Daily Crypto News

CryptoLink – February 2023 | JD Supra

CryptoLink is a compilation of news stories published by outside organizations. Akin aggregates these stories, but the information contained in them does not necessarily represent the beliefs or opinions of the firm. Akin’s February CryptoLink update incldues developments from the month of January 2023.

In the U.S. House of Representatives, Republicans hold a slim majority and can only afford to lose four votes on the House floor. Therefore, Rep. Patrick McHenry (R-NC), Chair of the House Financial Services Committee, has a largely unified financial services agenda, including digital assets as a core focus. The Committee, however, has not yet begun seriously legislating in the digital asset space and instead has spent most of its time focused on China and data privacy. We expect that digital assets will become a priority for the committee midyear. The Committee’s first push will likely be a stablecoin regulation bill, picking up where the committee left off last year.

In the Senate, we expect most significant bipartisan legislation to originate from the Senate Agriculture Committee, instead of the Senate Banking Committee, given its crypto friendly leadership from Chair Debbie Stabenow (D-MI) and Ranking Member John Boozman (R-AR). Undoubtedly, the Biden Administration is expected to continue its bullish agenda despite increased oversight by the Republican House majority.

In this issue

Akin in the News

Spotlight on Celsius Network Limited
Akin serves as Special Litigation Counsel to Celsius Network Limited and Celsius KeyFi LLC (together, “Celsius”). Celsius Network Limited, one of the largest cryptocurrency based finance platforms in the world, filed its chapter 11 petition on July 14, 2022. In August 2022, Akin, on behalf of Celsius, filed an adversary complaint against Jason Stone and KeyFi LLC, (together, “Defendants”). In the adversary proceeding, Celsius is seeking turnover of digital property and damages in excess of $100 million from the Defendants, a staking and decentralized finance executive and his privately held company. In December 2022, Chief Judge Martin Glenn (Bankr. S.D.N.Y.) conducted a hearing on the Defendants’ motion to dismiss, which he denied in a 28-page written opinion largely adopting the reasoning and positions advocated by Akin in Celsius’ opposition brief and at oral argument.

That ruling set the stage for an evidentiary hearing on Celsius’ motion for a preliminary injunction barring the Defendants from accessing or transferring certain digital assets currently in their wallets or other accounts. The hearing took place over two days on January 11 and 12, 2023, with extensive examination and cross-examination of four witnesses and several hours of closing arguments. Based on Celsius’ arguments and evidence, Chief Judge Glenn granted an asset freezing order, including by restraining the Defendants from transferring or dissipating digital assets (or proceeds of such assets) in the Defendants’ possession, custody or control that were transferred from, or are traceable to, Celsius and its wallets and accounts, and from using on-chain “mixers” or any other means of concealing the destination of digital asset transfers regardless of source. The Court subsequently entered an order requiring the Defendants to provide substantial additional disclosures concerning their handling of Celsius’ digital assets to permit Celsius to further trace the Defendants’ transfers and evaluate their staking, decentralized finance and other activities with Celsius’ coins while the freezing order remains in place.

The Akin team was led by partner Mitchell Hurley and included Dean Chapman, Lizzy Scott, Heather Peckham, Jessica Mannon, and Michael Stanley.

Former Akin Partner Ian McGinley Named Director of Enforcement for CFTC
Akin is pleased to share that former white collar defense and government investigations partner Ian McGinley has begun serving as the new Director of the Division of Enforcement at the U.S. Commodity Futures Trading Commission (CFTC).

Akin’s full press release regarding Ian’s new role can be found here.

Spotlight on Coinbase

New York Department of Financial Services Announces $100 Million Settlement with Coinbase, Inc.

On January 4, 2023, the New York Department of Finance Services (DFS) Superintendent Adrienne A. Harris announced a $100 million settlement with Coinbase, Inc. after a DFS investigation found significant failings in the company’s compliance program that violated the New York Banking Law and the DFS’ virtual currency, money transmitter, transaction monitoring and cybersecurity regulations. According to the DFS’ press release, the DFS’ investigation found wide-ranging and long-standing failures in Coinbase, Inc.’s anti-money laundering program. The settlement requires Coinbase to pay a $50 million penalty and to invest an additional $50 million in its compliance program.

The DFS’ press release can be found here.

