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FTX Said to Be Investigated by US Authorities for Potential Securities Violations

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By Associated Press | Updated: 11 November 2022

The swift collapse of cryptocurrency exchange FTX sent more shockwaves through the crypto world on Thursday, with authorities now investigating the firm for potential securities violations and analysts bracing for a further downturn in crypto prices.

FTX had agreed earlier this week to sell itself to bigger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.

A person familiar with matter said that the Department of Justice and the Securities and Exchange Commission are examining FTX to determine whether any criminal activity or securities offenses were committed. The person could not discuss details of the investigations publicly and spoke to The Associated Press on condition of anonymity.

This week’s developments marked a shocking turn of events for FTX CEO and founder Sam Bankman-Fried, who was hailed as somewhat of a savior earlier this year when he helped shore up a number of cryptocurrency companies that ran into financial trouble.

The investigation into Bankman-Fried and FTX by those in the crypto world as well as securities regulators is centering on the possibility that the firm may have used customers’ deposits to fund bets at Bankman-Fried’s hedge fund, Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be punished by regulators.

Meanwhile, investors in popular digital currencies got some relief from the latest crypto crisis Thursday after days of selling. The gains came after a government report showing inflation cooled a bit last month gave a lift to riskier assets.

The crypto world had hoped that Binance, the world’s largest crypto exchange, might be able to rescue FTX and its depositors. However, after Binance had a chance to look at the books of FTX, it became clear that the smaller exchange’s problems were too big to solve.

A person familiar with the dealings between FTX and Binance described the books as a “black hole” where it was impossible to differentiate between the assets and liabilities of FTX the exchange and those of Alameda Research. This person spoke on condition of anonymity because they weren’t authorized to speak publicly about the matter.

This person said Bankman-Fried committed the “ultimate sin” by tapping into FTX’s custodial assets to fund Alameda Research.

In a further illustration of FTX’s financial straits, Bankman-Fried asked his investors Wednesday for $8 billion to cover withdrawal requests, according to The Wall Street Journal, citing unnamed sources.

In a series of Tweets on Thursday, the FTX founder and CEO said that he did not have enough liquidity to cover withdrawals and that he was more leveraged than he had thought.

“I f***ed up, and should have done better,” he said.

The collapse of the cryptocurrency’s third largest exchange is likely to cause further disruption across the entire crypto world, analysts say, meaning Thursday’s rally could be temporary.

“The unwinding of FTX, as well as its shock of confidence to the system, will cause crypto prices to fall even further leading to “a new cascade of margin calls,” said analysts at J.P. Morgan in a note to investors. This would be similar to the selloff that happened after the collapse of the stable coin Terra earlier this year, where prices continued to decline weeks after its failure.

“This deleveraging is likely to last for at least a few weeks unless a rescue for Alameda Research and FTX is agreed quickly,” J.P. Morgan analysts wrote.

The crypto industry is waiting to see what other companies are impacted by the FTX collapse. The venture capital fund Sequoia Capital said Thursday it is writing down its entire $150 million (nearly Rs. 1,200 crore) investment in FTX.

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Kraken Crypto Exchange to Cut Global Workforce by 30 Percent Amid Crypto Winter

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By Reuters | Updated: 1 December 2022

Cryptocurrency exchange Kraken said on Wednesday it would cut its global workforce by 30 percent, or about 1,100 employees, citing tough market conditions that have crippled demand for digital assets this year. Higher interest rates and worries of an economic downturn have roiled cryptocurrencies as investors fled risky assets, with recent bankruptcies adding to the uncertainty.

“Since the start of this year, macroeconomic and geopolitical factors have weighed on financial markets,” the company said.

Kraken said it has seen a drop in trading volumes and fewer client sign-ups, adding that the layoffs will take total headcount to where it was 12 months ago.

Earlier this month, crypto exchange Coinbase slashed jobs in its recruiting and institutional onboarding teams.

Kraken, which earlier slowed hiring and pulled back marketing spending, said it was forced to cut jobs as it had exhausted other measures to bring expenses in line with current demand.

