Category: News

By Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried is in talks with U.S. prosecutors to resolve a dispute over the FTX cryptocurrency exchange founder’s bail conditions, his lawyer said on Thursday.

The judge overseeing Bankman-Fried’s criminal fraud case in federal court in Manhattan on Wednesday temporarily barred the 30-year-old former billionaire from contacting employees of FTX or his Alameda Research hedge fund, after prosecutors raised concerns he might tamper with witnesses.

His lawyers had previously countered that he had contacted current executives at the now-bankrupt exchange to offer “assistance” and not to interfere, and so the additional bail condition was not needed.

Bankman-Fried has pleaded not guilty and is under house arrest at his parents’ California home.

In a court filing, defense lawyer Mark Cohen asked U.S. District Judge Lewis Kaplan to postpone a Feb. 7 hearing on the matter, as well as a Feb. 2 deadline to explain why he should be able to access and transfer cryptocurrency before trial.

“The parties would like to continue these discussions, which we are optimistic will lead to an agreement between the parties in the next few days and eliminate the need for further litigation,” Cohen wrote, noting that prosecutors consented to the request.

A spokesperson for the U.S. Attorney’s Office in Manhattan declined to comment.

Once worth an estimated $26 billion, Bankman-Fried was arrested in December after FTX collapsed.

Prosecutors have said he looted billions of dollars in FTX customer funds to plug losses at Alameda. Two former colleagues have pleaded guilty and are cooperating with prosecutors.

Bankman-Fried has acknowledged risk management failures, but said FTX collapsed because of a liquidity crunch and that he did not steal funds. A trial is scheduled for Oct. 2.

(Reporting by Luc Cohen in New York; Editing by Daniel Wallis)

(This Feb. 1 story has been corrected to fix the name of CIO in the “Going Private” section to Nicoll from Nicole)

LONDON (Reuters) – The end of the easy-cash era is over and its impact yet to be felt on world markets, hopeful that the pain of aggressive rate hikes and high inflation has passed.

U.S. and UK central banks are unwinding stimulus further by offloading bonds they hold, and the European Central Bank will join them soon. Nomura estimates the balance sheets of the three banks will shrink by $3 trillion this year.

Graphic: Bloated central bank balance sheets start to shrink https://www.reuters.com/graphics/GLOBAL-MARKETS/znpnbkeaypl/chart.png

Tech stocks and crypto currencies look vulnerable. They are among risky assets that soared as cash pumped out by central banks fighting weak inflation in recent years searched for a home.

“When you have unprecedented monetary tightening, the likelihood is that you get issues that are uncovered – that might be something hidden such as liquidity or something more obvious like pressures in the housing market,” said Zurich Insurance Group chief market strategist Guy Miller.

We look at some potential pressure points.

1/ DARLINGS NO MORE

Once darlings of the easy-cash era, tech stocks are being shunned by many investors even after a January bounce as higher rates make it more expensive to take punts on the potential earnings growth of early stage or speculative businesses.

When economic uncertainty is high, investors often look for reliable returns from dividends to safeguard portfolios. That makes the likes of tech stalwarts such as Apple, whose shares trade on a dividend yield of less than 1%, look vulnerable.

“We’re at a stage where very elevated valuations in markets have collided with much less supportive policy,” said James Harries, senior fund manager at Troy Asset Management. “So, the outlook is darkening.”

Tech firms are reversing pandemic-era exuberance, cutting jobs after years of hiring sprees. Google owner Alphabet plans to axe about 12,000 workers; Microsoft, Amazon and Meta are firing almost 40,000.

Graphic: Big tech’s earnings growth put to the test https://www.reuters.com/graphics/GLOBAL-MARKETS/mypmogzgmpr/chart.png

2/ DEFAULT RISKS

Concerns about corporate defaults are mounting as rates rise, although recession worries have eased.

S&P Global said Europe had the second-highest default count last year since 2009.

It expects U.S. and European default rates to reach 3.75% and 3.25%, respectively, in September 2023 versus 1.6% and 1.4% a year before, with pessimistic forecasts of 6.0% and 5.5% not “out of the question.”

Man GLG portfolio manager Michael Scott said markets have not fully priced in the risk of higher defaults.

Graphic: Corporate default rate may double in 2023 https://www.reuters.com/graphics/GLOBAL-STRESS/dwpkdegzdvm/chart.png

3/ GOING PRIVATE

Private debt markets have ballooned since the financial crisis to $1.4 trillion from $250 billion in 2010.

The largely floating-rate nature of the financing appeals to investors, who can reap returns in high single to low double digits, and became popular as plunging rates post-2008 boosted risk assets.

Now, a reality check: higher rates imply a heavier burden for companies as recession looms, casting a shadow over their ability to generate sufficient cash to pay ballooning interest costs.

“What surprises me is that you’re almost back to complacency,” said Will Nicoll, CIO of Private and Alternative Assets at M&G Investments. “We’ve gone from a position where three months ago everybody was talking about a credit cycle coming through for the first time in decades and now people appear to have forgotten that.”

Graphic: Direct lending stellar growth https://www.reuters.com/graphics/GLOBAL-CREDIT/PRIVATE/lbpgggwlnpq/chart.png

4/CRYPTO WINTER

Rising borrowing costs roiled crypto markets in 2022. The price of bitcoin plunged 64% and around $1.3 trillion was wiped off the global cryptocurrency market cap.

