Tag: Ignore

By Dietrich Knauth

(Reuters) – Bankrupt crypto lender Voyager Digital received initial court approval on Tuesday for a proposed $1 billion sale of its assets to Binance.US, and said it will seek to expedite a U.S. national security review of the deal.

U.S. Bankruptcy Judge Michael Wiles in New York allowed Voyager to enter into an asset purchase agreement with Binance.US and to solicit creditor votes on the sale, which will not become final until a future court hearing.

Voyager attorney Joshua Sussberg said during Tuesday’s court hearing that Voyager was responding to concerns raised over the holidays by the U.S. Committee on Foreign Investment in the United States (CFIUS), an interagency body that vets foreign investments into U.S. companies for national security risks. He said Voyager intends to address any issues that would lead CFIUS to oppose the transaction.

“We are coordinating with Binance and their attorneys to not only deal with that inquiry, but to voluntarily submit an application to move this process along,” Sussberg said.

CFIUS said in a Dec. 30 court filing that its review “could affect the ability of the parties to complete the transactions, the timing of completion, or relevant terms.”

The Binance transaction includes a $20 million cash payment and an agreement to transfer Voyager’s customers to Binance.US’s crypto exchange, Sussberg said. Customers would then be able to make withdrawals for the first time since July.

Voyager estimates the sale will allow customers to recover 51% of the value of their deposits at the time of Voyager’s bankruptcy filing.

If CFIUS blocks the transaction, Voyager will be forced to repay customers with the crypto it has on hand, resulting in a lower payout for Voyager users, Sussberg said.

Washington has increasingly used CFIUS to stymie Chinese investment in the United States.

Binance is owned by Changpeng Zhao, a Chinese-born Canadian citizen, and has no permanent headquarters. The company has been the subject of a money laundering probe by U.S. prosecutors. Binance.US, based in Palo Alto, California, has said that its separate American exchange is “fully independent” of the main Binance platform.

In addition to CFIUS, Voyager’s proposed sale was also opposed by the U.S. Securities Exchange Commission and state securities regulators. Glenn allowed Voyager to proceed despite those objections, saying that the securities regulators will be allowed to object to final approval of the sale in the future.

Voyager filed for bankruptcy in July, months after the crash of major crypto tokens TerraUSD and Luna sent shockwaves across the digital asset industry.

Voyager initially planned to sell its assets to FTX Trading, but that deal imploded when FTX went bankrupt in November amid a frenzy of customer withdrawals and fraud allegations that led to the arrest of founder Sam Bankman-Fried.

(Reporting by Dietrich Knauth; Editing by David Gregorio and Josie Kao)

By Luc Cohen

NEW YORK (Reuters) – The brother of a former Coinbase Global Inc product manager was sentenced on Tuesday to 10 months in prison after pleading guilty in September to a wire fraud conspiracy charge, in what U.S. prosecutors have called the first insider trading case involving cryptocurrency.

Nikhil Wahi admitted last year that he made trades based on confidential Coinbase information. Federal prosecutors in Manhattan say Ishan Wahi, the former product manager, shared confidential information with his brother and their friend Sameer Ramani about new digital assets Coinbase was planning to let users trade.

Ishan Wahi has pleaded not guilty. Ramani, who was also charged, is at large.

U.S. District Judge Loretta Preska handed down the sentence.

The sentencing comes as U.S. prosecutors and regulators ramp up their scrutiny of cryptocurrency companies and executives. Last month, FTX founder Sam Bankman-Fried was charged with eight counts of fraud and conspiracy over the collapse of the now-bankrupt exchange, a Coinbase rival.

Bankman-Fried has pleaded not guilty. Two of his closest associates, Caroline Ellison and Gary Wang, have pleaded guilty and agreed to cooperate with prosecutors.

The crypto sector is also struggling, after a plunge last year in the value of bitcoin and other digital assets due to rising interest rates and worries of an economic downturn.

Earlier on Tuesday, Coinbase – one of the world’s largest cryptocurrency exchanges – said it would cut 950 employees – about 20% of its workforce – in a third round of layoffs since last year.

Prosecutors had recommended Nikhil Wahi be sentenced to between 10 and 16 months in prison, arguing that he earned nearly $900,000 in profits from the scheme. His defense lawyers had proposed he be spared prison time, arguing he was motivated by his desire to repay his parents for funding his college education and that he had never been arrested before.

(Reporting by Luc Cohen in New York; Editing by Lisa Shumaker)

(Reuters) – Coinbase Global Inc said on Tuesday it will reduce its workforce by about 950 employees as part of a restructuring plan, in a third round of layoffs for the cryptocurrency exchange since last year.

The company said it expects to incur about $149 million to $163 million in restructuring expenses. Its shares reverse coursed to fall 2.3% premarket after rising more than 5% on the layoffs announcement earlier.

Last year, rising interest rates and worries of an economic downturn wiped out more than a trillion dollars from the crypto sector. The slump also forced key industry players such as Three Arrows Capital and Celsius Network to shut shop.

