Tag: Cryptocurrencies

By Noor Zainab Hussain and Carolyn Cohn

(Reuters) – Insurers are denying or limiting coverage to clients with exposure to bankrupt crypto exchange FTX, leaving digital currency traders and exchanges uninsured for any losses from hacks, theft or lawsuits, several market participants said.

Insurers were already reluctant to underwrite asset and directors and officers (D&O) protection policies for crypto companies because of scant market regulation and the volatile prices of Bitcoin and other cryptocurrencies.

Now, the collapse of FTX last month has amplified concerns.

Specialists in the Lloyd’s of London and Bermuda insurance markets are requiring more transparency from crypto companies about their exposure to FTX. The insurers are also proposing broad policy exclusions for any claims arising from the company’s collapse.

Kyle Nichols, president of broker Hugh Wood Canada Ltd, said insurers were requiring clients to fill out a questionnaire asking whether they invested in FTX, or had assets on the exchange.

Lloyd’s of London broker Superscript is giving clients that dealt with FTX a mandatory questionnaire to outline the percentage of their exposure, said Ben Davis, lead for digital assets at Superscript.

“Let’s say the client has 40% of their total assets at FTX that they can’t access, that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX,” he said.

The exclusions denying payout for any claims arising out of the FTX bankruptcy are found in insurance policies that cover the protection of digital assets and for personal liabilities of directors and officers of companies that deal in crypto, five insurance sources told Reuters. A couple of insurers have been pushing for a broad exclusion to policies for anything related to FTX, a broker said.

Exclusions may act as a failsafe for insurers, and will make it even more difficult for companies that are seeking coverage, insurers and brokers said.

Bermuda-based crypto insurer Relm, which previously has provided coverage to entities linked to FTX, takes an even stricter approach.

“If we have to include a crypto exclusion or a regulatory exclusion, we’re just not going to offer the coverage,” said Relm co-founder Joe Ziolkowski.

D&O QUESTION

Now, one of the most pressing questions is whether insurers will cover D&O policies at other companies that had dealings with FTX, given the problems facing exchange’s leadership, Ziolkowski said.

U.S. prosecutors say former FTX Chief Executive Officer Sam Bankman-Fried engaged in a scheme to defraud FTX’s customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.

A lawyer for Bankman-Fried said on Tuesday his client is considering all of his legal options.

D&O policies, which are used to pay legal costs, do not always pay out in cases of fraud.

Insurance sources would not name their clients or potential clients that could be affected by policy changes, citing confidentiality. Crypto firms with financial exposure to FTX include Binance, a crypto exchange, and Genesis, a crypto lender, neither of which responded to e-mails seeking comment.

While the least risky parts of the crypto market, such as companies that own cold wallets storing assets on platforms not connected to the internet, may get cover for up to $1 billion, a D&O insurance policyholder’s cover may now be limited to tens of millions of dollars for the rest of the market, Ziolkowski said.

The FTX collapse will also likely lead to a rise in insurance rates, especially in the U.S. D&O market, insurers said. The rates are already high because of the perceived risks and lack of historical data on cryptocurrency insurance losses.

A typical crime bond — used to protect against losses resulting from a criminal act — would cost $30,000 to $40,000 per $1 million of coverage for a digital assets trader. That compares with a cost of about $5,000 per $1 million for a traditional securities trader, Hugh Wood Canada’s Nichols said.

(Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Lananh Nguyen and Anna Driver)

By Jared Higgs, Luc Cohen and Jasper Ward

NASSAU, Bahamas/NEW YORK (Reuters) – A defense lawyer for Sam Bankman-Fried, founder of now-bankrupt crypto exchange FTX, told a magistrate judge in the Bahamas on Monday that the former billionaire wanted to see the indictment against him before agreeing to be extradited to the United States.

The statement came at a hearing in Nassau before Magistrate Shaka Serville, two hours after Bankman-Fried arrived in court dressed in a dark blue suit and carrying a manila folder containing papers.

Bankman-Fried initially had said he would fight extradition after his arrest a week ago in the Bahamas, where he lives and FTX is based. He was denied bail and remanded to the Caribbean nation’s Fox Hill prison.

A source had told Reuters on Saturday that Bankman-Fried would return to court to reverse his decision.

Federal prosecutors in New York said Bankman-Fried stole billions of dollars in FTX customer deposits to plug losses at his crypto hedge fund, Alameda Research. They accuse Bankman-Fried of misleading lenders and investors, conspiring to launder money and violating U.S. campaign finance laws.

Bankman-Fried’s defense lawyer initially told Serville that he did not know why Bankman-Fried was brought to court on Monday morning. Following a recess, the lawyer said that Bankman-Fried wanted to see the indictment before consenting to extradition.

Mark Cohen, a U.S. lawyer who represents Bankman-Fried, did not immediately reply to a request for comment. The U.S. Attorney’s Office in Manhattan and a spokesperson for Bankman-Fried also did not immediately reply to requests for comment.

The 30-year-old crypto mogul rode a boom in the value of bitcoin and other digital assets to become a billionaire several times over and an influential political donor in the United States, until FTX collapsed in early November after a wave of withdrawals. The exchange declared bankruptcy on Nov. 11.

Bankman-Fried has acknowledged risk management failures at FTX but said he does not believe he has criminal liability.