Bitcoin has rallied recently but caution remains. The collapse of various dominant crypto companies, most notably FTX, left investors shouldering large losses and prompted calls for more regulation.

January brought a fresh wave of job cuts as firms brace for the so-called crypto winter, while the lending unit of Genesis recently filed for U.S. bankruptcy protection, owing creditors at least $3.4 billion.

Graphic: Pain in crypto land https://www.reuters.com/graphics/GLOBAL-MARKETS/lgpdknmayvo/chart.png

5/FOR SALE

Real estate markets, first responders to rate hikes, started cracking last year and 2023 will be tough with U.S. house prices expected to drop 12%.

Fund managers surveyed by BofA see China’s troubled real estate sector as the second most likely source of a credit event.

European real estate is reporting distress levels not seen since 2012, according to data from law firm Weil, Gotshal & Manges.

How the sector services its debt is in focus and officials warn European banks risk significant profit hits from sliding house prices.

Real estate investment management firm AEW estimates the UK, France and Germany could face a 24 billion euro debt funding gap through 2025. Luckily, bank balance sheets are better positioned to absorb losses, so few expect a 2008 repeat.

Graphic: Distress in Europe’s real estate sector rises https://www.reuters.com/graphics/GLOBAL-STRESS/byprlryzbpe/chart.png

($1 = 0.9192 euros)

(Reporting by Chiara Elisei, Dhara Ranasinghe, Naomi Rovnick, Elizabeth Howcroft and Yoruk Bahceli; Graphics by Kripa Jayaram and Vincent Flasseur; Editing by Dhara Ranasinghe and Christina Fincher)

By Josh Smith

SEOUL (Reuters) – Last year was the worst on record for cryptocurrency heists, with hackers stealing as much as $3.8 billion, led by attackers linked to North Korea who netted more than ever before, a U.S.-based blockchain analytics firm said in a report on Wednesday.

The report by Chainalysis found hacking activity that “ebbed and flowed” throughout the year, with “huge spikes” in March and October. October was the biggest single month ever for cryptocurrency hacking, with $775.7 million stolen in 32 separate attacks, the report said.

The cryptocurrency market floundered in 2022, as risk appetite diminished and various crypto firms collapsed. Investors were left with large losses and regulators stepped up calls for more consumer protection.

At the time, Chainalysis and other firms confirmed to Reuters that North Korean-related accounts had lost millions of dollars in value.

But that did not deter hackers.

North Korea-linked hackers such as those in the cybercriminal syndicate Lazarus Group have been by far the most prolific cryptocurrency hackers, stealing an estimated $1.7 billion worth of in multiple attacks last year, the report said.

“In 2022, they shattered their own records for theft,” it said.

North Korea has denied allegations of hacking or other cyberattacks.

According to a panel of experts monitoring United Nations sanctions, North Korea has increasingly relied on hacking to fund its missile and nuclear weapons programmes, particularly as publicly declared trade dwindled under sanctions and COVID-19 lockdowns.

“It isn’t a stretch to say that cryptocurrency hacking is a sizable chunk of the nation’s economy,” Chainalysis said.

For the first time last year, U.S. law enforcement seized $30 million in stolen funds from North Korea-linked hackers.

“These hacks will get harder and less fruitful with each passing year,” Chainalysis predicted.

Targets in “decentralized finance” or DeFi, a thriving segment in the cryptocurrency sector, accounted for more than 82% of the cryptocurrency stolen in 2022, the report said.

DeFi applications, many of which run on the Ethereum blockchain, are financial platforms that enable crypto-denominated lending outside of traditional banks.

Last year saw a record amount of crypto transactions related to illicit activity overall, reaching $20.1 billion, Chainalysis said in January.

(Reporting by Josh Smith, Editing by Louise Heavens)

By Nate Raymond

BOSTON (Reuters) – The founder of a defunct cryptocurrency business was sentenced on Tuesday to more than eight years in prison for defrauding investors and customers out of millions of dollars by marketing a virtual currency called My Big Coin with lies and half-truths.

Federal prosecutors had urged U.S. District Judge Denise Casper in Boston to impose a 13-year prison term on Randall Crater to send a message to others in the first sentencing of a cryptocurrency company founder for a marketing fraud.

While Casper concluded that that request went too far, she rejected Crater’s contention that a 30-month prison term was sufficient to punish him for his false claims, including that My Big Coin was a real cryptocurrency backed by gold.

“Certainly cryptocurrency is a newer enterprise, a newer market, a 21st Century market,” Casper said. “But the scheme at its core was age-old, and that was fraud.”

Crater, who was sentenced to 100 months in total and ordered to forfeit nearly $7.7 million, is expected to appeal. In court, he apologized but said he never meant to defraud anyone.

“I did not set out to steal money from anyone,” he said. “That does not mean I am not remorseful.”

A jury in July found Crater, 52, guilty of committing wire fraud and making unlawful monetary transactions in a prosecution that spilled out of a precedent-setting case by the U.S. Commodity Futures Trading Commission.

The CFTC’s 2018 lawsuit against Crater and his failed company, Nevada-based My Big Coin Inc, led to one of the first court rulings holding that a virtual currency could be considered a commodity within the regulator’s jurisdiction.

Prosecutors subsequently secured Crater’s indictment in 2019 and accused him of causing investors and customers to lose $7.5 million from 2014 to 2017 with lies about My Big Coin, whose name sounded similar to the popular virtual currency bitcoin.

