Cryptocurrencies, tokens, NFTs, virtual "assets" frauds

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Statement on FTX - Temasek​

17 NOV 2022

Our Blockchain strategy
Innovative technologies, including blockchain technology, are enablers with the potential to transform sectors and create a more connected world. The nascency of the blockchain and digital asset industry presents innumerable opportunities as well as significant risks.
As such, we closely track the risks involved and have taken a calibrated two-pronged approach for exposure in this space – venture building and investing.

• Our venture building efforts have been focused on programmable money, digital assets tokenisation, and decentralised identity and data. Several of these entities are not blockchain-based at this stage but rely on the technology and focus on delivering open data solutions and open networks.
• Our blockchain investment activity focuses on:
  • Financial market service providers to the digital asset space providing protocol agnostic and market neutral exposure; and
  • Technology infrastructure including protocols, wallets, developer tools, cross-chain messaging, metaverse and gaming infrastructure

Background on our investment in FTX
We believe that exchanges form a key part of global financial systems.
The thesis for our investment in FTX was to invest in a leading digital asset exchange providing us with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk.
We invested US$210 million for a minority stake of ~1% in FTX International, and invested US$65 million for a minority stake of ~1.5% in FTX US, across two funding rounds from October 2021 to January 2022.1 The cost of our investment in FTX was 0.09% of our net portfolio value of S$403 billion as of 31 March 2022.
There have been misperceptions that our investment in FTX is an investment into cryptocurrencies. To clarify, we currently have no direct exposure in cryptocurrencies.

Our risk-return framework and due diligence processes
Our investment discipline, centred around intrinsic value and our risk-return framework, guides our due diligence for new investments and ongoing engagement with our investee companies. 
As an investor-owner seeking sustainable returns over the long term, we believe that we have to invest in new sectors and emerging, nascent business models to understand the applications and impact they may have on the business and financial models of our existing portfolio, or be drivers for future value in an ever-changing world. This is why we invest in early stage companies and accept the binary risks associated with such investments. Our early stage investments constitute ~6% of our portfolio, and as a group have generated good returns for us, with IRRs in the mid- teens. However, we do recognise the inherent risks of investing in early stage companies and take a very measured approach to such investments by applying an illiquidity risk premium on the cost of capital. In addition, we also add on a venture risk premium for the early stage they are in. Our blockchain direct investments are not a significant part of our early stage investments.
Similar to all investments, we conducted an extensive due diligence process on FTX, which took approximately 8 months from February to October 2021. During this time, we reviewed FTX’s audited financial statement, which showed it to be profitable. In addition, our due diligence efforts focused on the associated regulatory risk with crypto financial market service providers, particularly licensing and regulatory compliance (i.e. financial regulations, licensing, anti-money laundering (AML)/ Know Your Customer (KYC), sanctions) and cybersecurity. Advice from external legal and cybersecurity specialists in key jurisdictions was sought, with legal and regulatory review done for the investments.
Separately, we also gathered qualitative feedback on the company and management team based on interviews with people familiar with the company, including employees, industry participants, and other investors.
Post investment, we continued to engage management on business strategy and monitor performance.
We recognise that while our due diligence processes may mitigate certain risks, it is not practicable to eliminate all risks.
Reports have since surfaced that customer assets were mishandled and misused in FTX. If these statements are true, then this amounts to serious misconduct or fraud at FTX. All of this is currently being investigated by the regulators.
It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced.
We expect companies that we invest in to comply with their obligations under the laws and regulations of jurisdictions in which they have investments or operations; abide by sound corporate governance; and above all act ethically always. As we only had a ~1% stake in FTX, we did not have a board seat. However, we take corporate governance seriously, engage the boards and management of our investee companies regularly and hold them accountable for the activities of their companies.

Going forward
We are supportive of the efforts of the regulators and the courts, and we encourage the principals involved with FTX to cooperate for an orderly resolution of outstanding matters.
We continue to recognise the potential of blockchain applications and decentralised technologies to transform sectors and create a more connected world. But recent events have demonstrated what we have identified previously – the nascency of the blockchain and crypto industry and the innumerable opportunities as well as significant risks involved.
In view of FTX’s financial position, we have decided to write down our full investment in FTX, irrespective of the outcome of FTX’s bankruptcy protection filing.
There are inherent risks whenever we invest, divest, or hold our assets, and wherever we operate. While this write down of our investment in FTX will not have significant impact on our overall performance, we treat any investment losses seriously and there will be learnings for us from this.
We will continue to remain prudent and exercise caution even as we explore opportunities that are aligned with our structural trends, to deliver sustainable returns over the long term for our overall portfolio.

________________________

1 We participated in two funding rounds – Series B (concurrently across B and B-1 in October 2021) and Series C (January 2022).

 

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Crypto broker Genesis, which has S’pore unit, halts withdrawals in wake of FTX collapse​

Digital currency broker Genesis Trading said it made the move after consulting its financial advisors and counsel. PHOTO: REUTERS

Claire Huang
Business Correspondent

NOV 16, 2022

SINGAPORE - Digital currency broker Genesis Trading, which has a Singapore arm, has stopped withdrawals in its lending business, becoming the latest casualty of crypto exchange FTX’s implosion.
In a series of Twitter posts on Wednesday night, the company said: “FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity.”
The company, whose Singapore arm is Genesis Asia Pacific, said its first priority “is to serve our clients and preserve their assets”.
After consulting its financial advisers and counsel, Genesis Trading said it will take the “difficult decision to temporarily suspend redemptions and new loan originations in the lending business”.
The company said the default of bankrupt hedge fund Three Arrows Capital had negatively impacted the liquidity and duration profiles of its lending entity, Genesis Global Capital.
It tried to reduce risks and shore up its liquidity profile, as well as the quality of its collateral, but was hit by a crypto run after the fall of FTX.
Genesis Trading said its spot and derivatives trading and custody businesses remain fully operational, while its broker-dealer Genesis Global Trading that holds its BitLicense is “independently capitalised and operated” and separate from all other Genesis entities.

The Monetary Authority of Singapore (MAS) had in late June granted in-principle approvals to Genesis Asia Pacific, along with exchange Crypto.com and digital assets solutions company Sparrow.
Genesis Asia Pacific, incorporated in January 2020, has a staff count of up to 10, with an office in Robinson Road, based on information from the Singapore Fintech Association.
Mr Hayden Hughes, chief executive of trading platform Alpha Impact, told The Straits Times that Genesis’ Singapore arm handled lending on behalf of the parent company.

Singapore users, he said, would have faced the Singapore entity and he thinks “it’s still potentially a tricky situation for Singaporeans”.
“The Singapore entity is not technically bankrupt, but if there was commingling of funds then Singapore users could be affected by this,” Mr Hughes said.
The Winklevoss brothers’ platform, Gemini Trust Co, has suspended withdrawals from its Earn programme after partner Genesis Global Capital did the same. This is a scheme where investors may choose to lend crypto to certain institutional borrowers to earn interest.
In an email seen by ST, Gemini said it is not able to meet customer redemptions within the agreed five business days. It added that “this does not impact any other Gemini products and services”.
Gemini’s Singapore entity, Gemini Trust Company, is applying for a licence in Singapore. In the meantime, it is allowed to offer crypto services under an MAS exemption from holding a licence under the Payment Services Act.
Genesis’ parent company is Digital Currency Group (DCG), a venture capital firm that owns crypto asset manager Grayscale. Other portfolio firms listed on its website are exchange Coinbase, wallet Circle and media outfit CoinDesk.
The group said on Twitter on Wednesday that the withdrawal halt at Genesis “has no impact on the business operations of DCG and our other wholly owned subsidiaries”.
Last week, it said Genesis Trading’s derivatives business has about US$175 million in locked funds on FTX.

