Cryptocurrencies, tokens, NFTs, virtual "assets" frauds

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Millions of crypto investors’ wallets at risk of attacks due to security flaws, study finds​

If security flaws are unresolved, attackers will be able to drain funds from the wallets of millions of customers in seconds. PHOTO: UNSPLASH

Claire Huang
Business Correspondent

AUG 10, 2023

SINGAPORE - Millions of retail and institutional cryptocurrency investors face the risk of funds being drained from their digital asset wallets without their knowledge because of new security flaws, a study has found.
Research by digital asset custody firm Fireblocks found that the series of vulnerabilities, dubbed BitForge, impacted popular wallet providers like Coinbase WaaS, Zengo and Binance, among dozens of other providers.
BitForge refers to security flaws in software or products that are unknown to the vendor, and which have not been fixed or patched. The flaws were discovered by Fireblocks researchers and confirmed in May.
If they are unresolved, the firm said, attackers will be able to drain funds from the wallets of millions of retail and institutional customers in seconds, without the knowledge of the user or vendor.
“As with any vulnerability discovery, when the service provider’s code is close-sourced, we can only take their word on whether it has been fixed,” said the firm. “The researchers at Coinbase and Zengo are well known within the space and worked very closely with Fireblocks’ research team expeditiously and with transparency to ensure that their vulnerabilities were patched.”
The firm added that the vulnerabilities have not been exploited yet, and it would be impossible to know if an attacker has succeeded in stealing a private key until the funds are moved to a new wallet.
The flaws were found in some of the cryptographic multi-party computation (MPC) protocols, including GG-18, GG-20 and implementations of Lindell 17. These MPC protocols are the most used by wallet providers.

Typically, when a single private key is stored in one place, a wallet’s owner would need to trust that the device or party that holds that private key is completely secure. With MPC, the private key is decentralised. It is broken up into shares, encrypted, and divided among multiple parties, so there is no single point of failure.
Mr Pavel Berengoltz, co-founder and chief technology officer at Fireblocks, said that MPC is now ubiquitous within the digital asset industry, but not all MPC developers and teams are created equal.
“Companies leveraging Web3 technology should work closely with security experts with the know-how and resources to stay ahead of and mitigate vulnerabilities. Maintaining and updating core infrastructure technologies, like Web3 wallets, is crucial in preventing thefts and attacks, which amounted to nearly US$500 million (S$674 million) in the first half of 2023,” he said.
The findings were presented at the Black Hat USA conference in Las Vegas on Thursday.
To allow users to find out whether they are currently impacted by BitForge, Fireblocks has published the BitForge status checker at www.fireblocks.com/BitForge, so they can check if they might be exposed to risks.

 

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More plaintiffs added to US class action suit involving Temasek and other investors of FTX​

The lawsuit states that FTX violated several securities laws and stole customers’ funds. PHOTO: REUTERS

Claire Huang
Business Correspondent

AUG 10, 2023

SINGAPORE - More plaintiffs have been added to the United States class action suit involving Singapore state investor Temasek, along with more than a dozen backers of failed American cryptocurrency exchange FTX.
The amendment to include more plaintiffs was filed on Monday with the US District Court for the Northern District of California by five plaintiffs – Mr Leandro Cabo, Mr Vitor Vozza, Mr Kyle Rupprecht, Mr Warren Winter and Mr Sunil Kavuri.
Besides Temasek, venture capital firms Sequoia Capital, SoftBank and Sino Global Capital were also named as defendants in the lawsuit relating to fraud.
The lawsuit states that FTX violated several securities laws and stole customers’ funds, while the defendants offered an elusive picture of the exchange, claiming they had done their due diligence, reports said.
The plaintiffs are accusing the defendants of perpetrating, conspiring, aiding and abetting FTX’s multibillion-dollar fraud for the latter’s own financial and professional gain.
When asked, Temasek declined to comment.
It is understood that this lawsuit is the same as an earlier one filed in February.

In February, Temasek, together with 17 banks, venture capitalists and accounting firms, were sued for allegedly conspiring with FTX to defraud investors.
That 83-page class action lawsuit was filed in Miami, Florida, by FTX investor Connor O’Keefe, whose funds were frozen in his FTX account since the November collapse of the exchange. Venture capital firms Sequoia Capital and SoftBank Vision Fund were also named in the case.
In mid-November 2022, Temasek announced it would write off its US$275 million (S$377 million) investment in FTX, a week after the exchange filed for bankruptcy.
Two weeks later, Deputy Prime Minister Lawrence Wong, who is also Finance Minister, told Parliament that the Temasek write-off would not affect the stream of income from the reserves available for the Government’s Budget, or the Net Investment Returns Contribution.
In late May, Temasek said it would cut the pay of its investment team and senior management as a result of the FTX debacle, although no misconduct was found. The one-off pay cut has been carried out.
More recently, in mid-July, Temasek’s chief executive Dilhan Pillay said during the group’s annual review that the FTX blow-up was “an aberration” in early stage investments.
He noted that the investment team and senior management decided to take a pay cut because of the reputational damage Temasek has sustained from the FTX incident, particularly as the implosion came so soon after the investment was made. Temasek had pumped money into FTX across two funding rounds from October 2021 to January 2022.
When asked why no one was let go as a result of Temasek’s poor investment in FTX, Mr Pillay had made the point that no one would want to be an investor if people were punished beyond the pay cut.

 

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Billion-dollar money laundering case: How criminals hide illicit gains using crypto​

Criminals typically use crypto channels with weak or non-existent know-your-customer checks and controls. PHOTO: REUTERS

Claire Huang
Business Correspondent

AUG 27, 2023


SINGAPORE – Money laundering via crypto largely follows the same path as that of cash.
In both scenarios, there are three steps: placement, followed by layering and integration.

Placement​

As this stage, criminals either use illicit gains to buy cryptocurrencies, or they can receive cryptocurrencies from acts of crime, such as theft and extortions.
Criminals typically use channels with weak or non-existent know-your-customer checks. These checks and procedures are about confirming identities, profiling customers and assessing the potential money laundering and terrorism financing risks they may pose, among other things.
Based on the findings of a report published in June by TRM Labs, a blockchain intelligence firm, known methods include cash-to-crypto services, parasite virtual asset service providers (Vasps) and crypto payment processors.
An analysis of 20 blockchains – including prominent ones like Ethereum and Bitcoin and emerging ones like Tron, Binance Smart Chain and Polygon – found that cash-to-crypto services offered by crypto exchanges and ATMs were one of the most favoured methods.
More than 90 per cent of the 30,000 crypto ATMs around the world are located in North America. In Asia-Pacific, Australia is the third-largest market for such ATMs globally.