However, the bigger blow came after larger crypto exchange FTX filed for bankruptcy protection in November. Its swift fall has sparked tough regulatory scrutiny of how major exchanges hold user funds.

“We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion,” Coinbase Chief Executive Brian Armstrong said in a blog post.

“We will be shutting down several projects where we have a lower probability of success.”

Coinbase said it had no additional comment on the projects it was planning to shelve.

The crypto world’s woes have continued this year, marked by plunging deposits, layoffs and multiple legal hurdles.

Last week, crypto lender Genesis also slashed 30% of its workforce in a second round of layoffs in less than six months.

Coinbase in November cut more than 60 jobs in its recruiting and institutional onboarding teams, after slashing 1,100 jobs, or 18% of its workforce, in June.

Shares in the company lost roughly 86% of their value last year, in line with the downturn in the fortunes of the sector.

(Reporting by Manya Saini in Bengaluru; Editing by Saumyadeb Chakrabarty, Shounak Dasgupta and Shinjini Ganguli)

By Lisa Pauline Mattackal

(Reuters) – Bitcoin’s looking steady in 2023. But it’s only been a week.

Cryptocurrencies have crept into the new year, licking their wounds after the carnage of 2022. The overall global crypto market cap has risen 5% to $871 billion since Jan. 1, but it’s still down over 57% from this time last year.

Bitcoin itself has gained 4.3% since the start of 2023, though stuck in a narrow range between $16,500 and $17,300. The world’s biggest cryptocurrency is eerily subdued, with its 7-day volatility dropping to levels not seen since October 2018, according to Refinitiv Eikon data.

“It will be a year for the patient, as we do not anticipate prices nearing former all-time highs in 2023,” said Vetle Lunde, senior analyst at Arcane Research.

Cryptocurrency spot trading volumes remain similarly muted after slumping about 48% in December versus the previous month to $544 billion, their lowest level since December 2019, CryptoCompare data showed.

While lower trading volumes are common around the turn of the year, the crypto market apathy has been exacerbated by a “general exodus” of active retail investors, according to Arcane Research.

For some market players, though, subdued sounds pretty good after the bitcoin bloodbath of 2022.

“I feel encouraged by the floor we’ve seen forming under bitcoin, it shows there’s a lot of demand around $16,000 and $17,000 levels,” said Callie Cox, investment analyst at investment platform eToro.

So what happens now?

Graphic: Calm on crypto front https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/jnpwywelqpw/chart.png

THE BULL’S TALE

Marcus Sotiriou, analyst at digital asset broker GlobalBlock, pointed to tightening Bollinger bands – a technical indicator tracking price and volatility – on bitcoin charts.

The bands are at their tightest since July 2020, and such tightening has historically preceded aggressive moves to the upside for bitcoin, he added.

This possible scenario was echoed by Arcane Research’s Lunde.

“These low volatility periods rarely last for long, and volatility compression periods have previously tended to be followed by sharp moves, even in stagnant markets,” he said.

Additionally, funding rates for perpetual bitcoin futures have been positive since Dec. 19, according to Coinglass data, meaning traders are betting on prices to rise and will pay to keep their long positions open.

THE BEAR’S TALE

On the other hand, cryptocurrencies remain at the mercy of macroeconomic headwinds as worries whirl around a slowing global economy.

“The weaker economic outlook means people have less disposable income to invest in what they deem as risky assets like crypto,” said GlobalBlock’s Sotiriou.

Economic uncertainty could send investors running for the safety of the U.S. dollar, which tends to be inversely correlated to bitcoin, said Dalvir Mandara, quantitative researcher at MacroHive.

“The macro backdrop is still bearish for crypto,” Mandara added in a note on Thursday.

Meanwhile, crypto corporates face the fallout from the collapse of Sam Bankman-Fried’s FTX exchange.

Some major firms have started laying off employees in a bid to save costs, while Silvergate Bank reported an $8 billion drop in crypto-related deposits which sent its shares plunging nearly 43%.

(Reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char)

By Carolina Mandl

NEW YORK (Reuters) – Hedge funds last year posted their worst performance since 2018, mainly dragged down by equities as portfolio managers struggled to place their bets amid market turmoil, industry data provider HFR said on Monday.

Overall, hedge funds fell 4.25% last year, according to the HFRI 500 Fund Weighted Composite Index, which tracks many of the biggest global hedge fund performances.

Equity hedge funds notched the worst performance in 2022 among the four main hedge funds categories tracked by HFR. Still, their 10.37% loss still managed to beat the S&P 500 , which fell 19.4% in its worst year since 2008.

Event-driven hedge funds, including those that bet on company mergers or restructurings, and relative value funds, which trade on asset price dislocations, also ended the year with losses of 5.04% and 0.9%, respectively.

Crypto hedge funds tanked 55.08%, after posting positive returns in only three months of the year. Despite their massive losses, crypto hedge funds account for a tiny part of the industry’s $3.8 trillion in assets.

While equity and crypto portfolio managers faced challenges last year, hedge fund investors found bright spots to get return. Macro hedge funds outperformed the industry, HFR showed. The HFRI Macro Index rose 9.31%, mainly driven by commodities, quantitative and trend following strategies, the data provider said.