 

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FTX advisers find just a fraction of firm’s crypto as new CEO reveals fund misuse​

Advisers are working to rebuild balance sheets for FTX entities from the bottom up. PHOTO: NYTIMES

NOV 18, 2022

NEW YORK – Advisers overseeing the ruins of Mr Sam Bankman-Fried’s FTX Group laid bare a stunning list of allegations against the company’s former leadership on Thursday, slamming non-existent oversight and the misuse of client funds as they struggle to locate billions of dollars in missing assets.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information,” Mr John Ray III, the group’s newly appointed chief executive officer, who formerly oversaw the liquidation of Enron, said in a sworn declaration submitted in bankruptcy court.
“From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he added.
The documents depict a freewheeling crypto enterprise devoid of virtually every policy and practice that would be the norm for almost all other corporations. What is more, these will likely help fuel any criminal and regulatory action against Mr Bankman-Fried, with FTX already facing a probe by United States prosecutors.
Advisers have located “only a fraction” of the digital assets that they hope to recover during the Chapter 11 bankruptcy, Mr Ray said. They have so far secured about US$740 million (S$1 billion) of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks.
The company’s audited financial statements should not be trusted, Mr Ray said. Advisers are working to rebuild balance sheets for FTX entities from the bottom up, he added.
The slipshod record-keeping and lack of organisation will make it even more challenging for scores of FTX advisers working round the clock to recover the billions of dollars customers are owed.

Mr Ray pulled no punches in the declaration, calling Mr Bankman-Fried’s recent public statements “erratic and misleading”. In their attempts to round up FTX’s cash, advisers have told financial institutions to freeze withdrawals and reject any instructions from Mr Bankman-Fried.
FTX “did not maintain centralised control of its cash” and failed to keep an accurate list of bank accounts and account signatories, or pay sufficient attention to the credit-worthiness of banking partners, according to Mr Ray. Advisers do not yet know how much cash the company had when it filed for bankruptcy, but have found about US$560 million attributable to various FTX entities so far.
The company’s record-keeping was so lax, Mr Ray said, that advisers “have been unable to prepare a complete list of who worked for the FTX Group as of the petition date, or the terms of their employment”.
Among other alarming claims in the court filing: Software was allegedly used to conceal the misuse of customer funds; Alameda Research, Mr Bankman-Fried’s trading firm, was secretly exempt from some aspects of FTX.com’s trading policies; and a single, unsecured group e-mail was used to access private keys and sensitive data around the world.
Mr Ray also noted that lasting records of decision-making are hard to come by. Mr Bankman-Fried often communicated through applications that auto-deleted in short order and asked employees to do the same.


Corporate funds of FTX Group were used to buy homes and other personal items for employees, Mr Ray said. Some of the real estate was recorded in the personal names of employees and FTX advisers, he wrote, and the company’s disbursement controls were not appropriate for a business.
“For example, employees of the FTX Group submitted payment requests through an online ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalised emojis,” according to the statement.
A footnote in the documents indicates that Alameda Research, a subsidiary of the crypto trading house, had lent US$1 billion to Mr Bankman-Fried and more than US$500 million to FTX co-founder Nishad Singh as at Sept 30. The financial reports detailing the transactions were unaudited, produced while Mr Bankman-Fried controlled the business, and Mr Ray emphasised that he does not have confidence in their accuracy.
FTX is now fighting Mr Bankman-Fried about whether his empire should be under the jurisdiction of US courts, where more than 100 related companies are in bankruptcy, or in the Bahamas, his preferred location. FTX’s legal team has blamed the meltdown in part on poor oversight by non-US regulators. BLOOMBERG

 

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FTX bankruptcy: What’s next for crypto customers​

Under its new management, FTX has located and secured US$740 million in cryptocurrency, which represents “only a fraction” of the digital assets. PHOTO: REUTERS


NOV 18, 2022

NEW YORK – Crypto exchange FTX filed for Chapter 11 bankruptcy protection in the United States on Nov 11, saying it could owe money to more than one million creditors. Here is what likely awaits in the case:

Where do things stand in FTX’s bankruptcy case?​

FTX had an unusually slow start to its bankruptcy, taking nearly a week to file “first-day” papers that describe its debts and how the company ended up in bankruptcy.
The reason for that delay became apparent when FTX’s new chief executive, Mr John Ray III, described the “unprecedented” chaos at the company in a court filing on Thursday.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said Mr Ray, a restructuring expert with decades of experience who oversaw the multi-year liquidation of energy firm Enron after its collapse in 2001.
He said his immediate priorities are locating and securing assets, investigating claims against insiders like former FTX CEO Sam Bankman-Fried, and cooperating with dozens of regulatory investigations in the United States and abroad.
The dire situation at FTX will make it difficult for the company to borrow new money, which can be used to reorganise the company or buy time for a sale, said University of Pennsylvania law professor David Skeel.

Has FTX been able to secure customer assets?​

Mr Bankman-Fried secretly used US$10 billion (S$13.7 billion) in customer funds to prop up his trading company Alameda Research, and at least US$1 billion of those deposits have vanished, sources have told Reuters.

Under its new management, FTX has located and secured US$740 million in cryptocurrency, which represents “only a fraction” of the digital assets the company will seek to recoup for creditors.
Mr Bankman-Fried claimed in 2021 that customers held US$15 billion on FTX’s platform, but FTX has not verified that amount. FTX did not record customer deposits as balance sheet assets, and balance sheets prepared under Mr Bankman-Fried’s leadership cannot necessarily be trusted, Mr Ray said in the court filing.
FTX is attempting to recover additional assets, including US$372 million that was withdrawn without authorisation on the day of the company’s bankruptcy filing. FTX believes the company’s co-founders and other insiders may have further information about additional crypto wallets that are unknown to the company’s restructuring team, according to the Nov 17 filing.

Will customers get their money back?​

Unlike deposits at banks, customer accounts at crypto platforms like FTX are not protected by the Federal Deposit Insurance Corporation in the United States. The US government will not step in to cover customer deposits as they would in a traditional bank failure, so customers will have to rely on the bankruptcy process.
A Chapter 11 case halts attempts to recoup assets from a bankrupt company, so customers will have to wait for the bankruptcy court to determine how much, if anything, they will get back. One of the key questions for the court will be whether customers own the cryptocurrency they deposited or whether it is FTX’s property.
There is very little legal precedent for that question. In recent crypto bankruptcies, Celsius Network and Voyager Digital both claimed they owned all crypto held on their platforms. This means the crypto would be pooled with all the bankrupt company’s assets and divided to pay all creditors. In that scenario, customers would have what are known as unsecured claims, which would be relatively low in priority.
If customers are found to own the crypto, they stand a greater chance of recovering a larger portion of their deposits. But the recovery will still depend on how much FTX owes and what assets it has left.
Bankruptcy judges have so far accepted Celsius’ and Voyager’s arguments, although that could be subject to future court battles, said US bankruptcy attorney James Van Horn.

What about FTX customers who withdrew money from FTX?​

Customers who withdrew their assets from FTX before its collapse are not necessarily in the clear. The bankruptcy court might authorise FTX to claw back those withdrawals so that there can be a more equal payout for creditors who were unable to make withdrawals. In cases involving fraud, the clawback period can be extended for years.
“It is risky to feel like you dodged a bullet because sometimes, you didn’t,” Harvard law professor Jared Ellias said.

What other risks do FTX customers face?​

The bankruptcy might result in the publication of FTX customers’ names, e-mail addresses and transaction history.
Bankruptcy depends on transparency – at a minimum, the court needs to know who are owed money, how much they are owed and how to contact creditors. The courts’ preference for transparency are at odds with crypto customers’ expectations of anonymity. REUTERS

 

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FTX fiasco offers masterclass on everything that’s wrong with crypto markets​

FTX was vulnerable not only because it was leveraged, but also because its assets were not really assets.
PHOTO: REUTERS
UPDATED

NOV 18, 2022

NEW YORK – In one sense, investors and regulators should be grateful to Mr Sam Bankman-Fried, the erstwhile head of the FTX cryptocurrency exchange. The spectacular flameout of his virtual empire has evolved from a cautionary tale into a masterclass on everything that is wrong with crypto markets.
As customers and creditors sort through what remains of the failed exchange’s holdings, and as the repercussions spread throughout the crypto realm, here are four lessons that stand out:

Beware of assets denominated in crypto​

FTX was vulnerable not only because it was leveraged, but also because its assets were not really assets. Judging from the balance sheet that the company reportedly sent to potential rescuers, they consisted largely of notional digital tokens.
Unlike stocks, bonds or commodities, they had no associated cash flows or practical uses. At best, they represented fee income from trading other similarly made-up tokens.
The same applies to just about all digital tokens, the primary “assets” of the exchanges and other intermediaries through which most people interact with crypto. They are pure speculative instruments.
Something like them might someday prove useful as representations of traditional assets, or as assets in virtual worlds, but that is a distant prospect.
As things stand, they are fundamentally worthless.

