Category Archives: Blockchain, Crypto, Digital Assets Regulations
FCA/BoE: Digital Securities Sandbox-Consult on Final Rules
Consultation | April 10, 2024
Image: FCA and BOE Digital Securities Sandbox Objectives and Timeline
Digital Securities Sandbox Joint Bank of England and FCA Consultation Paper
The Bank of England, in conjunction with the Financial Conduct Authority (FCA), has released a consultation paper on the implementation and operation of the Digital Securities Sandbox (DSS) and is seeking feedback on a wide array of topics. The DSS aims to explore the potential of developing technology, such as Distributed Ledger Technology (DLT), in the trading and settlement of securities, including shares and bonds. The sandbox is intended to last for five years, serving as a bridge to a more permanent, technology-friendly regime for the securities market.
- The DSS is designed to facilitate the application of new technology to securities trading and settlement, offering a path to a new technology-friendly regulatory regime. The Bank of England and FCA will jointly operate the DSS, aiming to promote a safe, sustainable, and efficient financial system, protect financial stability, and ensure market integrity.
See: UK Launches Pioneering Digital Securities Sandbox
- The sandbox will accommodate equities, corporate and government bonds, money market instruments, fund units, and emissions allowances, excluding derivative contracts and unbacked cryptocurrencies like Bitcoin.
- The paper emphasizes the use of limits to allow for the safe scaling of businesses, mitigating risks to financial stability without hindering innovation.
- The DSS will enable firms to engage in activities traditionally associated with central securities depositories, such as the issuance, maintenance, and settlement of financial securities. It also opens the door for the creation of new business models by combining these activities with those of a trading venue.
Targeted Areas for Specific Feedback
While the document outlines a comprehensive framework for the sandbox, including its objectives, scope, and operational guidelines, there are specific areas where the regulators are particularly seeking feedback. Here are some key questions and areas of focus where inputs are being solicited:
- How should the regulators balance the promotion of innovation with the need to maintain financial stability and protect market integrity? This includes feedback on the proposed regulatory framework that accommodates new technologies such as Distributed Ledger Technology (DLT) while ensuring the financial system's safety and reliability.
See: UK Digital Securities Sandbox: A Guide and Implications
- What are the views on the scope and eligibility of financial instruments and activities proposed to be included in the DSS? This includes opinions on which securities should be allowed, the appropriateness of including certain types of instruments (e.g., equities, bonds, money market instruments), and the exclusion of derivative contracts and unbacked cryptocurrencies.
- How should the DSS be structured and operated to facilitate its objectives effectively? This involves input on the proposed stages of permitted activity, the process for moving between stages, and the overall design of the sandbox to enable a smooth transition from a sandbox environment to a permanent regime.
- What measures should be implemented to ensure that the sandbox activities do not pose undue risks to financial stability and market integrity? This includes feedback on the use of limits on the value of securities that can be issued within the DSS and the methodology for setting these limits.
- How can the DSS best support the development and testing of innovative business models and technologies in the financial securities market? This encompasses thoughts on the potential benefits and challenges of integrating new technologies like DLT in securities trading and settlement.
- What should the approach to supervision and enforcement within the DSS look like to ensure compliance while encouraging innovation? This includes opinions on the proposed joint supervision by the Bank of England and the FCA, and how regulatory oversight should be tailored to support sandbox participants' innovative efforts.
See: Former Citi Executives Launch Bitcoin Securities Startup
- What are the views on the proposed fee/costs regime for firms participating in the DSS? This seeks feedback on the fairness and appropriateness of any charges that sandbox participants might incur.
Public Consultation Key Dates
The consultation paper invites feedback on its proposals, including the approach to operating the DSS, the application process, and how to manage financial stability and market integrity risks. The primary audience for the paper includes prospective providers of financial market infrastructure interested in applying to the DSS. The closing date for responses is 29 May 2024, with the DSS expected to open for applications over the summer of 2024.
Conclusion
These questions are aimed at gathering a wide range of perspectives from stakeholders, including financial market infrastructure providers, firms interested in applying to the DSS, and other market participants.