(Reporting by Luc Cohen in New York and Jasper Ward in Washington; Additional reporting by Jack Queen in New York and Jared Higgs in Nassau; Editing by Amy Stevens, Megan Davies, Noeleen Walder, Nick Zieminski and Matthew Lewis)

(Reuters) – Sam Bankman-Fried wants to see the U.S. indictment against him for his role in the collapse of the FTX crypto exchange he founded before he agrees to be extradited from the Bahamas, his lawyer told a court in the Bahamas on Monday.

(Reporting by Tom Hals in Wilmington, Delaware)

By Jasper Ward

(Reuters) – Former FTX Chief Executive Sam Bankman-Fried is expected to appear in court in the Bahamas on Monday to reverse his decision to contest extradition to the United States, where he faces fraud charges, a person familiar with the matter said on Saturday.

The 30-year-old cryptocurrency mogul was indicted in federal court in Manhattan on Tuesday and accused of engaging in a scheme to defraud FTX customers by using billions of dollars in stolen deposits to pay for expenses and debts and to make investments for his crypto hedge fund, Alameda Research LLC.

His decision to consent to extradition would pave the way for him to appear in U.S. court to face wire fraud, money laundering and campaign finance charges.

Upon arrival in the United States, Bankman-Fried would likely be held at the Metropolitan Detention Center in Brooklyn, though some federal defendants are being held at jails just outside New York City due to overcrowding at the facility, said defense lawyer Zachary Margulis-Ohnuma.

At his initial court hearing in Manhattan, Bankman-Fried would be asked to enter a plea and a judge would make a determination on bail, Margulis-Ohnuma said. The attorney added that such a hearing must take place within 48 hours of Bankman-Fried’s arrival in the United States, though it would likely be sooner.

Prosecutors will likely argue that Bankman-Fried is a flight risk and should remain in custody because of the large sums of money involved in the case and the unclear location of those funds.

“The missing money gives prosecutors strong arguments that he is a flight risk,” said former federal prosecutor and white-collar defense attorney Michael Weinstein. “I expect that if a judge grants pretrial release, they would impose very restrictive and onerous conditions.”

Any trial is likely more than a year away, legal experts told Reuters.

A spokesman for Bankman-Fried declined to comment. Bankman-Fried has acknowledged risk management failings at FTX but has said he does not believe he has criminal liability.

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

‘BIGGEST FINANCIAL FRAUDS IN AMERICAN HISTORY’

It was not immediately clear what prompted Bankman-Fried to change his mind and decide not to contest extradition.

He was remanded on Tuesday to the Bahamas’ Fox Hill prison after Chief Magistrate JoyAnn Ferguson-Pratt rejected his request to remain at home while awaiting a hearing on his extradition.

The U.S. State Department in a 2021 report said conditions at Fox Hill were “harsh,” citing overcrowding, rodent infestation and prisoners relying on buckets as toilets. Authorities there say conditions have since improved.

Bankman-Fried amassed a fortune valued at over $20 billion as he rode a cryptocurrency boom to build FTX into one of the world’s largest exchanges. His arrest last Monday in the Bahamas, where he lives and where FTX is based, came just a month after the exchange collapsed amid a flurry of customer withdrawals.

Damian Williams, the top federal prosecutor in Manhattan, described the collapse of FTX as one of the “biggest financial frauds in American history.” He has described the office’s investigation as ongoing, and urged people with knowledge of wrongdoing at FTX or Alameda to cooperate.

One top executive at FTX, Ryan Salame, told securities regulators in the Bahamas on Nov. 9 that assets belonging to the exchange’s customers were transferred to Alameda to cover the hedge fund’s losses, according to a document made public as part of FTX’s bankruptcy proceedings in Delaware.

FTX filed for bankruptcy on Nov. 11, the same day Bankman-Fried stepped down as CEO.

A lawyer for Salame did not immediately respond to a request for comment.

(Reporting by Jasper Ward; Additional reporting by Luc Cohen and Jack Queen; Writing by Luc Cohen; Editing by Chizu Nomiyama, Chris Reese, Amy Stevens and Jonathan Oatis)

AMSTERDAM (Reuters) – Bitvavo, a Dutch cryptocurrency exchange, said on Friday it has 280 million euros ($296.30 million) locked at Digital Currency Group (DCG), a U.S.-based company.

“DCG is currently experiencing liquidity problems … As a result, DCG has suspended repayments until this liquidity issue has been resolved,” the Dutch firm said on its blog.

DCG operates several subsidiaries, including major cryptocurrency lender Genesis Global Capital, which froze withdrawals in November following the collapse of FTX.

Bitvavo said it expects to be reimbursed over time and that it has enough funds to “prefund any locked assets at DCG”. It said its customers are not exposed and can withdraw all their funds at any time.

It said it had given the money to DCG to offer Bitvavo customers a product where they could earn interest on their cryptocurrency token deposits.

Bitvavo is registered with the Dutch central bank (DNB) as a digital assets services provider to prevent money laundering on its platform, but it is not subject to prudential supervision by either the DNB or the Netherlands’ Financial Markets Authority (AFM).

($1 = 0.9450 euros)

(Reporting by Toby Sterling; Editing by Josie Kao)

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar rose on Friday in choppy trading, extending sharp gains in the previous session as risk appetite soured and investors grappled with the prospect that borrowing costs still have a long way to climb.

The greenback briefly fell after data showed U.S. business activity shrank further in December as new orders slumped to their lowest in more than 2-1/2 years, while softening demand helped to significantly cool inflation.