“Investors need to look under the surface to understand the industry performance last year. Long-short hedge funds are the biggest asset-weighted part of the industry,” said Patrick Ghali, managing partner of hedge fund advisory firm Sussex Partners. “Overall, I believe it was a good year for hedge funds.”

Macro hedge funds trade globally a broad range of assets, such as bonds, currencies, rates, stocks and commodities. This allowed them to smartly place their bets amid asset price dispersion caused by rising interest rates and surging inflation.

Reuters reported earlier this year that investors consider macro hedge funds are likely to outperform the industry again this year, as a volatile environment for markets persists.

Last year’s turmoil also proved to be good for multi-strategy hedge funds, which are allowed to trade across different assets and markets. Kenneth Griffin’s Citadel posted gains of 38.1% in its flagship fund Wellington, while D.E Shaw’s Composite Fund went up 24.7% and Millennium rose 12.4%.

(Reporting by Carolina Mandl, in New York; Editing by Chris Reese and Lincoln Feast.)

By Dietrich Knauth

(Reuters) – Executives of bankrupt crypto lender BlockFi Inc have repaid an investor $15 million to settle a threatened lawsuit over the company’s cratering equity value in summer 2022, the company’s attorneys said Monday in bankruptcy court.

The settlement resolved claims by the investor, identified only as “Counterparty A,” who had purchased equity shares that were issued as part of executive compensation packages, BlockFi attorney Joshua Sussberg said at a bankruptcy court hearing in Trenton, New Jersey.

The shares were sold at a discount to the company’s January 2022 valuation of $6 billion to $8 billion, but their value plummeted over the summer as the collapse of two cryptocurrencies caused widespread havoc in crypto markets.

The BlockFi investor threatened to sue, alleging that BlockFi and its executives should have been more transparent about contagion risks in the cryptocurrency market, according to Sussberg.

BlockFi believed the investor’s claims were “specious,” but it reached a confidential settlement on Aug. 23 under which BlockFi executives repaid $15 million to the investor, Sussberg said.

The largest payment under that settlement was made by BlockFi founder Zac Prince, who repaid $6.144 million.

BlockFi’s dramatic decline in value was made apparent by an emergency loan extended by crypto exchange FTX on July 1. That loan gave FTX an option to buy BlockFi for $240 million, essentially setting a maximum value for existing equity.

As the company’s value plummeted, BlockFi laid off 20% of its employees. BlockFi will soon seek court approval of an employee bonus package intended to keep remaining staff from fleeing during its bankruptcy and to compensate employees who had previously received company equity as part of their pay, Sussberg said.

FTX’s buyout price meant that Prince’s equity stake lost $412.82 million in value, and caused him to miss out on a planned $600,000 bonus payment, Sussberg said. Prince and other executives will not be included in BlockFi’s upcoming employee retention plan.

New Jersey-based BlockFi filed for bankruptcy protection on Nov. 28, a direct casualty of FTX’s collapse weeks earlier. FTX founder Sam Bankman-Fried has since been arrested on fraud charges and he has pleaded not guilty.

BlockFi and FTX have been embroiled in a dispute over $465 million shares of online broker Robinhood Markets Inc that BlockFi claimed as collateral on an unpaid debt owed to it by FTX affiliate Alameda Research. That dispute further complicated when the U.S. Department of Justice seized the shares, and a BlockFi attorney said Monday that DOJ was in the process of seizing assets held by two or three BlockFi customers based in Washington state.

(Reporting by Dietrich Knauth in New York, Editing by Alexia Garamfalvi and David Gregorio)

By Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried may find it hard to argue the fraud charges against him should be tossed because of uncertainty as to how U.S. law treats cryptocurrency, as other high-profile defendants in criminal cases involving digital assets have done. 

    That is because Manhattan federal prosecutors’ charges against the founder of now-bankrupt crypto exchange FTX have largely sidestepped an ongoing debate as to whether cryptocurrencies should be regulated as securities or commodities, legal experts told Reuters.

Bankman-Fried, 30, was indicted on two counts of wire fraud and six conspiracy counts last month in Manhattan federal court for allegedly stealing FTX customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity investors about FTX’s financial condition. He has pleaded not guilty.

“It’s a pretty simple deception,” said Shane Stansbury, a professor at Duke University School of Law and former Manhattan federal prosecutor. “You really don’t need to get into the weeds of how we view cryptocurrencies.”

The question of whether cryptocurrencies are considered securities, like stocks or bonds, or commodities – a category that in the United States encapsulates foreign currency trading as well as raw materials such as crude oil – remains largely unresolved.

But the uncertainty is irrelevant to most of the charges leveled against Bankman-Fried, according to experts. While he faces one count of conspiracy to commit securities fraud, that charge alleges he misled FTX’s equity investors, and does not touch on the nature of the assets traded on the exchange.

He also faces two wire fraud charges and two related conspiracy counts for allegedly providing false information to Alameda lenders about the hedge fund’s financial health and for the alleged theft of customer assets.