In Singapore, crypto ATMs were mostly shut down following the Monetary Authority of Singapore’s (MAS) January 2022 guidelines on the promotion and provision of digital payment token (DPT) services to the public, said Ms Ong Chengyi of blockchain analysis firm Chainalysis.

Another placement method is the use of parasite Vasps.
As can be inferred from the name, these latch on to larger exchanges to provide trading services for users, often without the knowledge or consent of the host exchange.

Cryptocurrency payment processors, which are legitimate services, are another placement method. These companies help individuals and businesses accept crypto as payment.
They allow users to create new addresses for every payment and, in some instances, reuse addresses for different parties, which then make it more difficult for investigators to follow the flow of funds.

Layering​

Also known as hiding, layering typically takes place through the use of intermediary services and wallets.
Criminals can use various tools, such as mixers and bridges, swap services and coin-joins, to throw investigators off. These tools basically blend the funds of multiple senders and make it more confusing to detect and separate.
An example is Tornado Cash, whose founders were charged last week by the authorities in the United States with abetting North Korean money laundering.
Decentralised finance protocols are also used by illicit actors to convert funds. However, they are not an efficient means of covering up fund flows as they are transparent.
Chainalysis said on-chain data suggests that over half of the funds sent from illicit addresses travel directly to centralised exchanges – both mainstream and high-risk.
“Another recent trend we have spotted is that underground money laundering services are on the rise,” said Ms Ong, who added that these are generally accessible only through private messaging apps or the Tor browser, and usually advertised only on Darknet forums.
Another way to layer is to use privacy coins.
Popular privacy coins such as Monero, Zcash and Dash provide enhanced anonymity features compared with standard cryptocurrencies like Bitcoin.
Australia and South Korea have banned exchanges from offering privacy coins, while Japan banned them entirely in 2018, TRM Labs said.
In Singapore, MAS requires licensed DPT providers to have stronger anti-money-laundering and counter-terrorist financing controls for privacy coins, in line with guidance from the Financial Action Task Force. For instance, companies need to assess why their customers need to use privacy coins, and conduct enhanced monitoring of such transactions.
Ms Amy Zhang of Fireblocks said bad actors may also choose to invest in cryptocurrencies that are not Bitcoin, as these are harder to track. They may also use an initial coin offering, which is the crypto version of a public listing, as a fraudulent means of capital raising to convert illegal crypto into fiat currency.

Integration​

Integration is the final stage of money laundering, where laundered proceeds are reintroduced into the legitimate economy.
As crypto is still not widely used, criminals have to convert crypto into fiat at an off-ramp entity. Most fiat off-ramp entities are centralised exchanges, but peer-to-peer exchanges and other services can also serve this function.
In Chainalysis’ 2023 crypto crime report, it found that illicit addresses sent nearly US$23.8 billion ($32.3 billion) worth of cryptocurrencies in 2022. Nearly half of that went to centralised exchanges.
Of the illicit funds received by exchanges, 67.9 per cent went to just five centralised exchanges.
Criminals may also use their crypto proceeds directly to purchase goods and services, such as non-fungible token artwork, computers, airline tickets and luxury goods. Dozens of retailers now accept payment in crypto, including Gucci, Balenciaga and Hublot.

 

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Billion-dollar money laundering case: Two sides to using blockchain technology, crypto​

A blockchain may be appealing to criminals but it also offers financial institutions and crypto players new tools to manage money laundering risks. PHOTO ILLUSTRATION: PIXABAY

Claire Huang
Business Correspondent

AUG 27, 2023

SINGAPORE – Digital assets and blockchain technology may offer many tools for criminals to conceal the funnelling of illicit gains, but they also allow the authorities to better track such fund flows compared with conventional money laundering means, market players said.
This is because a public blockchain, on which digital assets like cryptocurrencies and tokens are transacted, works like a public ledger.
The cryptocurrency industry has come under the spotlight in recent days after the biggest anti-money laundering (AML) blitz on Aug 15 led to the arrest of 10 foreigners.
Among the items police took control of in the $1 billion bust were 105 properties, millions in cash and more than 120 electronic devices including phones and computers, as well as documents with information on virtual assets.
Ms Ong Chengyi, head of policy for the Asia-Pacific region at blockchain analysis firm Chainalysis, said the speed, pseudonymity and borderless nature of the blockchain are key features that make it an appealing medium to transfer value.
These same attributes appeal to criminals too. However, she added that the blockchain offers financial institutions and crypto players new tools to manage money laundering risks.
“When every transaction is recorded in a public ledger, it means that law enforcement always has a trail to follow, even years after the fact,” said Ms Ong.

Some crypto players told The Straits Times, on condition of anonymity, that given the fragile relationship with banks, just like how some of the top-tier banks get into trouble for AML lapses, some crypto firms also have the same problem.
Ms Amy Zhang, vice-president of sales at digital asset operations platform Fireblocks, said: “Criminals use a variety of methods to launder money via crypto, but in effect, the same principles apply to money laundered via cash as they do to crypto.”
Ms Angela Ang, senior policy adviser at blockchain intelligence firm TRM Labs in Singapore, told ST the industry consensus is that illicit finance makes up no more than 2 per cent of the overall digital asset ecosystem.

Market observers, who said the recent $1 billion case could herald even more restrictions, noted that laundering illicit gains through crypto is in reality harder than other avenues as the criminals require technical expertise to be able to use all the digital tools.

Mr Glen Chee, head of compliance at home-grown exchange Coinhako, said properties, cars, wines and luxury bags remain the traditional route for criminals as some of them simply do not understand crypto, which he said is “a good thing for us”.
He said the firm, which is licensed by the Monetary Authority of Singapore (MAS), gets an average of 50 to 70 suspicious transaction alerts a month that relate mostly to scams.
The rest are to do with money laundering, sanctions and terrorism financing.