Meanwhile, the implosion of crypto exchange FTX, the highest-profile casualty of the year’s market turmoil, continues to ripple across the industry, with BlockFi filing for bankruptcy earlier this week.

The meltdown has dragged the price of the largest cryptocurrency, Bitcoin, to around a two-year low.

Global regulators have since been circling crypto firms with many seeking to set tough rules to govern the largely unregulated sector.

On Monday, the US Treasury Department’s Office of Foreign Assets Control said that Kraken had agreed to pay a fine to settle civil liability related to apparent violations of sanctions on Iran.

As part of the settlement with OFAC, Kraken will pay about $362,000 (roughly Rs. 3 crore), and “invest an additional $100,000 (roughly Rs. 81,18,000) in certain sanctions compliance controls.”

According to the OFAC statement, Kraken’s platform processed 826 transactions for users located in Iran between roughly October 2015 to June 2019.

At the time, Kraken maintained controls intended to prevent users from initially opening an account while in a jurisdiction subject to sanctions, but did not implement IP address blocking based on geolocation across its platform, the statement added.

In October, the Treasury Department had also fined crypto exchange Bittrex Inc $29 million (roughly Rs. 235 crore) in fines for “apparent violations” of sanctions on certain countries and anti-money laundering law.

© Thomson Reuters 2022

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Binance Marks Entry into Japanese Market With Acquisition of Sakura Exchange BitCoin

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By Agence France-Presse | Updated: 30 November 2022

The world’s largest cryptocurrency platform Binance on Wednesday announced its first licence in East Asia with the acquisition of Japan’s officially regulated Sakura Exchange BitCoin.

Binance has been in the spotlight since the dramatic collapse of rival platform FTX this month.

Changpeng Zhao, the Chinese-Canadian head of Binance, pledged last week to release an audit into his firm while rejecting claims he sparked the demise of FTX.

The terms of Binance’s 100-percent purchase of the Tokyo-based Sakura Exchange BitCoin were not disclosed in a joint statement on Wednesday.

But Binance said it “aims to support a responsible global environment for cryptocurrencies” by offering Japanese-regulated services.

“The Japanese market will play a key role in the future of cryptocurrency adoption,” Takeshi Chino, general manager of Binance Japan, said in a statement.

“We will actively work with regulators to develop our combined exchange in a compliant way for local users.”

Japan has worked to strengthen its regulation of virtual currencies following the collapse of the Tokyo-based MtGox Bitcoin exchange in 2014.

Binance was operating in Japan some years ago, but had to withdraw operations due to lack of relevant licences in 2018. Japan’s Financial Services Agency (FSA) had earlier insisted Binance to apply for an operational licence. Japan has, in recent years, emerged among the group of crypto friendly nations ready to harness the power of blockchain to finetune its financial sectors.

Other major players in the space, Crypto.com and FTX crypto exchanges are already functional in Japan. As of the end of 2021, the number of crypto asset accounts set up in Japan reached around 5.48 million, data by Statista claimed.

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Genesis Crypto Brokerage Working to Avoid Bankruptcy Filing, Resolve Lending Business Issues

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By Reuters | Updated: 30 November 2022

US cryptocurrency brokerage Genesis said it was seeking to avoid bankruptcy after Bloomberg news reported on Tuesday that creditors to the firm are organizing with restructuring lawyers to prevent insolvency.

Citing people with knowledge of the situation, the report said law firms Proskauer Rose and Kirkland & Ellis are being consulted by creditor groups, who are seeking to avoid a situation similar to crypto exchange FTX’s rapid descent into bankruptcy.

“Our goal is to resolve the current situation in the lending business without the need for any bankruptcy filing,” a Genesis spokesperson said.

Representatives for Proskauer and K&E did not immediately respond to requests for comment.

“We’ve begun discussions with potential investors and our largest creditors and borrowers, including Gemini and DCG, to agree on a solution that shores up our lending business’ overall liquidity and addresses clients’ needs,” Genesis’ interim chief executive Derar Islim told clients in a letter seen by Reuters.