“There’s no need to establish that what the customers ultimately bought with fiat currency was a security or commodity or whatever,” said Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia. “Customers put money into the platform and the money was supposed to be used in a certain way. And according to the allegations in the indictment, it wasn’t.”

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

Bankman-Fried’s defense lawyers did not respond to a request for comment. The onetime-billionaire has previously acknowledged shortcomings in FTX’s risk management practices, but has said he does not believe he is criminally liable.

DEBATE COULD DECIDE REGULATION

Gary Gensler, the U.S. Securities and Exchange Commission (SEC) chairman, has said bitcoin is a commodity but that other digital assets behave more like securities – defined broadly as contracts in which investors profit from others’ efforts – because their value derives from promotion.

The debate matters to cryptocurrency companies because it could determine which agency regulates the trading of digital assets. The U.S. Commodity Futures Trading Commission (CFTC) is seen by many crypto players as potentially friendlier than the better-funded SEC.

San Francisco-based blockchain payments company Ripple is contesting a 2020 SEC lawsuit accusing it of conducting an unregistered securities offering by arguing its XRP token is not a security and thus not subject to SEC oversight. The case is ongoing.

Damian Williams, the top federal prosecutor in Manhattan who took office in 2021, has made enforcement of cryptocurrency-related financial crimes a centerpiece of his tenure.

Last year, in the first-ever insider trading cases involving digital assets, his office brought wire fraud charges against Nathaniel Chastain, a former employee of non-fungible token (NFT) marketplace OpenSea, and Ishan Wahi, a former manager at cryptocurrency exchange Coinbase Global Inc.

Both have pleaded not guilty and argued the charges should be dismissed because insider trading charges must involve securities or commodities. In bringing wire fraud charges in both cases, prosecutors avoided taking a position on how cryptocurrencies or NFTs should be classified.

A judge in October denied Chastain’s lawyers’ motion to dismiss the charges.

It is unlikely Bankman-Fried’s lawyers will attempt a similar argument because the wire fraud charges are more straightforward, Kasten said.

He said the Massachusetts Institute of Technology (MIT) graduate’s defense would likely focus on the arguments that he had no intent to commit fraud, that other executives at FTX and Alameda bore the blame, and that he was not involved in the day-to-day operations of the companies.

But prosecutors could also prove wire fraud charges by establishing that a defendant willfully blinded himself to the consequences of his actions, said Victor Hou, a partner at Cleary Gottlieb and former Manhattan federal prosecutor.

“Wire fraud is a powerful and frequently used weapon in the prosecutor’s arsenal because it captures an exceptionally broad range of illegal conduct,” Hou said.

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

(Reuters) – A U.S. Trustee filed an objection on Saturday to plans by bankrupt crypto exchange FTX to sell its digital currency futures and clearinghouse LedgerX, as well as units in Japan and Europe, according to a court filing.

FTX filed for bankruptcy protection in November and said last month it planned to sell its LedgerX, Embed, FTX Japan and FTX Europe businesses. On Tuesday, FTX founder Sam Bankman-Fried pleaded not guilty to criminal charges that he cheated investors and caused billions of dollars in losses, in what prosecutors have called an “epic” fraud.

The filing by U.S. Trustee Andrew Vara called for an independent investigation before the sale of the units, arguing that the companies may have information related to FTX’s bankruptcy.

“The sale of potentially valuable causes of action against the Debtors’ directors, officers and employees, or any other person or entity, should not be permitted until there has been a full and independent investigation into all persons and entities that may have been involved in any malfeasance, negligence or other actionable conduct,” the filing said.

FTX said in a court filing last month that the companies it planned to sell are relatively independent from the broader FTX group, and that each has its own segregated customer accounts and separate management teams.

(Reporting by Anirudh Saligrama in Bengaluru; Editing by Matthew Lewis)

(Reuters) – FTX and its affiliated debtors said the cryptocurrency exchange’s U.S. bankruptcy estate and the liquidators of its affiliated operations in the Bahamas reached an agreement to coordinate their operations.

The two sides will work to share information, secure property and coordinate litigation against third parties, according to a mutual statement.

Legal teams for the U.S. and Bahamian operations had been locked in a dispute over access to internal records and value of holdings of their operations.

FTX collapsed into bankruptcy in November and its founder Sam Bankman-Fried has been charged with fraud by U.S. prosecutors. He has pleaded not guilty.

(Reporting by Akash Sriram in Bengaluru; Editing by Chizu Nomiyama)

By Luc Cohen

NEW YORK (Reuters) – The U.S. government plans to launch a website for victims of FTX cryptocurrency exchange founder Sam Bankman-Fried’s alleged fraud to communicate with law enforcement.

In court papers filed on Friday, federal prosecutors in Manhattan asked U.S. District Judge Lewis Kaplan for permission to use the website to notify victims, rather than contacting each individually.

FTX could owe money to more than 1 million people, making it “impracticable” to contact each, the papers said.

Federal law requires prosecutors to contact possible crime victims to inform them of their rights, including the rights to obtain restitution, be heard in court and be protected from defendants.

