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

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

By Reuters | Updated: 1 February 2023

OpenAI, the creator of the popular chatbot ChatGPT, has released a software tool to identify text generated by artificial intelligence, the company said in a blog post on Wednesday.

ChatGPT is a free program that generates text in response to a prompt, including articles, essays, jokes, and even poetry, which has gained wide popularity since its debut in November, while raising concerns about copyright and plagiarism.

The AI classifier, a language model trained on the dataset of pairs of human-written and AI-written text on the same topic, aims to distinguish text that is written by AI. It uses a variety of providers to address issues such as automated misinformation campaigns and academic dishonesty, the company said.

In its public beta mode, OpenAI acknowledges the detection tool is very unreliable on texts under 1,000 characters, and AI-written text can be edited to trick the classifier.

“We’re making this classifier publicly available to get feedback on whether imperfect tools like this one are useful,” OpenAI said.

“We recognize that identifying AI-written text has been an important point of discussion among educators, and equally important is recognizing the limits and impacts of AI-generated text classifiers in the classroom.”

Since ChatGPT debuted in November and gained wide popularity among millions of users, some of the largest US school districts, including New York City, have banned the AI chatbot over concerns that students will use the text generator to cheat or plagiarize.

Others have created third-party detection tools including GPTZeroX to help educators detect AI-generated text.

OpenAI said it is engaging with educators to discuss ChatGPT’s capabilities and limitations and will continue to work on the detection of AI-generated text.

© Thomson Reuters 2023

By Reuters | Updated: 31 January 2023

Facebook on Monday asked a London tribunal to block a collective lawsuit valued at up to GBP 3 billion (roughly Rs. 30,300 crore) over allegations the social media giant abused its dominant position to monetise users’ personal data.

Meta, the parent company of the Facebook group, is facing a mass action brought on behalf of around 45 million Facebook users in Britain.

Legal academic Liza Lovdahl Gormsen, who is bringing the case, said Facebook users were not properly compensated for the value of personal data that they had to provide to use the platform.

Her lawyers said users should get compensation for the economic value they would have received if Facebook was not in a dominant position in the market for social networks.

But Meta said the lawsuit was “entirely without merit” and should not be allowed to proceed. Its lawyers said the claimed losses ignore the “economic value” Facebook provides.

Lovdahl Gormsen’s lawyers on Monday asked the Competition Appeal Tribunal to certify the case under the UK’s collective proceedings regime – which is roughly equivalent to the class action regime in the United States.

A decision to certify collective proceedings will depend on whether the tribunal decides that the individual cases can appropriately be dealt with together, rather than on their merits.

Ronit Kreisberger, representing Lovdahl Gormsen, told the tribunal that “Meta’s data practices violate the prohibition on abusive conduct by dominant firms”.

“There is unquestionably a case for Meta to answer at trial,” Kreisberger argued.

But lawyers representing Meta said the lawsuit wrongly assumes that any “excess profits” it might make equates to a financial loss suffered by individual Facebook users.

This approach “takes no account whatsoever of the significant economic value of the service provided by Facebook”, Marie Demetriou said in court documents.

She said Lovdahl Gormsen’s estimate of potential claimants’ total losses – GBP 3 billion, including interest – is “at the very least wildly inflated”.

© Thomson Reuters 2023

By Reuters | Updated: 31 January 2023

Twitter is working to introduce payments on the social media platform and has begun applying for regulatory licenses, the Financial Times reported on Monday, citing people familiar with the matter.

New boss Elon Musk is pushing Twitter to create new streams of revenue as it faces a drop in advertising income, following his $44 billion (roughly Rs. 3.6 lakh crore) takeover of the company in October.

The development of the payments feature is being led by Esther Crawford, a director of product management at Twitter, according to the report, which added that the executive was emerging to be a key lieutenant to Musk.

Twitter did not immediately respond to a Reuters request for comment.

Musk had previously said that the Twitter acquisition would be part of a master plan to create “the everything app”, a service that would offer social networking, peer-to-peer payments and e-commerce shopping.

Prior to Musk’s takeover, Twitter in early 2021 was exploring allowing its users to receive tips, or digital payments, from their followers.

Meanwhile, Twitter announced last week that users will be able to appeal account suspensions and be evaluated under the social media platform’s new criteria for reinstatement, starting February 1.

Under the new criteria, which follow billionaire Elon Musk’s purchase of the company in October, Twitter accounts will only be suspended for severe or ongoing and repeat violations of the platform’s policies.

Severe policy violations include engaging in illegal content or activity, inciting or threatening violence or harm, and engaging in targeted harassment of other users, among others.

Twitter said that going forward, it will take less severe action, in comparison to account suspension, such as limiting the reach of tweets that violate its policies or asking users to remove tweets before continuing to use the account.

© Thomson Reuters 2023

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