Crypto news and regulatory update: June 7, 2023 – July 14, 2023

Editor’s note: The a16z crypto Regulatory Update is a series that highlights the latest regulatory 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 federal court ruled that Ripple’s sales of XRP tokens to sophisticated individuals and entities were unregistered offers and sales of investment contracts that violated securities laws, but that its sales of XRP over exchanges or through the use of trading algorithms were not.
2. The Commodity Futures Trading Commission (CFTC) won a default judgment (a ruling in favor of a plaintiff when a defendant does not respond to a summons or appear in court) in the Ooki DAO enforcement action. The Court ordered Ooki DAO to pay a $643,542 penalty, to permanently cease its operations, and to shut down its website.
3. The DOJ charged a former security engineer in connection with an attack on a smart contract operated by an unnamed crypto exchange and theft of approximately $9 million of crypto.

🌽 Commodity Futures Trading Commission

• The CFTC won a default judgment against an Ohio resident that requires him to pay more than $50 million for engaging in a fraudulent digital asset trading scheme.
• The CFTC won a default judgment against the CEO of the Digitex derivatives trading platform that requires him and his companies to pay more than $15 million for attempted manipulation of the platform’s native token and other violations.
• The CFTC filed a civil enforcement action against a California resident, alleging that he fraudulently misappropriated more than $1.3 million in customer funds intended for digital asset commodity and forex trading. This is the CFTC’s first case involving a romance scam, also known as “pig butchering.”
• The CFTC filed a civil enforcement action against a New York resident, alleging that he fraudulently solicited and misappropriated more than $21 million from approximately 100 commodity pool participants’ funds.
• The CFTC settled charges against two Florida residents for perpetrating a multi-million dollar bitcoin fraud through off-exchange transactions.
• The CFTC added 45 unregistered foreign entities, including crypto-related entities, to its Registration Deficient List.
• The CFTC’s Division of Enforcement established a Cybersecurity and Emerging Technologies Task Force.
• As mentioned in the “tl;dr” at top, the CFTC won a default judgment in the Ooki DAO enforcement action. The Court ordered Ooki DAO to pay a $643,542 penalty, to permanently cease its operations, and to shut down its website.

🦅 Congress

• All 29 Republicans on the House Financial Services Committee sent a letter to the Securities and Exchange Commission (SEC) urging the agency to rescind its proposed rulemaking regarding the definition of “exchange.” The letter states that the proposed definition could “capture a wide range of individuals in the digital asset ecosystem, including software developers and participants in a blockchain network’s consensus mechanism.” 
• Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) released a reintroduced draft legislative proposal for regulating crypto markets.
• House Representative and Chair of the House Financial Services Committee Patrick McHenry (R-N.C.) released a third draft of a proposed stablecoin bill.
• House Representatives Brad Sherman (D-Cal.) and Stephen Lynch (D-Mass.) wrote to the Internal Revenue Service (IRS), expressing concern over tax compliance in the crypto industry and requesting that the IRS “promptly release” new regulations to close tax gaps.
• House Representatives Tom Emmer (R-Minn.) and Warren Davidson (R-Ohio) introduced the SEC Stabilization Act, which would restructure the SEC and remove Gary Gensler as chair of the agency.
• House Representative Maxine Waters (D-C.A.) wrote to Treasury Secretary Janet Yellen and SEC Chair Gary Gensler, requesting that the agencies share their analysis of the draft digital assets market structure legislation that Committee Republicans released in June. 
• Senator Thomas Tuberville (R-Ala.) wrote to Attorney General Merrick Garland and SEC Chair Gary Gensler, asking them to investigate Prometheum for potentially providing false testimony to Congress or violating the securities laws.
• House Representative Ritchie Torres (D-N.Y.) requested that the SEC’s inspector general and the Government Accountability Office’s comptroller conduct an independent investigation into the “unusual circumstances” surrounding the SEC’s “dubious” decision to grant Prometheum a special purpose broker-dealer license.

🛡️ Department of Homeland Security

• Homeland Security Investigations in the District of Arizona and others formalized the Darknet Marketplace and Digital Currency Crimes Task Force to combat the use of digital currency to facilitate criminal activities, such as drug trafficking, money laundering, theft of personal information, and child exploitation.

⚖️ Department of Justice

• The Department of Justice (DOJ) arrested and charged the founder of Celsius and its former Chief Revenue Officer with multibillion-dollar fraud and market manipulation schemes. The SEC, CFTC, and Federal Trade Commission (FTC) filed parallel civil lawsuits.
• The DOJ charged two Russian nationals with the hack of crypto exchange Mt. Gox and for conspiring to launder approximately 647,000 bitcoins.
• The DOJ charged a Moroccan national in connection with a scheme to impersonate the OpenSea website to obtain unauthorized access to cryptocurrency and NFTs.
• The DOJ announced a new national security cyber section within the National Security Division.
• As mentioned in the “tl;dr” at top, the Department of Justice (DOJ) charged a former security engineer in connection with an attack on a smart contract operated by an unnamed crypto exchange and theft of approximately $9 million of crypto.

