Crypto Hot News: December 14th Edition

#1: KuCoin settles New York lawsuit with $22M payment and ends local services.

KuCoin, a leading global cryptocurrency exchange, has settled a lawsuit with New York State by agreeing to restrict access for New York users and pay $22 million. This decision follows allegations by New York Attorney General Letitia James that KuCoin operated without proper registration in the state. The settlement includes a cessation of trading in securities and commodities in New York, aligning with U.S. efforts to regulate the cryptocurrency industry for issues like fraud and money laundering.

The Attorney General's office has been actively pursuing cryptocurrency firms for legal infractions, including recent lawsuits against Genesis Global, Digital Currency Group, Gemini, and CoinEx. The notable conviction of FTX founder Sam Bankman-Fried for federal charges and Binance's founder's guilty plea to U.S. anti-money laundering law violations exemplify the intensified scrutiny on the crypto sector.

KuCoin's settlement involves a $5.3 million payment to New York State and refunds totaling $16.7 million in cryptocurrency to over 177,000 affected New York investors. Despite this, KuCoin remains a major player in the cryptocurrency market, ranking just behind Binance, Coinbase, and Kraken in terms of traffic, liquidity, and trading volumes.

Real Source of Legitimacy: https://www.reuters.com/legal/crypto-exchange-kucoin-shut-new-york-pay-22-mln-settle-lawsuit-2023-12-12/

#2: Binance continues to fight SEC lawsuit despite settling with DOJ

Binance, a leading cryptocurrency exchange, is currently challenging a lawsuit by the U.S. Securities and Exchange Commission (SEC), despite having recently settled with the U.S. Department of Justice (DOJ). Binance's legal team claims the SEC's allegations are misleading and procedurally improper. This dispute follows a November announcement where the DOJ and Binance reached a $4.3 billion settlement, resulting in the removal of CEO Changpeng Zhao, who, along with Binance, pleaded guilty to violating the Bank Secrecy Act.

The SEC's recent filing suggests that the plea deals weaken Binance's and Zhao's defense against accusations of engaging in activities outside U.S. jurisdiction. Binance previously filed a motion to dismiss the SEC's lawsuit, arguing that the SEC had not convincingly alleged securities violations and was overreaching its regulatory authority.

Binance argues that the SEC did not provide fair notice regarding the classification of certain crypto assets as securities or about compliance with the Securities and Exchange Acts. They also contend that regulatory actions by other agencies do not imply SEC regulatory authority over the assets in question.

Furthermore, Binance disputes the SEC's claims about Merit Peak, a market maker owned by Zhao, highlighting that allegations of processing billions in U.S.-based transactions are not entirely accurate. These allegations were initially made by the Financial Crimes Enforcement Network (FinCEN) and were neither confirmed nor denied by Binance or Zhao.

Binance acknowledges using a U.S. technology service provider for data storage, website hosting, and platform operation, but clarifies that these services were conducted on servers in Japan, countering the SEC's claim of U.S.-based operations.

In summary, Binance's defense emphasizes the distinction between the DOJ's plea agreement, which pertains to anti-money laundering under the Bank Secrecy Act, and the SEC's allegations related to federal securities laws, arguing that the former does not automatically imply guilt in the latter case.

Real Source of Legitimacy: https://blockworks.co/news/binance-refutes-sec-filing

#3: BlackRock revises Bitcoin ETF filing to facilitate Wall Street bank participation

BlackRock, a major investment management company, has updated its application for a spot Bitcoin exchange-traded fund (ETF) to include a new "prepay" model. This model makes it easier for large Wall Street banks like JPMorgan and Goldman Sachs to participate by allowing them to create new shares in the fund using cash instead of directly using cryptocurrency. This change addresses the restrictions that prevent these banks from holding Bitcoin or other cryptocurrencies on their balance sheets.

In a recent meeting with the United States Securities and Exchange Commission (SEC), BlackRock, along with representatives from Nasdaq, presented this revised model. The proposed system could significantly impact Wall Street banks with trillion-dollar balance sheets who are currently unable to hold Bitcoin due to regulatory constraints.

Under the new model, authorized participants (APs) would transfer cash to a broker-dealer. This broker-dealer then converts the cash into Bitcoin and stores it with the ETF's custody provider, which is Coinbase Custody in BlackRock's case. This structure shifts the risk from APs to market makers, potentially increasing participation from risk-averse institutions.