S&P Global said on Friday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 44.6 this month from a final reading of 46.4 in November. It was the sixth straight month that the index remained below the 50 mark, which indicates contraction in the private sector.

“The weaker-than-expected flash PMIs would not stop the Fed from hiking. We’ve had a hawkish week with the Federal Reserve and the ECB (European Central Bank) and there’s a lot of red on the screens; that’s why I think you’re seeing the dollar get bid here to the close,” said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

“The jury is still out on whether the dollar has peaked. I think if risk-off sentiment continues over the holidays, we can see a dollar bounce. This dollar momentum here has some legs for at least another week or two,” he added.

In afternoon trading, the greenback fell 0.8% against the yen to 136.67, after hitting a two-week high in the previous session.

Net short positioning on the yen continued to decrease in the week ended Dec. 13. Net shorts on the yen hit 53,188 contracts, the smallest since Aug. 30.

Sterling slipped 0.2% against the dollar to $1.2157, with the euro falling 0.3% to $1.0595.

On Thursday, the euro fell as well after the ECB raised interest rates and signaled it was far from finished, stirring fears about the potential damage to the global economy and sending investors toward the safe-haven greenback.

A day earlier, Fed Chair Jerome Powell said policymakers expected U.S. rates to rise further and stay elevated for longer.

New York Fed President John Williams upped the hawkish rhetoric on Friday, saying it remains possible the U.S. central bank raises interest rates more than it currently expects next year. The Fed has projected the peak fed funds rate at 5.1%.

That said, financial markets do not seem to be buying the hawkish Fed stance. The fed funds futures markets have priced in rate cuts by the end of 2023.

“Few expect the Federal Reserve to deliver on Wednesday’s hawkishness,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

The dollar index, which gauges the currency against six major peers, rose 0.2% to 104.74, after rallying more than 0.9% on Thursday.

The index has surged around 9% this year as the Fed has hiked interest rates hard, sucking money back toward dollar-denominated bonds. Yet it has dropped roughly 8% since hitting a 20-year high in September, as a slowdown in U.S. inflation has raised hopes the Fed’s rate-hiking cycle might soon end.

In Asia, the Bank of Japan decides policy on Tuesday, and while no change is expected at that meeting, some market participants have begun betting on some tweaks to stimulus as Governor Haruhiko Kuroda prepares to depart in April.

The risk-sensitive Australian dollar was 0.2% lower at US$0.6687. The Aussie plunged more than 2% in the previous session – its biggest drop since March 2020. The New Zealand dollar, however, rose 0.7% to US$0.6383.

========================================================

Currency bid prices at 4:08PM (2108 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.7400 104.5100 +0.23% 9.489% +104.7800 +104.2000

Euro/Dollar $1.0595 $1.0631 -0.34% -6.80% +$1.0664 +$1.0592

Dollar/Yen 136.6900 137.7550 -0.78% +18.73% +137.7850 +136.2950

Euro/Yen 144.83 146.41 -1.08% +11.13% +146.5900 +144.6400

Dollar/Swiss 0.9337 0.9286 +0.58% +2.38% +0.9338 +0.9260

Sterling/Dollar $1.2155 $1.2181 -0.21% -10.12% +$1.2222 +$1.2122

Dollar/Canadian 1.3694 1.3660 +0.27% +8.34% +1.3705 +1.3618

Aussie/Dollar $0.6687 $0.6700 -0.16% -7.98% +$0.6736 +$0.6676

Euro/Swiss 0.9892 0.9865 +0.27% -4.60% +0.9906 +0.9856

Euro/Sterling 0.8713 0.8725 -0.14% +3.73% +0.8772 +0.8705

NZ $0.6383 $0.6341 +0.68% -6.73% +$0.6395 +$0.6337

Dollar/Dollar

Dollar/Norway 9.8845 9.8715 +0.17% +12.25% +9.9125 +9.8365

Euro/Norway 10.4746 10.4790 -0.04% +4.61% +10.5238 +10.4601

Dollar/Sweden 10.3879 10.3442 +0.25% +15.19% +10.4032 +10.2935

Euro/Sweden 11.0070 10.9794 +0.25% +7.55% +11.0369 +10.9730

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Harry Robertson in London and Kevin Buckland in Tokyo; Editing by Sam Mark Potter, Louise Heavens, Mark Heinrich and Jonathan Oatis)

By Dietrich Knauth

(Reuters) – A U.S. judge overseeing the bankruptcy of FTX said on Friday that he will allow media companies to make their case that the collapsed crypto exchange must publicly disclose the names of its customers.U.S. Bankruptcy Judge John Dorsey in Delaware said the New York Times, Dow Jones, Bloomberg and the Financial Times could present their arguments on requiring FTX to disclose customer names at a hearing on Jan. 11.

The media companies argued in a court filing that keeping the names of as many as 1 million customers secret could turn bankruptcy proceedings into a “farce” if creditors start fighting anonymously over how much money they should receive.

FTX has argued the U.S. bankruptcy practice of disclosing details about creditors, which includes customers, could expose them to scams, violate privacy laws and allow rivals to poach them, undermining the FTX’s value as it hunts for buyers.

FTX said on Friday it planned to sell its LedgerX, Embed, FTX Japan and FTX Europe businesses during its bankruptcy case. The four companies are relatively independent from the broader FTX group, and each has its own segregated customer accounts and separate management teams, according to an FTX court filing.

FTX is not committed to selling any of the companies, but it already received dozens of unsolicited offers. FTX expects to generate additional bids by scheduling auctions in February and March.