See: FCA’s Finanal Social Media Financial Promotion Guidelines
The feedback will help shape the final guidelines and rules under which the DSS will operate, ensuring that the sandbox effectively supports innovation while safeguarding the interests of participants and the broader financial system.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Avi Eisenberg Trial: DeFi’s Legal Boundaries Tested
DeFi | April 10, 2024
Image: Freepik/topntp26
The Avi Eisenberg Case: DeFi on Trial
The trial of Avi Eisenberg, accused of orchestrating a $110 million fraud on the Mango Markets DeFi platform, highlights the complexities inherent in DeFi and is evolving into a litmus test for the application of traditional legal frameworks to the rapidly emerging digital finance ecosystem. On January 23, the Securities and Exchange Commission (SEC) charged Avi with manipulating Mango Markets 'governance tokens'. Eisenberg's trial started this week and is expected to deeply explore philosophical and practical questions about trading on permissionless blockchains. It is the first federal criminal trial involving a DeFi trader accused of violating U.S. law, challenging the perception of DeFi as an unregulated frontier.
Background
In October 2022, Eisenberg exploited Mango Markets, a DeFi platform operating on the Solana blockchain, with a trading strategy that led to a $110 million gain. At the heart of the allegations is that Eisenberg manipulated the market by gaming Mango Markets' futures contracts. By artificially inflating the price of the MNGO token, Eisenberg was then able to borrow against his position, draining Mango Markets of its deposits. This act of market manipulation is the cornerstone of the prosecution's case.
See: CFTC Publishes DeFi Report for Policymakers and Industry
Following the incident, Eisenberg returned a portion of the funds in exchange for a promise from Mango's backers not to seek prosecution—a promise that was eventually broken. This aspect of the case, involving negotiations likened by prosecutors to a ransomware negotiation, highlights the precarious nature of attempting to resolve disputes in the DeFi arena.
Significance of Trial
The trial began Tuesday, April 9, 2024, set to last 2 weeks, with both sides delivering opening statements to a 15-person jury including individuals from diverse professional backgrounds, such as a rare books seller and an elementary school music director, alongside at least two finance professionals. This varied composition underscores the trial's significance, the range of the issues at hand, and need to bridge the gap between traditional legal understanding and the avant-garde realm of DeFi.
Eisenberg's defense and the government's prosecution are debating about the nature of DeFi, where the maxim "code is law" challenges traditional legal frameworks. This trial represents a significant test of the U.S. government's ability to enforce existing laws in a sector that has prided itself on operating outside conventional regulatory oversight.
See: SEC Expands ‘Dealer’ Definition That Could Ensnare DeFi
Eisenberg's actions have ignited a debate over the ethical and legal boundaries within DeFi. Prosecutors have labeled his actions as a form of theft, likening it to a "fake diamond ring" scam, whereas Eisenberg's defense argues it was a legitimate trading strategy within the speculative and loosely regulated DeFi space.
Conclusion
The debate over the term "manipulation" and its legal implications in the context of smart contract-based transactions highlights the trial's potential to set precedents for DeFi regulation. It raises critical questions about the applicability of traditional financial laws to decentralized platforms and the need for new regulatory approaches that can accommodate the unique characteristics of blockchain technology and cryptocurrency trading.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC Enforcement Director Grewal On Crypto Regulation
Speech | April 4, 2024
Image: SEC, Gurbir S. Grewal, Director, Division of Enforcement
Summary of SEC Speaks 2024 Remarks by Gurbir S. Grewal, Director, Division of Enforcement
During the SEC Speaks 2024 event, Gurbir S. Grewal, the Director of the Securities and Exchange Commission's Division of Enforcement, emphasized the dedication to protecting investors and ensuring the integrity of the securities market. He highlighted the SEC's consistent application of the Howey test to determine whether crypto assets are considered securities, stressing that this standard applies equally to all market participants. Despite facing significant challenges, including skepticism over the SEC's authority and the integrity of its enforcement efforts, Grewal underscored the agency's unwavering commitment to investor protection.
Spotlighted Issues with Crypto
The speech by Gurbir S. Grewal at SEC Speaks 2024 identified several critical issues and problems with the cryptocurrency market. The top five issues are highlighted below:
1. The SEC has encountered substantial non-compliance and avoidance tactics within the cryptocurrency market. Market participants have engaged in various creative attempts to evade SEC jurisdiction, including claiming that crypto products were "currencies" and therefore beyond the SEC's remit or that the term "investment contract" was unconstitutionally vague.