💵 Department of the Treasury

• Treasury Secretary Janet Yellen said that she sees “some holes” in the existing regulatory framework as it applies to crypto where additional regulation would be appropriate.
• Treasury Assistant Secretary for Financial Institutions Graham Steele said that the U.S. has not determined whether it would pursue a central bank digital currency (CBDC), and that one challenge with respect to CBDCs is privacy protection.

🔐 Federal Deposit Insurance Corporation

• The Federal Deposit Insurance Corporation (FDIC) sent a cease-and-desist letter to crypto exchange OKCoin demanding that it take immediate corrective action with respect to false and misleading statements relating to deposit insurance.

💰 Federal Reserve

• Federal Reserve Chairman Jerome Powell testified that the Federal Reserve should have a “robust role” in overseeing U.S. stablecoins.
• The Federal Reserve Bank of New York’s New York Innovation Center (NYIC) published findings of a proof of concept that explored the “feasibility of an interoperable network for wholesale payments operating on a shared multi-entity distributed ledger.”

💵 Office of the Comptroller of the Currency

• The Office of the Comptroller of the Currency’s (OCC) “semiannual risk perspective” reiterated the banking regulators’ “cautious” approach to crypto and reminded bank participants of their obligation to demonstrate that they have adequate controls in place before engaging in certain cryptocurrency, distributed ledger, and stablecoin activities.
• Acting Head of the OCC Michael Hsu said that achieving decentralization, security, and scale all at once “is not possible with a public blockchain,” and that private blockchains are “better positioned” to facilitate tokenization in a safe, sound, and fair manner.

📈 Securities and Exchange Commission

• A divided SEC Commission denied its own Enforcement Division’s request to dismiss an in-house proceeding against American CryptoFed because the company purportedly had not successfully withdrawn the registration form that was the basis of the legal dispute.
• The SEC won a default judgment against a trading platform, Coinseed, and its former CEO that requires them to pay approximately $424,000 for failing to register the company’s native token with the SEC.
• SEC Chair Gary Gensler said that crypto market participants have made a “calculated economic decision to take the risk of enforcement as the cost of doing business.”
• As mentioned in the “tl;dr” at top, a federal court ruled that Ripple’s sales of XRP tokens to sophisticated individuals and entities were unregistered offers and sales of investment contracts that violated securities laws, but that its sales of XRP over exchanges or through the use of trading algorithms were not.

🌍 State

🗽 New York

• CoinEx, a Hong Kong-based virtual currency trading platform, agreed to refund New York investors a total of $1.2 million and pay more than $600,000 in penalties to settle charges that it failed to register as a securities and commodities broker-dealer and for falsely representing itself as a crypto exchange.

🐦 Nevada

• The Nevada Financial Institutions Division filed a court petition to place crypto custodian Prime Trust LLC in receivership after determining that Prime Trust was insolvent and operating in an “unsafe and unsound manner.”

🐂 Texas

• The Texas State Securities Board filed enforcement actions against various entities collectively known as Abra, alleging that the respondents committed securities fraud and engaged in deception in connection with the offer and sale of investments in Abra Earn and Abra Boost.

🌍 International

💰 Bank for International Settlements

• The Bank for International Settlements (BIS) prepared a report for G20 finance ministers and central bank governors on the key elements and risks of the crypto ecosystem, which concluded that “crypto’s inherent structural flaws make it unsuitable to play a constructive role in the monetary system.” 
• The BIS published the results of a 2022 survey of 86 central banks relating to their involvement in CBDC work. The BIS also published a report on how the BIS Innovation Hub has helped central banks explore CBDCs and the lessons it has learned so far.
• The BIS released a proposal for a “unified ledger” that would combine CBDCs, tokenized deposits, and tokenized assets on a programmable platform.

🇧🇪 Belgium

• Belgium’s Financial Services and Markets Authority ordered Binance to immediately cease all offers of virtual currency services in the country.

🇧🇷 Brazil

• Brazil’s executive branch designated the country’s central bank and its Securities Commission as responsible for overseeing the crypto market.

🇨🇦 Canada

• The Canadian Securities Administrators warned investors about crypto websites that claim to be authorized or affiliated with fictitious regulatory or dispute resolution organizations in an effort to appear legitimate.
• A Canadian House of Commons committee published a report that sets forth 16 policy recommendations relating to blockchains, including recognizing that blockchains have “significant long-term economic and job creation opportunities.”

🇨🇴 Colombia

• Banco de la República (Colombia’s central bank) has partnered with Ripple to explore blockchain use cases.

🇩🇰 Denmark

• Denmark’s Financial Supervisory Authority ordered Danish bank Saxo to dispose of its own crypto holdings on the basis that the bank’s trading of crypto assets for its own account is not permissible under Danish law.

