Fintech and Crypto Firms Announce New Cryptocurrency Products
By Robert A. Musiala Jr.
According to recent reports, a major U.S. fintech firm will begin letting its users accept payments in USDC. The fintech firm’s head of crypto reportedly said, “We’re excited about empowering … users to accept stablecoin payments, helping them expand their global reach and give their customers access to easy, fast, and trustworthy transactions even if they don’t have a bank account or credit card.” In a separate press release, smart contracts platform Avalanche announced an integration with the same fintech company that will allow retail users to “purchase AVAX directly through the fintech firm, “removing the need to go through an exchange.”
Another major U.S. fintech firm recently announced that it has completed development of a new custom bitcoin mining chip. According to a press release, the fintech firm’s mining chip “will utilize the most advanced semiconductor process currently available and will deliver the performance required for mining operators of all types to survive and thrive in the fifth mining epoch (the period following the recent 4th halving of the block subsidy) and beyond.”
In another recent development, a major U.S. cryptocurrency exchange announced that it is “rolling out support for the Lightning Network enabling instant, low-cost bitcoin transfers.” According to a blog post by the crypto exchange, “Users will have the option to choose between using Lightning for faster and cheaper bitcoin transactions, or processing their transaction on the traditional Bitcoin network.” The new offering is available through an integration with startup Lightspark.
In a final notable item, a major U.S. blockchain and fintech firm recently announced “a strategic partnership with HashKey DX, the Tokyo-based specialized consulting company of the HashKey Group, to introduce XRP Ledger (XRPL)-powered enterprise solutions to the Japanese market.” According to a blog post by the fintech firm, the initiative will introduce supply chain finance solutions “built on the XRPL, a decentralized layer 1 blockchain renowned for its decade-long reliability and stability in tokenizing and exchanging crypto-native and real-world assets.”
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Consensys Sues SEC amid Wells Notice Alleging Securities Violations
By Isabelle Corbett Sterling
In a press release, Consensys, a blockchain development company, announced that it is suing the U.S. Securities and Exchange Commission (SEC) in U.S. District Court for the Northern District of Texas “to ensure that Ethereum remains a vibrant and indispensable blockchain platform and the foundation for countless new web3 innovations, technologies, and products.” According to Consensys’ press release, allowing the SEC to expand its oversight could shut down the operation of Ethereum in the United States. The complaint asserts that the SEC does not have jurisdiction over ether or authority to regulate technological evolution of the Internet; moreover, it asserts that applications that allow people to transact in ether are not securities brokers. According to reports, in presenting the arguments in its complaint, Consensys cites former SEC Director William Hinman’s speech in which he stated that ETH is not a security and points out that the launch of ETH futures in 2021 was under the purview of the U.S. Commodity Futures Trading Commission.
According to Consensys’ court filing, on April 10 Consensys received a Wells Notice from the SEC, in which it asked for information about Consensys, its ETH holdings and treasury sales, contributions to the Ethereum Improvement Proposals (IEP), and open source developers. Reportedly, the SEC believes that Consensys is operating as an unregistered broker-dealer by making money on its MetaMask swaps and MetaMask staking products. According to reports, the SEC has been investigating Consensys for two years, sending a letter in April 2022 about investigating MetaMask and another in September 2022 about investigating staking protocols on the Ethereum network.
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Advocacy Organization, Wallet Providers Respond to Samourai Wallet Indictment
By Robert A. Musiala Jr.
A cryptocurrency advocacy organization recently published a blog post voicing concerns over certain positions taken by the U.S. Department of Justice (DOJ) in DOJ’s recently unsealed indictment of Samourai Wallet co-founders Keonne Rodriguez and William Lonergan Hill, and in DOJ’s opposition to Roman Storm’s motions to dismiss and suppress evidence in the Tornado Cash case. According to the blog post, DOJ has “put forward [an] unprecedented interpretation of money transmission law” in the two cases by “charging wallet developers criminally for unlicensed money transmission.” Among other things, the blog post presents the advocacy organization’s analysis of guidance issued by the U.S. Financial Crimes Enforcement Network (FinCEN) regarding non-custodial wallet developers and argues that under FinCEN guidance, the activities at issue in the Samourai Wallet indictment and Tornado Cash case should not be considered money transmission.
