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Another former FTX executive pleads guilty to fraud, Signature Bank will no longer handle most USD transfers for Kraken, French MPs vote for stricter licensing requirements for crypto firms and more Binance blues.
A former FTX director has pleaded guilty to six criminal charges, including wire fraud, conspiracy to commit money laundering and campaign finance violations.
Nish Singh, former director of engineering at FTX and Alameda Research, has also said he will testify against his former boss Sam Bankman-Fried, who has pleaded not guilty to eight criminal charges.
Singh is the third member of Bankman-Fried’s inner circle to plead guilty, following guilty pleas from Gary Wang, co-founder of FTX, and Caroline Ellison, former CEO of FTX-linked trading firm Alameda Research.
In its latest criminal filing, the US Department of Justice (DOJ) alleges that Singh conspired with other FTX executives to “defraud customers” by “misappropriating customers’ deposits” and using them to pay debts, expenses and to make investments.
Details of the investments are redacted in the filing — they are referred to only as “specific property” — and will be forfeited to the US government as the case continues.
Separately, this week the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) published new civil complaints related to Singh’s misleading statements to banks and investors.
In the CTFC case, it alleges that Singh had knowledge of FTX’s fraudulent use of North Dimension, an Alameda-owned shell company that Bankman-Fried used to receive FTX customer deposits (when FTX was unable to open a bank account under its own name).
“During the Relevant Period, Singh knew of this process and of access Alameda was granted to FTX’s systems that enabled Alameda’s continued and undisclosed holding and use of FTX customer funds,” the complaint notes.
Meanwhile, the SEC alleges that Singh had knowledge of and helped devise fraudulent accounting schemes at FTX, producing false balance sheets that were used to raise money from investors.
In late 2021, for example, when Bankman-Fried realised that he was $50m short of his goal to earn $1bn in annual revenue at FTX, he instructed Singh to transfer funds from another entity that he controlled, and to falsely characterise the $50m as FTX revenue.
“Singh then backdated a series of fraudulent transfers, and later lied to auditors about the transfers and created false documentation to support those lies,” the complaint notes.
“He did so knowing that this information would later also be presented to investors and potential investors.”
Kraken loses US banking partner
In the past week, Kraken has become the latest crypto exchange to lose most of its access to Signature Bank, a New York-based commercial bank that previously served major crypto companies including Binance and FTX.
In an email sent to customers, Kraken said that from March 15, USD deposits via Signature Bank will be discontinued for non-corporate clients and, from March 30, USD withdrawals via Signature Bank will be discontinued for non-corporate clients.
Kraken encouraged customers to consider alternative USD funding options and said the decision was made “due to changes made by Signature Bank”.
In January, as covered by VIXIO, Signature Bank announced a strategic withdrawal from the crypto sector due to reduced deposits and a “challenging environment” following the FTX collapse.
Clouds gather over Silvergate Bank
Also this week, signs of turbulence gathered around Silvergate Bank, another US-based commercial bank that works closely with crypto-sector clients.
In a filing to the SEC, Silvergate Bank’s parent company said it will be unable to publish its full-year 2022 earnings report on time, due to “additional losses” that have come to light since its previous earnings report, and due to ongoing “regulatory and other inquiries and investigations”.
The company said the additional losses could result in the bank being “less than well-capitalised”, and could affect its “ability to continue” over the next 12 months, once the losses are publicised.
The stock of Silvergate Capital, owner of Silvergate Bank, fell as much as 25 percent when the filing was reported.
French MPs vote for tougher licensing rules for crypto firms
The French National Assembly has voted in favour of a bill that will impose stricter licensing requirements on crypto-asset service providers (CASPs).
The bill, which passed by 109 to 71 votes this week, is part of a wider campaign to align France’s national-level crypto regulations with those of the EU via the Market In Crypto-Assets Regulation (MiCA).
The legislation, which had already been passed by the Senate in February, will now go to President Emmanuel Macron, who has 15 days to sign it or return it to the legislature.
If signed into law, the new licensing rules would end a grace period that currently allows more than 60 crypto platforms to operate in France without a full licence.
Instead, all CASPs would need to obtain a full licence from the Financial Markets Authority (FMA) beginning in October.
The bill also includes provisions on segregation of client assets and prohibitions on the use of client assets for purposes other than custody.
In May last year, Binance became the first crypto firm to be granted a full licence to operate in France.
After the licence was granted, Binance CEO Changpeng Zhao said that Paris will serve as the company’s regional hub in Europe.
Coinbase quietly delists Binance stablecoin
Binance’s rival exchange Coinbase has announced that it will delist the Binance stablecoin (BUSD) on March 13.
In a statement, Coinbase said that based on its “most recent reviews”, BUSD no longer meets Coinbase’s “listing standards”.
Last month, as reported by VIXIO, a New York regulator ordered BUSD issuer Paxos to cease issuance of new BUSD tokens, due to lack of oversight of its relationship with Binance.
Since then, more doubt has been cast on BUSD, including in an investigation by Forbes that was published this week.
According to Forbes, towards the end of 2022, Binance transferred $1.8bn of BUSD collateral to hedge funds, including Bankman-Fried’s Alameda Research, leaving BUSD holders exposed to collateral and counterparty risk.
Binance CEO Zhao responded to Forbes on Twitter, describing the article as "FUD" — a crypto term for manufactured "fear, uncertainty and doubt" about a certain asset or company.
“I am reluctantly spending time on FUD again,” said Zhao. “Forbes wrote another FUD article with lots of accusatory questions, with negative spins, intentionally misconstruing facts.”