Market capitalisation is not value​

If a company has 100 beads and sells one for US$1 million (S$1.37 million) – maybe to itself, maybe to someone to whom it lent the money, maybe to a true bead believer – it can say the beads have a market capitalisation of US$100 million. This is roughly how Mr Bankman-Fried came up with an estimate of more than US$10 billion for FTX’s holdings of digital tokens, including FTT, Serum and Solana.
It also helps explain how the entire crypto market, at one point, achieved a supposed capitalisation of about US$3 trillion.
Clearly, those beads are not worth US$100 million. Attempting to sell them all might yield nothing. Anyone who accepted them as collateral might end up with nothing too.

Accounting matters​

Cryptocurrencies on public blockchains are highly transparent: Everyone can see what belongs to whom at any time.
Not so crypto intermediaries. They do not publish financial statements audited to generally accepted standards, with the exception of Coinbase, a public company.
Before FTX’s demise, investors and customers had little idea of what was going on beyond some not-so-reassuring tweets from Mr Bankman-Fried, such as “assets are fine”.
MORE ON THIS TOPIC
FTX bankruptcy: What’s next for crypto customers
Rise and fall of crypto exchange FTX: A timeline
Now, they are puzzling over a balance sheet with entries such as “hidden, poorly internally labelled ‘fiat@’ account” and “TRUMPLOSE”.
Some intermediaries have promised better disclosures in the wake of the FTX fiasco. But given the lack of standardised rules, there is little to ensure their accuracy.
What is really backing the stablecoin Tether remains uncertain, despite the issuer’s regular reports.
Customers have no reliable way of knowing how leveraged big exchanges such as Binance might be, executives’ assurances notwithstanding.

Consumer protections are essential​

Billions of dollars in FTX customers’ funds have effectively gone missing, lost to a tangle of entities and at least one apparent hack.
This was possible in part because FTX – with the exception of its US derivatives-trading subsidiary – operated in a regulatory vacuum, with none of the requirements governing capital, liquidity, segregation of funds, cyber security or conflicts of interest that traditional intermediaries must meet.
The same is true of just about every intermediary in the crypto world.
Sometimes, the authorities take one-off actions, as the Commodity Futures Trading Commission and the Securities and Exchange Commission have done in relation to false reporting, “wash” transactions and insider trading at Coinbase. But there is no “cop on the beat” making rules and enforcing compliance.
Whatever the potential benefits of crypto, the surrounding speculative frenzy has little to do with them. On the contrary, it primarily serves to lure people in and separate them from their money, as FTX has now demonstrated. Proper regulation might help nudge crypto in a more useful direction, and is needed to ensure it does not present a threat to the broader financial system.
Meanwhile, the message for investors and traditional finance remains simple: Stay away. BLOOMBERG

 

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Commentary​

Is this the end game for crypto?​

Paul Krugman

After 14 years, cryptocurrencies have made almost no inroads into the traditional role of money. PHOTO: REUTERS


NOV 18, 2022

NEW YORK – Recent events have made clear the need to regulate crypto, an industry that grew from nothing to a US$3 trillion (S$4.1 trillion) market capitalisation a year ago, although most of that has now evaporated. But it also seems likely that the industry could not survive regulation.
The story so far: Crypto reached its peak of public prominence last year, when actor Matt Damon’s “Fortune favours the brave” commercial – sponsored by Singapore-based exchange Crypto.com – first aired. At the time, Bitcoin, the most famous cryptocurrency, was selling for more than US$60,000.
Bitcoin is now trading below US$17,000. So people who bought after watching the Damon ad have lost more than 70 per cent of their investment. In fact, since most people who bought Bitcoin did so when its price was high, most investors in the currency – about three-fourths of them, according to a new analysis by the Bank for International Settlements – have lost money so far.
Still, asset prices plunge all the time. People who bought stock in Meta, the company formerly known as Facebook, at its peak last year have lost about as much as investors in Bitcoin have.
So, falling prices need not mean that cryptocurrencies are doomed. Crypto boosters surely won’t give up. According to a report from The Washington Post, many of those who subscribed to Twitter Blue Verified, billionaire Elon Musk’s disastrous (and now paused) attempt to extract money from Twitter users, were accounts promoting right-wing politics, pornography – and cryptocurrency speculation.
More telling than prices has been the collapse of crypto institutions. Most recently, FTX, one of the biggest crypto exchanges, filed for bankruptcy – and it appears that the people running it simply made off with billions of depositors’ money, probably using the funds in a failed effort to prop up Alameda Research, its sister firm.
The question we should ask is why institutions such as FTX and Terra, the so-called stablecoin issuer that collapsed in May, were created in the first place.

After all, the 2008 White Paper that started the cryptocurrency movement, published under the pseudonym Satoshi Nakamoto, was titled Bitcoin: A Peer-To-Peer Electronic Cash System. That is, the whole idea was that electronic tokens whose validity was established with techniques borrowed from cryptography would make it possible for people to bypass financial institutions. If you wanted to transfer funds to someone else, you could simply send them a number – a key – with no need to trust Citigroup or Santander to record the transaction.
It has never been clear exactly why anyone other than criminals would want to do this. Although crypto advocates often talk about the 2008 financial crisis as a motivation for their work, that crisis never impaired the payments system – the ability of individuals to transfer funds via banks. Still, the idea of a monetary system that would not require trust in financial institutions was interesting, and arguably worth trying.
After 14 years, however, cryptocurrencies have made almost no inroads into the traditional role of money. They are too awkward to use for ordinary transactions. Their values are too unstable. In fact, relatively few investors can even be bothered to hold their crypto keys themselves – too much risk of losing them by, say, putting them on a hard drive that ends up in a landfill.
Instead, cryptocurrencies are largely bought through exchanges such as Coinbase and, yes, FTX, which take your money and hold crypto tokens in your name.
These exchanges are – wait for it – financial institutions, whose ability to attract investors depends on – wait for it again – those investors’ trust. In other words, the crypto ecosystem has basically evolved into exactly what it was supposed to replace: a system of financial intermediaries whose ability to operate depends on their perceived trustworthiness.

In which case, what is the point? Why should an industry that at best has simply reinvented conventional banking have any fundamental value?
Furthermore, trust in conventional financial institutions rests in part on validation by Uncle Sam: The government supervises banks, regulates the risks they can take and guarantees many deposits, while crypto operates largely without oversight. So investors must rely on the honesty and competence of entrepreneurs; when they offer exceptionally good deals, investors must believe in not just their competence but also their genius.
How has that been working out?
As boosters love to remind us, previous predictions of crypto’s imminent demise have proved wrong. Indeed, the fact that Bitcoin and its rivals are not really usable as money need not mean that they become worthless – you can, after all, say the same thing about gold.
But if the government finally moves in to regulate crypto firms, which would, among other things, prevent them from promising impossible-to-deliver returns, it is hard to see what advantage these firms would have over ordinary banks. Even if the value of Bitcoin does not go to zero (which it still might), there is a strong case that the crypto industry, which loomed so large just a few months ago, is headed for oblivion. NYTIMES

 

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How FTX bought its way to become the ‘most regulated’ crypto exchange​

Company documents show that FTX saw its regulatory status as a way of luring new capital from major investors. PHOTO: AFP


NOV 18, 2022

WASHINGTON – Before it collapsed this month, FTX stood apart from many rivals in the largely unsupervised crypto industry by boasting it was the “most regulated” exchange on the planet and inviting closer scrutiny from the authorities.
Now, company documents seen by Reuters reveal the strategy and tactics behind founder Sam Bankman-Fried’s regulatory agenda, including the previously unreported terms of a deal announced earlier this year with IEX Group, the United States stock trading platform featured in American author Michael Lewis’ book, Flash Boys, about fast, computer-driven trading.
As part of that deal, Mr Bankman-Fried bought a 10 per cent stake in IEX, with an option to buy it out completely in the next 2½ years, according to a June 7 document. The partnership gave the 30-year-old executive the opportunity to lobby IEX’s regulator, the US Securities and Exchange Commission (SEC), on crypto regulation.
That deal and others referenced in the documents – which include business updates, meeting minutes and strategy papers – illuminate one of FTX’s broader goals: quickly crafting a congenial regulatory framework for itself by acquiring stakes in companies that already had licences from the authorities, taking a shortcut across the often drawn-out approval process.
FTX saw its regulatory status as a way of luring new capital from major investors, the documents show. In documents to support its bid for hundreds of millions of dollars in funds, it held out its licences as a key competitive advantage. The “regulatory moats”, it said, created barriers for rivals and would give it access to lucrative new markets and partnerships beyond the reach of unregulated entities.
“FTX has the cleanest brand in crypto,” the exchange proclaimed in a June document presented to investors.
FTX spent some US$2 billion (S$2.75 billion) on “acquisitions for regulatory purposes”, the FTX documents seen by Reuters from a Sept 19 meeting show. Last year, for example, it bought LedgerX, a futures exchange, which gave it three Commodity Futures Trading Commission (CFTC) licences in one swoop. The licences gave FTX access to US commodities derivatives markets as a regulated exchange. Derivatives are securities that derive their value from another asset.

