Crypto news & regulatory update: March 15 – April 5, 2024

Editor’s note: Our Regulatory Updates series highlights the latest regulatory, legal, 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, guidance, legislation, and frameworks released by regulators, industry consortia, professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select resources such as talks, posts, or other commentary — from us or from others — with the updates.

🧠 tl;dr

1. A federal judge sentenced Sam Bankman-Fried to 25 years in prison and three years of supervised release and ordered him to pay $11 billion in forfeiture for orchestrating multiple fraudulent schemes relating to bankrupt crypto exchange FTX and crypto trading firm Alameda Research.
2. A federal judge ruled that the Securities and Exchange Commission (SEC) had plausibly alleged that Coinbase intermediated transactions in crypto asset securities on its trading platform, and that it engaged in the unregistered offer and sale of securities through its Staking Program. However, the judge dismissed the SEC’s claim that Coinbase acted as an unregistered broker by making its Coinbase Wallet application available to customers.
3. A federal judge sanctioned the SEC over false and misleading statements its counsel made to obtain emergency measures against crypto project Debt Box. The judge described the SEC’s actions as “bad faith conduct” and a “gross abuse” of power and ordered the agency to pay the defense’s and receiver’s attorney fees and legal costs. 
4. A federal judge rejected Wyoming-based Custodia Bank’s requests to overturn the Federal Reserve’s and Federal Reserve Bank of Kansas City’s denial of its application for a master account and to compel them to issue the master account.

🦅 Congress

• House Financial Services Committee Chairman Patrick McHenry (R-N.C.) and others sent a letter to SEC Chair Gary Gensler demanding that the agency clarify its position with respect to a Special Purpose Broker Dealer’s ability to custody non-security digital assets, the regulatory classification of ETH, and the SEC’s position regarding Prometheum’s announcement that it will provide custody services for ETH.

⚖️ Department of Justice

• As mentioned in “tl;dr,” a federal judge sentenced Sam Bankman-Fried to 25 years in prison and three years of supervised release and ordered him to pay $11 billion in forfeiture for orchestrating multiple fraudulent schemes relating to bankrupt crypto exchange FTX and crypto trading firm Alameda Research.
• The Department of Justice charged crypto exchange KuCoin and its two founders with violating the Bank Secrecy Act, operating an unlicensed money transmitting business, and two related conspiracy counts. The indictment alleges that KuCoin received more than $5 billion in suspicious and criminal funds. The CFTC filed a parallel civil action.
• A federal judge sentenced the former head of legal and compliance of the multibillion-dollar crypto fraud scheme “OneCoin” to four years in prison.

💵 Department of the Treasury

• The Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 13 entities and two individuals operating in the financial services and technology sectors in Russia, including persons developing or offering services in virtual assets that enable the evasion of U.S. sanctions.
• OFAC and the the United Kingdom’s Office of Financial Sanctions Implementation designated two individuals and three entities as key financial facilitators involved in fundraising for Hamas. The sanctions list includes several crypto addresses that were used to raise funds.

💰 Federal Reserve

• As mentioned in “tl;dr,” a federal judge rejected Wyoming-based Custodia Bank’s requests to overturn the Federal Reserve’s and Federal Reserve Bank of Kansas City’s denial of its application for a master account and to compel them to issue the master account.

📈 Securities and Exchange Commission

• As mentioned in “tl;dr,” a federal judge ruled that the SEC had plausibly alleged that Coinbase intermediated transactions in crypto asset securities on its trading platform, and that it engaged in the unregistered offer and sale of securities through its Staking Program. However, the judge dismissed the SEC’s claim that Coinbase acted as an unregistered broker by making its Coinbase Wallet application available to customers.
• As also mentioned above, a federal judge sanctioned the SEC over false and misleading statements its counsel made to obtain emergency measures against crypto project Debt Box. The judge described the SEC’s actions as “bad faith conduct” and a “gross abuse” of power and ordered the agency to pay the defense’s and receiver’s attorney fees and legal costs. 
• In the SEC’s civil fraud case against Terraform Labs and its co-founder Do Kwon, a New York jury found Terraform and Kwon liable for engaging in fraudulent schemes to mislead investors, including misrepresenting the stability of the so-called algorithmic stablecoin Terra USD.
• Bankrupt crypto lender Genesis Global Capital agreed to pay the SEC $21 million to settle charges that it engaged in the unregistered offer and sale of securities through a crypto asset lending program known as the Gemini Earn program.
• The SEC delayed making a decision on the Hashdex, Ark 21Shares, and VanEck spot ETH exchange-traded funds (ETFs). The SEC also issued a call for comments on spot ETH ETFs from Grayscale Investments, Fidelity, and Bitwise.
• The Practicing Law Institute held a two-day “SEC Speaks” event in which the SEC provided updates on current initiatives and priorities at the Commission. Commissioner Hester Peirce criticized SEC Staff Accounting Bulletin 121, which directed firms safeguarding consumer crypto assets to track them as liabilities on their balance sheets, as well as the Commission’s approach to interactions with the private sector. Division of Enforcement Director Gurbir Grewal said that Americans have “good reason to be concerned” about the crypto industry because of “continued noncompliance” in the space.

🌍 State

🗽 New York

• The New York State Department of Financial Services granted WisdomTree a limited purpose trust charter to offer crypto-related services in New York.

🦬 Oklahoma

• Oklahoma Attorney General Gentner Drummond warned Oklahoma consumers about a rise in scams involving “Bitcoin ATMs” that are leaving victims with depleted bank accounts.

🌍 International

💰 Bank for International Settlements

• The Bank for International Settlements, together with seven central banks, announced plans to work with the private sector to explore “how tokenisation can enhance the functioning of the monetary system.”

🇨🇦 Canada

• The Canadian Securities Administrators officially registered Coinbase as a Restricted Dealer, which makes Coinbase the largest and first international crypto exchange registered in Canada. 

🚨 Financial Action Task Force

• The Financial Action Task Force (FATF) released a report showing the status of virtual asset guidance implementation across different jurisdictions. FATF President T. Raja Kumar also told CoinDesk that fewer than 30% of jurisdictions around the globe had started regulating the crypto sector as of June 2023.

🇳🇬 Nigeria

• Nigeria’s Securities and Exchange Commission proposed a 400% increase to registration fees for crypto firms.

🇵🇭 Philippines

• The Philippines Securities and Exchange Commission blocked online access to crypto exchange Binance in the country.

🇸🇬 Singapore

• The Monetary Authority of Singapore (MAS) introduced amendments to the Payment Services Act to expand the scope of payment services regulated by MAS and to impose user protection and financial stability-related requirements on digital payment token service providers.

🇬🇧 United Kingdom

• A London jury found a UK woman guilty of laundering bitcoins for a Chinese fugitive who had stolen approximately $6 billion from more than 100,000 investors in China.
• The FCA published guidance describing how advertisements across social media channels, including those relating to crypto, must be fair, clear, and not misleading.
• The UK’s Financial Conduct Authority 2024/25 business plan indicates that the agency intends to deliver a market abuse regime for crypto this year.
• The City Minister’s industry group for examining the impact of technology on the UK’s investment management sector published a new report on the potential use cases of fund tokenization.

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