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Goldman Sachs Looking at Buying, Investing in Bargain Crypto Firms Impacted by FTX Collapse

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Goldman is doing due diligence on a number of different crypto firms, according to Goldman Sachs' head of digital assets.
By Reuters | Updated: 6 December 2022

Goldman Sachs plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on November 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion (roughly Rs. 1,78,129 crore) last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on November 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalised.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley CEO James Gorman said at the Reuters NEXT conference on December 1.

HSBC CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘Trusted’ players

The global cryptocurrency market peaked at $2.9 trillion (roughly Rs. 2,39,07,000 crore) in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion (roughly Rs. 1,64,96,900 crore) this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion (roughly Rs. 7,100 crore) on December 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalised counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

© Thomson Reuters 2022

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Britain to Set ‘Robust’ Standards With First Regulations for Crypto Assets, Minister Says

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Britain will introduce rules for financial intermediaries, which facilitate transactions, and custodians, which store customer assets.
By Reuters | Updated: 1 February 2023

Britain’s finance ministry plans “robust” regulations for crypto assets, following the collapse of crypto exchange FTX last year, which left millions of people nursing billions of dollars in losses.

Crypto is currently unregulated globally, with firms only having to carry out checks to prevent money laundering. However, Britain’s Financial Conduct Authority (FCA) has said that more than 80 percent of license applicants were unable to show they could do this properly as “dark money” flows through the sector.

The draft rules, to be published on Wednesday, would ensure robust, transparent, and fair standards, consistent with the approach to traditional finance, Financial Services Minister Andrew Griffith said in a statement on Tuesday.

“We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology,” Griffith said.

The new rules come after rising interest rates led to a string of bankruptcies in the sector in 2022, wiping $1.4 trillion (roughly Rs. 11.5 crores) off the value of the crypto market. The price of Bitcoin, the most widely traded coin, plunged 60 percent.

The market rout shook confidence in cryptocurrencies, though interest in the underlying technology, most commonly known as blockchain, for other uses like payments remains.

There will be a three-month public consultation on the new plans, followed by proposals for detailed rules from the FCA.

The ministry said its approach would mitigate the most significant risks in the sector.

“These proposals will place responsibility on crypto trading venues for defining the detailed content requirements for admission and disclosure documents – ensuring crypto exchanges have fair and robust standards,” the ministry said.

There will be rules for financial intermediaries, which facilitate transactions, and custodians, which store customer assets.

The failure of FTX and other exchanges triggered calls for regulation of the industry to protect investors. Regulators are focusing on prising open “crypto conglomerates” which combine activities like trading, lending and custody under one roof, but with traditional regulatory safeguards between them absent.

The European Union is already finalising its first set of crypto rules.

Firms already authorised by the FCA would be temporarily allowed to issue their own promotions, while the new regulatory regime is being introduced, the ministry said.

© Thomson Reuters 2023

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My Big Coin Founder Gets 8-Year Jail Term for Crypto Fraud, Ordered to Pay $7.7 Million

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US federal prosecutors had urged the court to impose a 13-year prison term on My Big Coin founder Randall Crater.
By Reuters | Updated: 1 February 2023

The founder of a defunct cryptocurrency business was sentenced on Tuesday to more than eight years in prison for defrauding investors and customers out of millions of dollars by marketing a virtual currency called My Big Coin with lies and half-truths.

Federal prosecutors had urged US District Judge Denise Casper in Boston to impose a 13-year prison term on Randall Crater to send a message to others in the first sentencing of a cryptocurrency company founder for marketing fraud.

While Casper concluded that that request went too far, she rejected Crater’s contention that a 30-month prison term was sufficient to punish him for his false claims, including that My Big Coin was a real cryptocurrency backed by gold.

“Certainly cryptocurrency is a newer enterprise, a newer market, a 21st Century market,” Casper said. “But the scheme at its core was age-old, and that was fraud.”

Crater, who was sentenced to 100 months in total and ordered to forfeit nearly $7.7 million (roughly Rs. 63 crore), is expected to appeal. In court, he apologized but said he never meant to defraud anyone.

“I did not set out to steal money from anyone,” he said. “That does not mean I am not remorseful.”

A jury in July found Crater, 52, guilty of committing wire fraud and making unlawful monetary transactions in a prosecution that spilled out of a precedent-setting case by the US Commodity Futures Trading Commission.

The CFTC’s 2018 lawsuit against Crater and his failed company, Nevada-based My Big Coin, led to one of the first court rulings holding that a virtual currency could be considered a commodity within the regulator’s jurisdiction.

Prosecutors subsequently secured Crater’s indictment in 2019 and accused him of causing investors and customers to lose $7.5 million (roughly Rs. 61 crore) from 2014 to 2017 with lies about My Big Coin, whose name sounded similar to the popular virtual currency bitcoin.