Mr Bankman-Fried did not respond to a request for comment on questions about FTX’s regulatory strategy. FTX did not respond to requests for comment.
An SEC spokesman declined to comment for this article. The CFTC also declined to comment.
In a text exchange this week with Vox, Mr Bankman-Fried made an about-face on regulatory matters. Asked if his prior praise of regulations was “just PR”, he said in a sequence of texts: “Yeah, just PR... f*** regulators... they make everything worse... they don’t protect customers at all.”

Patchwork of regulators​

FTX collapsed last week after a futile attempt by Mr Bankman-Fried to raise emergency funds. It had come under some regulatory oversight through the dozens of licences it picked up via its many acquisitions. But that did not protect its customers and investors, who now face losses totalling billions of dollars. As Reuters reported, FTX had been secretly taking risks with customer funds, using US$10 billion in deposits to prop up a trading firm owned by Mr Bankman-Fried.
Four lawyers said the fact that Mr Bankman-Fried was courting regulators while taking massive risks with customer funds without anyone noticing exposes a yawning regulatory gap in the cryptocurrency industry.
“It is a patchwork of global regulators – and even domestically, there are huge gaps,” said Mr Aitan Goelman, an attorney with Zuckerman Spaeder, and former prosecutor and CFTC enforcement director. “That is the fault of a regulatory system that has taken too long to adjust to the advent of crypto.”
A person familiar with the SEC’s thinking on crypto regulation said the agency believes crypto firms are illegally operating outside US securities laws and instead lean on other licences that provide minimal consumer protection. “Those representations, while nominally true, do not cover their activity,” the person said. REUTERS

 

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FTX saga shines light on ways to improve crypto ecosystem​

Claire Huang
Business Correspondent
1 of 2

FTX founder Sam Bankman-Fried, once considered a star in the cryptocurrency world, resigned as the firm's chief executive last week. The troubled cryptocurrency exchange said it was making "every effort to secure all assets" following unauthorised transactions potentially worth hundreds of millions of dollars. AFP
UPDATED

NOV 15, 2022

SINGAPORE - The implosion of cryptocurrency favourite FTX, while painful, has opened a window for improving the way Singapore handles the industry and its players. These improvements could help grow the blockchain and crypto ecosystem over the longer term.
The saga has shone the light on several issues. For instance, the regulator here is right to say that it is “not possible” to stop Singapore users from signing up with overseas cryptocurrency exchanges. One possible solution is to ring-fence local users’ assets and ensure these are backed by reserves, as suggested in the Monetary Authority of Singapore’s (MAS) consultation paper released in late October.
But more can be done. For one, MAS’ current position on non-licensed offshore exchanges with Singapore subsidiaries can be clearer.
The regulator on Monday made the point that Singapore retail users and their assets were not parked under FTX’s Singapore entity, Quoine, because the two “operate as separate entities”. This was in relation to questions raised in a commentary by The Sunday Times, that now-bankrupt exchange FTX.com was not licensed to run in Singapore. The article had asked why Singapore retail users and their assets were not parked under Quoine.
Japan, for example, had insisted on an arrangement along these lines. In the United States, American users can sign up for an account with FTX only via local entity FTX US and not the global FTX.com. Such arrangements provide some cover to local investors even when the firm faces a global meltdown.
On Tuesday, Quoine and its parent company, Liquid, halted all withdrawals due to FTX’s bankruptcy filing.
We already know crypto speculation is frowned upon in Singapore but the FTX debacle shows just how hard it is to stop people from taking risks to get higher returns. Getting investors to park their funds in a local entity, with sufficient collateral, may help in the case of firms such as FTX.com. If the firm does not have this set-up, can there not be a summary of the risks involved that can serve as a reminder to Singapore users wanting to sign up with a non-licensed offshore exchange?

Many Singapore users of FTX.com were caught in the shocking collapse and were upset that they previously had to move their funds from rival player Binance to FTX.com. This was after Binance had to stop onboarding customers from Singapore and was placed on the Investor Alert List (IAL) by MAS in September 2021.
MAS on Monday said Binance was not banned from operating here. The crypto exchange did not have the required licence to solicit customers from Singapore and had to cease doing so, it had said.
Greater clarity is perhaps needed. For example, just like FTX.com, does this mean that Binance.com can still accept Singapore users without overtly soliciting them? After all, both firms are non-licensed offshore exchanges that tried to apply for a Singapore licence.


As a market observer put it: “Does it mean Binance can freely remove its restrictions on users here and be able to put back its app in the Apple and Android stores?”
More importantly, MAS said it lists Binance.com on the IAL because Singapore investors here may wrongly perceive the exchange as being regulated by MAS. “It would not be meaningful for MAS to list all unlicensed entities on the IAL. MAS did not have cause to list FTX on the same basis as Binance,” it said.

To make it more meaningful, MAS can consider updating its IAL system for crypto players.
For the uninitiated, this MAS list is influential. It is a signal to the world – Singapore users, global crypto players who may want to flock here and other regulators – who to shun. Some may perceive a firm that is not named in the IAL as “safe” or “all right”. In crypto, it means every other exchange is “all right” other than Binance.com. But we now know that that is not the case.
The list, which can be found on the MAS website, is not meant to be exhaustive. Separately, there is a Financial Institutions Directory detailing the entities regulated by MAS which the public can use to ascertain the licensing status of specific service providers.
That said, the IAL remains a powerful resource for some, which is why care must be taken to keep it updated and data should be provided. Perhaps the MAS can provide a summary of the status of the firm and its affiliates’ licence application if any, the relevant dates and the risks involved. Basically, the list should flag possible risks and pitfalls to potential investors.
The FTX saga is important because it counts blue-chip investors, such as Temasek, Softbank and Sequoia Capital as backers, and was able to sign up Singapore users easily and freely.
So far, Softbank and Sequoia are writing off their investments in FTX, which filed for bankruptcy on Friday. FTX is reported to have liabilities in the billions. In such a scenario, one can also expect that Temasek will likely mark its FTX investment down to zero.
It would be good to hear from the group on the lessons learnt.

 

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Collapsed FTX owes nearly $4.3 billion to top 50 creditors: Court filing​

FTX filed for bankruptcy on Nov 11 in one of the highest-profile crypto blow-ups, leaving an estimated one million customers and other investors facing total losses in the billions of dollars. REUTERS
NOV 20, 2022

LONDON - Cryptocurrency exchange FTX, which has filed for bankruptcy court protection in the United States, said it owes its 50 biggest creditors nearly US$3.1 billion (S$4.3 billion).
The exchange owes about US$1.45 billion to its top ten creditors, it said in a court filing on Saturday, without naming them.
FTX and its affiliates filed for bankruptcy on Nov 11 in one of the highest-profile crypto blow-ups, leaving an estimated one million customers and other investors facing total losses in the billions of dollars.
The crypto exchange said on Saturday it has launched a strategic review of its global assets and is preparing for the sale or reorganisation of some businesses.
Meanwhile, moves by other cryptocurrency exchanges to reassure markets about their stability are having little effect on jittery users, who keep pulling funds from the venues.
Platforms from Binance to Crypto.com have made full or partial disclosures outlining their assets since FTX.com unravelled last week. Yet clients’ stampede for the exits has persisted, with exchange reserves of Bitcoin, Ether and stablecoins falling sharply, according to data from CryptoQuant.
The problem is that many so-called proof of reserves published so far have left out liabilities, have not been vetted by outside auditors and do not provide clarity on which, if any, of the assets that the exchanges hold have been pledged as collateral for loans. With the disarray in FTX’s finances now laid bare to the broader public, anything short of a complete accounting will likely fail to fully restore confidence, market watchers said.

