Category: Cryptocurrency Law

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Australia Crypto Wallets Cryptocurrency Law Cryptocurrency Tax Gaming

Northern Territory Moves to Regulate Crypto Gambling

Cryptocurrency is about to join crocs and Kakadu as one of the three defining features of Australia’s Northern Territory, with plans afoot to include crypto betting as part of the Top End’s regulated gambling industry.

The Australian Northern Territory Racing Commission (NTRC) is seeking input and feedback from gambling licensees on how the regulatory landscape might change in order to get crypto betting off the ground in the NT.

With gambling in Australia regulated by states and territories rather than at federal level, the NTRC oversees all betting interests that are licensed in the NT, including global concerns such as Betfair, Entain Group, Draft Kings and Sportsbet.

Contents of Private Document Made Public

Julian Hoskins, principal of one of Australia’s largest gambling law and regulatory consultancies, Senet, has seen a private document circulated among licensees and chose to shed light on its contents:

Any licensee, for example a sports bookmaker licensed in the Northern Territory, who wants to accept cryptocurrency for billing or paying wages needs permission to do so. And there are certain conditions attached to that.

Julian Hoskins, Senet

“It is clear from the conceptual framework that they are looking at cryptocurrency gambling and not simply exchanging [crypto] for fiat,” Hoskins added, pointing out that gamblers will most likely have to place fiat and crypto bets separately on the one platform as the two financial instruments will not be interchangeable for gambling.

Given the popularity of crypto, I imagine it would be very popular as an alternative to fiat. I think it has the potential to be quite material.

Julian Hoskins, Senet

Other States Likely to Follow Suit

Hoskins says that if this model went according to plan in the Northern Territory, gambling regulators in other states would likely follow suit, while also noting that strict identification requirements have been proposed to maintain compliance with anti-money laundering (AML) regulations. As such, gamblers will most likely have to have their crypto wallet addresses verified, with any winnings sent back to the same wallet that made the initial deposit.

According to the document, the NTRC has recommended monthly crypto deposit limits of A$2,000 for the first 12 months, with a maximum bet of A$5,000 per month.

Mindil Beach Casino, Perth, NT. Source: mindilbeachcasinoresort.com.au

Hoskins, who is a gambling industry lawyer, also explained that local gambling companies will be required by law to maintain crypto wallets that contain enough funds to fully collateralise customers’ wagering amounts, as is common in fiat-based gambling.

As for the tax implications of using volatile crypto assets to gamble, Hoskins said he was not sure “how that would be handled”, which suggests the NTRC is still considering such issues.

This all comes just days after the recently elected federal government outlined its approach to crypto regulation, with Treasurer Jim Chalmers announcing a “token mapping” exercise that is expected to help “identify how crypto assets and related services should be regulated”.

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Celsius Cryptocurrency Law DeFi Ethereum

Bankrupt Celsius Launches Lawsuit Over Alleged Theft of 1000 ETH

Bankrupted crypto lender Celsius has filed a lawsuit against a former investment manager, alleging he cost the platform tens of millions of dollars through a combination of incompetence and theft.

The complaint, which was filed in New York’s Manhattan bankruptcy court on August 23, alleges that Jason Stone, through his company KeyFi Inc, falsely presented himself as an experienced and highly skilled digital asset manager, but was in fact negligent and “extraordinarily inept” at devising and implementing profitable crypto investing strategies.

Celsius Alleges DeFi Manager Used NFTs, Tornado Cash to Siphon Funds

The filing states that Stone worked with Celsius for about seven months up to March 2021 and was given access to a Celsius-controlled wallet for the purposes of managing the lender’s DeFi investing strategy.

Celsius alleges that rather than managing its assets as requested, Stone instead invested heavily in NFTs – including CryptoPunks and Bullrun Babes – to the tune of 1070 ETH. Allegedly, Stone later sold some of the NFTs for 1071 ETH before funnelling the funds through crypto mixing service Tornado Cash to his own private wallet rather than back into the Celsius-controlled wallet.

Celsius claims Stone had no authorisation to purchase NFTs as part of his role and suggests he might have done so because he was aware it was difficult for Celsius to track NFT purchases through its internal systems, making the theft harder to notice.