Prosecutors said those false claims included that My Big Coin was a real virtual currency, was backed by gold, and had a partnership with MasterCard. Prosecutors said he used the money to buy cars, jewelry, artwork and antique coins.

© Thomson Reuters 2023

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Sam Bankman-Fried’s Bail Guarantors Should be Named, US Judge Rules

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Sam Bankman-Fried's Bail Guarantors Should be Named, US Judge Rules
By Reuters | Updated: 31 January 2023

A US judge on Monday said the names of two people who helped guarantee bail for indicted FTX cryptocurrency exchange founder Sam Bankman-Fried should be made public, but put his ruling on hold pending an expected appeal.

US District Judge Lewis Kaplan in Manhattan ruled in favour of several media outlets including Reuters that sought the names.

The judge said that while the public had only a “weak” right to know who Bankman-Fried’s guarantors were, it outweighed Bankman-Fried’s arguments for confidentiality, including that the guarantors’ safety could be imperilled.

Kaplan also said the names will remain under seal until at least February 7, because “the question presented here is novel and an appeal is likely.” A spokesman for Mark Cohen and Christian Everdell, who represent Bankman-Fried, declined to comment. Bankman-Fried, 30, has been confined at his parents’ home in California, after pleading not guilty to fraud for allegedly looting billions of FTX customer dollars.

His parents, both professors at Stanford Law School, had co-signed a $250 million (roughly Rs. 2,041 crore) bond for their son, with two other guarantors required to sign $500,000 (roughly Rs. 4 crore) and $200,000 (roughly Rs. 1.6 crore) bonds.

Bankman-Fried’s lawyers said the parents had been harassed and received physical threats since FTX’s November collapse and bankruptcy, and there was “serious cause for concern” the additional guarantors might suffer similar treatment.

Kaplan disagreed, noting that long before bail was posted, the parents had faced “intense public scrutiny” over their relationship with their son, who was once worth an estimated $26 billion (roughly Rs. 2 lakh crore).

“The amounts of the individual bonds — $500,000 and $200,000 — do not suggest that the non-parental sureties are persons of great wealth or likely to attract the attention of the types and volume of that to which defendant’s parents appear to have been subjected,” Kaplan wrote.

Media outlets distinguished the case from another judge’s decision not to reveal who guaranteed a bond for Jeffrey Epstein’s longtime associate Ghislaine Maxwell.

They said there was less “stigma” from being associated with Bankman-Fried than from being associated with the late sex offender. Maxwell was later convicted.

Other media seeking to identify Bankman-Fried’s guarantors included the Associated Press, Bloomberg, CNBC, CoinDesk, Dow Jones, the Financial Times, Insider, the New York Times and the Washington Post.

© Thomson Reuters 2023

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FTX Founder Sam Bankman-Fried Objects to Stricter Bail, Says Prosecutors Put Him in ‘Worst Possible Light’

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Bankman-Fried's lawyers were responding to a request by federal prosecutors that the former FTX boss not be allowed to talk with employees.
By Reuters | Updated: 30 January 2023 

Lawyers for Sam Bankman-Fried on Saturday urged a US judge not to ban the indicted FTX cryptocurrency executive from communicating with former colleagues as part of his bail, saying prosecutors “sandbagged” the process to put their client in the “worst possible light.”

The lawyers were responding to a Friday night request by federal prosecutors that Bankman-Fried not be allowed to talk with most employees of FTX or his Alameda Research hedge fund without lawyers present, or use the encrypted messaging apps Signal or Slack and potentially delete messages automatically.

Bankman-Fried, 30, has been free on $250 million (roughly Rs. 2,038 crore) bond since pleading not guilty to charges of fraud in the looting of billions of dollars from the now-bankrupt FTX.

Prosecutors said their request was in response to Bankman-Fried’s recent effort to contact a potential witness against him, the general counsel of an FTX affiliate, and was needed to prevent witness tampering and other obstruction of justice.

But in a letter to US District Judge Lewis Kaplan in Manhattan, Bankman-Fried’s lawyers said prosecutors sprung the “overbroad” bail conditions without revealing that both sides had been discussing bail over the last week.

“Rather than wait for any response from the defense, the government sandbagged the process, filing this letter at 6:00pm on Friday evening,” Bankman-Fried’s lawyers wrote. “The government apparently believes that a one-sided presentation – spun to put our client in the worst possible light – is the best way to get the outcome it seeks.”

Bankman-Fried’s lawyers also said their client’s efforts to contact the general counsel and John Ray, installed as FTX’s chief executive during the bankruptcy, were attempts to offer “assistance” and not to interfere.

A spokesman for US Attorney Damian Williams in Manhattan declined to comment.

Bankman-Fried’s lawyers proposed that their client have access to some colleagues, including his therapist, but not be allowed to talk with Caroline Ellison and Zixiao “Gary” Wang, who have pleaded guilty and are cooperating with prosecutors.

They said a Signal ban isn’t necessary because Bankman-Fried is not using the auto-delete feature, and concern he might is “unfounded.”