See: U.S. Court Orders Binance CZ to Surrender Canadian Passport
2. Misleading Claims and Lack of Transparency. There have been instances where crypto entities made misleading claims, such as promising financial freedom and "risk-free" investments, without adequate transparency or honesty about the risks and the use of invested funds.
3. Predatory Inclusion Tactics. Certain crypto entities have specifically targeted Black, brown, and other marginalized communities with narratives that crypto will increase financial inclusion, uplift the unbanked or underbanked, and help build wealth, despite these claims lacking supportive evidence and potentially leading to disproportionate harm. For example, the SEC charged 17 individuals for their role in an alleged crypto Ponzi scheme that raised $300 million from more than 40,000 investors, highlighting the agency's efforts to combat fraudulent activities targeting vulnerable communities.
4. The speech referenced cases where the SEC charged individuals involved in crypto Ponzi schemes that defrauded investors of large sums of money, demonstrating the presence of fraud and deceptive practices within the crypto space.
5. The SEC has faced attacks on its integrity from market participants who question the agency's authority, motivations, and the legality of its enforcement actions. These challenges undermine efforts to establish a regulated and transparent market for cryptocurrencies.
While none of the issues mentioned above are new, they underscore the complexities and challenges the SEC faces in regulating the crypto sector in the U.S.
Select Quotes
On the Application of Securities Laws to Crypto
"In the decade since we brought our first crypto enforcement actions, our approach has been consistent, principled, and tethered to the federal securities laws and legal precedent."
See: Sam Bankman-Fried Sentenced to 25 Years for Massive Fraud
Grewal defends the SEC's methodical and principled approach to regulating the crypto market, indicating that the SEC's enforcement actions are deeply rooted in established legal frameworks, not arbitrary decisions.
Addressing Challenges and Criticism
"A decade’s worth of verbal gymnastics that are just a backhanded way of saying, 'we want a different set of rules than those that apply to everyone else.'"
This statement highlights the resistance and creative arguments the SEC faces from certain market participants seeking exemptions from standard regulatory practices. It reflects the ongoing tension between regulatory bodies and parts of the crypto industry including its own SEC Commissioners.
On Investor Protection
"But I am incredibly proud of the perseverance of the staff, who push forward for one reason alone: because investor protection demands it."
Grewal expresses pride in the SEC staff's dedication to their mission, emphasizing that their efforts are driven by a commitment to safeguard investors, particularly in the challenging and rapidly evolving crypto space.
The Importance of Integrity and Trust
"Our ability to do all of this work depends on trust and credibility."
See: Coinbase Gains Restricted Dealer License in Canada
This underscores the critical role that trust and credibility play in the SEC's effectiveness. Grewal makes it clear that maintaining the public’s confidence is paramount, ensuring that enforcement actions are both fair and firmly grounded in law. A survey by the Pew Research Center found that nearly a third of Americans who had ever invested in, traded, or used crypto, no longer held any, and three-quarters of Americans familiar with crypto do not believe it is reliable and safe.
Outlook
Grewal's defense of the SEC's crypto regulation underscores a commitment to investor safety and market integrity. It's evident that regulatory ambiguity remains a challenge, impacting the industry and its key stakeholders. Clarifying these regulations is essential for fostering a healthy, transparent crypto environment that benefits all participants.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Coinbase Gains Restricted Dealer License in Canada
Release | April 4, 2024
Image: Coinbase Blog, Major Hubs Legislating Crypto
Coinbase's Strategic Expansion into Canada's Crypto Market
"Today we’re excited to share a crucial milestone in Coinbase’s journey in Canada. Coinbase has officially been registered as a Restricted Dealer by the Canadian Securities Administrators (CSA). This makes Coinbase the largest and first international cryptocurrency exchange registered in Canada."
On April 3, 2024, Coinbase shared the achievement of a key milestone on it's blog announcing that it has 'officially been registered as a Restricted Dealer by the Canadian Securities Administrators (CSA), [making them] the largest and first international currency exchange registered in Canada." View the release here.