Well-regulated​

The number of alerts depends on how the thresholds are set and ST was told that for exchanges with a presence in more cities, the number of alerts a month is easily in the tens of thousands.
Compared with 15 years ago, Mr Chee said it is now tougher for criminals to succeed as regulations kick in. “Singapore is now one of the most well-regulated places (for digital assets).
“We are audited a couple of times a year, so we have a very strict regime and a set of procedures that we have to comply with, and it’s mandatory to have a compliance team and senior management oversight,” he said.

Crypto players in Singapore that are licensed by or intend to get a licence from MAS have to carry out enhanced due diligence for high-risk clients.
Asking about the client’s source of wealth is but only one component of this process and is also part of the know-your-customer (KYC) control.
KYC is about confirming identities, profiling customers and assessing the potential money laundering and terrorism financing risks they may pose, among other things.
In terms of AML and counter-terrorist financing (CTF), MAS requires licensed crypto firms and those applying for one to abide by the Financial Action Task Force (FATF) “travel rule”, said Mr Mohammed Kifayathullah, chief compliance officer at exchange Bitstamp.
The FATF is an international body that fights money laundering and terrorism financing. Its travel rule is a standard that requires virtual asset service providers to collect and disclose specific customer data when transacting digital assets over a particular value threshold.
Singapore was one of the first jurisdictions globally to require full travel rule compliance with the commencement of the Payment Services Act in January 2020. So far, the roll-out of FATF’s recommendations has been patchy across jurisdictions, so it recently launched a road map to strengthen implementation.

Rules aside, the weakest link in AML/CTF is the heavy reliance on the processes of individual firms.
Fireblocks’ Ms Zhang said criminals who money launder through crypto do it because “there are more shady businesses that are available globally, specifically exchanges that don’t prioritise KYC”.
She said a case in point is Garantex, an exchange that operated out of Russia and was sanctioned in 2022 by the United States government.
Both Mr Chee and Mr Kifayathullah believe the key is company culture and that detection work should start from the onboarding of customers.
“You cannot wait until a compliance officer picks this up,” Mr Kifayathullah said, adding that it is true that some companies do not conduct regular reviews of customer profiles.
Mr Chee said: “The more information we collect, the more corroboration we will have, and that will enable a better monitoring system process.”
One of the biggest challenges is the constantly evolving types of crime, said Ms Ang. TRM Labs has identified more than 40 types so far, from espionage to pump-and-dump schemes.
To keep criminals out, Ms Ang said industry players and regulators need to take a broader strategy for dealing with crypto crime that covers emerging chains and a more granular risk classification.

Chainalysis’ Ms Ong noted that it is vital to build expertise within compliance teams, regulators and law enforcement on how to detect and address illicit activity through virtual assets.
Criminals have a strong preference for stablecoin Tether, also known as USDT, on the Tron blockchain when it comes to “pig butchering” scams, according to TRM Labs’ analysis.
These are crypto scams that rely on psychological manipulation to wipe out victims’ life savings, and many operate out of Asia.
“Western victims generally are told to send funds via currencies on the Ethereum blockchain that scammers later convert into USDT, while Asia-based victims often send USDT on Tron,” said Ms Ang.
Once the funds reach a few main exchanges, they can be cashed out, sent to other accounts at the same or different exchanges, sent to unhosted wallets, or swapped for USDT on Tron before being cycled again.
Besides having a good corporate culture and rigorous detection from the onset, one of the best ways to disrupt financial crime is to raise awareness and educate the public.
To this end, TRM Labs has launched an open source fraud and scam reporting platform, Chainabuse.
Anyone can view, search and file fraud reports on the platform, or check addresses and entities the person interacts with to understand if he might be exposed to illicit activity.

 

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More identification of those behind decentralised finance activities needed: Global watchdog​

This scrutiny should include examining the roles of developers, large investors and venture capital firms, among others. PHOTO ILLUSTRATION: ST FILE
Timothy Goh

SEP 7, 2023

SINGAPORE – An international watchdog has called on regulators around the world to seek to identify the entities responsible for decentralised finance (DeFi) activities and, in turn, throw more light on an often murky corner of the finance sector.
This scrutiny should include examining the roles of developers, large investors and venture capital firms, among others.
The recommendations are among nine in a consultation paper from the International Organisation of Securities Commissions (IOSCO), an umbrella group of regulators that includes the Monetary Authority of Singapore (MAS) and the United States Securities and Exchange Commission.
Its recommendations, which address issues such as disclosure requirements and the promotion of cross-border cooperation, aim to address risks within DeFi that could stem from the anonymous nature of such operations.
DeFi is a form of finance that exists on blockchains, which are digital ledgers of transactions maintained by a global network of individual computers.
Smart contracts on a blockchain automatically execute the terms and conditions of financial transactions such as borrowing and lending between participants, supposedly removing the need for physical intermediaries such as banks.
These transactions involve a form of cryptocurrency known as tokens. Stablecoins, or tokens pegged to more stable, real-world assets like the Singapore or US dollar, may also be used by participants as a less volatile option.

These smart contracts are created by human developers, some of whom may choose to remain anonymous. DeFi applications may also involve investors who hold large amounts of “governance” tokens, or tokens that give participants voting rights over the operations of the application, thus negating some of its decentralised attributes.
Some DeFi applications are also backed by external parties such as venture capital funds. For example, prominent DeFi application Compound Finance raised US$25 million (S$34.1 million) in a funding round led by American venture capital firm Andreessen Horowitz in 2019.
Mr Lim Tuang Lee, assistant managing director for capital markets at MAS and chairman of IOSCO’s fintech task force, said: “There is a common misconception that DeFi is truly decentralised and governed by autonomous code or smart contracts.”
Mr Lim, who held a virtual briefing with IOSCO chairman and president Jean-Paul Servais on Thursday, added: “In reality... ‘responsible persons’ can be identified. Our recommendations are therefore predicated on the need to identify these persons, whether legal or natural, who should bear responsibility for upholding investor protection and market integrity.”
Digital assets such as cryptocurrencies can be regulated here under the Securities and Futures Act (SFA) or the Payment Services Act (PSA).
Entities offering digital tokens that constitute securities will be regulated under the SFA, while entities offering the buying, selling or exchanging of digital payment tokens such as cryptocurrencies are regulated as digital payment token service providers under the PSA.
In August, MAS announced its finalised rules for Singapore-licensed stablecoin issuers. Stablecoins issued here can be pegged only to the Singdollar or any Group of 10 currency, including the US dollar and Japanese yen.
Singapore-licensed stablecoin issuers will also have to meet requirements including having a minimum amount of reserves and allowing investors timely redemption at par value.
Last November, the first industry pilot under MAS’ Project Guardian, which aims to explore potential DeFi applications in wholesale funding markets, completed its first live trades.
It involved the buying and selling of tokenised Singapore Government Securities, Singapore dollars, Japanese government bonds and Japanese yen on a public blockchain.

