- SEC v. Crypto –
1.1. SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency/ SEC
On June 6, 2023 the Securities and Exchange Commission (“SEC”) charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.
According to the SEC’s complaint, since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law. Through these unregistered services, Coinbase allegedly:
Provides a marketplace and brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact;
Engages in the business of effecting securities transactions for the accounts of Coinbase customers; and
Provides facilities for comparison of data respecting the terms of settlement of crypto asset securities transactions, serves as an intermediary in settling transactions in crypto asset securities by Coinbase customers, and acts as a securities depository.
1.2. SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao / SEC
On June 5, 2023 The Securities and Exchange Commission (“SEC”) charged Binance Holdings Ltd. (“Binance”), which operates the largest crypto asset trading platform in the world, Binance.com; U.S.-based affiliate, BAM Trading Services Inc. (“BAM Trading”), which, together with Binance, operates the crypto asset trading platform, Binance.US; and their founder, Changpeng Zhao, with a variety of securities law violations.
Among other things, the SEC alleges that, while Zhao and Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform. Further, the SEC alleges that, while Zhao and Binance publicly claimed that Binance.US was created as a separate, independent trading platform for U.S. investors, Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes.
2. New York Fed and Monetary Authority of Singapore Publish Results of Joint Wholesale Cross-Border Payments Research Study / MAS
On May 18,2023 the Federal Reserve Bank of New York’s New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) published a research report detailing the results of the joint Project Cedar Phase II x Ubin+ (Cedar x Ubin+) experiment. The Cedar x Ubin+ experiment examined whether distributed ledger technology (DLT) could be used to improve the efficiency of cross-border wholesale payments and settlements involving multiple currencies.
The technical research experiment built on previous phases of the NYIC’s Project Cedar research and the MAS’ Ubin+ initiative. It examined a cross-border multi-currency use case in which vehicle currencies are used as a bridge to exchange currency pairs that are not widely traded. Specifically, Cedar x Ubin+ explored the ability of DLT to establish connectivity across heterogeneous simulated currency ledgers, reduce settlement risk, and decrease settlement time. The experiment was conducted in a test environment and the hypothetical payments were settled using simulated wholesale central bank digital currencies.
3. CFPB Orders Installment Lender OneMain to Pay $20 Million for Deceptive Sales Practices / CFBP
On May 31, 2023 the Consumer Financial Protection Bureau (“CFPB”) has ordered installment lender OneMain Financial to pay $20 million in redress and penalties for failing to refund interest charged to 25,000 customers who cancelled purchases within a purported “full refund period,” and for deceiving borrowers about needing to purchase add-on products to receive a loan. OneMain will pay $10 million in refunds to consumers it harmed, and an additional $10 million penalty to the CFPB’s victims relief fund.
OneMain is a nonbank personal loan installment lender headquartered in Evansville, Indiana and is a subsidiary of OneMain Holdings, Inc. (NYSE:OMF). OneMain is one of the largest non-depository personal installment lenders in the United States. It has a nationwide network with more than 1,400 branches across 44 states. The company offers loans and makes extra profits by upselling borrowers with products such as roadside assistance, unemployment coverage, and identity theft coverage.
4. FCA introduces tough new rules for marketing cryptoassets/FCA
On June 8, 2023 the Financial Conduct Authority (“FCA”) published a new rules for marketing cryptoassets as part of a package of measures designed to ensure those who buy crypto understand the risk, ‘refer a friend’ bonuses will also be banned.
The new rules mean crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto. Those promoting crypto must also put in place clear risk warnings and ensure adverts are clear, fair and not misleading.
The FCA’s rules follow government legislation to bring crypto promotions into the regulator’s remit.
This update is provided as general information only and may not be relied upon in any individual case without additional legal advice.