Other bankrupt crypto companies, like crypto lenders Voyager Digital and Celsius Network, have struggled to auction their assets. Voyager had planned to sell its assets to FTX before FTX’s implosion, and Celsius said in a Thursday court filing it had postponed an auction of its business to try to improve the bids it had received.

FTX attorneys also said at Friday’s hearing they have made “significant progress” on recovering assets and are working to resolve a dispute with Bahamian securities regulators and attorneys overseeing the liquidation of the Bahamas-based FTX Digital Markets.

An attorney for the Bahamas-based liquidators, Jason Zakia, said FTX has prevented the Bahamas bankruptcy from moving forward by cutting off access to data and casting “aspersions” on the actions of the Bahamas government. Dorsey will address the data access dispute on Jan. 6 if the two sides do not reach a deal.

Friday’s bankruptcy hearing comes at the end of a dramatic week for the crypto exchange. Founder Sam Bankman-Fried was arrested on fraud charges on Monday, FTX CEO John Ray testified before the U.S. Congress on Tuesday, and FTX opposed Bahamas-based liquidators’ demand for access to its systems and records on Wednesday.

(Reporting by Dietrich Knauth in New York; Additional reporting by Tom Hals in Wilmington, Del.; Editing by Amy Stevens, Alexia Garamfalvi and Matthew Lewis)

By Luc Cohen

NEW YORK (Reuters) – A dual citizen of Sweden and the United Kingdom pleaded guilty to U.S. fraud and money laundering charges on Friday for selling a fake cryptocurrency alongside one of the United States’ most-wanted fugitives, a woman referred to as the ‘Cryptoqueen.’

Karl Greenwood, 45, was arrested in Thailand and extradited to the United States in 2018 for his role in selling the purported cryptocurrency OneCoin, which federal prosecutors in Manhattan call a pyramid scheme that defrauded investors out of $4 billion. He has been detained since his arrest.

The plea comes as prosecutors in the Southern District of New York (SDNY) ramp up enforcement of financial crimes related to digital assets. On Tuesday, prosecutors unsealed an indictment of Sam Bankman-Fried, the founder of the FTX crypto exchange, on charges of stealing billions in customer deposits.

“This guilty plea by the co-founder of OneCoin caps a week at SDNY that sends a clear message that we are coming after all those who seek to exploit the cryptocurrency ecosystem through fraud,” Damian Williams, the top federal prosecutor in Manhattan, said in a statement.

Prosecutors said Greenwood founded OneCoin in Sofia, Bulgaria in 2014 alongside Ruja Ignatova, a German citizen who prosecutors say is also known as the ‘Cryptoqueen.’ The FBI named her to its top ten most-wanted list in June, and prosecutors said on Friday she remains at large.

A lawyer for Greenwood declined to comment. He is scheduled to be sentenced on April 5 for the three counts to which he pleaded guilty.

Bankman-Fried has acknowledged risk management failures at FTX but said he does not believe he has any criminal liability. He is currently detained in The Bahamas, where FTX is based, and is contesting a U.S. request for his extradition.

(Reporting by Luc Cohen in New York; Editing by Josie Kao)

By Nate Raymond

(Reuters) – Coinbase Global Inc cannot force former customers to use private arbitration rather than the courts to resolve claims over a Dogecoin sweepstakes the cryptocurrency exchange ran, a U.S. appeals court ruled on Friday.

Four former Coinbase users had sued Coinbase, claiming the company duped them into paying $100 or more to enter a sweepstakes in June 2021 for a chance to win prizes of up to $1.2 million in the cryptocurrency Dogecoin.

Each of the users had agreed to the company’s user agreement to create an account, which included a provision requiring them to pursue any disputes in arbitration.

Friday’s ruling came a week after the U.S. Supreme Court agreed to review a procedural issue from that and another case that Coinbase unsuccessfully sought to force into arbitration.

Business groups say arbitration is more efficient than suing in court. Plaintiffs’ lawyers say arbitration favors companies and that consumers are better off in court.

But a federal judge declined to compel arbitration, and San Francisco-based 9th U.S. Circuit Court of Appeals agreed with that decision, citing a provision in the sweepstakes’ official rules requiring disputes to be heard in California courts.

David Harris, the users’ lawyer, said they were pleased with the ruling. Coinbase declined to comment.

The case is one of two that Coinbase is appealing to the Supreme Court after the 9th Circuit decisions declining to put trial court proceedings on hold while it appealed judges’ decisions to not force the cases into arbitration.

The other proposed class action was filed by Abraham Bielski, who said he was tricked into letting a scammer access his Coinbase account, who then stole more than $31,000 from him.

A judge put the proceeding in the sweepstakes case on hold pending appeal, but only after Coinbase asked the Supreme Court to hear the dispute.

(Reporting by Nate Raymond in Boston; Editing by Josie Kao)

By Jack Queen

(Reuters) – FTX founder Sam Bankman-Fried was swiftly indicted after the collapse of his crypto empire, but a trial in New York is likely more than a year away as prosecutors build out their case and both sides spar over evidence.

The bare-bones indictment against Bankman-Fried – which could be amended with more details and co-defendants as the case progresses – suggests prosecutors have a long road ahead piecing together what they have described as one of the biggest financial frauds in American history. Pretrial litigation can also be a lengthy process as both sides argue over the admissibility of evidence, what can and cannot be argued at trial, and whether the case should be dismissed.