In addition to what it claims was intentional theft, Celsius claims Stone also cost the lender over US$50 million through his ineptitude, saying he proved himself “incapable” of investing profitably in cryptocurrencies.

Stone, responding to these accusations through his lawyer, Kyle Roche, claims all of the investments he made on behalf of Celsius were authorised by the lender’s CEO, Alex Mashinsky.

Claims Follow Previous Suit From KeyFi Against Celsius

These complaints come six weeks after Stone’s company, KeyFi, filed suit against Celsius, claiming it was operating a Ponzi scheme and that it owed Stone hundreds of millions of dollars in unpaid compensation. 

Stone claims Celsius ran out of money because it relied on attracting new customers by offering excessively high rates of return, and because it failed to adequately manage risk by hedging its investments. He also says he generated over US$800 million in profit in seven months for the lender, further claiming that he’s entitled to 20 percent of this profit – over US$200 million.

Financial documents filed by Celsius last week as part of its bankruptcy hearing show that the lender has a US$2 billion hole in its books and could be completely out of cash by the end of October.

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Cryptocurrency Law Privacy Social media Tornado Cash

#FreeAlexPertsev Protest March Kicks Off After Tornado Cash Dev’s Arrest

A week after the arrest of Tornado Cash developer Alexey Pertsev, public dissent has reached a crescendo. Crypto and privacy advocates are planning protest marches and a petition advocating for his release is now circulating on social media under the #FreeAlexPertsev banner.

Writers of Open-Source Code Treated as Scapegoats

Following Pertsev’s arrest in Dam Square, Amsterdam, 50 advocates organised a demonstration alongside Pertsev’s wife, Xenia Malik. The public is also getting on board with protesters arguing Pertsev should not be held responsible for writing open-source code, regardless of its users.

The protest is raising several questions in relation to whether these projects’ developers deserve such harsh punishments. Crypto mixers in themselves are not illegal, merely serving to allow users transaction anonymity. The problem comes when this technology is used to launder illicit funds.

A petition was organised on Change.org last week by Finnish product manager Daria Mironova, who hopes to further raise awareness of the circumstances of the arrest. In the petition, Mironova explains that open-source software can be “audited, fixed and improved by anyone”, yet a developer cannot control how this code is used, even with the best intentions.

If we don’t react now, in the future we might see many cases where innocent developers go to prison when someone misuses their code.

Daria Mironova, Finnish product manager

As it stands, no official charges have been filed against Pertsev; however, he has been interrogated about his involvement in the protocol’s development. By the end of last week, 1,015 signatures had been added to the petition. When that figure reaches 40,000, Mironova plans to take this proof of public dissent to the authorities.

How It All Started

On August 12, Dutch authorities announced they had arrested Perstev in Amsterdam for his supposed involvement in facilitating money laundering and concealing criminal financial flows through his work on the crypto mixing service. It was alleged that Tornado Cash enabled criminals to launder stolen assets by concealing their identities.

Yet it wasn’t all negative, as the platform also hid the identities of Ukrainian citizens receiving donated crypto from the public. However, the Dutch authorities maintain that those behind the company made a significant profit from these transactions.

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Bored Ape Yacht Club Crypto News Cryptocurrency Law NFTs Social media

Bored Ape Defies NFT Downturn, Sells for $1.5 Million

A cashed-up Bored Ape Yacht Club (BAYC) enthusiast has just paid a huge 777 ETH (US$1.5 million) for a single Ape, defying the current market downturn.

Crypto millionaire and BAYC superfan Vis.eth purchased Bored Ape #5383 for its gold fur, after already spending millions on Otherdeeds:

https://opensea.io/assets/ethereum/0xbc4ca0eda7647a8ab7c2061c2e118a18a936f13d/5383
Bored Ape #5383.

Median Price Hits Two-Month High

The Ape purchased this week by Vis.eth is the 285th rarest in the BAYC collection, notable for its gold fur and red checked shirt. The purchase pumped the median price for the collection, pushing it to a new two-month high of 441 ETH.