Prosecutors said those false claims included that My Big Coin was a real virtual currency, was backed by gold and had a partnership with MasterCard. Prosecutors said he used the money to buy cars, jewelry, artwork and antique coins.

(Reporting by Nate Raymond in Boston; Editing by Bill Berkrot)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – Big investors are dipping their toes into crypto waters again after a bumper month for bitcoin.

Digital asset investment products, often favored by institutional investors, saw inflows of over $117 million last week, the biggest weekly increase since last July, according to data from asset manager CoinShares.

Bitcoin was far and away the biggest draw, with funds tracking it responsible for $116 million of that. Crypto funds’ total assets under management have risen to $28 billion, up 43% from lows plumbed in November as the collapse of the FTX exchange sent shockwaves through the industry.

“For the most part, people are more confident than they were a month ago,” said Joseph Edwards, investment adviser at Enigma Securities.

Bitcoin, the original cryptocurrency, has soared nearly 40% in January, closing in on its best monthly performance since October 2021 and its second-best January in the past 10 years. 

The rally, combined with a possibly brightening macro picture, has some investors hoping the long crypto winter might finally be verging on spring. Many investors expect the U.S. Federal Reserve to hike its benchmark rates by 0.25% this week – the smallest rise since their tightening cycle began last year.

“If peak inflation is indeed behind us for now, then long-term interest rates may move lower as we approach the end of the inflation-focused rate-hiking cycle,” analysts at Fidelity Digital Assets wrote.

“This could signal positive momentum on the macro front for assets such as bitcoin.”

Activity in the options market indicated traders were rushing to place bets just after the Fed meet, a sign of the importance the market is placing on it, crypto liquidity provider B2C2 said.

Crypto trading volumes are also rising, according to CoinShares, with average weekly volumes up 11%, indicating traders are returning after months of dampened activity.

Still, crypto’s not out of the woods by a long stretch, and the Fed could still spoil the party if they take a more hawkish tone this week.

Crypto data platform Coinglass’s bitcoin Fear & Greed index – where 0 indicates extreme fear and 100 extreme greed – is hovering at 61, the highest level since mid-November 2021, just after bitcoin began retreating from its peak.

“We might see a drop off next week or two, how deep that drop goes is questionable,” Edwards said.

Graphic: Bitcoin at the forefront https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/akveqmgjrvr/chart.png

BITCOIN ‘DOMINANCE’

Nonetheless, there are also other signs that the end of the bear market might be nigh, according to analysts at exchange Bitfinex. They said shorter-term investors were selling their bitcoin at a profit, while longer-term “HODlers” were still sticking with their coin and not contributing to selling pressure.

“The realised profit and loss for the entire market has been recorded as positive in January 2023 for the first time since April 2022, a continuation of this trend would signal the final stages of a bear market,” they said.

Additionally, bitcoin’s “dominance” or share of the total crypto market has hovered around 41% this month, levels not seen since last July. Analysts at Citi said this mimicked a similar jump in bitcoin dominance in April 2019, when a bitcoin rally marked a crypto market bottom.

Other market watchers said stocks, another relatively risky asset class, would likely drive bitcoin prices in the next week, particularly the performance of interest rate-sensitive tech stocks.

Bitcoin’s correlation with the Nasdaq is at 0.94, the highest since May 2022, where a measure of 1 indicates the two are moving in lock-step.

Late in November, bitcoin broke its bonds with stocks and traded with a negative correlation of 0.7.

“It’s possible that bitcoin could reach the next resistance level of $25,200 in the coming weeks,” said Rachel Lin, CEO of exchange Synfutures. “Even if bitcoin ends up down again, there is a decent chance it will achieve a higher low on the larger timeframe.”

(Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru, Alun John in London; Editing by Pravin Char)

By Dietrich Knauth

NEW YORK(Reuters) – Bankrupt crypto exchange FTX sued crypto lender Voyager Digital on Monday, seeking to claw back $445.8 million in loan repayments that FTX made before collapsing into bankruptcy in November 2022.

FTX and Voyager both filed for bankruptcy amid a 2022 collapse in cryptocurrency markets, but Voyager’s bankruptcy preceded FTX’s filing by four months.

After Voyager filed in July, it demanded repayment of all outstanding loans to FTX and its affiliate hedge fund Alameda Research.

FTX said in a court filing that on Alameda’s behalf, it paid Voyager $248.8 million in September and $193.9 million in October. FTX also made a $3.2 million interest payment in August, according to its court filings.

Because those loan payments were made so close to FTX’s own bankruptcy filing, they are eligible to be clawed back and potentially used to repay other FTX creditors, according to FTX’s complaint.

FTX, once among the world’s top crypto exchanges, shook the sector in November by filing for bankruptcy, leaving an estimated 9 million customers and other investors facing losses in the billions of dollars.

Its founder Sam Bankman-Fried has been indicted on fraud charges, and several top executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud. Bankman-Fried has denied wrongdoing and is scheduled for trial in October.

FTX initially appeared to weather the storm that brought down Voyager and other crypto firms in summer 2022, presenting itself as a “white knight” that could stabilize reeling crypto markets. FTX offered to buy Voyager’s platform in a bankruptcy auction, but the proposed acquisition fell apart when FTX imploded in November.

In its Monday court filing, FTX acknowledged the allegations that Alameda raided FTX customer assets to cover its risky borrowing and lending. But it said Voyager and other crypto lenders were complicit in Alameda’s conduct, “knowingly or recklessly” pushing their clients’ assets toward Alameda.