Kaplan has yet to rule on the request, but the website had gone live by Friday afternoon.

“If you believe that you may have been a victim of fraud by Samuel Bankman-Fried, A/K/A/ ‘SBF,’ please contact the victim/witness coordinator at the United States Attorney’s office,” the website read.

The U.S. Attorney’s office in Manhattan did not immediately respond to a request for comment.

Bankman-Fried, 30, has pleaded not guilty to eight counts of wire fraud and conspiracy over November’s collapse of FTX.

Prosecutors have said he stole billions in FTX customer deposits to pay debts for his hedge fund, Alameda Research, and lied to investors about FTX’s financial condition.

The onetime billionaire has acknowledged risk management shortcomings, but said he did not consider himself criminally liable.

Bankman-Fried’s lawyers did not immediately respond to a request for comment on Friday.

(Reporting by Luc Cohen in New York Editing by Leslie Adler)

By Chris Prentice

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission (SEC) is seeking details about FTX investors’ due diligence, according to two sources familiar with the inquiry, as fallout from the crypto firm’s collapse spreads.

The SEC has so far brought charges against three of FTX’s top executives, accusing them defrauding investors in the crypto trading platform that has since filed for bankruptcy.

The SEC is now asking financial firms what diligence policies and procedures they have in place, if any, and whether they followed them when choosing to invest in FTX, the sources said.

The sources declined to be identified as the inquiries are not public.

Reuters was not able to determine how many firms were fielding such queries from the regulator. The SEC has alleged the Bahamas-based crypto exchange raised more than $1.8 billion from equity investors, including 90 U.S.-based investors, since May 2019.

The SEC inquiries do not indicate wrongdoing and Reuters could not ascertain if the firms are targets of the probe. But the sources said the SEC inquiries may mean the venture capital firms and investment funds that invested in FTX could face regulatory scrutiny even if they are considered victims of Bankman-Fried’s alleged scheme. At issue would be whether the firms met their fiduciary duties to their own investors, they said.

Reuters and others previously reported that U.S. authorities sent document requests to investors and potential investors in FTX, seeking details on their communications with FTX officials.

Those inquiries predated last month’s SEC charges against FTX founder Sam Bankman-Fried for allegedly defrauding such investors. The SEC’s inquiries to investors have continued after SEC filed those charges, and the agency has now shifted its focus to the firms’ diligence, the sources said.

A spokesperson for the SEC declined to comment.

FTX, once deemed a white knight for the crypto industry, crumbled in less than a fortnight due to a liquidity crunch. FTX filed for bankruptcy in November amid what its new CEO later described as a “complete failure of corporate controls”.

The SEC as well as the Justice Department and Commodity Futures Trading Commission have filed fraud charges against FTX founder and former CEO Sam Bankman-Fried. On Tuesday, he pleaded not guilty to criminal charges including wire fraud and money laundering on Tuesday.

Two former top associates, former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang, have both pleaded guilty.

(Reporting by Chris Prentice and Krystal Hu; editing by Megan Davies and Anna Driver)

By Hannah Lang

(Reuters) – The crypto industry’s woes continued on Thursday as plunging deposits, layoffs and a lawsuit added to the tumult of 2022, which was dominated by sinking prices and high-profile bankruptcies.

The fallout from the collapse of crypto exchange FTX and criminal charges leveled against its founder Sam Bankman-Fried weighed heavily on the sector this week. Among those hit were Genesis Global Capital, which laid off staff, and crypto-focused Silvergate Bank, which reported a large fall in deposits.

Bankman-Fried on Tuesday pleaded not guilty to eight criminal counts including wire fraud and money laundering conspiracy. The 30-year-old is accused of looting FTX customers’ deposits to support his Alameda Research hedge fund, buy real estate and donate millions of dollars to political causes.

Another crypto entrepreneur, Alex Mashinsky, the founder and former CEO of Celsius Network, also encountered a legal battle on Thursday. A new lawsuit filed by New York’s attorney general alleges Mashinsky defrauded investors by concealing the failing health of his now-bankrupt cryptocurrency lending platform.

While Mashinsky was CEO between 2021 and 2022, Celsius made roughly a billion dollars in loans to Alameda Research, according to the lawsuit.

The civil lawsuit seeks to ban Mashinsky from doing business in New York and have him pay damages for violating state laws.

“It serves as a shot across the bow to other founders of entities like this,” said Todd Phillips, founder of Phillips Policy Consulting LLC.

Meanwhile, Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday as investors spooked by the FTX collapse pulled out more than $8 billion, sending shares of the bank down more than 43%.

A U.S. attorney told a bankruptcy court on Wednesday that prosecutors had seized U.S. bank accounts at Silvergate and Farmington State Bank affiliated with FTX’s Bahamas-based business, known as FTX Digital Markets.

The accounts at Silvergate Bank and Farmington State Bank, which does business as Moonstone Bank, held about $143 million, court records showed.

Silvergate also said it would cut its workforce by 40%, or about 200 employees, to rein in costs as the industry downturn deepened. Genesis also plans to slash 30% of its workforce in a second round of layoffs in less than six months, according to a person familiar with the matter.

