage global elections.

    “Moscow will step up its rogue behavior…with newly empowered influence operations targeting NATO countries,” Eurasia said in the report.

    Eurasia pointed to upcoming Polish elections in 2023 as “the most obvious target” but that other Western nations “will be vulnerable, too.”

    Autocracy in China is a potential economic and market headache as well.

    “Xi’s drive for state control will produce arbitrary decisions and policy volatility. China’s economy is in a fragile state after two years of harsh Covid-19 controls,” Eurasia noted, pointing out that “plummeting homebuyer and market sentiment have ground growth in the critical real estate sector to a halt, depleting local government revenue.”

    Eurasia added that the “backdrop of weakening global growth and deepening domestic challenges demands competent economic management from Beijing.” Instead, “the Chinese leadership is delivering opacity and unpredictability.”

    Chinese officials announced in October that they were delaying the release of key economic data, news that Eurasia said “was an ominous sign of things to come for global markets.”

    All of this uncertainty comes as China continues to face the growing Covid outbreak in the country. Eurasia fears that “if a severe new strain of Covid were to emerge,” it is “more likely that it would spread widely in China and beyond.

    “China would be unlikely to identify the new variant because of reduced testing and sequencing, to recognize more severe disease due to an overwhelmed health system, and to let news of a more severe variant get out given Xi’s track record on transparency,’ Eurasia said. “The world would have little or no time to prepare for a deadlier virus.”

    Meanwhile, Eurasia also is worried that Beijing “will deploy new technologies not only to tighten surveillance and control of its own society, but also to spread propaganda on social media and intimidate Chinese language communities overseas.”

    None of this is to suggest that worries about rising prices have dissipated.

    While inflation is listed as the fourth-biggest risk, Eurasia is still concerned that “rising interest rates and global recession will raise the risk of emerging-market crises.”

    Energy prices in particular will remain a sticking point for the global markets and economy as Eurasia notes that “higher oil prices will also increase frictions between OPEC+ and the United States.”

    And Eurasia also listed concerns about instability in Iran, shrinking water levels and economic inequality as major global challenges.

    Then there’s another new and distinctly 21st century worry: the rise of social media.

    “Gen Z has both the ability and the motivation to organize online to reshape corporate and public policy, making life harder for multinationals everywhere and disrupting politics with the click of a button,” Eurasia said, referring to the phenomenon as the “Tik Tok Boom.”

    Sam Bankman-Fried, the disgraced founder of bankrupt crypto exchange FTX, had another day in court on Tuesday.

    Bankman-Fried, more commonly referred to by his initials, SBF, plead “not guilty” to charges ranging from wire fraud and conspiracy to commit money laundering to conspiracy by misusing customer funds.

    SBF appeared in a Manhattan court Tuesday after he was arrested last month in the Bahamas, extradited to the United States and then released by a judge on a $250 million bail package. But as my colleague Kara Scannell reports, the legal drama for SBF is only beginning. The judge set a trial date of October 2.

    Prosecutors allege that SBF was in charge of “one of the biggest financial frauds in American history.” They claim that he moved (or stole) billions of dollars from FTX customers to cover losses at the firm’s companion hedge fund, Alameda Research.

    The cryptocurrency world was already in turmoil before FTX imploded. The prices of bitcoin, ethereum and other digital coins all plummeted in 2022. But FTX and Alameda were each forced to file for bankruptcy in December after investors rushed to pull deposits.

    FTX was once valued at $32 billion, based on funding from private investors. The company was expected to be one of the hottest initial public offerings of 2023 as recently as the middle of last year. Not any more.

    Covid woes hurt Apple

    (AAPL)     last year, as the world’s largest iPhone factory in China faced production disruptions since October due to the pandemic.

    But the giant campus, owned by top Apple supplier Foxconn, is reportedly now back at 90% production capacity following worker protests and Covid-related restrictions.

    Apple needs to get more of its latest smartphones into people’s pockets. Delays with the various iPhone 14 models have cost the company — and its investors — dearly.

    Wedbush Securities analyst Dan Ives estimated in November that disruptions in China led to about $1 billion a week in lost revenue.

    And analysts at UBS also said in November that wait times for the new iPhone 14 Pro and 14 Pro Max in the US were more than a month long due to supply chain woes. That couldn’t have come at a worse time since it was just before Christmas and other winter holidays.

    Apple’s stock had a tough 2022, like the rest of Big Tech, and it didn’t start off 2023 in a festive fashion either. Shares of Apple hit a new 52-week low Tuesday. Apple’s market value dipped below $2 trillion in the process. Just a year ago, Apple was the first company in the world to reach a $3 trillion market valuation.

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  • FTX founder Sam Bankman-Fried to appear in court Tuesday | CNN Business

    FTX founder Sam Bankman-Fried to appear in court Tuesday | CNN Business

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    New York
    CNN
     — 

    Sam Bankman-Fried, the disgraced founder of bankrupt crypto exchange FTX, is set to appear in person in a Manhattan federal court on Tuesday to face charges that include cheating investors out of billions of dollars.

    Bankman-Fried, known as SBF, is charged with eight criminal counts ranging from wire fraud and conspiracy to commit money laundering to conspiracy by misusing customer funds. He is expected to plead not guilty. He could face up to 115 years in prison if convicted on all charges.

    Last month, a US judge released him on a $250 million bond in his first appearance on American soil since his arrest in the Bahamas, where he lived and ran his businesses. The judge agreed to a bail package proposed by federal prosecutors and lawyers for Bankman-Fried that also requires the former “crypto king” to wear an electronic ankle monitor and remain under house arrest at his parents’ home in Palo Alto, California.

    Bankman-Fried’s parents, both law professors at Stanford who co-signed his bond, have “become the target of intense media scrutiny, harassment, and threats,” defense lawyers wrote in a letter to the court, while asking to redact the names of two other co-signers, known as “sureties.”

    “There is serious cause for concern that the two additional sureties would face similar intrusions on their privacy as well as threats and harassment if their names appear unredacted on their bonds or their identities are otherwise publicly disclosed,” the letter states.

    Prosecutors allege that Bankman-Fried orchestrated “one of the biggest financial frauds in American history,” stealing billions of dollars from FTX customers to cover losses at its sister hedge fund, Alameda Research.

    FTX and Alameda both filed for bankruptcy in December after investors rushed to pull their deposits from the exchange, sparking a liquidity crisis and triggering contagion and panic across the crypto industry.

    Two senior executives associated with the collapse — Gary Wang, the co-founder of FTX, and Caroline Ellison, who served as Alameda’s CEO — have since pleaded guilty to multiple criminal charges and are cooperating with federal prosecutors, according to unsealed court records.

    In addition, the pair face civil fraud charges from the Securities and Exchange Commission.

    Wang faces up to 50 years in prison in accordance with federal sentencing guidelines referenced in court. Ellison faces up to 110 years in prison for the seven criminal counts she’s pleaded guilty to, per federal sentencing guidelines.

    FTX’s new CEO, John Ray III, who made his name overseeing the liquidation of Enron in the early 2000s, said in a congressional hearing that customer funds deposited on the FTX site were commingled with funds at Alameda, which made a number of speculative, high-risk bets.

    Ray described the situation at the two companies as “old-fashioned embezzlement” at the hands of a small group of “grossly inexperienced and unsophisticated individuals.”

    — CNN’s Allison Morrow and Kara Scannell contributed to this report.

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