“The issue is that proof of reserves are a snapshot in time of funds in certain wallets,” said Ms Maya Zehavi, a cryptocurrency angel investor. “People need to verify the exchange’s total liabilities and that no client tokens were pledged as collateral, as well as the health of those assets put up as collateral.”
A full-blown crisis of confidence in exchanges would have dire consequences for the crypto industry because the venues often operate as brokers, custodians and clearing houses – meaning the collapse of one platform can kick off a daisy chain of failures reaching into every corner of crypto.
Contagion from FTX is already spreading. Last Wednesday, crypto brokerage Genesis said it has been forced to suspend redemptions at its lending unit and Gemini Trust delayed redemptions in its Earn programme. BlockFi, which has close links to FTX US, is preparing to file for bankruptcy, Bloomberg News reported last week.

In FTX’s case, oversight and record-keeping of assets were so poor that new chief executive John Ray III compared it unfavourably to Enron, whose liquidation he oversaw. Advisers have located “only a fraction” of the digital assets that they hope to recover during the Chapter 11 bankruptcy, Mr Ray said.
The fact that FTX was able to keep such glaring deficiencies hidden for so long shows that accounts must be audited and assets valued by third parties, some crypto executives said.
Still, audits may only be part of the solution.
Some of the risks in crypto stem from the way the nascent market is structured, with exchanges carrying out functions that in traditional finance are distributed between multiple entities – the majority of which are regulated, and many of which are also publicly traded.
This concentration of functions in crypto could lead to conflicts of interest and lack of transparency regarding client assets, said Mr Jack McDonald, CEO of PolySign, which owns a crypto custodian and fund administrator.
Some regulators are prodding the industry in that direction. Singapore’s central bank has proposed that exchanges must properly segregate customers’ assets and disclose what would happen to them if the firm becomes insolvent. It has also proposed that firms mitigate any potential conflicts of interest arising from the multiple roles they perform.
“We might see centralised exchanges face some new requirements, such as the need to separate custody of client assets from the exchange itself,” said Mr Frederic Lardieg, a partner at Mubadala Capital Ventures, which co-led a US$70 million funding round in crypto payments company Ramp in November.
Many traders are not waiting to find out. Exchange reserves of Bitcoin and Ether are at their lowest levels since 2018, data from CryptoQuant shows.
Stablecoin reserves have slipped to the lowest since January, according to the data, which measures the number of tokens rather than the dollar value. REUTERS, BLOOMBERG

 

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MAS dispels misconceptions on crypto exchange Binance following FTX collapse​

While both Binance and FTX are unlicensed here, the clear distinction between the two is that Binance had actively courted users in Singapore. PHOTO: REUTERS

Claire Huang
Business Correspondent

Nov 21, 2022

SINGAPORE - As long as cryptocurrency exchange Binance is unlicensed in Singapore, it has to continue to not court users here, the regulator said on Monday, after the world’s largest exchange by trading volume rolled back some of its restrictions on local customers.
This comes after The Straits Times reported last Friday that some Singapore users can now access Binance.com when previously the buying and selling of crypto on the platform was blocked. ST understands that the Binance mobile app is now back in Singapore app stores and Singapore users can trade crypto via the app, a speculative activity that has garnered repeated warnings from authorities.
Previously, Binance took steps such as geo-blocking of Singapore IP addresses or the removal of its app from Singapore app stores to demonstrate that it had stopped soliciting and providing services to Singapore users.
The Monetary Authority of Singapore (MAS) said: “Should Binance decide now to dismantle some of these restrictions, it has to continue to comply with the prohibition against soliciting Singapore users without a licence.”
In a statement issued Monday, MAS also made clear its position in relation to Binance, the now-bankrupt exchange FTX and reiterated the danger of crypto speculation.
It noted that while both Binance and FTX are unlicensed here, the clear distinction between the two is that Binance had actively courted users in Singapore. It also offered trades in Singapore dollars.
“Binance in fact went to the extent of offering listings in Singapore dollars and accepted Singapore-specific payment modes such as PayNow and PayLah,” MAS said.

The regulator received several complaints about Binance between January and August 2021. This was in addition to announcements in multiple jurisdictions, including Italy, Japan, and the United Kingdom, of unlicensed solicitation of customers by Binance during the same period.
For soliciting Singapore users without a licence, MAS placed Binance on the Investor Alert List (IAL) in September last year. It also referred the case to the police’s Commercial Affairs Department, which started an investigation into Binance for possible contravention of the Payment Services Act.
On the other hand, there was no evidence that FTX was courting Singapore users specifically.

Trades on FTX also could not be transacted in Singapore dollars.
So there was no reason to place FTX on the IAL as there was no evidence that it had contravened the Payment Services Act, MAS said.
And as in the case of “thousands of other financial and crypto entities that operate overseas”, Singapore users were able to access FTX services online.
MAS added that there are hundreds of such exchanges, and thousands of other offshore entities that accept investments in non-crypto assets. “It is not possible to list all of them and no regulator in the world has done so,” it noted.
“The purpose of the IAL is to warn the public of entities that may be wrongly perceived as being MAS-regulated, especially those which solicit Singapore customers for financial business without the requisite MAS licence.
“It does not mean that the thousands of other entities operating offshore, which are not listed on the IAL, are safe to deal with,” MAS added.


The MAS publishes a Financial Institutions Directory on its website that is an exhaustive list of all MAS-regulated entities, besides the IAL.
The most important lesson from the FTX debacle, the regulator said, is that dealing in any cryptocurrency on any platform is hazardous.
“Crypto exchanges can and do fail. Even if a crypto exchange is licensed in Singapore, it would be currently only regulated to address money-laundering risks, not to protect investors,” said MAS.
It added that this approach is similar to that taken in most jurisdictions.


A key misconception is that it was possible to protect local users who dealt with FTX, such as by ringfencing their assets or ensuring that FTX backed its assets with reserves, MAS said, adding that it is unable to do this as FTX is not licensed by MAS and operates offshore.
In late October, MAS published a consultation paper proposing basic investor protection measures for crypto players who are licensed to operate in Singapore.
That said, even if a crypto exchange is well-managed, cryptocurrencies themselves are highly volatile, said the regulator.
“As MAS has repeatedly stated, there is no protection for customers who deal in cryptocurrencies. They can lose all their money.”

 

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What’s next in the FTX fallout?​

FTX owes its 50 biggest unsecured creditors a total of US$3.1 billion. PHOTO: REUTERS


NOV 21, 2022

NEW YORK – Mr Sam Bankman-Fried’s crypto empire, FTX, was an epic mess and the unwinding is likely to last longer than the empire itself.
Crypto companies, investors and government officials who heard policy pitches and pocketed political donations from the FTX founder, who is commonly known as SBF, are reeling.
The Ontario Teachers’ Pension Plan said last Thursday that it was writing down a US$95 million (S$131 million) investment in FTX. Coinbase, the only publicly listed crypto exchange in the United States, has seen stock and bond prices fall as the digital asset industry struggles. Crypto values, which fell dramatically over the summer, have dropped further.
FTX owes its 50 biggest unsecured creditors a total of US$3.1 billion, according to court papers filed on Saturday, and its new management has found just a fraction of the firm’s crypto assets.
At this stage, there are many more questions than there are answers about what the reverberations of FTX’s collapse will look like. Here are three of the biggest:

Who is next?​

Crypto companies are deeply intertwined – they invest in one another, buy one another’s tokens as well as lend tokens and capital to one another – which means the collapse of FTX could topple others.
Crypto lender BlockFi, which signed a deal to be rescued by FTX when crypto prices nosedived over the summer, paused withdrawals last week and is preparing for a possible bankruptcy. BlockFi said it had “significant exposure” to the failed exchange and FTX’s trading arm, Alameda Research.

