Crypto news & regulatory update: May 20 – June 21, 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. The U.S. House of Representatives passed the “Financial Innovation and Technology for the 21st Century Act” (FIT21) with a bipartisan vote of 279 in favor (208 Republicans and 71 Democrats) and 136 opposing (three Republicans and 133 Democrats). FIT21 provides a market structure regulatory framework for digital assets and is the first crypto-related legislation to pass one of the chambers of Congress.
2. The SEC’s Division of Trading and Markets approved rule changes that would permit national securities exchanges to list eight separate ETH exchange-traded products (ETPs). The ETH ETPs will begin trading if the SEC approves the issuers’ registration statements, known as S-1 filings.
3. U.S. President Joe Biden vetoed a bipartisan Congressional resolution that would have overruled the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 121, which directed firms safeguarding consumer crypto assets to track them as liabilities on their balance sheets. 

🌽 Commodity Futures Trading Commission

• CFTC Enforcement Director Ian McGinley discussed trends in the CFTC’s recent crypto enforcement actions, including an increased focus on individuals and entities that violate the CFTC’s anti-evasion provision, third-party intermediaries that connect U.S.-based market participants to unregistered and lawbreaking entities, and compliance with the full range of the CFTC’s regulatory requirements. 
• CFTC Commissioner Summer Mersinger discussed various crypto regulatory topics on CoinDesk TV.

🦅 Congress

• As mentioned in “tl;dr,” the U.S. House of Representatives passed the “Financial Innovation and Technology for the 21st Century Act” (FIT21) with a bipartisan vote of 279 in favor (208 Republicans and 71 Democrats) and 136 opposing (three Republicans and 133 Democrats). FIT21 provides a market structure regulatory framework for digital assets and is the first crypto-related legislation to pass one of the chambers of Congress.

• The U.S. House of Representatives passed the “CBDC Anti-Surveillance State Act” with a vote of 216 in favor and 192 opposing. The bill would prohibit the Federal Reserve from issuing a central bank digital currency to implement monetary policy.

• House Financial Services Committee Chairman Patrick McHenry (R-N.C.) and others sent a letter to SEC Chair Gary Gensler requesting records and communications between SEC staff and the Financial Industry Regulatory Authority. The requested records and communications relate to Prometheum’s Special Purpose Broker Dealer (SPBD) application process, allowable SPBD activities, digital asset securities eligible to be custodied pursuant to the SPBD framework, and the regulatory classification of ETH.

• House Representative French Hill (R-Ark.) and others sent a letter to SEC Chair Gary Gensler urging him to approve pending ETH exchange-traded product applications.

• Senators Elizabeth Warren (D-Mass.) and Bill Cassidy (R-La.) sent a letter to the Office of National Drug Control Policy and the Drug Enforcement Administration expressing concerns about the role of cryptocurrency in the international fentanyl trafficking trade.

• Senator Cynthia Lummis (R-Wyo.), House Financial Services Committee Chair Patrick McHenry (R-N.C.), and others sent a letter to President Joe Biden urging him to reconsider his threat to veto Staff Accounting Bulletin (SAB) 121 Congressional Review Act (CRA), given its passage in Congress with strong bipartisan support.

⚖️ Department of Justice

• Former FTX executive Ryan Salame was sentenced to 90 months in prison after pleading guilty to conspiracy to make unlawful political contributions and defraud the Federal Election Commission and conspiracy to operate an unlicensed money transmitting business.
• The Department of Justice (DOJ) arrested a Chinese national for his alleged control of a botnet of infected computers associated with the residential proxy service known as “911 S5.” The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) also sanctioned three individuals and three entities for activities associated with the service, including 49 crypto addresses, which held more than $130 million in cryptocurrency onchain.
• The DOJ charged the chief financial officer of New York-based media publication Epoch Times with participating in a transnational scheme in which members of his team used cryptocurrency to launder approximately $67 million of illegally obtained funds to benefit himself and the media company.
• The DOJ charged three UK nationals in connection with a scheme to defraud victims into purchasing digital artwork known as the “Evolved Apes” collection of non-fungible tokens.
• The DOJ charged a Taiwanese national in connection with his operation and ownership of “Incognito Market,” an online dark web narcotics marketplace that allegedly facilitated more than $100 million in crypto-denominated sales of illegal narcotics.
• The DOJ charged two men with operating “Empire Market,” a dark web marketplace that enabled users to anonymously buy and sell more than $430 million in illegal goods and services around the world using crypto.
• A former Deutsche Bank associate was sentenced to three years and five months in prison for a crypto investment fraud scheme that resulted in approximately $1.5 million in investor losses and for a separate access device fraud scheme.
• A senior promoter in the cryptocurrency Ponzi scheme known as Forcount (and later known as Weltsys), a Brazil-based scam that principally targeted Spanish-speaking populations, pleaded guilty to conspiracy to commit wire fraud.
• A disbarred California attorney pleaded guilty to conspiring to operate a cryptocurrency Ponzi scheme that defrauded victims of more than $9.5 million.