 

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Your NFTs Are Actually — Finally — Totally Worthless​

New report from industry researchers finds that 95 percent of the once-hyped crypto assets have hit rock-bottom valuation
BY MILES KLEE

SEPTEMBER 20, 2023

Visitors take a photo of the NFT (non-fungible token) artwork known as 'Bored Ape Yacht Club' at the Digital Art Fair Xperience 2022 in Hong Kong, China on October 22, 2022. MIGUEL CANDELA/ANADOLU AGENCY/GETTY IMAGES

A TEAM OF researchers have crunched the numbers to explain why you don’t see people hawking ugly cartoon apes on the internet as much anymore: NFTs, or non-fungible tokens, once vaunted as a revolution in crypto and digital art, are largely worthless.
“Dead NFTs: The Evolving Landscape of the NFT Market” is a new report from dappGambl, a community of experts in finance and blockchain technology. Upon analysis of 73,257 NFT collections, the authors found that 69,795 have a market cap of zero Ether (ETH), the second most-popular cryptocurrency behind Bitcoin. In practical terms, that means 95 percent of NFTs wouldn’t fetch a penny today — a spectacular crash for assets that reached a trading volume of $17 billion amid a frenzied bull market in 2021. The study estimates that some 23 million investors own these tokens of no practical use or value.
What’s more, supply vastly outstripped demand for NFTs. Just 21 percent of the collections included in the study can claim full ownership, meaning around four out of every five collections remains unsold. With buyers becoming more discerning, the report notes, “projects that lack clear use cases, compelling narratives, or genuine artistic value are finding it increasingly difficult to attract attention and sales.”

And, while headlines during the heyday of NFT speculation focused on individual pieces that sold for the equivalent of millions of dollars in crypto, almost none are so exorbitantly priced today. Less than one percent are listed at more than $6,000, and the bulk of the most expensive collections are priced between $5 and $100. Almost a fifth of the “top” collections have a floor price of zero. Even among the more expensive NFTs, the report notes, such prices may be set “without any bearing on tangible, real demand,” reflecting wishful thinking from sellers and potentially distorting investors’ view of an NFT’s meager inherent value.
The dappGambl researchers conclude that while we may never see an NFT boom like the one in 2021-2022, the assets may evolve in a way to survive the wipeout. For example, they could be given a specific function, becoming a pass for special event access or a virtual item to be purchased and traded in video games.

This, however, would not address perhaps the greatest drawback of NFTs, which became a major controversy as they peaked in popularity: their environmental impact. Non-fungible tokens are minted on the blockchain, a process that requires energy, and bought and sold in marketplaces that run on cryptocurrencies “mined” with computer rigs that have a significant carbon footprint. But minting tokens alone carries a cost. The “Dead NFTs” report observes that the nearly 200,000 NFT collections “with no apparent owners or market share” identified by the study caused carbon emissions equivalent to the annual output from 2,048 houses, or 3,531 cars.
Of course, enthusiasts didn’t worry too much about that when NFTs were a hot commodity. And if they ever make a modest comeback, climate concerns will likely be brushed aside again. Can’t let something like that get in the way of the next hype cycle.

 

[k1976]

Your NFTs Are Actually — Finally — Totally Worthless​

New report from industry researchers finds that 95 percent of the once-hyped crypto assets have hit rock-bottom valuation
BY MILES KLEE

SEPTEMBER 20, 2023

Visitors take a photo of the NFT (non-fungible token) artwork known as 'Bored Ape Yacht Club' at the Digital Art Fair Xperience 2022 in Hong Kong, China on October 22, 2022. MIGUEL CANDELA/ANADOLU AGENCY/GETTY IMAGES

A TEAM OF researchers have crunched the numbers to explain why you don’t see people hawking ugly cartoon apes on the internet as much anymore: NFTs, or non-fungible tokens, once vaunted as a revolution in crypto and digital art, are largely worthless.
“Dead NFTs: The Evolving Landscape of the NFT Market” is a new report from dappGambl, a community of experts in finance and blockchain technology. Upon analysis of 73,257 NFT collections, the authors found that 69,795 have a market cap of zero Ether (ETH), the second most-popular cryptocurrency behind Bitcoin. In practical terms, that means 95 percent of NFTs wouldn’t fetch a penny today — a spectacular crash for assets that reached a trading volume of $17 billion amid a frenzied bull market in 2021. The study estimates that some 23 million investors own these tokens of no practical use or value.
What’s more, supply vastly outstripped demand for NFTs. Just 21 percent of the collections included in the study can claim full ownership, meaning around four out of every five collections remains unsold. With buyers becoming more discerning, the report notes, “projects that lack clear use cases, compelling narratives, or genuine artistic value are finding it increasingly difficult to attract attention and sales.”

And, while headlines during the heyday of NFT speculation focused on individual pieces that sold for the equivalent of millions of dollars in crypto, almost none are so exorbitantly priced today. Less than one percent are listed at more than $6,000, and the bulk of the most expensive collections are priced between $5 and $100. Almost a fifth of the “top” collections have a floor price of zero. Even among the more expensive NFTs, the report notes, such prices may be set “without any bearing on tangible, real demand,” reflecting wishful thinking from sellers and potentially distorting investors’ view of an NFT’s meager inherent value.
The dappGambl researchers conclude that while we may never see an NFT boom like the one in 2021-2022, the assets may evolve in a way to survive the wipeout. For example, they could be given a specific function, becoming a pass for special event access or a virtual item to be purchased and traded in video games.

This, however, would not address perhaps the greatest drawback of NFTs, which became a major controversy as they peaked in popularity: their environmental impact. Non-fungible tokens are minted on the blockchain, a process that requires energy, and bought and sold in marketplaces that run on cryptocurrencies “mined” with computer rigs that have a significant carbon footprint. But minting tokens alone carries a cost. The “Dead NFTs” report observes that the nearly 200,000 NFT collections “with no apparent owners or market share” identified by the study caused carbon emissions equivalent to the annual output from 2,048 houses, or 3,531 cars.
Of course, enthusiasts didn’t worry too much about that when NFTs were a hot commodity. And if they ever make a modest comeback, climate concerns will likely be brushed aside again. Can’t let something like that get in the way of the next hype cycle.