Genesis, which brokers digital assets for financial institutions like hedge funds and asset managers, announced in November its crypto lending arm would stop making new loans and blocked customers from withdrawing funds, citing market turmoil caused by the failure of FTX.

The layoffs were first reported by the Wall Street Journal, which also said Genesis is considering filing for Chapter 11 bankruptcy. The firm is working with investment bank Moelis & Co to evaluate its options, the report said, citing people familiar with the matter.

Crypto exchange Gemini, which had a crypto lending product in partnership with Genesis, and other Genesis creditors have been agitating for a solution to avoid a situation similar to FTX’s rapid descent into bankruptcy.

Cameron Winklevoss, who founded Gemini with his twin brother, on Monday accused Barry Silbert, the CEO of Genesis’ parent company Digital Currency Group, of “bad faith stall tactics” and asked him to commit to resolving $900 million worth of disputed customer assets by Jan. 8.

(Reporting by Hannah Lang in Washington; Additional reporting by Jonathan Stempel in New York and Manya Saini, Niket Nishant and Anirban Chakroborti in Bengaluru; Editing by Lananh Nguyen and Matthew Lewis)

(Reuters) – U.S. authorities are investigating the chief engineer of bankrupt crypto exchange FTX, Nishad Singh, ratcheting up pressure on founder Sam Bankman-Fried’s inner circle, Bloomberg News reported on Thursday, citing people familiar with the matter.

Singh could be charged as soon as this month if federal prosecutors in Manhattan find he played a role in the alleged multiyear scheme at FTX and trading firm Alameda Research to defraud investors and clients, the report added.

Authorities have not accused Singh of wrongdoing. It was not clear if Singh was cooperating with U.S. officials, the report said.

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

The Securities and Exchange Commission and the Commodity Futures Trading Commission are also probing Singh, the report said, citing a source.

A lawyer for Singh, Andrew D. Goldstein, did not immediately reply to a request for comment. The SEC and CFTC did not immediately respond to requests for comment. Lawyers for Bankman-Fried did not immediately respond to a request for comment.

In mid-2020, Singh had tweaked the cryptocurrency exchange’s software to exempt Alameda Research, a hedge fund owned by Bankman-Fried, from a feature on the trading platform that would have automatically sold off Alameda’s assets if it was losing too much borrowed money, Reuters reported last month.

(Reporting by Aishwarya Nair in Bengaluru; Editing by Matthew Lewis)

By John McCrank and Hannah Lang

(Reuters) – Alex Mashinsky, a co-founder of bankrupt crypto lender Celsius Network who prosecutors allege bilked investors out of billions, is a serial entrepreneur who has portrayed himself as a modern-day Robin Hood.

Mashinsky, 57, fraudulently promoted Celsius as a safe alternative to banks, while concealing that it was losing hundreds of millions of dollars in risky investments, according to a lawsuit filed on Thursday by New York Attorney General Letitia James.

The civil lawsuit seeks to ban Mashinsky from doing business in New York and have him pay damages, restitution and disgorgement.

James’ lawsuit is the latest black eye for the crypto sector, which has been rocked by accusations against FTX crypto exchange founder Sam Bankman-Fried. The former mogul, who has been accused of cheating investors and causing billions of dollars in losses, on Tuesday pleaded not guilty.

Mashinsky, a native of Ukraine whose family emigrated to Israel, decided to move to New York after he took a trip to the city in 1988, he told a Forbes podcast.

“I looked around and I’m like, I’m never going back,” he said.

Since then, he has founded eight companies, including Arbinet, which went public in 2004, and Transit Wireless, which provides Wi-Fi to the New York City subway.

Mashinsky claims to have created Voice over Internet Protocol (VoIP), a precursor to ride-sharing app Uber, as well as an idea for a cryptocurrency that preceded bitcoin.

Mashinsky became involved in crypto in 2017, when his venture fund Governing Dynamics brought on blockchain company MicroMoney as a strategic partner. He founded Celsius the same year.

In his teens, Mashinsky bought confiscated goods like hairdryers and VCRs from customs auctions at Israel’s Ben Gurion Airport and resold them for a profit, according to a 1999 article in the defunct tech publication Industry Standard.

Mashinsky had aspirations at the time to start a business for whole-body transplants: “Give an old person a new body – keep the head, keep the spine, and re-create the rest,” he said.

The executive served in the Israeli army from 1984-1987, where he trained as a pilot and served in the Golani infantry units, according to his personal website.

Mashinsky has raised over $1.5 billion for various ventures that generated more than $3 billion when he and other investors cashed out of them, according to his website, which also says he holds more than 50 patents.

“The greatest risk is not taking one,” the home page reads.

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.

Neither Mashinsky nor his lawyer immediately responded to requests for comment on Thursday.

Celsius pledged investors would obtain returns of up to 17%, among the highest in the industry. “We take it from the rich,” the lawsuit quoted Mashinsky as saying.