“Voyager’s business model was that of a feeder fund,” FTX said. “It solicited retail investors and invested their money with little or no due diligence in cryptocurrency investment funds like Alameda and Three Arrows Capital.”

Three Arrows Capital also went bankrupt in 2022, and its founders have refused to cooperate with court-appointed liquidators who are trying to recover assets for Three Arrows customers.

(This story has been refiled to add a dropped letter in the lede)

(Reporting by Dietrich Knauth. Editing by Gerry Doyle)

SINGAPORE (Reuters) – The business model that crypto firm Celsius Network had advertised and sold to its customers was not the business it actually operated, a U.S. court-ordered examiner report released on Tuesday showed.

From its inception, Celsius and its founder Alex Mashinsky, who is currently facing fraud allegations in the United States, did not “deliver” on its promises surrounding its native CEL token and other business activities, the report stated.

It added that Celsius’s stablecoin deficit between May 28, 2021 and its bankruptcy filing last year amounted to a billion-dollar hole in its assets, as a result of its use of customer deposits to acquire stablecoins.

Hoboken, New Jersey-based Celsius filed for Chapter 11 protection from creditors last July in Manhattan after freezing customer withdrawals from its platform. It listed a deficit of $1.19 billion on its balance sheet.

Celsius representatives did not immediately respond to emailed requests for comment sent during nighttime in the United States.

Crypto lenders such as Celsius boomed during the COVID-19 pandemic, drawing depositors with high interest rates and easy access to loans rarely offered by traditional banks.

Many have since collapsed.

Similar to a bank, Celsius gathered crypto deposits from retail customers and invested them in the equivalent of the wholesale crypto market, including “decentralized finance” or DeFi sites that use blockchain technology to offer services from loans to insurance outside the traditional financial sector.

U.S. Bankruptcy Judge Martin Glenn, who is overseeing the Chapter 11 case, appointed former prosecutor Shoba Pillay as an independent examiner in September.

She was tasked with investigating accusations by Celsius customers that the company operated as a Ponzi scheme and also with reporting on its handling of cryptocurrency deposits.

(Reporting by Rae Wee,a dditional reporting by Alun John; Editing by Clarence Fernandez and Louise Heavens)

By Jonathan Stempel

NEW YORK (Reuters) – A U.S. judge on Monday said the names of two people who helped guarantee bail for indicted FTX cryptocurrency exchange founder Sam Bankman-Fried should be made public, but put his ruling on hold pending an expected appeal.

U.S. District Judge Lewis Kaplan in Manhattan ruled in favor of several media outlets including Reuters that sought the names.

The judge said that while the public had only a “weak” right to know who Bankman-Fried’s guarantors were, it outweighed Bankman-Fried’s arguments for confidentiality, including that the guarantors’ safety could be imperiled.

Kaplan also said the names will remain under seal until at least Feb. 7, because “the question presented here is novel and an appeal is likely.”

A spokesman for Mark Cohen and Christian Everdell, who represent Bankman-Fried, declined to comment.

Bankman-Fried, 30, has been confined at his parents’ home in California, after pleading not guilty to fraud for allegedly looting billions of FTX customer dollars.

His parents, both professors at Stanford Law School, had co-signed a $250 million bond for their son, with two other guarantors required to sign $500,000 and $200,000 bonds.

Bankman-Fried’s lawyers said the parents had been harassed and received physical threats since FTX’s November collapse and bankruptcy, and there was “serious cause for concern” the additional guarantors might suffer similar treatment.

Kaplan disagreed, noting that long before bail was posted, the parents had faced “intense public scrutiny” over their relationship with their son, who was once worth an estimated $26 billion.

“The amounts of the individual bonds–$500,000 and $200,000–do not suggest that the non-parental sureties are persons of great wealth or likely to attract attention of the types and volume of that to which defendant’s parents appear to have been subjected,” Kaplan wrote.

Media outlets distinguished the case from another judge’s decision not to reveal who guaranteed a bond for Jeffrey Epstein’s longtime associate Ghislaine Maxwell.

They said there was less “stigma” from being associated with Bankman-Fried than from being associated with the late sex offender. Maxwell was later convicted.

Other media seeking to identify Bankman-Fried’s guarantors included the Associated Press, Bloomberg, CNBC, CoinDesk, Dow Jones, the Financial Times, Insider, the New York Times and the Washington Post.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)

By Jonathan Stempel

NEW YORK (Reuters) – The U.S. government on Monday urged a judge to reject Sam Bankman-Fried’s claim it went too far by insisting that the indicted founder of the now-bankrupt FTX cryptocurrency exchange be banned from contacting his former colleagues.

In a letter to U.S. District Judge Lewis Kaplan in Manhattan, prosecutors also asked that a bail condition that prevents Bankman-Fried from accessing or transferring assets at FTX and his Alameda Research hedge fund be left in place.

They argued those assets were “vulnerable to exploitation and in need of protection from the defendant.”

The requests came two days after Bankman-Fried’s lawyers proposed letting their client access crypto assets and continue communicating with most of FTX’s and Alameda’s estimated 350 employees, some of whom they said could help his defense.

Mark Cohen and Christian Everdell, who represent Bankman-Fried, did not immediately respond to requests for comment. They have until Feb. 1 to address prosecutors’ view on accessing assets.

Bankman-Fried, 30, has been free on $250 million bond and confined at his parents’ home in California, after pleading not guilty to fraud for allegedly looting billions of customer dollars from FTX.