Department of Justice Sentences Nikhil Wahi for Trading Using Misappropriated Information about Crypto Asset Listings on an Exchange

On January 10, 2023, U.S. District Judge Loretta A. Preska sentenced Nikhil Wahi to 10 months in prison for his participation in a scheme to commit insider trading in cryptocurrency assets by using confidential information from his brother, a former product manager at Coinbase Global, Inc. (Coinbase), about which crypto assets were scheduled to be listed on Coinbase’s exchanges. Wahi previously pleaded guilty to one count of conspiracy to commit wire fraud. U.S. Attorney for the Southern District of New York Damian Williams noted that the “sentence makes clear that the cryptocurrency markets are not lawless. There are real consequences to illegal insider trading, wherever and whenever it occurs.” In addition to the prison sentence, Wahi was ordered to pay $892,500 in forfeiture.

The U.S. Attorney’s Office press release can be found here.

Dutch Central Bank Imposes Administrative Fine of €3,325,000 on Coinbase Europe Limited

On January 18, 2023, the Dutch Central Bank (De Nederlandsche Bank (DNB)) imposed an administrative fine of €3,325,000 on Coinbase Europe Limited (Coinbase Europe). According to the DNB’s announcement, the fine was imposed because Coinbase Europe provided crypto services in the Netherlands in the past without registration with the DNB. While the base amount for violations of this nature is €2,000,000, the DNB noted that the base amount has been increased “due to the severity and degree of culpability of the non-compliance.” In increasing the fine, the DNB took into account the fact that Coinbase Europe is one of the largest crypto service providers globally, has a significant number of customers in the Netherlands, has enjoyed a competitive advantage (as it has not paid any supervisory fees to DNB or incurred other costs in connection with DNB’s regular supervision activities) and the non-compliance persisted over a prolonged period (from November 15, 2020 until at least August 24, 2022). Coinbase Europe has until March 2, 2023, to object to the fine.

The DNB’s press release can be found here.

Ishan and Nikhil Wahi Move to Dismiss SEC Charges in Seattle District Court

On February 6, 2023, Ishan Wahi, a former Coinbase product manager, and his brother Nikhil Wahi, moved to dismiss an action brought by the U.S. Securities and Exchange Commission (SEC) in the Western District of Washington. The SEC’s complaint alleges that, while employed at Coinbase, Ishan Wahi helped to coordinate the platform’s public listing announcements that included what crypto assets or tokens would be made available for trading. According to the SEC’s complaint, Coinbase treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information. However, from at least June 2021 to April 2022, Ishan Wahi repeatedly tipped the timing and content of upcoming listing announcements to his brother, Nikhil Wahi, and a friend, Sameer Ramani. Ahead of those announcements, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit. The long-running insider trading scheme generated illicit profits totaling more than $1.1 million.

The Wahi brothers moved to dismiss the SEC’s action, broadly accusing the SEC of seeking to “distort the federal securities laws beyond all recognition.” In particular, they argued that the tokens at issue do not qualify as investment contracts since they all were purchased on the secondary market.

The original press release announcing charges can be found here, the SEC complaint can be found here and the motion to dismiss can be found here. News articles regarding the motion to dismiss can be found here and here.

Ishan Wahi Pleads Guilty to Wire Fraud Charges in First-Ever Cryptocurrency Insider Trading Case

On February 7, 2023, the U.S. Department of Justice announced that Ishan Wahi, a former product manager at Coinbase, pled guilty to two counts of conspiracy to commit wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets by using confidential Coinbase information about which crypto assets were scheduled to be listed on Coinbase’s exchanges. Wahi was arrested and charged in July 2022 and pled guilty before U.S. District Judge Loretta A. Preska. U.S. Attorney Damian Williams noted that “Wahi is the first insider to admit guilt in an insider trading case involving the cryptocurrency markets. Whether it occurs in the equity markets or the crypto markets, stealing confidential business information for your own personal profit or the profit of others is a serious federal crime.”

The U.S. Department of Justice press release can be found here.

Key Developments

U.S. Bankruptcy Court Issues Memorandum Opinion and Order regarding Ownership of Earn Account Assets

On January 2, 2023, the U.S. Bankruptcy Court of the Southern District of New York issued a Memorandum Opinion and Order regarding ownership of earn account assets in the Celsius Network LLC Chapter 11 bankruptcy proceedings. The Court concluded, based on Celsius’ unambiguous Terms of Use, that when the cryptocurrency assets were deposited in earn accounts, the cryptocurrency assets became Celsius’ property and the cryptocurrency assets remaining in the earn accounts on the relevant date became property of the debtors’ bankruptcy estates.

The Memorandum Opinion and Order can be found here.

Joint Statement on Crypto-Asset Risks to Banking Organizations

On January 3, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) issued a joint statement on crypto-asset…

Read More: CryptoLink – February 2023 | JD Supra

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