OMG.... There used to a boat load of cheerleaders in EDMW, wander how are they doing?

 

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FTX co-founder testifies he committed multi-billion-dollar fraud with Bankman-Fried​

Former FTX developer Adam Yedidia also testified at the trial of Sam Bankman-Fried in New York on Oct 4, 2023. PHOTO: AFP

OCT 6, 2023

NEW YORK – FTX co-founder Gary Wang said he and Sam Bankman-Fried committed a multi-billion-dollar fraud with customer funds that led to the cryptocurrency exchange’s collapse, shortly after taking the stand against his one-time maths camp buddy and Massachusetts Institute of Technology (MIT) roommate.
Dressed in a gray suit and red tie, Wang, 30, did not make eye contact with Bankman-Fried as he entered the Manhattan courtroom on Thursday afternoon to testify as a government witness.
Prosecutors claim Bankman-Fried orchestrated a scheme in which billions of dollars in FTX customer funds were secretly transferred to affiliated hedge fund Alameda Research.
The testimony by Wang, who pleaded guilty to fraud and agreed to cooperate against his one-time friend in December, promises to be among the most powerful the government puts on against Bankman-Fried.
Wang, also FTX’s chief technology officer, said Bankman-Fried directed him to alter the cryptocurrency exchange’s code so that Alameda was able to draw a US$65 billion (S$89 billion) line of credit.
“It withdrew so much that FTX was not able to pay customers who tried to withdraw,” Wang said.
Wang initially appeared nervous and spoke quickly on the stand, though he seemed to become more at ease as questioning continued.

His testimony on Thursday was relatively brief, but he is expected to return to the stand on Friday.

‘We are not equal’
As an FTX co-founder, Wang was once a billionaire, though he said his wealth never matched that of Bankman-Fried, who was estimated to be worth US$26 billion before the exchange’s collapse.

The unequal relationship extended to Alameda, Wang said, where he owned 10 per cent of the firm and Bankman-Fried had 90 per cent.
And Bankman-Fried had the final say on most business decisions.
“We are not equal,” Wang testified.
He said Bankman-Fried carefully oversaw the process by which FTX’s top brass were able to borrow hundreds of millions of dollars from Alameda.
“He told us what things to be implemented”, such as how much collateral was needed for certain positions and limits on how much people can deposit or withdraw, Wang testified.
Wang’s testimony potentially undercuts Bankman-Fried’s contention that he was not closely involved with the running of Alameda and relied instead on its chief executive Caroline Ellison, who is also his former girlfriend.
Bankman-Fried’s lawyers are arguing that he made mistakes but had no ill intent.
Ellison has also pleaded guilty to fraud and her testimony was touted by prosecutors in opening statements on Wednesday.
Earlier on Thursday, Mr Adam Yedidia, another MIT classmate who went to work at FTX, testified that Bankman-Fried was aware and concerned about a potential US$8 billion shortfall at FTX from loans to Alameda five months before both companies collapsed.
Mr Yedidia told jurors he was testifying under a grant of immunity from prosecution.
“It concerned me,” Mr Yedidia testified. “It seemed like a lot of money for Alameda to be owing FTX. And I wanted to be certain that Alameda could repay that debt.”
Mr Yedidia said he raised the issue with Bankman-Fried in a conversation outside the US$35 million luxury Bahamas penthouse that they shared with eight other people.
“Are things okay?” he said he asked.

Not ‘bulletproof’
“In response, Sam said something like, ‘We were bulletproof last year. We’re not bulletproof this year’,” Mr Yedidia testified, adding that Bankman-Fried appeared nervous and worried.
Mr Yedidia said that was atypical of the friend he had known for many years.
Mr Yedidia testified that he received a US$6 million cash bonus at the end of 2021, which he immediately invested it in FTX stock.
Though his base salary was between US$175,000 and US$200,000, Mr Yedidia said he received several millions of dollars in cash bonuses and stock options.
In its cross-examination of Mr Yedidia, the defence tried to downplay Bankman-Fried’s own wealth, comparing the Bahamas penthouse to a dorm and asking Mr Yedidia if he ever witnessed his friend buying watches, sports cars, yachts or fancy clothes.
Mr Yedidia said he did not.
“I didn’t see him wearing any fancy clothes,” he testified. BLOOMBERG

 

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‘FTX was not fine’: Co-founder Wang says Bankman-Fried lied in tweet​

Gary Wang exiting court in New York on Oct 6, where he provided dramatic descriptions of FTX’s last days. PHOTO: BLOOMBERG
UPDATED

OCT 7, 2023

NEW YORK – A few days before FTX filed for bankruptcy, Sam Bankman-Fried sent out a tweet reassuring customers and investors that the cryptocurrency exchange and its assets were in good shape.
Bankman-Fried’s FTX co-founder, Gary Wang, testified on Friday that was a lie.
“FTX was not fine, and the assets were not fine,” Wang, 30, said in his second day as a prosecution witness in Bankman-Fried’s fraud trial in a Manhattan federal court.
In more than four hours on the stand, Wang provided dramatic descriptions of FTX’s last days and painstaking detail on how he and Bankman-Fried, 31, allegedly implemented a multibillion-dollar scheme that made the exchange’s collapse inevitable.
Wang, who pleaded guilty last December and agreed to cooperate, went into granular detail about how he, allegedly at Bankman-Fried’s direction, altered the cryptocurrency exchange’s backend code in 2019.
The resulting “special advantage” allowed Alameda Research, an affiliated hedge fund, to borrow essentially unlimited funds from FTX customers. By autumn 2022, Alameda had borrowed as much as US$14 billion (S$19 billion) from FTX, an amount it could not repay.
He knew it was wrong, said Wang.

“The money belonged to customers, and the customers did not give us permission to use it for other things.”
Wang’s testimony goes to the heart of federal prosecutors’ case against Bankman-Fried. They accuse him of orchestrating a scheme to fraudulently transfer funds to Alameda, creating a massive shortfall that led to both companies’ bankruptcies.
Wang is one of the government’s three star witnesses, along with former Alameda chief executive officer Caroline Ellison, who is also Bankman-Fried’s former girlfriend, and former FTX engineering chief Nishad Singh. Prosecutors said on Friday that Ellison would testify next week.