Prosecutors previously raised concerns about witness tampering after Bankman-Fried on Jan. 15 sent an encrypted message over the Signal app to an FTX affiliate’s general counsel, who could testify against him at a trial set to begin in October.

“I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” Bankman-Fried had written.

In Monday’s letter, prosecutors called the message an effort to “improperly influence” the general counsel, no matter how benign it might seem.

“The defendant’s position of authority with respect to his former employees, combined with his recent outreach to a former employee about the case, raises a sufficient specter of witness tampering,” prosecutors said.

Prosecutors also want to ban Bankman-Fried from using apps such as Signal that let users auto-delete messages, and instead have him communicate in text messages, emails and phone calls.

Bankman-Fried’s lawyers have said their client was trying simply to provide assistance to the general counsel, and has not been not using the auto-delete feature.

They also proposed that Bankman-Fried not be allowed to talk with select colleagues, including former Alameda chief Caroline Ellison, former FTX technology chief Zixiao “Gary” Wang and former FTX engineering chief Nishad Singh.

Ellison and Wang have pleaded guilty and are cooperating with prosecutors.

(Reporting by Jonathan Stempel in New York; Editing by Anna Driver)

By Dietrich Knauth

(Reuters) – A court-ordered examiner is expected to release a report on Monday addressing whether bankrupt crypto firm Celsius Network operated as a Ponzi scheme, which could add to the pressure on founder Alex Mashinsky, who is already facing fraud allegations.

U.S. Bankruptcy Judge Martin Glenn, who is overseeing the crypto lending platform’s Chapter 11 case, appointed former prosecutor Shoba Pillay as an independent examiner in September, tasking her with investigating Celsius customers’ allegations that the company operated as a Ponzi scheme and reporting on the company’s handling of cryptocurrency deposits.

Hoboken, New Jersey-based Celsius filed for Chapter 11 protection from creditors last July in Manhattan after freezing customer withdrawals from its platform. It listed a $1.19 billion deficit on its balance sheet.

Celsius had consented to an examiner’s review after reaching a deal that scaled back a wide-ranging investigation proposed by the U.S. Department of Justice’s bankruptcy watchdog and state securities regulators from Texas, Vermont and Wisconsin.

After appointing Pillay to the job, Glenn expanded her role by asking her to address persistent customer complaints about Mashinsky’s conduct.

Mashinsky was sued earlier this month by New York Attorney General Letitia James, who alleged that he defrauded investors out of billions of dollars in digital currency by concealing the lending platform’s failing health.

A lawyer for Mashinsky did not immediately respond to a request for comment, but has said previously that his client denies the allegations and looks forward to vigorously defending himself in court. A spokesperson for Celsius did not immediately respond for comment.

Mashinsky, 57, is an entrepreneur who founded companies like Arbinet, which went public in 2004, and Transit Wireless, which provides wi-fi service to the New York City subway.

In hundreds of interviews, blog posts and livestreams as the public face of Celsius, Mashinsky promised its customers that they would receive high returns if they deposited digital assets on his platform, with minimal risk, according to the New York AG’s lawsuit.

Bankruptcy examiners can provide courts, judges and creditors with an impartial look into the failures of a bankrupt company, but their cost is a frequent source of controversy when limited funds are available to pay existing debts.

Crypto exchange FTX, which went bankrupt in November, has resisted calls for an examiner in its own Chapter 11 case, citing the cost of overlapping investigations.

FTX CEO John Ray, who worked with examiners in the bankruptcies of Enron and Residential Capital, said in a court filing that examiner reports in those two bankruptcies cost a combined $150 million and provided “minimal” benefits to creditors.

Pillay and her team have sought to be paid $1.86 million for work performed in October and $1.69 million for November, according to court filings.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Deepa Babington)

By Jonathan Stempel

NEW YORK (Reuters) – Lawyers for Sam Bankman-Fried on Saturday urged a U.S. judge not to ban the indicted FTX cryptocurrency executive from communicating with former colleagues as part of his bail, saying prosecutors “sandbagged” the process to put their client in the “worst possible light.”

The lawyers were responding to a Friday night request by federal prosecutors that Bankman-Fried not be allowed to talk with most employees of FTX or his Alameda Research hedge fund without lawyers present, or use the encrypted messaging apps Signal or Slack and potentially delete messages automatically.

Bankman-Fried, 30, has been free on $250 million bond since pleading not guilty to charges of fraud in the looting of billions of dollars from the now-bankrupt FTX.

Prosecutors said their request was in response to Bankman-Fried’s recent effort to contact a potential witness against him, the general counsel of an FTX affiliate, and was needed to prevent witness tampering and other obstruction of justice.

But in a letter to U.S. District Judge Lewis Kaplan in Manhattan, Bankman-Fried’s lawyers said prosecutors sprung the “overbroad” bail conditions without revealing that both sides had been discussing bail over the last week.

“Rather than wait for any response from the defense, the government sandbagged the process, filing this letter at 6:00 p.m. on Friday evening,” Bankman-Fried’s lawyers wrote. “The government apparently believes that a one-sided presentation – spun to put our client in the worst possible light – is the best way to get the outcome it seeks.”

Bankman-Fried’s lawyers also said their client’s efforts to contact the general counsel and John Ray, installed as FTX’s chief executive during the bankruptcy, were attempts to offer “assistance” and not to interfere.

A spokesman for U.S. Attorney Damian Williams in Manhattan declined to comment.

