New Crypto Payment and Web3 Products Launch; UK Seeks Input on DeFi Taxation; OFAC Fines Crypto Exchange; SEC, DOJ, CFTC Continue Enforcement | BakerHostetler
Multiple Financial Services Firms Announce New Crypto Products
A major U.S. financial services firm recently launched its Crypto Credential product, “a set of common standards and infrastructure that will help verify interactions among consumers and businesses using blockchain networks.” According to a press release, among other things, the product will provide “easy to remember, straightforward aliases to help consumers share wallet addresses”; bring “richer information to blockchain transactions through metadata”; and “help verify addresses and support Travel Rule compliance for cross border transactions.”
In related news, several other payment firms have announced new cryptocurrency initiatives. A major U.S. mobile payments provider announced that its mobile payments app will now offer additional capabilities for transferring cryptocurrencies both within and external to the app. Another U.S. financial services firm introduced its Connect product, which will enable its customers to more seamlessly fund self-custodial crypto wallets “without the need to leave … dApps.” In a third development, DeFi protocol Curve Finance recently deployed its native stablecoin, crvUSD, on the Ethereum Blockchain.
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Mutual Fund Integrates with Polygon, US Exchanges Launch Offshore Platforms
A recent press release by a global investment firm announced that the firm’s OnChain US Government Money Fund (Fund) is now supported on the Polygon network. The press release states that the Fund is the “first U.S.-registered mutual fund to use a public blockchain to process transactions and record share ownership.”
In other news, two major U.S. cryptocurrency exchanges recently announced the launch of non-U.S. trading platforms. One of the exchanges has launched a non-U.S. crypto derivatives platform available to customers in many jurisdictions but excluding the United States, the European Union and the United Kingdom. The other exchange announced the launch of its International Exchange, which is licensed by the Bermuda Monetary Authority and will be available to institutional users in certain jurisdictions outside the United States to trade perpetual crypto futures.
According to a recently published survey conducted over the period from July 2022 to January 2023, 46% of millennials own cryptocurrencies, compared to 25% of Gen X, 21% of Gen Z and 8% of baby boomers. Another recent report found that the U.S. government reportedly holds more than 205,000 bitcoin worth approximately $6 billion. The government reportedly obtained the bitcoin through seizures, including in connection with the shutdown of Silk Road and the 2016 hack on Bitfinex.
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Web3 Initiatives Launch for NFT Ticketing, Protocol Infrastructure
By Lauren Bass
A recent press release announced the launch of a new Web3-based, self-service NFT event management and ticketing marketplace powered by the Polygon blockchain. The new NFT ticketing platform was launched through a partnership between a major U.S. sports magazine and ConsenSys, a blockchain development company. According to the press release, the platform allows creators not only to sell tickets to sports, concerts and theater events but to better “connect” with their audience using NFT Super Tickets, which will reportedly provide event attendees with unique perks such as collectibles, video highlights, exclusive offers and loyalty benefits.
In similar news, Polygon Labs has reportedly teamed with a multinational technology company to provide enterprise infrastructure and initiatives that will reduce onboarding time and hosting costs to Web3 developers, including through a managed node hosting service for Polygon PoS nodes. According to reports, the move is designed to incentivize Web3 developers to build, launch and grow their decentralized apps (dApps) on Polygon protocols.
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UK Seeks Input on Proposed Modifications to Tax Rules Applicable to DeFi
The United Kingdom’s HM Revenue & Customs agency recently published an “open consultation” on cryptocurrencies “seeking views on modifying the tax treatment of decentralised finance (DeFi) lending and staking.” The consultation “explores a legislative change to the tax treatment of DeFi lending and staking” whereby “the use of cryptoassets in DeFi transactions would no longer be treated as giving rise to a disposal for tax purposes … [i]nstead, a tax disposal would arise when the cryptoassets are economically disposed of in a non-DeFi transaction.” The proposed framework would also apply to the lending and staking of crypto through an intermediary. Responses to the consultation are due by June 22.