See: Tax Tips for Canadian Crypto Users in 2024
- Coinbase's registration as a restricted dealer by the CSA is a result of nearly three years of diligent work, particularly with the Ontario Securities Commission. This achievement follows Canada's new guidelines introduced last year for crypto exchanges, which mandate registrations and impose investment limits for certain investors.
- Canada presents a significant market opportunity for Coinbase, ranked as the third-most crypto-aware nation globally. With a highly educated and technology-savvy population, Canada is ripe for cryptocurrency adoption. Coinbase's registration makes it the largest and first international cryptocurrency exchange in Canada, poised to make digital economy access easier for millions.
- A survey conducted by Coinbase in partnership with Angus Reid highlights that 72% of Canadians consider regulation of cryptocurrency exchanges important. Furthermore, nearly a third (29%) of Canadians would be more inclined to buy cryptocurrency with more industry regulation.
- Coinbase's commitment to Canada extends beyond regulatory compliance. The launch of Interac payment rails, in partnership with Peoples Trust, enables seamless transactions for Canadian users. Moreover, Coinbase's CEO Brian Armstrong's engagement with the local tech community and the establishment of a Canadian tech hub with nearly 200 employees signify a deep investment in Canada's digital asset ecosystem.
Lucas Matheson, Coinbase Canadian Country Director:
"We've made it a priority to work closely with regulators in key countries as part of our international growth. Over the last year, we've obtained registrations in France, Spain, Singapore, Italy, Ireland, and the Netherlands. Adding Canada to this list is a huge moment for Coinbase, and one we are very proud of."
See: OSC: 2023 Canadian Crypto Survey Insights
Outlook
The registration with the Canadian Securities Administrators (CSA) aligns with Coinbase's "Go Deep" growth strategy and is in line with the broader trend of crypto platforms seeking legitimacy and trust through regulatory approvals en-route to the mainstream adoption of digital assets globally.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Hester Peirce: Nothing but Crickets at the SEC
Regulatory Speech | April 3, 2024
Image: Commissioner Hester M. Peirce
Emerging Regulatory Challenges in Crypto Custody
Commissioner Hester M. Peirce delivered a speech at the SEC Speaks event in Washington D.C. on April 2, 2024 titled "At the SEC: Nothing but Crickets Remarks at SEC Speaks". This event is known for providing a platform for SEC officials to communicate with the public, including industry professionals, academics, lawyers, and other regulators, about current issues, regulatory agendas, and future plans within the securities market. Commissioner Hester M. Peirce’s speech specifically addressed the complexities and implications surrounding the regulation of crypto custody, with a focal point on the issuance of Staff Accounting Bulletin (SAB) 121 by the SEC.
- SAB 121 mandates public companies safeguarding crypto assets for clients to include a liability and corresponding asset on their balance sheet. This directive, issued without comprehensive industry consultation, has raised concerns among banking regulators and the Government Accountability Office, which suggests the SEC should have sought Congressional approval under the Congressional Review Act.
See: Jury to Decide on SEC’s Claims Against Crypto Exchange
- Travis Hill, Vice Chairman of the Federal Deposit Insurance Corporation (FDIC) discussed tokenization's ability to revolutionize banking and payments by introducing programmability, atomic settlement, and ledger immutability. However, he highlighted the lack of regulatory clarity and the FDIC's current stance, which may stifle innovation and investment in blockchain and distributed ledger technologies.
- The SEC's unilateral regulatory actions and the FDIC's cautious approach to digital assets have contributed to an environment of uncertainty. This has implications for the development of new products, with entities navigating a complex regulatory landscape that may inhibit innovation and deter engagement with regulatory bodies.
This directive, enacted without broad Commission consensus or public consultation, has raised concerns among both industry participants and other regulatory bodies. Peirce criticized this approach for its lack of transparency and potential negative impact on innovation within the crypto sector. She argued that such significant regulatory measures should undergo a more inclusive decision-making process, involving input from a wider range of stakeholders to ensure regulations are balanced, effective, and support the dynamic nature of the crypto market.
Need for More Democratic and Inclusive Decision-Making at the SEC
Select Quotes from Commissioner Peirce's Speech
"Rules of such broad effect should be set by the full Commission, not by staff answering only to the Chairman."