🇪🇺 European Union

• The European Commission launched a new European Digital Infrastructure Consortium, dedicated to scaling up efforts to compete with other large-scale blockchain services, like China’s Blockchain-based Service Network.
• The European Commission released a proposed framework for a digital euro that would be made available “alongside existing national and international private means of payment” anywhere in the euro area.
• The European Commission announced its adoption of a new strategy on what it terms “Web 4.0,” a new generation of the Internet that would allow for “integration between digital and real objects and environments, and enhanced interactions between humans and machines.”
• The European Banking Authority encouraged stablecoin issuers to take timely preparatory steps to comply with new E.U. crypto regulations that come into effect next year.
• Joachim Schwerin, a principal economist in the European Commission’s department responsible for economic growth, said that the SEC’s recent actions could be an “opportunity” for Europe. 

🇫🇷 France

• Governor of the Banque de France François Villeroy de Galhau said that international cooperation is needed to regulate crypto conglomerates and that the E.U. would require a “MiCA 2”, meaning a follow-up to the Markets in Crypto-Assets regulation which the European Parliament adopted in April. 
• CACEIS Bank, the asset servicing arm of Crédit Agricole and Santander, registered with the French markets regulator to provide crypto custody services.

🇩🇪 Germany

• Two economists from the German central bank published a paper on potential issues relating to wholesale CBDCs.

🇭🇰 Hong Kong

• Hong Kong Legislative Council Member Johnny Ng tweeted an invitation to “all global virtual asset trading operators” including Coinbase to come to Hong Kong.
• The Hong Kong government established a task force for promoting web3 development.

🇮🇳 India

• Reserve Bank of India Deputy Governor Rabi Sankar said that stablecoins pose a “risk of dollarization” and an “existential threat to policy sovereignty.”

🇮🇱 Israel

• Israel’s National Bureau for Counter Terror Financing announced that it had seized approximately $1.7 million of crypto from Hezbollah and Iran’s Quds Force.

🌍 International Monetary Fund 

• The International Monetary Fund’s (IMF) Director of Monetary and Capital Markets presented a blueprint framework for international wholesale CBDCs.
• The IMF’s Division Chief for its Western Hemisphere Department and two IMF economists wrote about the increased interest in CBDCs in Latin American countries, and suggested that complete bans on crypto assets “may not be effective in the long run.”
• The IMF published a working paper on issues that might arise from accommodating crypto assets within existing tax frameworks.

🇳🇦 Namibia

• The Namibian National Assembly passed a bill that establishes a new licensing regime for virtual asset service providers.

🇳🇬 Nigeria

• The Nigerian Securities and Exchange Commission ordered a company called Binance Nigeria to immediately halt operations in the country. A spokesperson for Binance said that it is not related to Binance Nigeria.

🇸🇬 Singapore

• The Monetary Authority of Singapore (MAS) published a whitepaper proposing a common protocol for the use of digital money, including CBDCs, tokenized bank deposits, and stablecoins on a distributed ledger.
• The MAS released a report that introduces a framework for “designing open and interoperable digital asset networks based on tokenised real-economy assets and financial assets.”
• The MAS announced new requirements for “Digital Payment Token” service providers, which includes restrictions on such providers from facilitating lending and staking of tokens on behalf of retail customers.
• Circle announced that it obtained a Major Payment Institution license in Singapore.

🇸🇰 Slovakia

• Slovakian lawmakers passed a bill to amend the country’s income tax laws and reduce tax on profits gained from the sale of cryptocurrencies to 7%.

🇰🇷 South Korea

• South Korea’s National Assembly approved the Virtual Asset User Protection Act, which is the country’s first standalone digital-asset bill.

🇹🇭 Thailand

• Thailand’s Securities and Exchange Commission announced a ban on crypto exchanges offering lending and staking services.

🇦🇪 United Arab Emirates

• Dubai’s Virtual Assets Regulatory Authority suspended crypto exchange BitOasis’s conditional license and initiated an enforcement action against it.

🇬🇧 United Kingdom

• The U.K.’s Financial Services and Markets Act received Royal Assent (thus becoming official law). The new law will bring certain crypto assets within the U.K.’s broader financial regulatory framework.  
• The Financial Conduct Authority (FCA) announced that the U.K.’s rules on crypto financial promotions will come into effect on October 8, 2023. The FCA also wrote to firms marketing crypto-assets to inform them of the deadline.
• Identity and payments platform Nuggets announced that it is working with the Bank of England on developing a privacy and identity layer for a potential digital pound.
• Bank of England Governor Andrew Bailey said that both unbacked cryptocurrencies and stablecoins fail to meet foundational standards that he believes are essential for safe money.
• The U.K.’s Department for Science, Innovation & Technology is offering secondment programs for private sector experts to work with the government to develop various technologies, including blockchain.

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