The report comes as US state securities regulators are investigating Genesis Global Capital as part of a wide-ranging inquiry into the interconnectedness of crypto firms, Barron’s reported last week, citing a comment from the Alabama Securities Commission director.

Genesis has hired investment bank Moelis & Company “to evaluate the best possible asset preservation strategy and effectuate a roadmap,” the firm said in the letter.

The crypto lending arm of US digital asset broker Genesis Trading suspended customer redemptions earlier this month, citing the sudden failure of FTX, where its derivatives business has approximately $175 million in locked funds, the company had said.

Venture capital company Digital Currency Group, which owns Genesis Trading and cryptocurrency asset manager Grayscale, owes $575 million (roughly Rs. 4,692 crore) to Genesis’ crypto lending arm, Digital Currency Chief Executive Barry Silbert told shareholders this month.

© Thomson Reuters 2022

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BlockFi Files for Bankruptcy in the US, Cites Exposure to FTX Amid Crypto Meltdown

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By Reuters | Updated: 29 November 2022

Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest industry casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month.

The filing in a New Jersey court comes as crypto prices have plummeted. The price of bitcoin, the most popular digital currency by far, is down more than 70 percent from a 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.

New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the United States this month after traders pulled $6 billion (roughly Rs. 49,020) from the platform in three days and rival exchange Binance abandoned a rescue deal.

“Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX,” said the bankruptcy filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi. “Quite the opposite.”

BlockFi said the liquidity crisis was due to its exposure to FTX via loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that became trapped there. BlockFi listed its assets and liabilities as being between $1 billion (roughly Rs. 8,170 crore) and $10 billion (roughly Rs. 81,700 crore).

BlockFi on Monday also sued a holding company for Bankman-Fried, seeking to recover shares in Robinhood Markets Inc pledged as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy protection.

Renzi said BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised $238.6 million (roughly Rs. in cash, and BlockFi now has $256.5 million (roughly Rs. 2,100 crore) in cash on hand.

In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.

Under a deal signed with FTX in July BlockFi was to receive a $400 million (Rs. 3,270 crore) revolving credit facility while FTX got an option to buy it for up to $240 million (roughly Rs. 1,960 crore).

BlockFi’s bankruptcy filing also comes after two of BlockFi’s largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions that had led to losses at both companies.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

BlockFi’s first bankruptcy hearing is scheduled to take place on Tuesday. FTX did not respond to a request for comment.

Creditor list

BlockFi’s largest creditor is Ankura Trust, which represents creditors in stressed situations and is owed $729 million ( roughly Rs. 5,600 crore). Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19 percent of BlockFi equity shares.

BlockFi also listed the U.S. Securities and Exchange Commission as one of its largest creditors, with a $30 million (roughly Rs. 245 crore) claim. In February, a BlockFi subsidiary agreed to pay $100 million (roughly Rs. 820 crore) to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

Bain Capital Ventures and Tiger Global co-led BlockFi’s March 2021 funding round, BlockFi said in a press release issued at the time. Both firms did not immediately respond to a request for comment.

In a blog post, BlockFi said its Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.

BlockFi had earlier paused withdrawals from its platform.

In a filing, Renzi said Blockfi intends to seek authority to honor client withdrawal requests from its customer wallet accounts, in which crypto assets are held in custody. However, the company did not disclose plans for how it might treat withdrawal requests from its other products, including interest-bearing accounts.

“BlockFi clients may ultimately recover a substantial portion of their investments,” Renzi said in the filing.

Origins

BlockFi was founded in 2017 by Prince, currently the company’s chief executive officer, and Flori Marquez. Though headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.

In July, Prince had tweeted that “it’s time to stop putting BlockFi in the same bucket / sentence as Voyager and Celsius.”

“Two months ago we looked the ‘same.’ They shut down and have impending losses for their clients,” he said.

According to a profile of BlockFi published earlier this year by Inc, Prince was raised in San Antonio, Texas, and financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker dealer, and at Zibby, a lease-to-own lender now called Katapult.

Marquez previously worked at Bond Street, a small business lending outfit that was folded into Goldman Sachs in 2017, according to Inc.