Bankman-Fried’s lawyers proposed that their client have access to some colleagues, including his therapist, but not be allowed to talk with Caroline Ellison and Zixiao “Gary” Wang, who have pleaded guilty and are cooperating with prosecutors.

They said a Signal ban isn’t necessary because Bankman-Fried is not using the auto-delete feature, and concern he might is “unfounded.”

The lawyers also asked to remove a bail condition preventing Bankman-Fried from accessing FTX, Alameda or cryptocurrency assets, saying there was “no evidence” he was responsible for earlier alleged unauthorized transactions.

In an order on Saturday, Kaplan gave prosecutors until Monday to address Bankman-Fried’s concerns.

“The court expects all counsel to abstain from pejorative characterizations of the actions and motives of their adversaries,” the judge added.

(Reporting by Jonathan Stempel in New York; Editing by Andrea Ricci)

SAO PAULO (Reuters) – Mastercard Inc and Binance said on Monday they are lauching a prepaid card in Brazil, Latin America’s largest economy, as part of the crypto giant’s efforts to “broaden the connection between traditional finance and crypto”.

According to a statement, the so-called Binance Card is currently in beta testing and should be widely available in the next few weeks, making Brazil the second country in Latin America to receive it after Argentina.

Brazil is one of Binance’s ten-largest markets, the crypto said, adding that the prepaid card will all new and existing Binance users in the country to shop and pay bills with cryptocurrencies at Mastercard merchants.

(Reporting by Andre Romani; Editing by Steven Grattan)

By Jonathan Stempel

NEW YORK (Reuters) – U.S. prosecutors on Friday asked a Manhattan judge to impose tougher bail conditions on Sam Bankman-Fried, expressing concern that the founder of the FTX cryptocurrency exchange might tamper with witnesses or destroy evidence in his criminal case.

Citing Bankman-Fried’s “recent attempts to contact prospective witnesses,” prosecutors asked U.S. District Judge Lewis Kaplan to ban Bankman-Fried from communicating with current or former employees of FTX or his Alameda Research hedge fund, other than family, unless a lawyer is present.

They also asked that Bankman-Fried not use Signal or other encrypted call and messaging applications, though he could still communicate through text messages, email and the phone.

Bankman-Fried, 30, has been free on $250 million bond and required to live with his parents since pleading not guilty to looting billions of dollars from the now-bankrupt FTX.

Lawyers for Bankman-Fried did not immediately respond to requests for comment.

In Friday’s letter, prosecutors cited a Signal message on Jan. 15 from Bankman-Fried to “Witness-1,” the general counsel of the FTX U.S. affiliate. Bankman-Fried expressed interest in having a “constructive relationship” or “at least vet things with each other.”

Prosecutors said this was “particularly concerning” because Bankman-Fried knew the general counsel had potentially damaging information, having participated just before FTX’s November collapse in communications in which Bankman-Fried discussed using Alameda funds to satisfy FTX customer withdrawals.

“The defendant’s request to ‘vet things with each other’ is suggestive of an effort to influence Witness-1’s potential testimony, and the appeal for a ‘constructive relationship’ likewise implies that Witness-1 should align with the defendant,” prosecutors said.

“Even if the defendant has not directly attempted to tamper with witnesses, (his) contact with witnesses may intimidate them” into not coming forward or testifying, prosecutors added.

In seeking to keep Bankman-Fried off Signal, prosecutors said he had in 2021 directed that many Signal and Slack communications be autodeleted within 30 days.

Prosecutors said former Alameda chief Caroline Ellison, who pleaded guilty in the case and is cooperating with them, told them Bankman-Fried had indicated it could be harder to build legal cases if information were not preserved.

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman)

By Kevin Buckland

TOKYO (Reuters) – The U.S. dollar dropped against the yen on Friday as traders bet a hawkish pivot from the Bank of Japan (BOJ) was still in the offing.

The dollar also sagged close to a nine-month low versus the euro, amid market expectations the European Central Bank next week will implement a rate hike twice as big as the Federal Reserve’s.

The U.S. currency dropped 0.43% to 129.65 yen in early trading, after data showed consumer price inflation in Tokyo accelerating to a nearly 42-year peak this month, ramping up pressure on the BOJ to step away from stimulus.

However, that was still well away from the 7-1/2-month trough of 127.215 reached last week as expectation built then for the central bank to tweak policy. When BOJ officials voted unanimously on Jan. 18 to keep stimulus settings unchanged, the currency pair bounced as high as 131.58.

“Market expectations for changes at any time (by the BOJ), including the next meeting in March, will remain high, and that will keep the yen bid,” said Shinichiro Kadota, a strategist at Barclays in Tokyo, who saw a possibility of the dollar-yen pair breaking below 125.

“If there are any bouts of yen weakness, I think the topside will continue to be capped by those expectations,” Kadota said.

For the week, the dollar is about flat against the yen, after swinging between gains and losses.

By contrast, the euro is headed for a 0.4% rise since last Friday in its third straight winning week. It was 0.07% stronger at $1.08975 on the day, edging back towards the overnight high of $1.09295, a level last seen in April.

Traders broadly expect the Fed to increase interest rates by 25 basis points (bps) on Wednesday, a step down from a 50 bps increase in December. Meanwhile, the ECB has all but committed to raising its key rate by half a percentage point on Thursday.

The dollar index – which measures the currency against six major peers, including the euro, yen and British pound – edged 0.04% lower to 101.70, putting it on course for a 0.28% decline this week. That would be its third straight weekly slide.

