Week In Crypto: FTX Founder Escapes Campaign Finance Charge

July 28, 2023
FTX founder escapes campaign finance charge but may be headed back to jail, Coinbase is in limbo over its staking lawsuits, and Binance has second thoughts about becoming regulated in Germany.

FTX founder escapes campaign finance charge but may be headed back to jail, Coinbase is in limbo over its staking lawsuits, and Binance has second thoughts about becoming regulated in Germany.

Sam Bankman-Fried, founder and former CEO of FTX, will be spared charges of campaign finance violations following a U-turn by the US Department of Justice (DOJ).

This week, Bankman-Fried received good news concerning the eighth count of his original indictment: conspiracy to defraud the US and violate campaign finance laws.

Last month, Bankman-Fried’s lawyers filed a motion to dismiss the campaign finance charge on the grounds that it was not part of his extradition agreement with the Bahamas. Judge Lewis Kaplan then asked the prosecution to investigate the claim.

“The Bahamas did not intend to extradite the defendant on the campaign contributions count,” US attorney Damian Williams wrote in a letter to Judge Kaplan.

“Accordingly, in keeping with its treaty obligations to the Bahamas, the government does not intend to proceed to trial on the campaign contributions count.”

Prior to the collapse of FTX in November last year, Bankman-Fried was one of the largest donors in US politics.

In the previous 18 months, he had donated more than $40m to Democrat candidates, while at the same time other FTX executives had donated more than $20m to Republican candidates.

Remand required for Bankman-Fried, says DOJ

Also this week, for the first time the DOJ requested that Bankman-Fried should be placed in remand for the remainder of his trial.

The request follows Bankman-Fried’s leaking of private diary entries belonging to his ex-girlfriend, Caroline Ellison, to New York Times (NYT) journalist Michael Lewis.

As the former CEO of Alameda Research, the crypto trading arm of FTX, Ellison was also accused of multiple counts of criminal fraud and pleaded guilty to all charges in December last year.

In court, the DOJ said Bankman-Fried is attempting to intimidate and “discredit” Ellison as a witness.

The DOJ also claimed that Bankman-Fried had made more than 100 calls to Lewis, some over 20 minutes long, during which they discussed the diary entries.

Judge Kaplan did not rule on the remand request, but he did grant a motion to limit Bankman-Fried from "publicly disseminating or discussing with any public communications media anything about the case”.

Questions marks over Coinbase staking

Last month, on the same day that the US Securities and Exchange Commission (SEC) filed charges against Coinbase, financial regulators in ten US states followed up with similar charges.

At the state level, each case was aimed specifically at Coinbase Earn, the staking service that allows customers to earn interest on their crypto-assets.

All ten regulators alleged that Coinbase Earn is an unregistered securities offering, due to its promise of “easy” and “secure” staking profits to prospective investors.

Four states — California, New Jersey, South Carolina and Wisconsin — ordered Coinbase to prevent customers from staking any additional assets while their respective lawsuits are active.

In the other six states, Coinbase was asked to “show cause” within 30 days as to why it should not be issued a cease and desist order.

In a blog post published this month, Coinbase said it will comply with the orders but will also “vigorously defend” its staking services in court.

However, according to a freedom of information access (FOIA) request filed in Vermont and answered this week, Coinbase did not respond to that state’s show cause order, indicating that it will not dispute the charges.

Researchers have filed similar requests in the other states where Coinbase was served show cause orders.

Has Binance given up on national licences in Europe?

Over at Binance, this week the world’s largest crypto exchange confirmed that it has withdrawn its application for a crypto custody licence in Germany.

Last month, as covered by VIXIO, staff at the Federal Financial Supervisory Authority (BaFin) indicated to local media that Binance’s application was going to be rejected.

The report, which appeared in Finance Forward, has now been verified by Binance, which confirmed in an email to CoinDesk that it has withdrawn the application but will try again in future.

“The situation, both in the global market and regulation, has changed significantly,” it said. “Binance still intends to apply for appropriate licensing in Germany, but it is essential that our submission accurately reflects these changes."

Although something of a misnomer in English, the BaFin crypto custody licence is the main licence that crypto exchanges are required to obtain to become “fully regulated”.

Without the licence, Binance can continue operating in a transitional capacity but will be prohibited from marketing its services to new customers.

Germany is the latest in the growing list of European countries where Binance has either failed or withdrawn a licence application or has had its licence revoked.

This month Binance withdrew from the Netherlands due to compliance issues, and last month Binance was ordered to stop trading in Belgium with immediate effect, due to concerns about the offshore nature of Binance.com.

At the pan-European level, however, Binance CEO Changpeng Zhao has voiced his support for the Markets in Crypto-Assets (MiCA) Regulation, and has said that Binance will comply with it.

ISIS terrorists are using Tether

Finally, this week blockchain analytics firm TRM Labs published a new report confirming claims made by the US Treasury that ISIS terrorists are using Tether to conduct their activities.

TRM Labs said it has found “mounting evidence” that pro-ISIS groups in Tajikistan, Indonesia, Syria, Pakistan and Afghanistan are using Tether on the Tron blockchain.

One group in Tajikistan was found to have raised $2m in Tether to recruit fighters for an Afghan ISIS affiliate, while in 2022 individuals in Indonesia received more than $500,000 in Tether, which was sent to ISIS campaigns in Syria.

In May 2022, the US Treasury’s Office of Foreign Asset Control (OFAC) sanctioned five Indonesian nationals for facilitating money transfers from Indonesia to ISIS members in Syria.

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