BlackRock claims that this revised ETF structure offers better resistance to market manipulation, a concern that has led the SEC to deny previous spot Bitcoin ETF applications. The company also asserts that the new model would enhance investor protections, reduce transaction costs, and improve simplicity and consistency across the Bitcoin ETF landscape.

This proposal marks BlackRock's third meeting with the SEC, following two previous discussions where they presented the original model. The SEC is expected to make a decision on BlackRock's application by January 15, with a final deadline set for March 15. The decision is part of a broader review by the SEC, which is also considering applications from other financial firms like Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex for similar Bitcoin ETF products. These decisions are anticipated to be made between January 5–10.

Real Source of Legitimacy: https://twitter.com/JSeyff/status/1734679896746758219

#4: Donald Trump launches $99 'Mugshot Edition' NFTs, boosting prices of his previous NFTs and offering dinner for two as a perk.

Real Source of Legitimacy: https://www.instagram.com/p/C0wxZ-KgqRi/

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#5: The IRS claims $24B in unpaid taxes from FTX, which may impact the company's ongoing bankruptcy proceedings

FTX debtors are concerned that a substantial $24 billion tax claim from the Internal Revenue Service (IRS) could hinder the process of returning funds to customers. According to a recent filing, FTX argues that the bankrupt exchange did not generate profits that would justify such a large tax claim, but rather incurred billions in losses.

FTX's position is that any recovery for the IRS would detract from the potential returns to the victims of the exchange's bankruptcy. The initial claim by the IRS was an even higher $43 billion, but it was later reduced to the current $24 billion. FTX contends that the IRS has not provided a valid basis for its claims. The U.S. government has stated that the IRS's claims cannot be estimated at this time.

Under these circumstances, FTX debtors bear the responsibility to disprove the IRS's claim, a process they believe could take many months. They argue that the case should not be delayed by IRS procedures that are unnecessary given the clear financial loss of the exchange. Ernst & Young (EY) recorded the FTX loss at $11 billion, a figure that is reflected in the tax returns.

The FTX debtors have been cooperating with the IRS, providing requested documents. They argue that there is no need for an extended fact-finding period on tax issues that the IRS has already been evaluating for several months.

Resolving the IRS's claims is crucial for the bankruptcy proceedings to advance. The proposed schedule suggests an evidentiary hearing prior to confirmation in February of the next year, where parties can present their positions. However, if disagreements persist, the bankruptcy plan could face further delays. The U.S. government has proposed an eight-month schedule for additional IRS investigation.

FTX declared bankruptcy in November of the previous year. Its former CEO, Sam Bankman-Fried, found guilty of fraud in November of this year, is scheduled for a sentencing hearing in February 2024.

Real Source of Legitimacy: https://blockworks.co/news/ftx-debtors-reject-irs-claim

#6: Richard Heart still survives outside of SEC located radar—while posting to X everyday

The United States Securities and Exchange Commission (SEC) has made significant progress in its lawsuit against Richard Schueler, also known as Richard Heart, the founder of the cryptocurrency HEX. The SEC served the lawsuit to Heart at his residence in Helsinki, Finland, through a substitute service on October 31. This method was adopted after several failed attempts over a seven-week period starting on September 13 to personally serve Heart through various means at his Helsinki residence​

Find the lawsuit file here: https://www.courtlistener.com/docket/67649362/11/securities-and-exchange-commission-v-schueler/

Real Source of Legitimacy: https://twitter.com/RichardHeartWin

#7: Bitwise Spot Bitcoin ETF has been listed on the DTCC under the ticker $BITB.

Bitwise Asset Management's spot Bitcoin ETF, $BITB, has been listed on the Depository Trust and Clearing Corporation (DTCC), following Fidelity's similar listing last week.

While a spot BTC ETF in the US is still pending approval, Bitwise's Chief Investment Officer, Matt Hougan, indicated they are preparing for a potential launch. Hougan mentioned ongoing preparations in marketing and regulatory discussions, and meetings with the SEC. Bloomberg analysts estimate a 90% chance of the US SEC approving a spot BTC ETF by January 10.

Real Source of Legitimacy: https://www.dtcc.com/products/cs/exchange_traded_funds_plain_new.php