Sterling was also set for a third winning week against the greenback, eking out a 0.1% rise. It was flat on Friday at $1.2411.

The British currency remains near the seven-month peak of $1.24475 reached at the start of this week, even as traders are still concerned about the task facing the Bank of England in controlling inflation without damaging an economy already in recession.

The risksensitive Aussie dollar rose 0.11% to $0.71225, bringing it closer to Thursday’s seven-month high of $0.71425. Australian inflation data earlier in the week showed consumer prices climbing at the fastest pace in 33 years, fostering expectations that more Reserve Bank of Australia interest rate rises are due.

For the week, the Aussie is up 2.17%, on track for its biggest weekly advance since early November.

 

(Reporting by Kevin Buckland; Editing by Bradley Perrett)

By Chris Prentice

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission is probing registered investment advisers over whether they are meeting rules around custody of client crypto assets, three sources with knowledge of the inquiry told Reuters.

The SEC has been questioning advisers’ efforts to follow the agency’s rules around custody of clients’ digital assets for several months, but the probe has gathered pace in the wake of the blow-up of crypto exchange FTX, the sources said. They spoke on condition of anonymity as the inquiries are not public.

Advisers managing clients’ digital assets typically use a third party to store them.

SEC enforcement staff are asking investment advisers for details around what the firms did to assess custody for platforms including FTX, one of the sources said. The broad enforcement sweep, which has not been previously reported, is a sign the top U.S. markets regulator’s scrutiny of the crypto industry is expanding to more traditional Wall Street firms.

A spokesperson for the SEC declined to comment.

By law, investment advisers cannot have custody of client funds or securities if they do not meet certain requirements to protect the assets. One of these demands that advisers hold such assets with a firm deemed to be a “qualified custodian,” though the SEC does not hold any specific list or offer licenses to firms to become such custodians.

The SEC’s investigation signals the regulator is targeting a long-brewing issue for traditional firms that have sought ways to invest in crypto, attorneys told Reuters. The agency’s accounting guidance has made it too capital-intensive for many lenders to hold digital assets on behalf of clients, limiting options for advisers seeking custodians.

“This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians,” said Anthony Tu-Sekine, head of Seward and Kissel’s Blockchain and Cryptocurrency Group.

“I think it’s an easy call for the SEC to make.”

Under Democratic leadership, the SEC has made crypto a priority area for enforcement, nearly doubling the size of its crypto team last year. But the regulator is under fresh pressure to go after crypto in the wake of a series of bankruptcies across the industry and the unveiling of U.S. charges against FTX’s founder and former head, Sam Bankman-Fried, for allegedly committing fraud. He has pleaded not guilty.

Two of Bankman-Fried’s associates, former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang, have both pleaded guilty to defrauding investors and agreed to cooperate.

The SEC has also been probing FTX equity investors for details of their due diligence efforts when they invested in the crypto exchange.

(Reporting by Chris Prentice in New York; Additional reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; Editing by Megan Davies and Leslie Adler)

By Noele Illien, Tom Wilson and Dietrich Knauth

ZURICH/LONDON (Reuters) – FTX has objected to a U.S. Department of Justice request for an independent investigation into the once-prominent crypto exchange’s collapse, saying it is already conducting a wide-ranging probe that includes family members of FTX founder Sam Bankman-Fried.FTX said in a court filing in Wilmington, Delaware, late on Wednesday that the DOJ’s proposed review would only add cost and delay to its bankruptcy case. FTX acknowledged “fraud, dishonesty, incompetence, misconduct, mismanagement, and irregularity” in its past conduct, but said that its previous wrongdoing is already being probed by the company’s new management, its creditors and law enforcement agencies.

As part of its own investigation, FTX asked U.S. Bankruptcy Judge John Dorsey, who is overseeing its Chapter 11 proceedings, to help it secure documents from Bankman-Fried, members of his family and other insiders with information about FTX transactions that used “misappropriated and stolen” funds. These transactions, it said, include a $16.7 million Bahamian real estate purchase under the name of Bankman-Fried’s parents, Joseph Bankman and Barbara Fried.

FTX is also seeking information about political donations connected to Bankman-Fried, asking wide-ranging questions about Mind the Gap, a political action committee founded by Barbara Fried, and Guarding Against Pandemics, an advocacy organization founded by Sam Bankman-Fried and his brother, Gabriel Bankman-Fried. FTX said Guarding Against Pandemics’ multimillion-dollar Washington, D.C., headquarters was purchased with misappropriated funds.

Bankman-Fried and members of his family could not immediately be reached for comment.

A spokesperson for Mind the Gap said it did not receive direct contributions from Sam Bankman-Fried, although Bankman-Fried made donations to some political causes it recommended to its donor network.

FTX, once among the world’s top crypto exchanges, shook the sector in November by filing for bankruptcy, leaving an estimated 9 million customers and other investors facing total losses in the billions of dollars.

The U.S. Department of Justice’s bankruptcy watchdog has called for an independent investigation into its collapse, a request that received backing from a bipartisan group of U.S. senators.

FTX’s new CEO, John Ray, who worked with court-appointed examiners while leading Enron Corp and Residential Capital through bankruptcy, is prepared to testify that examiners in those two cases cost a combined $150 million and provided “minimal” benefits to creditors, FTX said.

FTX’s official committee of creditors joined the company in opposing the appointment of an examiner.

FTX also on Wednesday night filed a new list of creditors in bankruptcy court, which included financial watchdogs and government agencies from the United States, Japan and Switzerland, as well as companies including Airbnb Inc and crypto giant Binance.