The long friendship between Wang and Bankman-Fried, who first met at a high school maths camp and were roommates at the Massachusetts Institute of Technology, is an additional, though largely unspoken, dimension to the former’s testimony.
On both Thursday and Friday, Wang avoided making eye contact with Bankman-Fried as he walked through the courtroom towards the witness stand.

Former crypto mogul Sam Bankman-Fried (left) allegedly implemented a multibillion-dollar scheme that made the exchange’s collapse inevitable. PHOTO: NYTIMES
Under questioning on Friday by Assistant US Attorney Nicolas Roos, Wang testified about the secret mechanisms that permitted funds to flow from FTX to Alameda.
Wang said Bankman-Fried asked that a backend “allow negative” balance feature be added for Alameda. Wang said most users were only able to draw from amounts they had deposited.
Some big customers were given lines of credit at FTX, Wang said. But no one besides Alameda had a credit line of more than US$1 billion, and most were much smaller, in the millions of dollars, according to Wang. Alameda’s was US$65 billion, he said.
Bankman-Fried also directed that Alameda be exempted from liquidation rules that applied to other FTX accounts, Wang said.
He explained that accounts that were in danger of going into the red had their positions sold off to a market maker before that could happen. Wang said the feature existed to protect the exchange and other customers.

Better books​

But Bankman-Fried did not want this protection to apply to Alameda, Wang said, and he also occasionally used that special privilege to clean up FTX’s books.
Wang described one instance in which Bankman-Fried asked for Alameda to take a loss of hundreds of millions of dollars instead of the exchange’s backstop insurance fund, which did not have sufficient funds.
According to Wang, it was better for Alameda to take such losses because its books were less public than FTX’s.
On cross-examination, Bankman-Fried lawyer Christian Everdell tried to suggest that the special privileges Alameda enjoyed on FTX were tied, at least in part, to its role as a market maker and as a large customer of the exchange.
The defence will continue its questioning of Wang on Tuesday.
MORE ON THIS TOPIC
FTX goes bankrupt: Sam Bankman-Fried fooled the crypto world and maybe even himself
FTX 2.0: Bankman-Fried’s former crypto exchange outlines plan for potential reboot
Wang’s description of special treatment for Alameda flies in the face of FTX’s public stance that the exchange treated customers equally, prosecutors allege.
On Thursday, Mr Matt Huang of crypto venture capital firm Paradigm, an investor in FTX, testified that his firm was aware of the relation between Alameda and the exchange but was reassured that there was no preferential treatment.
Mr Huang said it would have been “a concern” if he had known Alameda was not subject to liquidation rules.
“It would’ve meant Alameda could trade with leverage on the platform and could incur negative balances that would need to be repaid somehow,” Mr Huang said, adding, “Given crypto prices are volatile, the business could be insolvent. It would also be damaging to the brand and customers’ trust.”

Mr Matt Huang of Paradigm, an investor in FTX, testified that his firm was aware of the relation between Alameda and the exchange but was reassured that there was no preferential treatment. PHOTO: AFP

Shutting down Alameda​

On Friday, Mr Roos showed jurors a July 2019 tweet in which Bankman-Fried said Alameda was a liquidity provider on FTX and that its account was just like everyone else’s. The prosecutor noted that it was the same day that Alameda was given its “allow-negative” privilege.
Mr Adam Yedidia, another MIT classmate who joined FTX, testified on Wednesday that he discovered the scale of Alameda’s borrowing and confronted Bankman-Fried in June 2022.
“It concerned me,” Mr Yedidia said. “It seemed like a lot of money for Alameda to be owing FTX. And I wanted to be certain that Alameda could repay that debt.”

Mr Adam Yedidia testified on Wednesday that he discovered the scale of Alameda’s borrowing and confronted Bankman-Fried in June 2022. PHOTO: AFP
But it was not the massive liability but the prospect of a Bloomberg News article on the possible conflicts of interest in Alameda’s relationship with FTX that spurred Bankman-Fried to consider taking action, Wang testified.
Bankman-Fried organised a September 2022 Signal chat that also included Ellison and Singh in which he suggested shutting down Alameda, Wang testified. But Bankman-Fried backed off the idea when he realised that Alameda could not repay the US$14 billion it owed FTX.
Two months later, shortly after FTX’s bankruptcy filing, Wang said Bankman-Fried asked him again to figure out a way to move funds, this time to put them out of reach of the US proceeding.
Company lawyer Ryne Miller had told them no assets could be transferred, but Bankman-Fried said to ignore him, Wang testified.
Wang said he went to prosecutors on Nov 17 and told them he wanted to cooperate. BLOOMBERG

 

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Billion-dollar money laundering case: Two sides to using blockchain technology, crypto​

A blockchain may be appealing to criminals but it also offers financial institutions and crypto players new tools to manage money laundering risks. PHOTO ILLUSTRATION: PIXABAY

Claire Huang
Business Correspondent

AUG 27, 2023

SINGAPORE – Digital assets and blockchain technology may offer many tools for criminals to conceal the funnelling of illicit gains, but they also allow the authorities to better track such fund flows compared with conventional money laundering means, market players said.
This is because a public blockchain, on which digital assets like cryptocurrencies and tokens are transacted, works like a public ledger.
The cryptocurrency industry has come under the spotlight in recent days after the biggest anti-money laundering (AML) blitz on Aug 15 led to the arrest of 10 foreigners.
Among the items police took control of in the $1 billion bust were 105 properties, millions in cash and more than 120 electronic devices including phones and computers, as well as documents with information on virtual assets.
Ms Ong Chengyi, head of policy for the Asia-Pacific region at blockchain analysis firm Chainalysis, said the speed, pseudonymity and borderless nature of the blockchain are key features that make it an appealing medium to transfer value.
These same attributes appeal to criminals too. However, she added that the blockchain offers financial institutions and crypto players new tools to manage money laundering risks.
“When every transaction is recorded in a public ledger, it means that law enforcement always has a trail to follow, even years after the fact,” said Ms Ong.