Vis.eth’s purchase of Ape #5383 netted a 500 percent profit for its previous owner, who originally bought it for 95 ETH. The “metaverse mogul” is no stranger to these purchases, having already spent millions on Otherdeeds from Yuga Labs’ Otherside project, and some CryptoPunks:  

The monthly volume for the NFT marketplace has been at abysmally low levels during the crypto winter. Total sales for July were a meagre US$675.53 million in comparison to January’s US$5.63 billion:

https://www.theblockresearch.com/data/nft-non-fungible-tokens/marketplaces
The difference a crypto winter makes to NFT sales.

Eventful Year for Yuga Labs

Yuga Labs has been stuck between a rock and a hard place of late, with both the media and the courts snapping at its heels. In late July, a class-action lawsuit was filed by international law firm Scott+Scott over allegations that it falsely promoted Bored Ape NFTs and ApeCoins as securities with guaranteed returns, despite their value actually plummeting in the subsequent three months.

Prior to the lawsuit, Yuga Labs faced damning allegations of racism which rocked the industry. Philip Rusnack, aka Philion, posted a lengthy YouTube video identifying supposed alt-right connotations among the memes, language and symbols used in Bored Ape Yacht Club (BAYC) collections. This led to the trending ‘BURNBAYC’ hashtag, which was circulating on Twitter at the time.

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Crypto News Cryptocurrency Law Zipmex

Embattled Crypto Lender ‘Hodlnaut’ Applies for Creditor Protection

Hodlnaut has become the second Singapore-based crypto lender to seek a protection order from creditors after filing an application with the Singapore High Court to be placed under judicial management:

Hodlnaut Joins Vauld, Zipmex in Unholy Trinity

Following in the wake of Vauld, which was granted a three-month protection order earlier this month after it too suspended withdrawals without notice in July, Hodlnaut’s application will temporarily safeguard the lender from any legal claims.

Hodlnaut and Vauld join crypto exchange Zipmex, also based in Singapore, in securing temporary creditor protection. Earlier this week, Zipmex successfully won its own three-month moratorium until December 2 to enable it to formulate a funding and restructuring plan.

Hodlnaut hopes that being put under judicial management will allow it too to devise a recovery plan to avoid liquidating customer assets.

What Is ‘Judicial Management’?

Judicial management is a law in Singapore under which financially troubled firms are given the opportunity to rehabilitate themselves. The court appoints a judicial manager who temporarily takes over from the company’s managing director.

The appointment of a judicial manager can take up to a few months. Until the court confirms who that might be, the company may apply to appoint an interim judicial manager to act on a temporary basis in the same capacity. Hodlnaut has nominated Tam Chee Chong, director of the financial consultancy firm Kairos Corporate Advisory, as its interim judicial manager.

With almost four decades’ experience in a corporate finance advisory capacity, Chong has performed the role of judicial manager in a range of companies that have undergone restructuring:

With [Chong’s] experience and track record, we [Hodlnaut] believe he will be able to execute our recovery plan and restructure the business effectively.

Hodlnaut announcement
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Crypto Exchange Crypto News Cryptocurrency Law Zipmex

Zipmex Granted Protection from Creditors for 3 Months

Embattled Asia-Pacific crypto exchange Zipmex has been granted protection from its creditors until December 2, with the Singapore High Court allowing it three months to come up with a funding and restructuring plan:

The moratorium amounts to half the period sought by Morgan Lewis Stamford, lawyers for Zipmex, who had applied for six months’ protection under Singapore’s insolvency law across the exchange’s outlets in Singapore, Thailand, Indonesia and Australia after they abruptly suspended withdrawals last month.

Court Orders Town Hall Meeting for Creditors

According to a statement this week from Zipmex, the court also directed that the exchange convene a town hall-style meeting with its creditor and customer base within one month from the date of the court’s moratorium decision:

[At this meeting], it will minimally be explained what the proceedings in Singapore mean for creditors and customers, the state of proposed investments, the likelihood for the completeness of investors’ proposals and how serious they are, and when customers will be able to access their Z Wallets.