© Thomson Reuters 2022

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Hackers Said to Demand Rs. 200 Crore in Cryptocurrency From AIIMS-Delhi, Server Remains Down for Sixth Day

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By Press Trust of India | Updated: 29 November 2022

Hackers have allegedly demanded an estimated Rs 200 crore in cryptocurrency from the All India Institute of Medical Sciences (AIIMS), Delhi as its server remained out of order for the sixth consecutive day, official sources said on Monday.

It is feared that data of around 3-4 crore patients could have been compromised due to the breach detected Wednesday morning.

Patient care services in emergency, outpatient, inpatient and laboratory wings are being managed manually as the server remained down, the sources said.

The Delhi Police, however, issued a statement, saying “no ransom demand as being quoted by certain sections of the media has been brought to notice by AIIMS authorities.” The India Computer Emergency Response Team (CERT-IN), Delhi Police and representatives of the Ministry of Home Affairs are investigating the ransomware attack.

A case of extortion and cyber terrorism was registered by the Intelligence Fusion and Strategic Operations (IFSO) unit of the Delhi Police on November 25.

Official sources said Internet services are blocked on computers at the hospital on the recommendations of the investigating agencies.

The AIIMS server has stored data of several VIPs, including former prime ministers, ministers, bureaucrats and judges.

“Hackers have allegedly demanded around Rs 200 crore in cryptocurrency,” one of the sources told PTI.

Meanwhile, the NIC e-hospital database and application servers for e-hospital have been restored. The NIC team is scanning and cleaning infection from other e-hospital servers located at AIIMS which are required for delivery of hospital services, an official source said.

Four physical servers arranged for restoring e-hospital services have been scanned and prepared for the databases and applications.

Also, the AIIMS network sanitisation is in progress. Antivirus solutions have been organised for servers and computers. It has been installed on nearly 1,200 out of 5,000 computers. Twenty out of 50 servers have been scanned and this activity is ongoing 24×7, the source said.

“The full sanitisation of the network is likely to continue for five more days. Thereafter, e-hospital services can be rolled out in a phased manner. Patient care services including emergency, outpatient, inpatient,laboratory etc services are being continued on manual mode,” the source said.

The AIIMS-Delhi in a statement said, “The data restoration and server cleaning is in progress and is taking some time due to the volume of data and large number of servers for the hospital services. Measures are being taken for cybersecurity.” All hospital services, including outpatient, in-patient and laboratories, continue to run on manual mode, it added.

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WazirX Received 828 Requests From Indian, International Law Enforcement Agencies During April-September

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By Press Trust of India | Updated: 28 November 2022

WazirX has received 828 complaint requests from the US Federal Bureau of Investigation (FBI), Interpol, among other international agencies, and Indian law enforcement agencies such as the National Investigation Agency (NIA), Enforcement Directorate (ED), and Central Bureau of Investigation (CBI), according to the cryptocurrency exchange. The requests were received against a total of 10 million transactions during April-September 2022. The exchange maintained its record of a 100 per cent compliance rate for all 828 requests received from Law Enforcement Agencies (LEA), said a report released by WazirX.

The exchange on Monday released the third edition of its Transparency Report. According to the report, only 0.008 per cent of all transactions during this period were reported or investigated by law enforcement agencies. Out of 828 queries received, 764 were by Indian law enforcement agencies, whereas the foreign agencies made 64 requests.

The greatest number of requests came in from regulators and law enforcement agencies in Maharashtra, it said. Illegal fund transfers, crypto scams, cheating, and forgery were the most common types of crimes reported, resembling scams in the traditional financial sector.

Over 700 accounts were blocked during this period. The majority of them were due to requests that came in from users.

In its continued effort to provide transparency to users and safeguard their assets, it launched the third edition of the Transparency Report.

The report highlights the company’s initiatives in boosting awareness about Web3, assisting law enforcement in identifying bad actors and implementing a full-proof onboarding process to ensure the security of users.

“We have also outlined some common trends observed in crypto scams over this time period which users should be aware of,” it said.