In a related development, zkSNACKs, the developer of Wasabi Wallet, a privacy-focused cryptocurrency wallet application, recently announced, “Effective immediately and until further notice, zkSNACKs is now blocking U.S. citizens and residents from visiting its websites, downloading and using Wasabi Wallet and any related products and services, including APIs and RPC interfaces.” The new restriction will reportedly be implemented by blocking U.S. IP addresses. Similarly, the developer of the Phoenix Wallet application has also announced that it will stop allowing U.S. users to access its wallet application. These actions were reportedly taken in response to the DOJ enforcement action against the Samourai Wallet co-founders.
In another related development, the FBI recently issued an alert that “warns Americans against using cryptocurrency money transmitting services that are not registered as Money Services Businesses (MSB) according to United States federal law.” According to the alert, “People who use unlicensed cryptocurrency money transmitting services may encounter financial disruptions during law enforcement actions, especially if their cryptocurrency is intermingled with funds obtained through illegal means.”
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DOJ Targets Crypto Tax Evasion, SEC Targets Securities Fraud by Crypto Miner
By Robert A. Musiala Jr.
A recent press release by the U.S. Department of Justice (DOJ) announced that “[a] federal grand jury has indicted an early bitcoin investor and promoter, who obtained the moniker ‘Bitcoin Jesus,’ on fraud and criminal tax charges.” According to the DOJ press release, “Roger Keith Ver, 45, a former California resident whose most recent residence was in Tokyo, Japan, was arrested … in Spain based on the U.S. criminal charges,” including “three counts of mail fraud, two counts of tax evasion, and three counts of subscription to a false tax return.” The DOJ press release notes that even though Ver renounced his U.S. citizenship, he was required under U.S. law to file tax returns that reported capital gains from the constructive sale of his worldwide assets, and that Ver “allegedly provided or caused to be provided false or misleading information to [a] law firm and appraiser that concealed the true number of bitcoins he and his companies owned.” According to the DOJ press release, “In total, Ver is alleged to have caused a loss to the IRS of at least $48 million.”
In another recent press release, the U.S. Securities and Exchange Commission (SEC) “announced … that it filed charges against Geosyn Mining, LLC, a Texas-based crypto asset mining and hosting company, and its co-founders, Caleb Ward and Jeremy McNutt, for engaging in an unregistered and fraudulent securities offering.” According to the press release, the defendants “raised approximately $5.6 million from more than 60 investors” and their company “told investors it would purchase, maintain, and operate crypto asset mining machines and then distribute mined crypto assets, such as bitcoin, to the investors for a fee.” In doing so, the SEC alleges, the defendants made various false statements and omissions, “misappropriated about $1.2 million for personal use and paid approximately $354,500 to investors as purported profit distributions even though Geosyn appears to have never operated profitably.”
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Senators Express Concerns over Use of Crypto to Evade Sanctions
By Robert A. Musiala Jr.
According to a recent press release from the office of Senator Elizabeth Warren, on April 29, “U.S. Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) sent a bipartisan letter to Secretary of Defense, Lloyd Austin, Secretary of Treasury, Janet Yellen, Under Secretary for Terrorism and Financial Intelligence, Brian Nelson, National Security Advisor, Jake Sullivan, and FinCEN Director, Andrea Gacki, to relay their concerns about Russia’s use of crypto to evade sanctions and build their war machine, and to push the administration for information on what authorities they need in order to neutralize this threat.” Among other things, the letter expresses “heightened concerns about rogue nations’—including Russia, Iran, and North Korea—reliance on cryptocurrency to evade sanctions” and states that “Tether has become the cryptocurrency of choice for sanctions evaders and other bad actors.”
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Research Published on Lazarus Group Hacks, Using AI to Combat Crypto Crime
By Keith R. Murphy
A recent article by a cryptocurrency investigator provides insight on how the Lazarus Group, a threat group tied to North Korea, purportedly laundered $200 million through 25 hacks during the period from 2020 to 2023. The investigator’s research traces the movement of funds from the hacks to multiple accounts in marketplaces where the Lazarus Group reportedly exchanged stolen crypto for fiat. The article includes descriptions of the hacks and related information, including amounts lost, theft addresses, and actions taken by the affected entities in response to the hacks.
Blockchain analytics company Elliptic recently issued a press release announcing a research paper detailing advances in the use of AI to detect money laundering in bitcoin. According to the press release, the research applies a machine learning model to identify “subgraphs,” or chains of transactions that represent bitcoin being laundered. This approach reportedly allowed the researchers to focus on the “multi-hop” laundering process on a more general basis, as opposed to the on-chain behavior of specific illicit actors. In addition to making the research paper publicly available, the press release notes that the researchers also made the underlying data publicly available to the wider community in an effort to enable the development of additional techniques for the detection of illicit cryptocurrency transactions.
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