By early 2022, it had amassed $20 billion in digital assets from investors. But the company struggled to generate enough revenue to pay the promised yields and moved into much riskier investments, according to the claim.

The company extended hundreds of millions of dollars in uncollateralized loans, and invested hundreds of millions more in unregulated decentralized finance platforms, the lawsuit said.

Mashinsky, who wore t-shirts with slogans such as “banks are not your friends,” continued to falsely represent to investors that Celsius was generating high yield through low-risk investments, according to the legal filing.

In an “Ask Mashinsky Anything” YouTube video on June 10, the entrepreneur said “Celsius has billions in liquidity.” Two days later, it paused investor withdrawals “in order to stabilize liquidity and operations.”

Celsius filed for Chapter 11 protection from creditors last July 13, listing a $1.19 billion deficit on its balance sheet.

(Reporting by John McCrank in New York and Hannah Lang in Washington; Editing by Lananh Nguyen and Matthew Lewis)

By Jonathan Stempel

NEW YORK (Reuters) – New York’s attorney general on Thursday sued Celsius Network founder Alex Mashinsky, claiming he defrauded investors out of billions of dollars in digital currency by concealing the failing health of his now-bankrupt cryptocurrency lending platform.

Mashinsky fraudulently promoted Celsius as a safe alternative to banks, while concealing that it was losing hundreds of millions of dollars in risky investments, according to a complaint filed by the attorney general, Letitia James.

The civil lawsuit filed in a New York state court in Manhattan seeks to ban Mashinsky from doing business in New York and have him pay damages, restitution and disgorgement.

It accuses him of violating the state’s Martin Act, which gives James broad power to pursue securities fraud cases, and other laws.

“Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” James said in a statement. “Making false and unsubstantiated promises and misleading investors is illegal.”

Mashinsky, his lawyer and lawyers for Celsius did not immediately respond to requests for comment.

Celsius, based in Hoboken, New Jersey, filed for Chapter 11 protection from creditors last July 13, listing a $1.19 billion deficit on its balance sheet.

The filing came one month after Celsius froze withdrawals and transfers for its 1.7 million customers, citing “extreme” market conditions.

Celsius ended November with $9 billion of liabilities, including more than $4.3 billion owed to customers, a court filing shows.

James said more than 26,000 New Yorkers were among the fraud victims. Many victims were ordinary investors, like a father of three who lost his $375,000 life savings, and a disabled veteran who lost the $36,000 he spent nearly a decade saving, she said.

IGNORE THE ‘FUD’

Cryptocurrency lenders gained popularity during the COVID-19 pandemic by promising high interest rates and easy loan access to depositors. They then lent out tokens to institutional investors, hoping to profit from the difference.

The business model proved often unsustainable in 2022 after a selloff in cryptocurrency markets, including the collapse of the terraUSD and luna tokens.

Born in Ukraine and later emigrating to Israel with his family, Mashinsky started multiple businesses before founding Celsius in 2017, becoming its chief executive and public face.

James said his promotional efforts through social media, interviews and cryptocurrency conferences helped the company amass $20 billion of digital assets by early last year.

But as it struggled to pay the promised yields on investor deposits, Celsius moved into riskier investments, while Mashinsky continued to assure that the platform was safe.

The lawsuit said that in the two weeks before the withdrawal freeze, Mashinsky was still dismissing criticism that Celsius was overextended, urging investors to “ignore the FUD,” short for “fear, uncertainty and doubt.”

James said Mashinsky’s fraud ran from 2018 to June 2022, when deposits were frozen.

In September, U.S. Bankruptcy Judge Martin Glenn appointed an examiner to investigate whether Celsius was mismanaged, after a federal trustee said an appointment could help “neutralize the inherent distrust” in the company among creditors and customers.

Mashinsky resigned as Celsius chief executive in September, saying at the time he was committed to helping return deposits to investors.

(Reporting by Jonathan Stempel in New York; Additional reporting by Luc Cohen and Dietrich Knauth; Editing by Noeleen Walder, Chizu Nomiyama, Bill Berkrot and David Gregorio)

(Reuters) – Cryptocurrency lender Genesis has cut 30% of its workforce in a second round of layoffs in less than six months, the Wall Street Journal reported on Thursday, citing people familiar with the matter.

The company did not immediately respond to Reuters request for comment.

The crypto firm’s lending arm, Genesis Global Capital, froze customer withdrawals on Nov. 16, citing “unprecedented market dislocation” following the collapse of major crypto exchange FTX.

Higher interest rates and worries of an economic downturn have roiled cryptocurrencies as investors fled risky assets, with recent bankruptcies in the space adding to the uncertainty.

(Reporting by Niket Nishant in Bengaluru; Editing by Shailesh Kuber)

By Dietrich Knauth

(Reuters) – A U.S. bankruptcy judge ruled on Wednesday that Celsius Network owns most of the cryptocurrency that customers deposited into its online platform, meaning most Celsius customers will be last in line for repayment in the crypto lender’s bankruptcy.

The ruling by U.S. Bankruptcy Judge Martin Glenn in New York affects approximately 600,000 accounts that held assets valued at $4.2 billion when Celsius filed for bankruptcy in July. The company does not have enough funds to fully repay those deposits, Glenn wrote.