Some of the Indian and Foreign Law Enforcement Agencies that WazirX has worked with during this period are: the National Investigation Agency, Enforcement Directorate, State Cyber Crime Cells, Intelligence Fusion & Strategic Ops (IFSO) Delhi, Special Task Force, Narcotics Control Bureau, Bhopal Police, Crime Branch and CID, Toronto Police Department, Federal Bureau of Investigation (FBI), German Police Agencies, United Kingdom Police, Interpol, Dutch Police, Austrian Police, Europol, etc.

“We still have some way to go to prevent security risks in crypto. The level of awareness around crypto needs to extend to its ill uses too. Only then can mainstream adoption take place in an environment of trust. We will continue our efforts to educate Indians about crypto, and comply with regulators to ensure any form of fraud with virtual digital assets is tackled,” Nischal Shetty, CEO and Founder at WazirX.

According to the report, around 40 per cent of the scams are happening in Ponzi schemes and social engineering scams, 34.7 per cent of cases of Impersonation type, 21.1 per cent of cases are in Phishing / Airdrop Scams and 4.2 per cent are in other categories.

As per the report, in a recent case, a Bitcoin racket being run from Delhi came to the notice of the CBI on being alerted by the Austrian police. Imposters posed as Europol officers and other law enforcement agencies to tell their victims that their identities had been stolen and used for narcotics businesses. The criminals would target foreign nationals for the same. WazirX’s legal team, with assistance from Chainalysis, collaborated with the CBI on this case to block the operation. They identified the accounts which were being used to carry on this racket and blocked the withdrawal of the assets that were gained from the criminal proceedings.

In one of the first disproportionate asset cases involving crypto, WazirX helped Bhubaneswar Police identify the crypto accounts of an engineer who did not reveal his investments in Digital Assets. Upon scrutiny by the team, it was discovered that he had 50-odd crypto wallets and an investment worth Rs. 2 crores.

In another incident, the legal team assisted the Kolkata police in nabbing criminals who were defrauding people through a mobile gaming platform. In this case, a large sum of money was collected from the public via the platform called e-nuggets. The culprits then disabled the withdrawal of money and also removed all data from the app. WazirX helped ED freeze crypto assets worth Rs 12.83 Crores.

A few months ago, a group of criminals from Ghaziabad, Uttar Pradesh, created an elaborate fake trading app to lure customers and dupe them of huge sums of money. WazirX assisted the Ghaziabad Police real-time in identifying the identities that were linked to the culprits which led to their arrest.

In Bandra, Mumbai (Maharashtra) the WazirX team helped identify wallets linked to Chinese loan apps which were used to dupe people through fraudulent transactions. The team worked closely with the law enforcement agency to identify the accused and block their operations using crypto.

WazirX cooperated with the investigators by providing them with all the necessary details, information, and documents of the alleged accused companies who used the WazirX platform. After an in-depth internal investigation, WazirX noticed that most of the users whose information was sought by ED were already identified as suspicious by WazirX internally and were blocked in 2020-2021. Due to the active cooperation extended by WazirX and active Anti-money laundering (AML) checks, suspected users were identified.

WazirX also modified the procedure to raise a Law Enforcement request. To submit a Law Enforcement request under relevant provisions of law, the requester must be a law enforcement agent or government official authorized to Gather evidence in connection with an investigation or Make a formal law enforcement request.

They can send an email to legal@wazirx.com from the official email ID of the law enforcement agency along with a duly authorized written request.

WazirX has continued its association with TRM Labs, a virtual digital asset compliance platform, to sustain and scale up its efforts of security. It also collaborated with Chainalysis, a platform to analyze blockchain data. WazirX also joined hands with other industry players in the country to form a new crypto advocacy group called Bharat Web3 Association (BWA).

WazirX launched a course on Blockchain Technology to educate individuals. This was in collaboration with Gurukula Kangri in Haridwar, a deemed-to-be university, as per the University Grants Commission (UGC). Since its initiation, the course has seen more than 20,000 enrolments. We recently awarded the completion certificate to over 400 individuals. 7.4 per cent of them were females. Uttar Pradesh saw the highest number of enrolments in the program (25.4 per cent) among all participating states.

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