Zipmex statement, August 16

Last week, Zipmex announced its Z Wallet customers would be able to “partially withdraw” some of their Bitcoin and Ether holdings, naming August 11 and 16 as respective dates for releasing “a specific amount” of ether and bitcoin. These amounts turned out to be 0.08 ETH and 0.0045 BTC (about US$150 and US$110, respectively).

Earlier this month, Zipmex said it was “exploring multiple avenues” to secure funding, adding that it was expediting due diligence after signing a memorandum of understanding (MOU) with two investors.

CEO Pressured to Step Down

Meanwhile, Zipmex shareholders and potential investors have reportedly urged CEO Marcus Lim to step down over management decisions they believe led to Zipmex’s liquidity crisis:

Zipmex is not the only Singapore-based firm to secure a moratorium against its creditors. Crypto lender Vauld was granted a three-month protection order by the same court earlier this month after it, too, froze withdrawals without notice in July.

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Crypto News Cryptocurrency Law Regulation Security

Tough Week for Robinhood: 25% of Staff Cut and a $30 Million Fine for Money Laundering Violations

California-based crypto trading platform Robinhood has been fined US$30 million by a New York regulator for failing in its anti-money-laundering obligations.

To make matters worse, the company has also been forced to lay off 25 percent of its staff after performance failed to match expectations.

Additional Cybersecurity and Consumer Protection Violations

The New York State Department of Financial Services (NYDFS) has issued details of the penalties. Additional to its anti-money-laundering failure, Robinhood is to be penalised for cybersecurity and consumer protection violations.

The platform’s cybersecurity program was found to lack sufficient resources to address risk. Its crypto division had also failed to transition from a manual transaction monitoring system to one more adequate for its user size and transaction volume, in a timely manner.

NYDFS Superintendent Adrienne Harris has spoken publicly about Robinhood’s shortcomings:

As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the department’s anti-money laundering and cybersecurity regulations.

Adrienne Harris, NYDFS Superintendent

Unfortunately for Robinhood, the bad news does not stop there. On August 2, the company released a message from Vlad Tenev, its CEO and co-founder, announcing that the company would be forced to cut almost a quarter of its staff.

Ironically, considering Robinhood’s cybersecurity program was found to be inadequately staffed, overhiring in 2021 in anticipation of growing retail engagement with stock and crypto markets was blamed for the layoffs. Performance failed to match expectations, and Robinhood is bracing for approximately US$30-40 million in cash restructuring charges from employee benefits costs and severance.

One Ordinary Year Follows Another

Last year saw Robinhood also make the news multiple times for all the wrong reasons. In July, the crypto trading app was fined US$70 million for misleading its customers.

Then in October, Robinhood experienced a 78 percent decline in its Q3 crypto revenue. User growth in investment apps had skyrocketed as retail investors piled into stocks and crypto in the wake of the March 2020 Covid-19 financial meltdown. As a result, memecoins were receiving a lot of attention and Robinhood’s exposure to DOGE was blamed for the drop.

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Australia Crime Cryptocurrencies Cryptocurrency Law

Victorian State Parliament Moves to Give Police Sweeping Powers to Seize Crypto

The Australian state of Victoria has this week introduced new laws allowing the seizure of assets including crypto if criminals are caught with guns or drugs.

Police Invested with ‘More Power’

The Justice Legislation Amendment (Police and Other Matters) Bill 2022, tabled in Victoria’s Parliament, will tighten the state’s confiscation laws and give authorities more power to investigate and impound proceeds of crime.

Under the legislation, a conviction for possessing a trafficable quantity of firearms, as well as drug and sexual offences, will trigger the automatic forfeiture of assets, including cryptocurrencies.

A year ago, Victoria Police took possession of what they claimed at the time was the largest quantity of crypto (A$8.5 million worth) ever seized in connection with an Australian crime.

Jaclyn Symes, Attorney-General of Victoria. Source: bendigoadvertiser.com.au

According to Victoria’s Attorney-General, Jaclyn Symes, the proposed new legislation will “better reflect the realities of modern policing”.

These reforms will provide law enforcement with greater opportunities to confiscate proceeds of crime, ensuring there’s no payday for criminals.

