Crypto news and regulatory update: September 1 - 15, 2023

Editor’s note: The a16z crypto Regulatory Update is a series that highlights the latest crypto regulation and policy happenings relevant to builders in web3 and crypto, as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, the latest updates, new guidance, ongoing legislation, and frameworks released by regulatory agencies/bodies, industry consortia and professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select other resources such as talks, posts, or other commentary – from us or from others – with the updates.

🧠 tl;dr

1. A New York federal judge sentenced a co-founder of the multibillion-dollar cryptocurrency fraud scheme “OneCoin” to 20 years in prison.
2. In its second enforcement action relating to non-fungible tokens (NFTs), the Securities and Exchange Commission (SEC) charged Stoner Cats 2 LLC (SC2) with conducting an unregistered offering of crypto asset securities in the form of NFTs that raised approximately $8 million. Commissioners Hester M. Peirce and Mark T. Uyeda dissented.
3. In its first enforcement action against decentralized finance (DeFi) platforms, the Commodity Futures Trading Commission (CFTC) settled charges against three entities, which it categorized as “DeFi protocols,” for offering illegal digital asset derivatives trading and, in the case of two of the companies, for failing to register with the CFTC and failing to adopt a customer identification program. Commissioner Summer K. Mersinger dissented.

🌽 Commodity Futures Trading Commission

• As mentioned in the “tl;dr,” the CFTC settled charges against three DeFi platforms, which it categorized as “DeFi protocols,” for offering illegal digital asset derivatives trading and, in the case of two of the companies, for failing to register with the CFTC and failing to adopt a customer identification program. Commissioner Summer K. Mersinger dissented.
• A Utah resident agreed to pay the CFTC more than $2.5 million to settle charges for fraudulently soliciting people to trade leveraged bitcoin in a commodity pool and then lying to pool participants about the availability of their money after losing all of the funds trading, and for failing to register as a commodity pool operator.
• CFTC Director of Enforcement Ian McGinley said that he intends for “DeFi to be a significant and continuing focus” for the agency’s Division of Enforcement.
• Commissioner Caroline D. Pham proposed that the CFTC launch the first-ever U.S. pilot program for digital asset markets.

🦅 Congress

• House Majority Whip Tom Emmer (R-Minn.) reintroduced the CBDC Anti-Surveillance State Act, which would prohibit the Federal Reserve from issuing a central bank digital currency directly to individuals.
• Senator Bill Hagerty (R-Tenn.) said that “tremendous” regulatory uncertainty in the United States raises concerns that the crypto industry will leave the country.

⚖️ Department of Justice

• As mentioned in the “tl;dr,” a New York federal judge sentenced a co-founder of the multibillion-dollar cryptocurrency fraud scheme “OneCoin” to 20 years in prison
• The Federal Bureau of Investigation (FBI) said North Korea-affiliated Lazarus Group was responsible for the theft of approximately $41 million in virtual currency from Stake.com, an online casino and betting platform.

💵 Department of the Treasury

• The Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network issued an alert to bring attention to a virtual currency investment romance scam called “pig butchering,” in which scammers leverage fictitious identities and the guise of potential relationships to trick victims into believing they are in trusted partnerships before stealing their assets.
• Treasury’s Office of Foreign Assets Control sanctioned eleven members of the Russia-based Trickbot cybercrime group, which has used ransomware strains to extort victims for hundreds of millions of dollars in cryptocurrency.

💰 Federal Reserve

• Vice Chair Michael S. Barr said that the Federal Reserve would not issue a CBDC without “clear support” from the executive branch and Congress, and that he remains “deeply concerned” about stablecoin issuance without strong federal oversight.

📈 Securities and Exchange Commission

• As mentioned in the “tl;dr,” the SEC charged Stoner Cats 2 LLC (SC2) with conducting an unregistered offering of crypto asset securities in the form of NFTs that raised approximately $8 million. Commissioners Hester M. Peirce and Mark T. Uyeda dissented.
• The SEC charged a Hawaiian resident with manipulating the trading market for certain structured equity securities by fabricating and disseminating phony press releases announcing that the security would be the “first publicly traded security fund to convert to a cryptocurrency” and other false statements.
• The SEC settled charges against Linus Financial for failing to register the offers and sales of its retail crypto lending product without imposing civil penalties due to the company’s cooperation and prompt remedial actions.
• A California federal judge approved a settlement of approximately $2.1 million between the SEC and the former owner of a defunct online educational company relating to allegations that he ran a multi-million dollar pyramid scheme and distributed unregistered crypto asset securities.
• Chair Gary Gensler testified before the Senate Committee on Banking, Housing, and Urban Affairs on various issues, including crypto, artificial intelligence, and climate risk.

🌍 State

🐻 California

• The California State Assembly passed the Digital Financial Assets Law, which would create a regulatory licensing framework for the state’s crypto industry. If Governor Gavin Newsom signs the bill, it will go into effect in July 2025.

🌍 International

🇪🇺 European Union

• The European Union Parliament voted in support of a cryptocurrency tax reporting rule, called the Directive on Administrative Cooperation (DAC8). The new rule officially goes into effect on January 1, 2026.

🌍 International Monetary Fund

• The International Monetary Fund and the Financial Stability Board published a joint paper titled “Policies for Crypto Assets,” which provides regulatory and policy recommendations for helping authorities “address the macroeconomic and financial stability risks posed by crypto-asset activities and markets.”

🇸🇬 Singapore

• The Monetary Authority of Singapore (MAS) issued nine-year prohibition orders against the founders of Three Arrows Capital, prohibiting them from operating in Singapore’s regulated financial services industry.

🇹🇷 Turkey

• The founder of the collapsed Turkish crypto exchange Thodex was sentenced to 11,196 years for defrauding investors of millions of dollars.

🇬🇧 United Kingdom

• The U.K.’s Financial Conduct Authority announced that it will allow some crypto firms extra time to implement changes to their marketing processes ahead of the U.K.’s new rules on financial promotions, but they must first apply to be eligible for the extension.

 

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