“A trial is probably 14 to 18 months out,” said Michael Weinstein, a white-collar criminal defense lawyer and former federal prosecutor.

On Tuesday, U.S. Attorney Damian Williams in Manhattan said a grand jury had indicted Bankman-Fried on wire fraud, securities fraud, commodities fraud, campaign finance law violations and conspiracy charges. Williams said the investigation is “ongoing” and that more announcements are to come.

The indictment came just weeks after Bankman-Fried’s $32 billion crypto exchange collapsed – an extraordinarily fast turnaround for prosecutors.

Bankman-Fried has apologized to customers but said he is not guilty of any crime. A representative of the crypto entrepreneur declined to comment.

Bankman-Fried was arrested in the Bahamas on Monday but indicated he would fight extradition to the United States. He is behind bars in a Bahamian correctional center and will not enter a plea until he is arraigned in the United States. His absence keeps potentially years-long pretrial litigation on hold.

COMPLICATIONS

Legal experts are doubtful Bankman-Fried will prevail fighting extradition, though he could relent in the coming months after a Bahamian judge denied him bail. Bankman-Fried’s lawyers filed a new bail request on Thursday.

Regardless of where Bankman-Fried is held, prosecutors will spend the coming months poring over evidence and interviewing witnesses before potentially filing a so-called superseding indictment with new details or co-defendants. The limited information in the indictment unveiled on Tuesday suggests there is plenty of work to do, according to legal experts.

“The indictment does not have smoking-gun details like emails and documents that you’re used to seeing in fraud cases,” said Renato Mariotti, a former federal prosecutor with experience in financial fraud cases. “That suggests that they put this together quickly, but they wouldn’t bring high-profile charges like this if they didn’t think they had the goods.”

FTX has been described by its restructuring executive as a chaotic operation that shuffled assets without basic accounting or record-keeping protocols, which will likely complicate prosecutors’ efforts to build out their case further.

Securing the help of former FTX employees who can make sense of the incomplete records could take a long time, especially if negotiations for immunity or plea deals in exchange for cooperation are involved.

“They will need an insider who was part of the decision-making process or was privy to how things worked internally,” Weinstein said.

Williams, the U.S. attorney, on Tuesday pointedly addressed people who may have information about FTX’s downfall.

“If you have not reached out to us to talk to us, I would encourage you to do so, and do so quickly.”

(Reporting by Jack Queen in New York; Editing by Noeleen Walder and Matthew Lewis)

(Reuters) – French auditing firm Mazars said on Friday it has paused all work for clients in the crypto business, reflecting a broader sentiment in the global high-finance industry as companies distance themselves from the beleaguered sector.

Paris-based Mazars was hired last month by major crypto exchange Binance to perform a so-called proof-of-reserves check on its bitcoin holdings.

The firm this month found that the exchange’s reserves on a single day in late November were overcollateralized. Mazars later deleted the webpage containing a report, published on Dec. 7, on the check.

“Mazars has paused its activity relating to the provision of Proof of Reserves Reports* for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public,” the company said.

Proof-of-reserves checks are supposed to let users of exchanges confirm their holdings are included in checks of blockchain data, and that the exchange’s reserves match clients’ assets. They are not akin to a full financial audit.

Bloomberg and news outlet CoinDesk reported the story earlier on Friday.

Nearly $2 trillion in value has been wiped out from the crypto sector this year on rising interest rates and exacerbating worries of an economic downturn. The slump has eliminated key industry players such as Voyager Digital, Three Arrows Capital and Celsius Network.

But the bigger blow came after larger crypto exchange FTX filed for bankruptcy protection last month. Its swift fall has also sparked tough regulatory scrutiny of how major exchanges hold user funds.

Binance earlier this week was hit by a surge in outflows, which CEO Changpeng Zhao called “business as usual”.

The crypto exchange also paused withdrawals of a major stablecoin for a period on Monday, blaming delays in the traditional banking system.

(Reporting by Mehnaz Yasmin in Bengaluru and Tom Wilson in London; Editing by Nivedita Bhattacharjee, Krishna Chandra Eluri and Sriraj Kalluvila)

By Jasper Ward and Brian Ellsworth

(Reuters) – The Bahamas should not be blamed for the collapse of bankrupt cryptocurrency platform FTX, the country’s foreign minister said on Friday, following repeated accusations by FTX management of alleged misconduct by the Caribbean nation’s authorities.

FTX lawyers on Wednesday said they “do not trust” the Bahamian government, which FTX’s leadership has accused of colluding with now-jailed former CEO Bankman-Fried to help account holders withdraw $100 million just as the platform was going bankrupt.

In a withering voice recording distributed over WhatsApp on Friday morning, Bahamas Foreign Minister Fred Mitchell, said “this blame game directed at The Bahamas” is undermining efforts to recover assets that were lost as a result of fraud.

“Every day there is some accusation being hurled at The Bahamas, but it is clear the jurisdiction of the alleged fraud is not the reason the fraud happened,” said Mitchell.

“We in The Bahamas can ask the question: How did the mastermind of FTX get on the front page of Forbes magazine, a U.S. magazine? Which nation’s press called him the next Warren Buffett? Clearly that was the United States.”

Bankman-Fried was arrested on Monday and remanded on Tuesday to a Bahamian detention center after a magistrate judge denied his bail request. On Thursday, his lawyers filed a new bail application, this time before the Supreme Court, according to a source.