- This quote highlights a concern over the process and governance within the SEC regarding the formulation of significant policies. Commissioner Peirce is pointing out the need for more democratic and inclusive decision-making within the agency, rather than allowing crucial policies to be dictated by a limited number of individuals. This approach is vital for ensuring that regulatory policies are well-considered, balanced, and reflect a broad range of insights and concerns, which is particularly important in the rapidly evolving and complex world of crypto assets and financial technologies.
See: Hester Peirce Reaffirms That the SEC’s Current Approach to Crypto Is ‘Not a Good Way of Regulating’
"The Commission should think about each rule proposal as an opportunity to foster a public discussion with the goal of developing the best solution to a carefully identified problem, not as the opening bid in a hard-driving negotiating strategy designed to force a cowed public to accept a slightly less onerous—though perhaps still unworkable—final rule."
- This statement underscores the importance of regulatory transparency and public engagement. Peirce criticizes the current approach to rulemaking, which she perceives as opaque and unilateral, suggesting that the SEC should use rule proposals as a means to engage with the public and industry stakeholders in a constructive dialogue. The impact of adopting such an approach would likely lead to more effective and practical regulations that better address the real needs and concerns of the market while fostering innovation and compliance.
See: Wall Street Opposes a Controversial Retail Investor Proposal by SEC Chair Gary Gensler
"We are scaring people off from coming in and having a conversation with us."
- Here, Commissioner Peirce voices a critical issue regarding the regulatory environment created by the SEC’s current stance and approach towards enforcement and dialogue with industry participants. The impact of this statement is profound, highlighting how an adversarial or overly cautious regulatory posture can discourage open communication between regulators and those they regulate. This breakdown in dialogue can lead to less informed regulatory decisions, hinder innovation, and potentially drive activity to less transparent or regulated environments, ultimately undermining the SEC's mission to protect investors and maintain fair, orderly, and efficient markets.
Conclusion
The above quotes collectively highlight the need for a shift in regulatory strategy towards more inclusive, transparent, and collaborative processes. Such changes could not only enhance the effectiveness of financial regulation but also ensure that the U.S. remains a competitive and innovative leader in the global financial market, particularly in areas like cryptocurrency and fintech. Has someone lost the plot?
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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KuCoin’s Regulatory Entanglement Heats Up With DOJ and CFTC
Crypto Regulation | April 1, 2024
Image: Freepik/Drazen Zigic
The Escalating Legal Challenges Facing KuCoin Have Sparked Jurisdictional Complexities
On March 26, 2024 the U.S. Department of Justice (DOJ) laid charges against Seychelles-based crypto exchange, KuCoin, and its founders Chun Gan and Ke Tang for anti-money laundering (AML) violations and operating an unlicensed money-transmitting business. These charges were based on allegations that KuCoin, despite operating with over 30 million customers worldwide, failed to implement adequate AML and Know Your Customer (KYC) procedures per the Bank Secrecy Act's AML requirements, effectively allowing the platform to be potentially used for illicit activities. The lack of compliance has reportedly facilitated over $9 billion in suspicious transactions, highlighting the potential for crypto exchanges to be exploited for money laundering.
See: OSC Publishes Statement of Allegations Against KuKcoin For Failing to Comply with Ontario Securities Law
On the same day, the Commodities Futures Trading Commission (CFTC) filed a civil enforcement action against KuCoin, marking a separate but equally significant regulatory challenge. The CFTC's charges centered on KuCoin's operations of an illegal digital asset derivatives exchange and committing multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations. By classifying certain digital assets as commodities, the CFTC asserts its jurisdiction over derivatives trading related to those assets.
Jurisdictional Dispute Between CFTC and SEC
An interesting twist in the narrative is the contention surrounding the regulatory jurisdiction over cryptocurrencies, particularly Ethereum (ETH), which has been classified by the CFTC as a commodity in its complaint against KuCoin. This classification directly contrasts with the Securities and Exchange Commission (SEC) Chair Gary Gensler’s viewpoint that most cryptocurrencies, excluding Bitcoin, could be considered securities and thus fall under the SEC’s regulatory umbrella. This divergence in regulatory approach has led to confusion and calls for clearer guidelines within the U.S. regulatory framework for cryptocurrencies.