Industry insiders expect more companies to follow suit.
Two restructuring advisers told DealBook that Oxygen, a decentralised finance lending and borrowing platform backed by Alameda, was on their watch lists. Oxygen’s token is OXY; its total market capitalisation, which was about US$395 million in January, has fallen to about US$2.6 million.
Genesis Global Capital, one of the largest lenders in the crypto space, suspended withdrawals and new loans last Wednesday. Genesis, which may have lost as much as US$175 million in the FTX collapse, is struggling to pay back creditors.

Genesis is connected to many other firms. Its parent, Digital Currency Group, owns publication CoinDesk and investment firm Grayscale, a substantial crypto holder, among other entities.

Is SBF going to prison?​

“That is the million-dollar question. Everything is on the table,” said Mr Joe Rotunda, director of the enforcement division of the Texas State Securities Board, which began investigating FTX before its collapse.
The complexity of the international FTX empire, messy record-keeping, unreliable statements and the anonymous nature of transactions on the blockchain complicate matters for investigators and prosecutors building cases. They need to do forensic audits and resolve jurisdictional issues.
“Bad investments don’t necessarily mean prison. The big one is fraud. That is the big hammer,” Mr Rotunda said. “Concealing or lying. Words and conduct. There is a duty to truthfully disclose.”

Mr Sam Bankman-Fried also faces civil litigation from big backers and venture capitalists. PHOTO: NYTIMES
Mr Bankman-Fried also faces civil litigation from small investors as well as big backers and venture capitalists, who began developing strategy with lawyers even before the bankruptcy – and expect to face claims themselves from their limited partners.
“The civil suits will come before the criminal suits,” said Mr Paul Foley, a securities law expert at the law firm Akerman. “Anyone who invested in FTX would have a lawsuit. But it is a lot more difficult to make a criminal case than a civil case.”

Will the FTX collapse prompt more regulation?​

Congressional committees and government agencies in the US had already been investigating FTX or are now calling for inquiries. Last Friday, the House Subcommittee on Economic and Consumer Policy sent a letter to FTX’s current and former chief executives requesting information on “the full scope of harm inflicted upon its investors”.
The House Financial Services Committee (FSC) and the Senate Banking Committee have announced hearings on the FTX debacle, and are also likely to address new rules and a pending Bill. Stablecoins – cryptocurrencies ostensibly pegged to the value of a dollar – are the subject of legislation languishing in the FSC. The Bill, which would ensure that stablecoin issuers were overseen more as banks are, could get a renewed push.
One complication is that, until recently, Mr Bankman-Fried did a lot of lobbying in Washington and was a champion of the legislation, testifying before the committee, wielding influence behind the scenes with congressional staff and publishing a related policy statement on Twitter.
“Anything he has been pushing policywise will be reassessed,” said Mr Lee Reiners, a financial technology expert at Duke University Law School, who was formerly at the Federal Reserve Bank of New York.

Another is that Mr Bankman-Fried was a major political donor, contributing around US$37 million to Democratic candidates in the last election cycle. His co-chief executive, Mr Ryan Salame, was a major Republican donor, giving more than US$20 million. In all, FTX executives contributed nearly US$72 million to both political parties, and the company was strategically bipartisan in its lobbying and government affairs hiring.
Politicians on both sides of the aisle are regifting the funds. Senator Kirsten Gillibrand (Democrat), who co-sponsored a crypto Bill that Mr Bankman-Fried supported, and Representative Kevin Hern (Republican) are among those who said they would donate the funds to charity.
Regardless of the politics, the collapse of FTX is likely to spur action, and some crypto companies that see regulation as key to legitimacy would welcome it. NYTIMES

 

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Crypto markets sag as funds drained from FTX switch out of Ether​

Blockchain specialist Chainalysis said that funds taken from FTX “are on the move”, likely as part of an effort to “cash out.” PHOTO: REUTERS


NOV 21, 2022

SINGAPORE – Cryptocurrency prices struggled on Monday in the ongoing crisis sparked by the downfall of Mr Sam Bankman-Fried’s once powerful FTX empire.
The largest token, Bitcoin, has shed about 4 per cent over two days, while second-ranked Ether was roughly 7 per cent lower. Meme token Dogecoin – an arbiter of the most speculative animus in an already racy digital playground – was down 11 per cent.
Administrators are picking over the wreckage of the FTX bankruptcy, discovering that US$3.1 billion (S$4.27 billion) is owed to top creditors.
The scope of the money outstanding is stoking worries that more digital-asset outfits will topple. Crypto lender BlockFi could be next – people with knowledge of the matter said last week that it is preparing to file for bankruptcy within days.
“The FTX issues are really an urgent reminder of the need for regulatory clarity and a real regulatory framework for crypto,” Dr Christian Catalini, founder of the MIT Cryptoeconomics Lab, said on Bloomberg TV.
He added that hype and speculation over the minting and trading of tokens “has generated a massive distraction from building actual products and services that reach consumers, (and) solve actual problems”.
Ether has underperformed Bitcoin over the past couple of sessions in part amid speculation that some of the US$663 million drained from FTX as it slid into bankruptcy is now being transferred out of the token.

The person or entity that raided FTX emerged last week as one of the world’s biggest holders of Ether, with a haul of about US$288 million.
Blockchain specialist Chainalysis said in tweets on Sunday that funds taken from FTX “are on the move”, and that some were being shifted from Ether to Bitcoin – likely as part of an effort to “cash out”.
The heady mix of corporate failure and potential criminality atop a 72 per cent drop in a gauge of the top 100 tokens over the past year is naturally leading to all kinds of questions about the future – or lack thereof – for digital assets and their underlying blockchain technology.
Pershing Square Capital Management founder Bill Ackman said on Twitter that crypto represents less than 2 per cent of his assets, while adding that he remains positive on the sector overall, comparing its potential social impact to the telephone and the Internet. BLOOMBERG

 

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US prosecutors opened probe of FTX months before its collapse​

The focus of the probe was on compliance with the Bank Secrecy Act. PHOTO: REUTERS


NOV 22, 2022

NEW YORK – Long before Mr Sam Bankman-Fried’s FTX cryptocurrency empire collapsed this month, it was already on the radar of US federal prosecutors.
The US Attorney’s Office for the Southern District of New York spent several months working on a sweeping examination of cryptocurrency platforms with United States and offshore arms, and had started poking into FTX’s massive exchange operations, according to people familiar with the investigation.
The focus was on compliance with the Bank Secrecy Act, the people said. The authorities have used the law, requiring financial institutions to take steps to prevent money laundering and terrorism financing, to go after crypto platforms that allegedly falsely claimed that they do not serve US customers.
Bahamas-based FTX operated one of the world’s largest international crypto exchanges, as well as a separate and much more limited venue called FTX US that said it complies with the Act.
It is unclear whether prosecutors in Manhattan reached any conclusion in their probe before FTX – valued at nearly US$32 billion (S$44.2 billion) in a January financing – collapsed, sending the crypto market into a dive and raising questions about the accuracy of its pledges to safeguard customer assets. This put the federal investigation into a new trajectory, the people said.
The months-long sweep shows that FTX’s sprawling operations were raising questions even before billions of dollars in financial ties between the exchange operator and Mr Bankman-Fried’s Alameda Research investment arm alarmed investors and led his empire to unravel.
Prosecutors and regulators, including the Securities and Exchange Commission and Commodity Futures Trading Commission, are now seeking help from new FTX chief executive John Ray III, who took over as part of its bankruptcy proceedings and is navigating what he described as “a complete absence of trustworthy financial information”.