Airbnb and Binance did not immediately respond to a request for comment.

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and U.S. Internal Revenue Service (IRS) are among those on the new list of creditors. It did not give details of the nature or amount of monies owed.

FTX said on Thursday that the list was meant to ensure the broadest possible outreach to potential stakeholders in its bankruptcy, and that FTX does not necessarily owe money to each name on the creditor list.

FTX said last year it owed its 50 biggest creditors nearly $3.1 billion. Dorsey in January allowed FTX to keep secret the names of 9 million of its individual customers for three months.

Sam Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

(Reporting by Noele Illien in Zurich, Tom Wilson in London and Dietrich Knauth in New York; Editing by Kirsten Donovan, Alexia Garamfalvi and Matthew Lewis)

By Hannah Lang and Douglas Gillison

(Reuters) – U.S. Democratic Senators Elizabeth Warren and Ron Wyden are calling on the country’s accounting watchdog to increase oversight of firms that audit cryptocurrency companies in the wake of the collapse of crypto exchange FTX.

In a letter to the U.S. Public Company Accounting Oversight Board (PCAOB) made public on Thursday, Warren and Wyden questioned the agency, which oversees registered public accounting firms around the world, as to why auditing firms working with FTX failed to identify corporate mismanagement and the lack of internal controls that federal prosecutors have alleged.

“When PCAOB-registered auditors perform sham audits – even for firms that may lay outside of the PCAOB’s jurisdiction – they tarnish the credibility of the PCAOB,” Warren and Wyden wrote.

A PCAOB spokesperson confirmed the board had received the letter and said it would respond to the lawmakers directly.

“We look forward to working with them on our shared goal of protecting investors,” the spokesperson said.

U.S. prosecutors in Manhattan have accused FTX founder and former Chief Executive Officer Sam Bankman-Fried of stealing billions of dollars in customer funds to plug losses at his hedge fund, Alameda Research. Bankman-Fried has previously acknowledged risk-management failures at FTX but has said he does not believe he has criminal liability.

Prior to its collapse and subsequent bankruptcy filing in November, FTX said it had undergone audits by PCAOB-registered firms Armanino and Prager Metis. Representatives for Armanino and Prager Metis did not immediately respond to requests for comment.

(Reporting by Hannah Lang and Douglas Gillison in Washington; Editing by Josie Kao)

By Huw Jones

LONDON (Reuters) – An industry body set out a global framework on Thursday for trading derivatives linked to cryptoassets to avoid FTX-style collapses sowing confusion over ownership.

The International Swaps and Derivatives Association (ISDA) published guidance for trading digital asset derivatives to clarify what happens when things go wrong in an underlying market, such as the collapse of crypto exchange FTX.

While most of the recent problems have occurred in the spot cryptocurrency market, many of the legal uncertainties could affect digital asset derivatives too.

ISDA already oversees the ‘master agreement’ or template used by banks to trade trillions of dollars in derivatives globally.

It will now include the body’s first standard documentation for trading digital asset derivatives, initially covering non-deliverable forwards and options on Bitcoin and Ether.

It could be expanded in future to cover additional product types, including tokenized securities and other digital assets executed on distributed ledger technology (DLT), ISDA said.

The framework sets out the rights and obligations of both sides to a derivatives trade following market disruption, and ISDA also published discussion papers exploring legal questions raised by the bankruptcy of FTX.

The collapse of FTX led to the loss of billions of dollars of customer assets raising questions about who owns assets held by a crypto exchange or intermediary.

“Recent failures in the crypto market have emphasized the importance of having a clear, consistent contractual framework that spells out the rights and obligations of both parties following a default,” said ISDA chief executive Scott O’Malia.

“All customers, whether retail or institutional, should know their assets are protected and understand their rights in the event of a default,” O’Malia said.

(Reporting by Huw Jones; Editing by Bernadette Baum)

By Chris Prentice and Michelle Price

NEW YORK (Reuters) – A top official with the U.S. Commodity Futures Trading Commission (CFTC) is pressing lawmakers to give regulators authority to dig into the books of any firm seeking to acquire significant interest in any registered market player.

In remarks published on Thursday, Democratic CFTC Commissioner Kristin Johnson said the agency needs authority to conduct “effective due diligence” on any firm that wants to purchase 10% or more of the equity interest in an exchange or clearing house registered with the agency. Without this, unregistered firms can buy their way into U.S.-regulated markets without meaningfully opening their books to regulators, she said.

Her statements, prepared for a speech given at Duke University last week, come as bankrupt crypto exchange FTX prepares to sell assets including LedgerX, a digital currency futures and options clearing house registered with the CFTC.

“Without oversight, our licensed markets are for sale,” Johnson told Reuters in a phone interview.

The Commission needs Congress to give the agency authority to conduct due diligence to protect customers and maintain market stability, she said.

Lawmakers have been regrouping to draft legislation aimed at better overseeing the troubled crypto industry. Questions have mounted over due diligence in crypto following a string of bankruptcies and the announcement in December of U.S. charges against FTX’s founder and former head Sam Bankman-Fried for allegedly committing fraud. He has pleaded not guilty.

Reuters has previously reported details of FTX’s strategy of “acquisitions for regulatory purposes”, including Ledger X, which gave the company three CFTC licenses in one swoop.

(Reporting by Chris Prentice; Editing by Elaine Hardcastle and Daniel Wallis)