Some crypto players told The Straits Times, on condition of anonymity, that given the fragile relationship with banks, just like how some of the top-tier banks get into trouble for AML lapses, some crypto firms also have the same problem.
Ms Amy Zhang, vice-president of sales at digital asset operations platform Fireblocks, said: “Criminals use a variety of methods to launder money via crypto, but in effect, the same principles apply to money laundered via cash as they do to crypto.”
Ms Angela Ang, senior policy adviser at blockchain intelligence firm TRM Labs in Singapore, told ST the industry consensus is that illicit finance makes up no more than 2 per cent of the overall digital asset ecosystem.

Market observers, who said the recent $1 billion case could herald even more restrictions, noted that laundering illicit gains through crypto is in reality harder than other avenues as the criminals require technical expertise to be able to use all the digital tools.

Mr Glen Chee, head of compliance at home-grown exchange Coinhako, said properties, cars, wines and luxury bags remain the traditional route for criminals as some of them simply do not understand crypto, which he said is “a good thing for us”.
He said the firm, which is licensed by the Monetary Authority of Singapore (MAS), gets an average of 50 to 70 suspicious transaction alerts a month that relate mostly to scams.
The rest are to do with money laundering, sanctions and terrorism financing.

Well-regulated​

The number of alerts depends on how the thresholds are set and ST was told that for exchanges with a presence in more cities, the number of alerts a month is easily in the tens of thousands.
Compared with 15 years ago, Mr Chee said it is now tougher for criminals to succeed as regulations kick in. “Singapore is now one of the most well-regulated places (for digital assets).
“We are audited a couple of times a year, so we have a very strict regime and a set of procedures that we have to comply with, and it’s mandatory to have a compliance team and senior management oversight,” he said.

Crypto players in Singapore that are licensed by or intend to get a licence from MAS have to carry out enhanced due diligence for high-risk clients.
Asking about the client’s source of wealth is but only one component of this process and is also part of the know-your-customer (KYC) control.
KYC is about confirming identities, profiling customers and assessing the potential money laundering and terrorism financing risks they may pose, among other things.
In terms of AML and counter-terrorist financing (CTF), MAS requires licensed crypto firms and those applying for one to abide by the Financial Action Task Force (FATF) “travel rule”, said Mr Mohammed Kifayathullah, chief compliance officer at exchange Bitstamp.
The FATF is an international body that fights money laundering and terrorism financing. Its travel rule is a standard that requires virtual asset service providers to collect and disclose specific customer data when transacting digital assets over a particular value threshold.
Singapore was one of the first jurisdictions globally to require full travel rule compliance with the commencement of the Payment Services Act in January 2020. So far, the roll-out of FATF’s recommendations has been patchy across jurisdictions, so it recently launched a road map to strengthen implementation.

Rules aside, the weakest link in AML/CTF is the heavy reliance on the processes of individual firms.
Fireblocks’ Ms Zhang said criminals who money launder through crypto do it because “there are more shady businesses that are available globally, specifically exchanges that don’t prioritise KYC”.
She said a case in point is Garantex, an exchange that operated out of Russia and was sanctioned in 2022 by the United States government.
Both Mr Chee and Mr Kifayathullah believe the key is company culture and that detection work should start from the onboarding of customers.
“You cannot wait until a compliance officer picks this up,” Mr Kifayathullah said, adding that it is true that some companies do not conduct regular reviews of customer profiles.
Mr Chee said: “The more information we collect, the more corroboration we will have, and that will enable a better monitoring system process.”
One of the biggest challenges is the constantly evolving types of crime, said Ms Ang. TRM Labs has identified more than 40 types so far, from espionage to pump-and-dump schemes.
To keep criminals out, Ms Ang said industry players and regulators need to take a broader strategy for dealing with crypto crime that covers emerging chains and a more granular risk classification.

Chainalysis’ Ms Ong noted that it is vital to build expertise within compliance teams, regulators and law enforcement on how to detect and address illicit activity through virtual assets.
Criminals have a strong preference for stablecoin Tether, also known as USDT, on the Tron blockchain when it comes to “pig butchering” scams, according to TRM Labs’ analysis.
These are crypto scams that rely on psychological manipulation to wipe out victims’ life savings, and many operate out of Asia.
“Western victims generally are told to send funds via currencies on the Ethereum blockchain that scammers later convert into USDT, while Asia-based victims often send USDT on Tron,” said Ms Ang.
Once the funds reach a few main exchanges, they can be cashed out, sent to other accounts at the same or different exchanges, sent to unhosted wallets, or swapped for USDT on Tron before being cycled again.
Besides having a good corporate culture and rigorous detection from the onset, one of the best ways to disrupt financial crime is to raise awareness and educate the public.
To this end, TRM Labs has launched an open source fraud and scam reporting platform, Chainabuse.
Anyone can view, search and file fraud reports on the platform, or check addresses and entities the person interacts with to understand if he might be exposed to illicit activity.

 

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Crypto’s role in terrorist financing​

US lawmakers have urged the government to crack down on the use of cryptocurrencies by Hamas and its affiliates. PHOTO: REUTERS

Oct 23, 2023

LONDON – Cryptocurrency’s role in terrorist financing and funding militant groups has come under renewed scrutiny following a deadly attack in Israel by Palestinian militant group Hamas.
Israel has seized crypto accounts it says are linked to Hamas. United States lawmakers have urged the government to crack down on the use of cryptocurrencies by Hamas and its affiliates.
But cryptocurrencies are just one way that violent militant groups, and groups designated as terrorist organisations, get and use money. Here’s what we know about crypto’s role.

Why is crypto used in illicit finance?​

Anyone can set up a cryptocurrency wallet address without always having to undergo checks such as those by a bank.
The addresses are pseudonymous – labelled only by a string of letters and numbers – which means people can send and receive cryptocurrency without revealing their identity.
The blockchain technology that underpins cryptocurrency operates digitally and across borders, meaning that it can act as an instant payment system.
Crypto is subject globally to less specific regulation than traditional finance, although new rules are being introduced in some regions.

The Financial Action Task Force (FATF), the global body responsible for tackling money laundering and terrorist financing, has warned that crypto assets “risk becoming a safe haven for the financial transactions of criminals and terrorists”.

Can crypto not be tracked?​

Yes. But not always.
Blockchains such as Bitcoin and Ethereum create a permanent public record of transactions. This means it is possible to see what funds have flowed in and out of a wallet address, and which wallets it interacted with.