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OFAC Announces $7.6 Million Settlement with Crypto Exchange
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently published an Enforcement Release announcing a $7,591,630 settlement with the cryptocurrency exchange Poloniex for “65,942 apparent violations of multiple sanctions programs.” According to the Enforcement Release, between January 2014 and November 2019, Poloniex “allowed customers apparently located in sanctioned jurisdictions to engage in online digital asset-related transactions … with a combined value of $15,335,349, despite having reason to know their location based on both Know Your Customer information and internet protocol address data.” The Enforcement Release noted that the settlement amount reflects OFAC’s determination that Poloniex’s apparent violations were not voluntarily self-disclosed and were not egregious. Among other things, the Enforcement Release highlighted the requirement for digital asset companies to develop a tailored, risk-based sanctions compliance program consistent with OFAC’s Sanctions Compliance for the Virtual Currency Industry and Framework for OFAC Compliance Commitments.
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SEC and State Securities Regulators Continue Crypto Enforcement Actions
A recent press release from the U.S. Securities and Exchange Commission (SEC) announced that the SEC has settled charges against a Seattle-based company and its CEO “for conducting unregistered offers and sales of securities in the form of a crypto asset” and for making false and misleading statements concerning the demand for the crypto asset and the amount raised in the offering. According to the press release, the companies agreed to pay penalties of $3,520,000 and $250,000, and the CEO agreed to pay a penalty of $150,000 and has been barred for three years from acting as an officer or director of a public company.
In a state securities enforcement action, the Texas State Securities Board issued a press release announcing an emergency cease and desist order to stop a fraudulent investment scheme purportedly powered by artificial intelligence and cryptocurrencies. According to the press release, “The Texas State Securities Board led a group of regulators that include the Alabama Securities Commission, the Montana State Auditor, the Kentucky Department of Financial Institutions, and the New Jersey Securities Bureau in bringing coordinated actions against Horatiu Charlie Caragaceanu and his organizations, The Shark of Wall Street and Hedge4.ai.” The state securities regulators allege Caragaceanu is “promoting TruthGPT Coin, a cryptocurrency that purportedly uses an artificial intelligence model … to analyze various cryptocurrencies, predict future digital asset prices and differentiate profitable investments from scams.” Among other things, the press release alleges that the scheme uses fraudulent endorsements by multiple well-known figures in the cryptocurrency industry.
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DOJ Shuts Down Nine Crypto Exchanges; DOJ, CFTC Prosecute Crypto Fraud
A recent press release from the U.S. Department of Justice (DOJ) announced that DOJ and other U.S. and international law enforcement agencies have seized domain names and shut down servers related to nine virtual currency exchange services. According to the press release, the nine exchanges “allegedly offered virtual currency exchange services to individuals for illegal activities” and “[b]y providing these services, the virtual currency exchanges knowingly support the criminal activities of their clients and become co-conspirators in criminal schemes.”
Another DOJ press release announced the guilty plea of a defendant for “participating in a scheme to steal millions of dollars’ worth of cryptocurrency and trick U.S. banks into refunding the millions used to purchase that cryptocurrency, in part by using personal identifying information stolen from other people.” According to the press release, the scheme was carried out in part by the defendants opening front accounts at a cryptocurrency exchange using photos of fake identification documents.
A recent press release from the U.S. Commodity Futures Trading Commission (CFTC) announced that the U.S. District Court for the Western District of Texas has entered an order of default judgment and permanent injunction requiring a defendant to pay $1,733,838,372 in restitution to defrauded victims and a $1,733,838,372 civil monetary penalty related to “an international fraudulent multilevel marketing scheme to solicit Bitcoin from members of the public for participation in an unregistered commodity pool.” According to the press release, the defendant accepted and misappropriated “at least 29,421 Bitcoin … from at least 23,000 individuals in the U.S., and even more throughout the world,” to participate in the unregistered commodity pool.
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