Jaclyn Symes, Attorney-General, Victoria

Crypto Exchanges Forced to Provide Customer Information

Cryptocurrency exchanges will be compelled to hand over information about suspects much in the same way as banks are able to seize digital wallets. Powers to obtain electronic data from computers and storage devices, and authorising specialised tradespeople such as locksmiths to search a criminal’s property, will also be facilitated.

Intelligence officers would also no longer need the approval of the Chief Commissioner of Police to investigate online predators, making it easier for police to assume fake identities to infiltrate online child grooming profiles.

Court oversight of search warrants would be streamlined under the reforms, though Victoria Police has issued assurances that “safeguards would remain in place”.

These would include court directions that seized items – including cryptocurrencies – be returned to owners. Victims of crime will also be eligible for more compensation from the proceeds of forfeited property. Whether that also includes crypto was not specified.

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Crypto Exchange Crypto News Cryptocurrency Law Zipmex

Crypto Lending Woes Continue as Zipmex Files for ‘Bankruptcy Protection’

Singapore-based multinational crypto exchange Zipmex has revealed it is seeking bankruptcy protection against legal action from creditors.

The embattled company, which froze user withdrawals last month, has submitted moratorium applications relating to its five component entities, including Zipmex Australia:

Zipmex Buys Time ‘For Up to Six Months’

The latest legal move automatically grants Zipmex protection from the continuation or commencement of proceedings by claimants for 30 days, or until after a Singapore court makes a decision on the applications – whichever comes first.

According to Zipmex’s legal team, however, its five applications filed on July 22 seek moratoriums to prohibit legal proceedings against the company for up to six months.

After initially pausing all trading and withdrawals on July 20, Zipmex has since resumed withdrawals from its trade wallet but its popular Z-Wallet remains disabled pending the outcome of discussions with partners.

Zipmex plans to use the time allowed by bankruptcy protection to resolve its liquidity issues, create a restructuring plan, and secure new investments to support its operations going forward. It also claims to have received “formal, registered interest” from potential investors to help shore up its finances.

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Coinbase Crypto News Cryptocurrency Law Regulation

Coinbase Stock Tumbles 20% Amid Regulatory Probe into ‘Unregistered Securities’

Shortly after announcing the first crypto insider trading case, where it identified nine tokens as securities, the US Securities and Exchange Commission (SEC) has now launched an investigation into Coinbase, the publicly listed exchange that listed them:

According to a report by Bloomberg, the SEC is looking into whether Coinbase improperly let Americans trade digital assets that should have been registered as securities. On release of the news, Coinbase stock dropped by 20 percent but recovered shortly thereafter.

Coinbase share price. Source: Google Finance

What Are Unregistered Securities Anyway?

The term “securities” refers to tradeable financial assets, and under US securities law a company may not offer or sell securities to the public unless the offering has been registered with the SEC. Registered offerings are subject to a plethora of laws and regulations that purport to protect investors.

Full disclosure is one of the core elements required within a public listing, designed to help investors make informed choices, and this is typical not just in the US but across virtually all capital markets.

Some of the required information to be disclosed includes the history of the company and its founders, shareholding structure, financial statements, executive compensation, risk factors (both current and future), management’s explanation of operations, and any other material facts relevant to the offering.

If 90 percent of cryptocurrencies are securities, as has been alleged by SEC chairman Gary Gensler, the question then becomes whether relevant disclosures have been made and if not, who should be prosecuted – the project founders or the listing exchange?

Coinbase Denies It Lists Securities

For its part, Coinbase has previously stated that it does not list securities, arguing that:

Coinbase has a rigorous process to analyse and review each digital asset before making it available on our exchange – a process that the SEC itself has reviewed. This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance and information security aspects of the asset.

Coinbase statement

It also argues that “the majority of assets that we review are not ultimately listed on Coinbase”. The company’s statement went on to criticise the SEC’s approach of “regulation by enforcement”, and stressed the need for a “concrete digital asset securities regulatory framework”.

Clearly, regulators are cranking up the regulatory pressure and, given that some 20,000 tokens exist across the world, the most viable mechanism for regulation appears to be with exchanges. Centralised exchanges should no doubt be expecting increased scrutiny over the coming months.