Last week, Mr Ray told the bankruptcy court in a filing that his team had found loans of more than US$1 billion made by Alameda to Mr Bankman-Fried and other executives. The filing also alleged that software was used to conceal the use of customer funds. Whether any such conduct broke laws will be left to prosecutors. So far, they have not accused anyone of wrongdoing.
The loss of customer funds at FTX means that the authorities will examine whether the exchange misled clients about how their assets would be held, former prosecutors said. To prove wire fraud, investigators would have to show someone at FTX did so for gain using a wire, such as a phone call, e-mail or text.
The FTX bankruptcy case will aid prosecutors in figuring out what documents exist to subpoena. Investigators will also seek communications between employees, whether that is via e-mail, Slack, Signal or WhatsApp, as well as testimony from witnesses, said Mr Anand Sithian, a former federal prosecutor now at Crowell & Moring.
“What is going to be hard when you issue a subpoena to financial institutions is that it can take 30, 60, 90 days to process,” Mr Sithian said. “Here if you send a subpoena, I don’t know that the company, FTX, would have that ready. They might need to recreate that.” BLOOMBERG

 

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Crypto brokerage Genesis warns of bankruptcy without funding​

Genesis has spent the past several days seeking at least US$1 billion (S$1.4 billion) in fresh capital. PHOTO: BLOOMBERG

NOV 22, 2022

WASHINGTON – Digital asset brokerage Genesis is struggling to raise fresh cash for its lending unit, and it is warning potential investors that it may need to file for bankruptcy if its efforts fail, according to people with knowledge of the matter.
Genesis, which faces a liquidity crunch in the wake of crypto exchange FTX’s bankruptcy filing in November, has spent the past several days seeking at least US$1 billion (S$1.4 billion) in fresh capital, the people said. This included talks over a potential investment from crypto exchange Binance, they said, but funding so far has failed to materialise.
“We have no plans to file for bankruptcy imminently,” a representative for Genesis said in an e-mail statement. “Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.”
A representative for Binance declined to comment.
The rush for funding was precipitated by a liquidity crunch at the lender after the sudden collapse of FTX, one of the world’s largest crypto exchanges. Genesis’ lending arm froze withdrawals last week after a separate unit revealed that it had US$175 million locked in its FTX trading account.
Meanwhile, shares of Grayscale Bitcoin Trust (GBTC), which closed at a record 45 per cent below the value of its underlying coins last Friday, fell another 5 per cent on Monday. GBTC – the world’s biggest exchange-traded Bitcoin fund – has fallen to a greater degree than Bitcoin itself.
Shares are being offloaded in the secondary market as the industry deals with shockwaves from FTX’s bankruptcy. This sent the likes of Genesis into a tailspin, fuelling questions about the health of its parent company, Digital Currency Group (DCG), which also controls digital asset manager Grayscale Investments.

Fears of fallout among shell-shocked investors likely explain why GBTC is selling off to a greater degree than Bitcoin itself, according to Bloomberg Intelligence.
“There is a lot of concern and news reports and rumours about DCG, the parent of Grayscale,” said Bloomberg Intelligence analyst James Seyffart.
“I think people just want to get away from anything that could be coming down, even if it is only a remote possibility.”
GBTC’s share price has plunged 77 per cent in 2022, compared with Bitcoin’s 65 per cent fall. While GBTC has soared 1,000 per cent since the end of 2015, the world’s largest cryptocurrency has surged more than 3,600 per cent in that timeframe.
Bloomberg Intelligence estimates that GBTC holds more than 3 per cent of all mined Bitcoin, which is custodied with Coinbase Global. Last Friday, Grayscale shared a letter from Coinbase chief financial officer Alesia Haas saying that the trust’s coins are in cold storage and cannot be lent out. BLOOMBERG

 

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Bankman-Fried’s FTX, parents and senior execs bought luxury Bahamas properties worth $167m​

Among the purchases were three condominiums at One Cable Beach, a beachfront residence in New Providence, Bahamas, which cost between US$950,000 and US$2 million. PHOTO: REUTERS


NOV 22, 2022

NEW PROVIDENCE, Bahamas – Mr Sam Bankman-Fried’s FTX and his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly US$121 million (S$167 million) in the Bahamas over the past two years, official property records show.
Most of FTX’s purchases were luxury beachfront homes, including seven condominiums in an expensive resort community called the Albany, costing almost US$72 million.
The deeds show that these properties, bought by a unit of FTX, were to be used as “residence for key personnel” of the company. Reuters could not determine who lived in the apartments.
The documents for another home with beach access in a gated community called Old Fort Bay show Mr Bankman-Fried’s parents, Stanford University law professors Joseph Bankman and Barbara Fried, as signatories.
The property, said one of the documents, is for use as a “vacation home”.
When asked by Reuters why the couple decided to buy a holiday home in the Bahamas and how it was paid for – whether in cash, a mortgage or by a third party such as FTX – a spokesman for the professors said only that Mr Bankman and Ms Fried had been trying to return the property to FTX “since before the bankruptcy proceedings”.
While it is known that FTX and its employees bought real estate in the Bahamas, where it established its headquarters in September last year, the property records seen by Reuters show for the first time the scale of their buying spree and the intended use of some of the real estate.

FTX, which filed for bankruptcy earlier this month after a rush of customer withdrawals, did not respond to a request for comment. Mr Bankman-Fried did not respond to requests for comment.
Mr Bankman-Fried has told Reuters that he lived in a house with nine other colleagues. For his employees, he said FTX provided free meals and an “in-house Uber-like” service around the island.
The collapse of FTX, one of the world’s largest cryptocurrency exchanges, has left an estimated one million creditors facing losses totalling billions of dollars. Reuters has reported that Mr Bankman-Fried secretly used US$10 billion in customer funds to prop up his trading business, and that at least US$1 billion of those deposits had vanished.

In a United States court filing earlier this month, Mr John Ray III, FTX’s new chief executive, said he understood that corporate funds of FTX Group were used to “purchase homes and other personal items for employees and advisers”.
Reuters could not determine the source of funds that FTX and its executives used to buy these properties.

Property purchases​

Reuters searched property records at the Bahamas Registrar General’s Department for those linked to FTX, Mr Bankman-Fried, his parents and some of the company’s key executives.
FTX Property Holdings, an FTX unit, bought 15 properties worth nearly US$100 million in 2021 and 2022.
Its most expensive purchase was a US$30 million penthouse at the Albany, a resort where golf great Tiger Woods hosts a golf tournament every year. The property records for the penthouse, dated March 17, were signed by Mr Ryan Salame, president of FTX Property, and show that it was intended as “residence for key personnel”.

Seven condominiums in an expensive resort community called the Albany, costing almost US$72 million, were among the purchases. PHOTO: REUTERS
Mr Salame did not respond to a request for comment.
Other high-end real estate purchases include three condominiums at One Cable Beach, a beachfront residence in New Providence. Records show that the condos cost between US$950,000 and US$2 million and were bought by FTX’s former head of engineering Nishad Singh, FTX co-founder Gary Wang and Mr Bankman-Fried for residential use.
Mr Singh and Mr Wang did not respond to requests for comment.
Two of FTX Property’s real estate holdings were marked for commercial use – a US$8.55 million cluster of houses that served as FTX’s headquarters, and a 2ha plot of land on the coastline overlooking cyan waters that was also meant to be developed into office space for the crypto exchange.
The FTX headquarters is now unoccupied while the plot of land, which cost US$4.5 million, lies empty. REUTERS

 

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Singapore was second-biggest user of FTX pre-collapse, averaging 240,000 unique visitors a month​

The shuttering of FTX’s largest competitor, Binance, in Singapore in December 2021 saw Binance users here switching to FTX. PHOTO: AFP
Kelly Ng


NOV 22, 2022

SINGAPORE – Singapore investors accounted for 5 per cent of the Web traffic to FTX.com, based on the number of monthly unique visitors from January to October 2022, making them the second-largest group of users of the site.
An average of 241,675 unique users from Singapore visited the now-collapsed crypto exchange each month, data from crypto data aggregator CoinGecko shows.
South Korea saw the highest traffic share of 6.1 per cent, with 297,229 unique users on average visiting FTX.com monthly, across desktop and mobile Web apps.
Japan placed third, accounting for 4.6 per cent of Web traffic to the Bahamas-based exchange, or 223,513 unique users each month.
Billions in crypto investor funds were lost in a matter of days early in November, when FTX collapsed after a crippling liquidity crunch rendered the exchange insolvent.
The shuttering of FTX’s largest competitor, Binance, in Singapore back in December 2021 saw Binance users here switching to FTX. This may explain why Singapore ranks high on the list of countries affected by FTX’s stunning implosion, CoinGecko said.
CoinGecko’s study looked at monthly unique visitors and traffic share by country on FTX.com via desktop and mobile devices from January to October 2022, based on data from Web analytics platform SimilarWeb.