💵 Department of the Treasury

• Treasury Under Secretary for Terrorism and Financial Intelligence Brian Nelson said that the Financial Crimes Enforcement Network’s recent proposal to classify mixers as of “primary money laundering concern” was not intended to “ban” mixers but rather to “drive transparency.”
• Treasury’s Office of Foreign Assets Control (OFAC) issued sanctions in connection with Russia’s ongoing war against Ukraine, including against a Russian national who engaged in a multi-layered laundering scheme whereby payments from the sale of Russian-origin gold were converted into fiat currency and cryptocurrencies through numerous UAE and Hong Kong-based front companies.

🛍️ Federal Trade Commission

• The Federal Trade Commission’s Division of Consumer and Business Education issued an alert warning consumers of romance scams that involve cryptocurrencies.

📈 Securities and Exchange Commission

• As mentioned in “tl;dr,” the SEC’s Division of Trading and Markets approved rule changes that would permit national securities exchanges to list eight separate ETH ETPs. The ETH ETPs will begin trading if the SEC approves the issuers’ registration statements, known as S-1 filings.
• Terraform Labs and Do Kwon agreed to a more than $4.5 billion settlement with the SEC in disgorgement, prejudgment interest, and penalties following a jury verdict holding them liable for orchestrating a fraud involving crypto asset securities.
• SEC Chair Gary Gensler released a statement opposing the FIT21 Act, stating that it would “create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts.”
• A U.S. federal judge ruled that crypto influencer Ian Balina offered and sold crypto assets called SPRK Tokens as securities in unregistered transactions. The SEC’s other claims against Balina will be heard at trial on a later date. 
• The SEC’s Office of Investor Education and Advocacy issued an investor alert describing five ways in which fraudsters lure retail investors into scams involving crypto asset securities.
• SEC Commissioner Hester Peirce proposed a joint digital securities sandbox between the United States and the United Kingdom in response to a consultation from the Bank of England and the Financial Conduct Authority.
• A U.S. federal judge ordered the SEC to pay approximately $1.8 million in attorney and receiver fees arising from the SEC’s misconduct in connection with its request for a temporary restraining order against crypto project Debt Box.
• SEC Chair Gary Gensler discussed on CNBC the SEC’s approval of the ethereum ETPs and accused crypto exchanges of “doing things the law would never allow the New York Stock Exchange or traditional exchanges to do.”

🏛️ White House

• As mentioned in “tl;dr,” U.S. President Joe Biden vetoed a bipartisan Congressional resolution that would have overruled the SEC’s SAB No. 121, which directed firms safeguarding consumer crypto assets to track them as liabilities on their balance sheets. 

🇺🇸 State

🗽 New York

• The New York State Department of Financial Services (NYDFS) issued new guidance requiring DFS-regulated virtual currency entities to maintain and implement effective policies and procedures to promptly address customer service requests and complaints.
• The office of the New York Attorney General sued crypto trading company NovaTechFx, its founders, and crypto mining company AWS Mining for allegedly engaging in illegal pyramid schemes that defrauded hundreds of thousands of investors, including more than 11,000 New Yorkers, of more than a billion dollars’ worth of cryptocurrency.
• The office of the New York Attorney General announced that it secured a settlement worth $2 billion with bankrupt crypto firm Genesis.
• Cumberland DRW, a digital asset trader and liquidity provider, announced that it received a BitLicense from NYDFS.

🌍 International

💰 Bank for International Settlements

• A Bank for International Settlements survey found that 94% of surveyed central banks are exploring a central bank digital currency.

🇧🇷 Brazil

• The Central Bank of Brazil announced plans to propose a crypto regulatory framework before the end of the year.

🇪🇺 European Union

• The EU Innovation Hub published its first report on encryption, with a chapter devoted to cryptocurrencies.

🇮🇳 India

• India’s Financial Intelligence Unit imposed a $2.25 million fine for violations of India’s Prevention of Money Laundering Act.

🌍 International Monetary Fund

• An International Monetary Fund survey of central banks in Central Asia and the Middle East showed that almost two-thirds of countries in those regions are exploring a central bank digital currency as a way to promote financial inclusion and improve the efficiency of cross-border payments.

🇳🇴 Norway

• The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime successfully recovered $5.7 million in stolen crypto from the Ronin bridge hack.

🇬🇧 United Kingdom

• A UK court sentenced a British-Chinese woman to six years and eight months in prison after she pleaded guilty to laundering bitcoins for a Chinese fugitive who had stolen approximately $6 billion from more than 100,000 investors in China.
• The Financial Conduct Authority announced that it conducted an operation with the Metropolitan Police Service to arrest 2 individuals suspected of running an illegal cryptoasset exchange that allegedly facilitated trading in more than £1 billion worth of crypto.

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