U.S. prosecutors accuse the 30-year-old of misappropriating billions of dollars and violating campaign laws in what has been described as one of America’s biggest financial frauds.

(Reporting by Jasper Ward in Washington and Brian Ellsworth in Miami; Editing by Mark Potter)

By Dietrich Knauth

(Reuters) – The U.S. Department of Justice’s bankruptcy watchdog on Thursday appointed a committee to represent FTX accountholders and other junior creditors in the collapsed crypto exchange’s bankruptcy case.

The committee – which includes a mix of individual account holders, investment funds, and an affiliate of U.S. crypto firm Genesis – will represent the interests of all unsecured creditors, who are among the last to be paid in a typical bankruptcy.

The nine-member committee includes three individual creditors, Genesis affiliate GGC International Ltd, crypto trader Wintermute Asia PTE, Coincident Capital International, Pulsar Global Ltd, Octopus Information Ltd and Wincent Investment Fund.

FTX filed for bankruptcy protection in Delaware in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. The collapse has left an estimated 1 million creditors facing losses totaling billions of dollars.

Crypto firms that went bankrupt earlier this year, including Voyager Digital and Celsius Network, have classified most of their customers, particularly those with interest-bearing accounts, as unsecured creditors.

Unsecured debts, such as credit card or medical bills, do not grant lenders any specific collateral rights. Secured debt, like a mortgage or car loan, is backed by specific collateral that may be claimed by a lender if the debt goes unpaid.

U.S. Bankruptcy Judge John Dorsey, who is overseeing FTX’s Chapter 11 case, said during a Wednesday court hearing that he expects the creditors’ committee to weigh in on issues related to customer privacy at a hearing scheduled in early January.

FTX has argued that customer names should be kept secret to protect them from scams and to preserve the business value of FTX’s customer list for potential buyers.

Creditor names, contact information, and the amount they are owed are treated as public information in most bankruptcy cases, and both the Justice Department and a group of media organizations have tried to block FTX from straying too far from bankruptcy’s transparency requirements.

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

By Georgina Lee

HONG KONG (Reuters) – Hong Kong’s first bitcoin and ether futures exchange traded funds (ETFs) ended their first trading day higher on Friday, reflecting investors’ interest despite the broader crypto market meltdown.

The CSOP Bitcoin Futures ETF closed up 0.5% at HK$7.81 per unit, while the CSOP Ether Futures ETF ended 0.4% higher at HK$7.805.

Both ETFs had opened flat compared to their estimated net asset values, both at HK$7.77 per unit. Among the two, the bitcoin futures ETF attracted more trading volume, as a total of 937,200 units worth HK$7.3 million changed hands.

“The two crypto asset ETFs provide investors with exposure to the digital asset space for the first time in Asia and reflect both our ongoing commitment to, and the market’s appetite for, the digital economy,” said Wilfred Yiu, chief operating officer and co-head of markets at Hong Kong Exchanges & Clearing.

Prior to the their debut, the two funds raised a combined $73.6 million from investors.

($1 = 7.7777 Hong Kong dollars)

(Reporting by Georgina Lee; Editing by Christian Schmollinger and Mark Potter)

By Alison Frankel

(Reuters) – The law firm led by famed litigator David Boies appears to have engaged in some unusual litigation tactics on behalf of FTX crypto exchange users who accuse NFL quarterback Tom Brady, supermodel Gisele Bundchen, comedian Larry David and other celebrities of inducing them to open FTX accounts.

This tale ventures deep into the weeds of federal court filing procedures, but the upshot is that Boies’ firm, Boies Schiller Flexner, and co-counsel from The Moskowitz Law Firm filed three different but obviously related FTX lawsuits in the same federal court in Miami without asking the court to consolidate the cases before just one judge.

The cases were assigned to three different Miami federal judges before the judges realized they were related. Last week, U.S. District Judge Michael Moore of Miami entered an order consolidating the lawsuits and clarifying that he will oversee the litigation.

That was apparently not what the Boies and Moskowitz firms were hoping. In mid-November, the firms filed the first of their three FTX lawsuits in federal court. The suit, a class action on behalf of FTX accountholders in the U.S., alleged that FTX founder Sam Bankman-Fried and celebrity endorsers violated Florida securities and consumers laws by promoting the FTX yield-bearing accounts as a safe way to invest in cryptocurrencies.

I’ll pause here to point out that law firm Latham & Watkins, which is representing Brady, Bundchen and David, declined to comment on the cases. Bankman-Fried counsel Mark Cohen of Cohen & Gresser did not respond to a query. I also did not receive a response from the NBA’s Golden State Warriors, which is also named as a defendant.

As you are doubtless aware, Boies is known for high-profile matters, including his representation of Democratic presidential candidate Al Gore in the U.S. Supreme Court case that decided the election of 2000. More recently he has represented Jeffrey Epstein accusers including Virginia Giuffre.

On the official form that accompanied Boies Schiller’s FTX lawsuit, which is known as a cover sheet, the Boies and Moskowitz firms said the FTX class action was related to a different class action that the firms are litigating on behalf of crypto investors who used the Voyager Digital Ltd platform. The Voyager case similarly accuses a celebrity crypto endorser – Dallas Mavericks owner Mark Cuban – of deceptive promotion of a crypto investment. Cuban counsel Stephen Best of Brown Rudnick told me he is confident the class action will be tossed, in part because Voyager account holders did not rely on Cuban’s endorsement.