The ruling means that most Celsius customers will be lower priority than customers who held non-interest bearing accounts and other secured creditors. It was unclear whether Celsius has significant secured debt.

The ruling also prevents in-fighting for higher priority among customers with interest-bearing accounts, avoiding a situation in which some of those customers are repaid 100% of their deposits while similarly-situated customers are able to recover “only a small percentage” of their deposits, according to Glenn. Celsius’ terms of service made clear that the crypto lender took ownership of customer deposits into its interest-bearing Earn accounts, according to Glenn. That means that Earn customers will be treated as unsecured creditors in Celsius’ bankruptcy, and they will be last in line for repayment after Celsius repays higher-priority debts.

Twelve U.S. states and the District of Columbia had objected to Celsius’ bid to claim the digital assets. They argued among other things that it was unclear if customers understood the terms of service and that Celsius was under investigation in several states for violating regulations, which could arguably prevent the company from relying on the terms of use.

The ruling does not mean that Earn customers will get “nothing” in the bankruptcy case, and it does not stop further challenges to Celsius’s ownership of the crypto deposits, Glenn wrote.

Celsius customers may be able to bring fraud or breach of contract claims against the crypto lender, and state regulators may be able to make the case that the accountholders’ contracts cannot be enforced because they violated state securities laws, according to the ruling.

“The Court does not take lightly the consequences of this decision on ordinary individuals, many of whom deposited significant savings into the Celsius platform,” Glenn wrote. “Creditors will have every opportunity to have a full hearing on the merits of these arguments during the claims resolution process.”

The ruling authorizes Celsius to sell approximately $18 million stablecoins that had been held in customers’ Earn accounts.

In December, Glenn ruled that a relatively small group of customers with different kinds of Celsius accounts were entitled to their deposits back during Celsius’s bankruptcy. That ruling was limited to customers who had non-interest-bearing custody accounts, whose funds were not commingled with other Celsius assets, and whose accounts were too small for Celsius to seek to claw them back to repay other customers.

The broader question of who owns crypto assets is a critical one in other crypto bankruptcies as well, including the cases of crypto lenders Voyager Digital and BlockFi.

(Reporting by Dietrich Knauth and Tom Hals in Wilmington, Delaware; Editing by Alexia Garamfalvi)

By David Shepardson

WASHINGTON (Reuters) – Michigan Senator Debbie Stabenow, the chair of the agriculture committee and a key lawmaker on electric vehicle and cryptocurrency policy, said on Thursday she will not seek re-election in 2024.

Stabenow, a Democrat, is in her fourth term in the U.S. Senate.

Stabenow’s seat could be crucial to control of the Senate in 2025. Democrats currently control the Senate by a narrow 51-49 majority but must defend 23 seats in the 2024 election – including seats of three independents who caucus with Democrats – while Republicans have 10 seats to defend.

Stabenow wrote legislation in 2007 to create a U.S. government auto loan program that helped fund low-emissions vehicle production for Ford Motor, Tesla and Nissan and was a key advocate of the government rescue of General Motors and Chrysler in 2008.

Stabenow, a senior member of the Senate Finance Committee, has been an advocate of expanding electric vehicle tax credits and had backed President Joe Biden’s unsuccessful effort to boost credits for union-made EVs.

Stabenow will help lead negotiations in the coming months over a massive farm spending bill passed every five years that funds U.S. public food benefits and farm commodity programs.

The current $428 billion farm bill expires on Sept. 30.

“The climate crisis is real. Millions of Americans, including millions of children, are food insecure,” she told Reuters in November.

About 75% of farm bill funds go toward anti-hunger programs including the Supplemental Nutrition Assistance Program (SNAP), also called food stamps. USDA data shows about 41 million people have received SNAP benefits in 2022.

In November, Stabenow said Congress needs to pass legislation in the wake of the collapse of cryptocurrency exchange FTX saying lawmakers need to adopt “necessary safeguards to the digital commodities market.”

(This story has been refiled to fix a typo in the year from 2205 to 2025, in paragraph 3)

(Reporting by David Shepardson; Editing by Marguerita Choy)

(Reuters) – Silvergate Capital Corp’s crypto-related deposits plummeted in the fourth quarter, according to a preliminary earnings report on Thursday, as souring crypto sentiment following the collapse of FTX exchange led to a surge in withdrawals.

Silvergate’s total deposits from digital asset customers declined to $3.8 billion at the end of Dec. 31, 2022, compared with $11.9 billion at Sept. 30, 2022.

(Reporting by Manya Saini in Bengaluru; Editing by Subhranshu Sahu)

By Angus Berwick

(Reuters) – FTX’s former top lawyer Daniel Friedberg has cooperated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s cooperation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his cooperation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

MEETING WITH PROSECUTORS

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an email reviewed by Reuters: “I want to cooperate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an email exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

“THROUGH THICK AND THIN”

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal advisor “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.

(Additional reporting by Hannah Lang; editing by Megan Davies and Anna Driver)