The lawyers also asked to remove a bail condition preventing Bankman-Fried from accessing FTX, Alameda or cryptocurrency assets, saying there was “no evidence” he was responsible for earlier alleged unauthorized transactions.

In an order on Saturday, Kaplan gave prosecutors until Monday to address Bankman-Fried’s concerns.

“The court expects all counsel to abstain from pejorative characterizations of the actions and motives of their adversaries,” the judge added.

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India Should Consider Lowering TDS Rate on Cryptocurrency Trade to Stem Flight of Capital, Users: Report

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Many exchanges have been found to exempt TDS rules in their business practice with unauthorised discretion, according to a report.
By Press Trust of India | Updated: 25 January 2023

India should consider lowering the 1 percent TDS on cryptocurrency trade as a high rate is causing a flight of capital and users to platforms in foreign jurisdictions and the grey market, a report said on Tuesday.

The ‘Impact Assessment of 1 percent TDS on VDAs’ report by Chase India and Indus Law said the crypto platforms/exchanges must also perform customer due diligence which can help uncover any potential future risk.

“The existing 1 percent TDS on crypto trade, combined with the absence of comprehensive regulations, is causing a flight of capital and users to platforms in foreign jurisdictions and the grey market,” it said.

The government, from April 1 last year, has brought in a 30 percent income tax plus surcharge and cess on transfer of virtual digital assets (VDAs), including cryptocurrencies, like Bitcoin, Ethereum, Tether and Dogecoin.

Also, to keep a tab on the money trail, a 1 percent TDS has been brought in on payments over Rs. 10,000 towards virtual digital currencies.

“The purpose of the TDS is to establish a trail of crypto transactions, and the same can be achieved by a lower TDS rate. A nominal TDS rate would also support tracking and tracing of transactions, thus aiding in tax collections if Indian investors continued to trade from Indian KYC-enabled platforms,” said the report, which came days before the 2023-24 Union Budget slated on February 1.

It also suggested that for the purpose of safety and oversight, the government must ask all crypto exchanges/platforms to conduct a detailed e-KYC authentication on all investors/traders in line with the Aadhaar rules.

In the joint report, Chase India and Indus Law also said that many exchanges have not been following the said TDS rules despite coming under the legal purview and mandate of conducting business under other Indian laws and regulations.

Many exchanges have been found to exempt this in their business practice with unauthorised discretion. This loophole has thus led to a systemic ‘grey market’ scenario of such exchanges-cum-companies from the fence of taxation, it said.

In its recommendation, the study said: “Every exchange/platform must provide and should be mandated for the submission of transaction records to the tax regulatory authority. This would help the tax authorities (CBDT) create a directory of ‘valid’ exchanges who are following the TDS norm.” The government, in a reply to Parliament, had last month said that it has collected more than Rs 60 crore as TDS for transactions in VDAs.

“In the absence of certain exchanges contributing to the tax clause, the government will miss out on a potential revenue system generated through these trade channels,” the report said.

Chase India spokesperson said: “A Self-Regulatory Organisation (SRO) can be considered to fill the regulatory gaps. It would encourage compliance, protect customer interest, and promote ethical and professional standards amongst the exchanges.” Indus Law spokesperson said, “Stringent TDS provisions are leading to non-tax compliant exchanges being used to avoid tax. Such off the radar transactions may itself be a breeding ground for financial crimes and for other criminal activities.”

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New FTX CEO Says Bankrupt Crypto Exchange Could Restart Business: Report

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FTX's native token FTT surged nearly 30 percent after the disclosure.
By Reuters | Updated: 20 January 2023

Bankrupt crypto exchange FTX is looking into the possibility of reviving its business, Chief Executive Officer John Ray told the Wall Street Journal on Thursday.

Ray, who took over the reins in November, has set up a task force to explore restarting FTX.com, the company’s main international exchange, he said in an interview with the WSJ.

The CEO also told the Journal that he would look into whether reviving FTX’s international exchange would recover more value for the company’s customers than his team could get from simply liquidating assets or selling the platform.

FTX’s native token FTT surged nearly 30 percent after the report.

“I’m glad Mr. Ray is finally paying lip service to turning the exchange back on after months of squashing such efforts!” FTX founder and former CEO Sam Bankman-Fried said in a tweet.

“I’m still waiting for him to finally admit FTX US is solvent and give customers their money back,” Bankman-Fried added.

A legal representative for FTX did not immediately respond to a Reuters request for comment.

Bankman-Fried has been accused of stealing billions of dollars from the exchange’s customers to pay debts incurred by his crypto-focused hedge fund, Alameda Research. He has pleaded not guilty to fraud charges.

The future of customer funds, however, remains unclear. Earlier this week, FTX said in a report to creditors that hackers stole about $415 million (roughly Rs. 3,369 crore) in crypto from its international and US exchanges since its bankruptcy in November.

© Thomson Reuters 2023

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