Presiding over that case is U.S. District Judge Roy Altman, who was a partner at the plaintiffs’ firm Podhurst Orseck before joining the bench in 2019. He has yet to rule on Cuban’s motion to dismiss the case, but in November determined that the Boies and Moskowitz firms were entitled to discovery from Cuban.

By asserting that the first FTX suit was related to the Cuban case before Altman, the Boies and Moskowitz firms apparently hoped Altman would also be appointed to oversee the FTX class action, even though there was no overlap between the plaintiffs and defendants in the cases.

The court instead assigned the case to Moore, a George H.W. Bush appointee and former federal prosecutor, on the same day it was filed.

On Nov. 21, the Boies and Moskowitz firms filed a second FTX class action, this time on behalf of non-U.S. FTX customers. The cover sheet said the case was not related to any other proceeding in Miami federal court, although it mentioned the Voyager class action in a box where such information can be listed. The cover sheet did not refer to the case before Moore.

The second suit was assigned to U.S. District Judge Darrin Gayles.

On Dec. 7, the Boies and Moskowitz firms filed a third FTX class action in federal court in Miami, this time on behalf of all FTX customers, in and out of the U.S. Once again, the cover sheet for the filing did not mention the firm’s previous (and very similar) FTX suits. Once again, the Voyager class action showed up in the box for related cases.

The third suit was assigned to U.S. District Judge Beth Bloom. (Both Bloom and Gayles are former Florida state-court judges who were appointed by former President Barack Obama).

The day after Bloom’s assignment to the case, the Moskowitz and Boies firms voluntarily dismissed the two previously-filed FTX class actions before Moore and Gayles. They then submitted an amended complaint in the case before Bloom, adding the lead plaintiffs from the other two now-dismissed suits.

Those maneuvers seem to have caught Bloom’s attention. She issued an order on Dec. 9, transferring the remaining class action to Moore, who had been assigned the first suit filed by Moskowitz and Boies. Moore issued his order consolidating the litigation in his courtroom on the same day.

I emailed Adam Moskowitz of the Moskowitz firm and four Boies Schiller lawyers, including David Boies, to ask why they had said the first FTX suit was related to the Voyager case and why they failed to disclose that their second and third FTX suits were related to the first class action. Specifically, I asked if they were trying to avoid Moore and get the FTX litigation before Altman, the judge overseeing the Voyager case.

Moskowitz said in two email responses that the firms’ goal has always been to have all of the federal cases consolidated before one judge. (His firm and the Boies firm also have filed several cases in Florida state courts.)

“As we got more cases, we filed more cases,” Moskowitz said. “We wanted to make sure to cover all of these victims.”

Moskowitz said the firms “always try our best to complete all information on all court forms.” He and Boies lawyers, he said, have been coordinating with defense counsel in both the state and federal FTX cases, despite the “different cases, different clients and different law firms.”

Both the state and federal cases, Moskowitz said, are now sorted out and will be overseen by one judge in federal court and one in state court.

“After four weeks of hard work, cooperation and coordination, including with defense counsel, we are happy to at least have two avenues for all of those victims across the globe (in Florida state and federal courts),” Moskowitz said. “It is a good day for the victims.”

Boies lawyers did not respond beyond Moskowitz’s emails.

Read more:

FTX’s Bankman-Fried, Tom Brady and other celebrity promoters sued by crypto investors

(Reuters) – Former FTX CEO Sam Bankman-Fried has made a new bail application before the Bahamas Supreme Court, a source familiar with the matter said on Thursday, after a magistrate judge on Tuesday rejected the former crypto mogul’s request for bail.

(Reporting by Jasper Ward in Washington)

(Reuters) – The New York State Department of Financial Services (NYDFS) on Thursday issued digital asset guidance to state-regulated banks laying out what information financial institutions must submit before getting approval to engage in virtual currency-related activities.

The guidance, one of the clearest paths forward yet for banks to offer cryptocurrency services, instructs banks to submit a business plan with details of the proposed activity, detail how such a service would impact the bank’s capital and liquidity and inform NYDFS of its plans at least 90 days beforehand.

(Reporting by Hannah Lang in Washington)

By Stefanno Sulaiman

(Reuters) – Indonesia’s parliament on Thursday approved a financial law revising more than a dozen existing regulations, including an addition to the central bank’s mandate to support economic growth and formalise its direct purchases of government bonds.

Here are some of the changes introduced in the new law, which has over 500 pages:

CHANGES AFFECTING THE CENTRAL BANK

* Bank Indonesia (BI)’s objective to include maintainingfinancial system stability in order to support sustainableeconomic growth, compared with only maintaining the rupiahcurrency’s value under previous laws. * A new provision underlines that BI will be able to issuecapital flow regulations that include repatriation and/orconversion of foreign exchange. * A new requirement states candidates running for BI’s board must not be a member and/or a functionary of a political partyat the time of nomination. * The law brings in a stricter timeframe for nomination andconfirmation hearings of board members by parliament.

CRISIS RESPONSE

* BI is allowed to buy bonds directly from the government ifthe president declares a crisis situation. Up to now, this hasonly been allowed between 2020 to 2022 in response to thepandemic. * BI will also be allowed to buy corporate bonds held bybanks in times of crisis, which is currently prohibited. * The new law aims to strengthen the crisis responsemechanism, including by giving the government permission to lendto the Indonesia Deposit Insurance Corporation (LPS) and for LPSto repo its government bond holdings to the central bank if itneeds to raise funds.