See: CFTC Publishes DeFi Report for Policymakers and Industry
Adding to the regulatory debate, CFTC Commissioner Caroline Pham has expressed concerns that the CFTC's aggressive enforcement action might be infringing upon the SEC's authority, thus complicating the regulatory landscape for digital assets. Pham’s comments highlight the ongoing uncertainty and lack of clarity regarding which regulatory body has jurisdiction over various aspects of the crypto market, especially concerning the classification of cryptocurrencies as commodities or securities.
Statement of Commissioner Caroline D. Pham Regarding KuCoin Complaint:
“The CFTC has filed another aggressive enforcement action exercising our authority to pursue alleged unregistered crypto asset derivatives trading platforms and other violations of law. I commend the Division of Enforcement’s vigilance in protecting our markets. However, I note that the complaint appears to assert that fund shares held by investors—namely, securities—can themselves constitute leveraged trading pursuant to section 2(c)(2)(D) of the Commodity Exchange Act. This interpretation fails to distinguish between an investment in a fund, which would typically be a security under the jurisdiction of the SEC, and the trading activities of a fund, alleged here to be under the CFTC’s jurisdiction. The CFTC’s approach may infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets. Owning shares is not the same thing as trading derivatives.”
See: SEC Scrutinizes Ethereum as ETF Approvals Delayed
KuCoin's Response
KuCoin posted on social media site X reassuring that customer assets remain secure and that their legal team is actively investigating the allegations. Kucoin also announced a compensation drop for withdrawal congestion and gratitude for loyalty users.
"KuCoin respect the laws and regulations of various countries and strictly adheres to compliance standards."
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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BC Court Freezes $250K of QuadrigaCX Co-founder’s Assets
Crypto Enforcement | April 1, 2024
Image: Unsplash/Anne Nygård
BC's Director of Civil Forfeiture has secured an interim preservation order against assets associated with Michael Patryn, co-founder of defunct QuadrigaCX
The court order is part of ongoing efforts to address the fallout from one of Canada's largest cryptocurrency scams, and aims to seize $250,000 of co-founder Michael Patryn's assets (also known as Michael Dhanani and Omar Patryn) believed to be proceeds of the fraudulent activities that led to QuadrigaCX's collapse following the death of its other co-founder, Gerald Cotten. The exchange's collapse left creditors out approximately $215 million, with only $46 million recovered by the bankruptcy trustee. The Ontario Securities Commission (OSC) later determined that Quadriga operated like a Ponzi scheme, primarily implicating Cotten in the fraud.
See: QuadrigaCX: A Review by Staff of the Ontario Securities Commission
- Justice Ahmad of the Supreme Court of British Columbia has granted a preservation order for assets including $250,000 in cash, 45 gold bars, luxury watches, and jewelry found in a Vancouver safety deposit box, alongside funds in a specific CIBC bank account, all linked to Patryn.
- The court found sufficient evidence linking the seized assets to QuadrigaCX's fraudulent operations, which were exposed following co-founder Gerald Cotten's death in 2018. The judgment detailed the RCMP's investigation findings, including chat records between Patryn and Cotten that suggested Patryn's involvement in Quadriga's fraudulent activities, despite his departure from the company in 2016. The court also considered whether granting the preservation order would be against the interests of justice, concluding that it would not, given the purposes of the Civil Forfeiture Act (CFA) and the interests of Quadriga's creditors.
- The judgment allows Patryn or any interested party the opportunity to challenge the preservation order, provided they notify the Director of Civil Forfeiture eight business days in advance. This provision ensures fairness in the legal process, allowing for the presentation of additional evidence or arguments against the forfeiture of assets.
- With no criminal charges laid against Patryn as of the judgment date, the case remains active within the legal system, with the potential for further developments, including challenges to the preservation order, additional evidence submissions, and eventual decisions regarding the forfeiture of the preserved assets.
See: Calgary Police and Chainanalysis Launch the Western Canada Cryptocurrency Investigations Centre
Conclusion
By leveraging civil forfeiture laws against Michael Patryn, the province of British Columbia seeks to provide some measure of justice to the victims of the QuadricaCX ponzi fraud and sets a precedent for regulatory and legal frameworks.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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