Other Asian markets accounting for the highest volume of FTX users include Taiwan, India, Thailand, Hong Kong, the Philippines, Vietnam and Indonesia.
FTX’s other marks of credibility include it being backed by Singapore’s Temasek, which has since written down its $275 million investment in the exchange. Japanese investment giant SoftBank invested US$100 million (S$138 million) in FTX earlier in 2022.
The Monetary Authority of Singapore said on Monday that while both Binance and FTX were not licensed in Singapore, Binance had been actively soliciting users here, which is a “possible contravention” of the Payment Services Act. The regulator first placed Binance on the Investor Alert List in September last year.
FTX, however, was not placed on the alert list as there was no evidence of the company soliciting users in Singapore and it did not offer trades in Singapore dollars.
But Singapore users were still able to access online FTX services, and the regulator said it was not possible to ring-fence the assets that Singapore investors chose to put up with FTX, nor ensure that the company backed them with reserves, as FTX is unlicensed.

 

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FTX lawyer says ‘substantial amount’ of assets either stolen or missing​

FTX filed for bankruptcy in November after a run on deposits left the company owing US$8 billion (S$11 billion). PHOTO: REUTERS

Nov 23, 2022

WASHINGTON - Lawyers for collapsed cryptocurrency exchange FTX on Tuesday painted a grim picture of the firm’s finances and the fate of the billions of dollars in assets that customers lost.
“A substantial amount of assets have either been stolen or are missing,” Mr James Bromley, a partner at law firm Sullivan & Cromwell who is representing FTX, said at a bankruptcy hearing in the federal court in Delaware.
FTX filed for bankruptcy in November after a run on deposits left the company owing US$8 billion (S$11 billion). The firm’s failure has sparked investigations by the Securities and Exchange Commission and the Justice Department, focused on whether FTX misappropriated customer funds when it lent billions of dollars to Alameda Research, a crypto hedge fund. Both firms were owned by Mr Sam Bankman-Fried, who gave up control of the companies at the time of the bankruptcy filing.
The stunning collapse has left amateur investors and major firms scrambling to recover billions of dollars in cryptocurrencies that they deposited on the FTX platform. The bankruptcy process will determine how much of that money can be retrieved.
But more than a week into the legal process, Mr Bankman-Fried’s poor management of FTX has left lawyers with limited information about the firm’s finances, Mr Bromley said at the hearing.
He said the company had faced cyber attacks, and that assets were still missing. He appeared to be referring to an apparent hack on the day the company filed for bankruptcy, which came to light when crypto researchers noticed the unauthorised movement of hundreds of millions of dollars in FTX assets.
At the hearing, Mr Bromley presented a detailed account of FTX’s corporate history and its abrupt collapse this month. Mr Bankman-Fried had established a sprawling corporate empire, which was run as his “personal fiefdom”, Mr Bromley said.

But in the end, he said, “the emperor had no clothes”.
Over the past two weeks, FTX has faced intense scrutiny over how it spent its money. One business entity involved in the bankruptcy, Mr Bromley said, bought almost US$300 million worth of real estate in the Bahamas.
A key issue at the hearing was whether FTX would have to publicly disclose more detailed information about its creditors, a group that likely includes hundreds of thousands of ordinary people who deposited money in the exchange.
US bankruptcy judge John Dorsey ruled that the information could stay private, at least for now.
The judge also let the company keep secret details about the firms tracking down assets and those protecting the platform from cyber attacks. Normally, every major firm hired by a bankrupt company must be made public in a court filing.
Asset protection and recovery is one of the top objectives for the case, Mr Bromley said at the hearing. Maximising value is key for the process, whether it means selling or reorganising businesses, and FTX will likely ask the judge for permission to sell some assets “quite quickly”, he added. NYTIMES, BLOOMBERG

 

[Singapore Dancing Spirit]

MAS, CAD warn about investment schemes based on digital coins and tokens​

The Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) have jointly issued a consumer advisory against the potential risks of digital tokens and virtual currency-related investment schemes. PHOTO: REUTERS

AUG 10, 2017

SINGAPORE - Consumers who are considering buying into an investment based on digital coins or tokens may want to think again.
The Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) have jointly issued a consumer advisory against the risks of digital tokens and virtual currency-related investment schemes.
Referring to the emergence of initial coin offerings (ICOs), and other investment schemes involving digital tokens here, the advisory said: "Members of the public are advised to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens."
The warning came on the back of a clarification from MAS last week that such ICOs will face regulation here if they are structured like securities, debt or units in a collective investment scheme under the Securities and Futures Act (SFA).
The authorities noted that the function of digital tokens has evolved beyond a virtual currency. For example, these digital tokens may represent ownership or a security interest over the token seller's assets or property, or a debt owed by the seller. Such digital tokens have been marketed as investment opportunities.
ICOs and other investment schemes involving digital tokens may be structured in many ways with different business propositions. For example, they may seek to develop a new digital platform while others may offer an opportunity to invest in a property, business and assets, or with a promise of certain benefits or monetary returns.

The CAD and MAS advised that where sellers of digital tokens fail to highlight the risks, consumers should make the effort to find out more about the underlying project, business or assets.

Some of the risks include the promises of high returns which could come in the form of high referral commissions, that is, promising consumers benefits for referring additional participants. In fact, such commissions would increase operating costs, which could lower the chances of achieving the returns, the consumer advisory said.
Consumers who suspect that an investment scheme involving digital tokens could be fraudulent should report such cases to the police.

Well, if that is the case why did Temasrk invested so much funds on FTX? Singapore was one of the largest user with FTX!’

 

[LITTLEREDDOT]

GIC invested in parent firm of troubled crypto broker Genesis, expects high volatility in short term​

When asked about GIC’s investment in Digital Currency Group, the sovereign wealth fund said it does not comment on individual investments, adding that it expects investments to remain highly volatile. PHOTO: GIC

Claire Huang
Business Correspondent

24 Nov 2022

SINGAPORE – Singapore sovereign wealth fund GIC, which is an investor in the group with ties to troubled cryptocurrency broker Genesis Trading, says it expects volatility in investments to stay high in the short term.
Venture capital firm Digital Currency Group (DCG), which owns Genesis and asset manager Grayscale Investments, had raised US$700 million (S$963 million) in November last year from prominent investors such as Softbank, Google’s Capital G, Ribbit Capital and GIC.
In a letter that was leaked online, DCG chief executive Barry Silbert sought to reassure shareholders of the group’s financial stability, as the potential bankruptcy of Genesis is causing jitters.
Mr Silbert, a former investment banker at Houlihan Lokey, wrote in a letter saying that the group is still on track to hit US$800 million in revenue this year.
But he said DCG owes Genesis’ crypto lending arm US$575 million, which is due in May next year. The loan is from Genesis Global Capital, which stopped withdrawals last week due to a liquidity crunch, and the funds were used for DCG’s share buybacks and investments.
Other debts of DCG stated in the letter are a US$350 million credit facility from “a small group of lenders” led by investment firm Eldridge, and a US$1.1 billion promissory note that is due in June 2032 when DCG took over Genesis’ liabilities in relation to the now-bankrupt crypto hedge fund Three Arrows Capital.
When asked about GIC’s investment in DCG, the sovereign wealth fund told The Straits Times that it does not comment on individual investments.

It added: “In the short term, we expect volatility to remain high. Over the long term, we continue to focus on the development of blockchain technology and business models.”
DCG is a crypto player with long tentacles given that it has stakes in more than 160 firms, including Nasdaq-listed exchange Coinbase Global, payments network Ripple and wallets Circle and Ledger. It was valued at US$10 billion last year.
The group said on Twitter a week ago that the suspension of withdrawals at Genesis “has no impact on the business operations of DCG and our other wholly owned subsidiaries”.
Genesis, which is reportedly looking for fresh funding, said on Twitter last week that it was dragged down by the collapse of Three Arrows Capital and crypto exchange FTX.
Troubles at Genesis Global Capital also led to a suspension of withdrawals at exchange Gemini for the latter’s Earn programme – a scheme where investors may choose to lend crypto to certain institutional borrowers to earn interest.
Genesis’ Singapore entity, called Genesis Asia Pacific, in late June received an in-principle approval from the Monetary Authority of Singapore (MAS) to offer digital payment services.
In the meantime, Gemini’s Singapore entity is exempted by MAS from holding a licence under the Payment Services Act, as it is in the midst of applying for a licence in Singapore.

 

[laksaboy]

Well, if that is the case why did Temasrk invested so much funds on FTX? Singapore was one of the largest user with FTX!’

Probably also had a hand in the rigged US elections (foreign interference) as well as the ongoings in Ukraine too. Globalists of a feather flock together.