CENTRAL BANK DIGITAL CURRENCY AND CRYPTO ASSETS

* The law recognises the digital rupiah, to be issued by BI,as an additional form of the national currency, on top of coinsand banknotes. * Supervision and regulation for trading of digital assetssuch as crypto assets will be placed under the remit of theFinancial Services Authority (OJK). There will be a gradualtransition of these roles from the commodity regulator.

CONSUMER PROTECTION

* Financial regulators are mandated to form a nationalcommittee to improve financial literacy and widespread access tofinancial products. * The law brings in penalties, including criminal sanctions,for companies that do not meet the requirements for customerprotection, such as failing to inform clients of investmentrisks.

BULLION BANKING, CARBON EXCHANGE

* The law introduces the establishment of a bullion bank, orbank to deposit, trade and lend gold. * It also allows for the set up of carbon exchanges, withthe OJK’s permission, to facilitate carbon trading. * The OJK will supervise and regulate bullion banks andcarbon exchanges.

OTHER CHANGES

* BI and OJK will jointly supervise and regulate fintechs. * The law calls for the formation of supervisory bodies forOJK and LPS and the strengthening of the supervisory body forBI. * Banks are obliged to publish their interest rates in atransparent way in order to promote efficiency. * The LPS will be in charge of guaranteeing insurancepolicies. * To be able to do that, LPS will collect a fee frominsurance companies. * The law introduces jail punishments for a controllingparty of an insurance firm who fails to conduct theirresponsibilities.

(Reporting by Stefanno Sulaiman; Editing by Gayatri Suroyo and Ed Davies)

By Georgina Lee

HONG KONG (Reuters) – Two exchange traded funds (ETF) that track U.S.-listed cryptocurrency futures have raised a combined $73.6 million ahead of their debut on the Hong Kong stock exchange on Friday in defiance of the sector’s meltdown.

Cryptocurrencies have endured months of turmoil, with the collapse of crypto exchange FTX the latest blow to the sector. Bitcoin, the biggest cryptocurrency, has lost more than 70% of its value since hitting a record high in November 2021.

The ETFs, managed by CSOP Asset Management, invest in bitcoin and ether futures listed on the CME exchange in the United States, the only cryptocurrency assets currently permitted by Hong Kong’s Securities and Futures Commission (SFC).

The larger of the two, CSOP Bitcoin Futures ETF, pulled in $53.9 million, according to the manager. That topped ProShares Bitcoin Strategy ETF, the first U.S. bitcoin futures ETF that debuted on the NYSE Arca exchange in October 2021 with $20 million of seed capital, according to media reports.

“Coming after the recent liquidity problems affecting some of the crypto platforms, our two crypto futures ETFs demonstrate that Hong Kong remains open-minded on the development of virtual assets,” said Yi Wang, head of quantitative investment at CSOP.

Just before FTX’s collapse last month, the SFC said in October it would start a consultation to allow retail investors to trade cryptocurrencies and ETFs. The regulator had initially proposed restricting participation to professional investors.

“As the ETFs do not invest in physical bitcoin, and are traded on regulated U.S. and Hong Kong exchanges, there are more regulatory safeguards for investors compared to tokens traded on unregulated platforms,” Wang said.

On Friday, each lot trading on the Hong Kong Exchanges & Clearing (HKEX) will debut at HK$780 each.

“The price of bitcoin may be subject to manipulation as a significant portion is held by a small number of holders” and the CME futures could drop to zero, the ETFs’ product document filed to the HKEX said.

(Reporting by Georgina Lee; Editing by Mark Potter)

By Stefanno Sulaiman

JAKARTA (Reuters) – Indonesia’s parliament on Thursday voted to approve financial legislation that widens the central bank’s mandate to include supporting sustainable economic growth and formalise its debt monetisation operations.

Called the “Development and Strengthening of Financial Sector” bill, the new rules are also seen opening the door for ex-politicians to head Bank Indonesia (BI), raising concerns about its independence.

Running to more than 500 pages, lawmakers say the bill intends to update regulations to address challenges in the digital era, improve financial sector efficiency and promote financial inclusion.

Speaking after the vote, Finance Minister Sri Mulyani Indrawati told lawmakers the new law replaces old regulations, including some that had been in place for 30 years.

The new law explicitly bars members of political parties from running for BI’s board, including becoming governor.

However, politicians can be nominated for BI’s top jobs after resigning from their party, sources involved in the deliberation said.

Some economists believe allowing former politicians rather than technocrats to head BI could threaten its independence as party ties would remain strong while there would also be questions about their expertise and suitability.

The legislation underlines that the central bank remains an independent agency, but it widens BI’s mandate to also include maintaining financial system stability in order to support sustainable economic growth, on top of the current sole mandate of keeping the rupiah’s value stable.

BI has also received permission to buy government bonds in the primary market if the president declares a crisis situation, effectively formalising the bank’s pandemic-era bond buying operations.

This has raised concerns in financial markets about the risk of the government putting pressure on the central bank to pump such support into the economy, particularly given Indonesia’s history of runaway inflation.

The central bank did not respond to a request for comment.

The law also brings in new rules covering banking, insurance, fintech and digital assets. In addition, it seeks to tighten governance of financial regulators, including calling for a new supervision body for the Financial Services Authority (OJK). The law also moves the oversight of cryptocurrency trading to the OJK from a commodity regulator.

(Reporting by Stefanno Sulaiman; Additional reporting by Gayatri Suroyo; Editing by Ed Davies)