It is hard for an outsider to identify transactions on the blockchain, but blockchain analytics firms have tools to track funds.
Still, in order to link these flows to a person or group, researchers rely on information not recorded by the blockchain.
Crypto exchanges can record which addresses belong to which customer, and police can unmask those behind wallets.
Cryptocurrency users can further obscure their tracks by the use of crypto “mixers”, or move funds to exchanges or other firms where the funds can become difficult to distinguish from other customers’ assets.

How much crypto has been used in terrorist financing?​

No one knows for sure.
Militant groups use different methods to move money, including cash, banks, shell companies and charities, and informal financial networks. Crypto is a small part, experts say.
A United Nations official said in 2022 that a couple of years ago, 5 per cent of terrorist attacks were considered to be financed by crypto, but that this may go up to 20 per cent, Bloomberg reported.
The FATF said in 2023 that crypto presents “increasing terrorist financing risks”, but noted that the “vast majority” of terrorist financing still uses regular money.
When illicit finance flows are identified at a crypto firm, that does not necessarily mean all of that firm’s flows are tainted, blockchain research company Chainalysis said in a blog.
Chainalysis said that terrorist financing “represents a small fraction of the less than 1 per cent of the entire crypto market occupied by illicit activity”.
Crypto crime hit a record US$20.1 billion (S$27.6 billion) in 2022, Chainalysis said, calling this a lower-bound estimate. This figure excludes instances when cryptocurrencies are the proceeds of non-crypto crimes such as payment for drugs. Cryptocurrency theft via cyber attacks is also a significant source of funding for North Korea, according to UN reports.
Some banks in Britain have curbed customers’ access to crypto because of a rise in crypto scams. REUTERS

 

[adaliedn]

I want to start trading. I already know a little about it, but I haven't invested yet. I think that this is not only fraud, but also development. There are people who have legally risen at the expense of cryptocurrencies. I even thought of opening my own exchange using this. This is a good idea and a good business if you understand it

 

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FTX founder Sam Bankman-Fried found guilty of crypto fraud, faces up to 110 years’ jail​

Sam Bankman-Fried had pleaded not guilty to two counts of fraud and five counts of conspiracy. PHOTO: REUTERS

NOV 3, 2023

NEW YORK – Sam Bankman-Fried, the 31-year-old curly-haired mogul who founded the FTX cryptocurrency exchange, was convicted on Thursday of seven charges of fraud and conspiracy after a month-long trial that laid bare the rampant hubris and risk-taking across the crypto industry.
Bankman-Fried became a symbol of crypto’s excesses in 2022 when FTX collapsed and he was charged with stealing as much as US$10 billion (S$13.7 billion) from customers to finance political contributions, venture capital investments and other extravagant spending.
A jury of nine women and three men took just over four hours of deliberation on Thursday to reach a verdict, convicting Bankman-Fried of wire fraud, conspiracy and money laundering. Together, the counts carry a maximum sentence of 110 years. Bankman-Fried is expected to appeal.
He is scheduled to be sentenced on March 28.
The Massachusetts Institute of Technology graduate, whose mother and father are Stanford University law professors, stood and clasped his hands together as the verdict was read.
After Judge Lewis Kaplan left the courtroom, Bankman-Fried spoke with his lawyers at the defence table with his head down.
His father put his arm around his mother as they looked on from the courtroom’s front row.

The verdict capped one of the fastest and most spectacular falls from grace in modern corporate history.
Just a year ago, Bankman-Fried was worth over US$20 billion.
FTX, valued at US$32 billion at its peak, was one of the world’s biggest marketplaces for people to buy and sell digital coins like Bitcoin and Ether.

Bankman-Fried was always expected to face an uphill battle in court. After FTX imploded, three of his top deputies pleaded guilty to fraud and agreed to cooperate with prosecutors in return for leniency.
During the trial, they testified that Bankman-Fried had repeatedly directed them to lie to the public and route billions of dollars in customer money from FTX to its sister trading firm, Alameda Research.
Bankman-Fried’s lawyers argued that he had operated his businesses in good faith and never intended to break the law. But they struggled to poke significant holes in the cooperators’ stories.
When Bankman-Fried took the stand to defend himself, he often seemed flustered.
Mr Mark Cohen, Bankman-Fried’s lawyer, said in a statement that the defence team respected the jury’s verdict.
But he added that Bankman-Fried “maintains his innocence and will continue to vigorously fight the charges against him”.
Even after the verdict, Bankman-Fried’s legal battle is likely to continue. He is tentatively scheduled for a second trial on campaign finance and other charges in early 2024, though it is unclear whether it will take place.
In the courtroom on Thursday night, Judge Kaplan asked prosecutors to give him an update by February on the potential second trial.
Bankman-Fried’s conviction represented a victory for the US Justice Department and Mr Damian Williams, the top federal prosecutor in Manhattan, who made rooting out corruption in financial markets one of his top priorities.
Once the darling of the crypto world, Bankman-Fried instead joins the likes of admitted Ponzi schemer Bernie Madoff, Wolf Of Wall Street fraudster Jordan Belfort and insider trader Ivan Boesky as notable people convicted of major US financial crimes.
Prosecutors argued during the trial that Bankman-Fried siphoned money from FTX to his crypto-focused hedge fund, Alameda Research, despite proclaiming on social media and in television advertisements that the exchange prioritised the safety of customer funds.
Alameda used the money to pay its lenders and to make loans to Bankman-Fried and other executives – who in turn made speculative venture investments and donated upwards of US$100 million to US political campaigns in a bid to promote cryptocurrency legislation the defendant viewed as favourable to his business, according to prosecutors.

Once the darling of the crypto world, Sam Bankman-Fried – who was known for his mop of unkempt curly hair and for wearing shorts and T-shirts – instead joins the likes of notable people convicted of major US financial crimes. PHOTO: REUTERS
Bankman-Fried took the calculated risk of testifying in his own defence over three days near the close of the trial after the three former members of his inner circle testified against him.
He faced aggressive cross-examination by the prosecution, often avoiding direct answers to the most probing questions.
Bankman-Fried testified that while he made mistakes running FTX, such as not formulating a risk management team, he did not steal customer funds.
MORE ON THIS TOPIC
Bankman-Fried’s conviction stirs both hope and condemnation for crypto
Who is Sam Bankman-Fried, the fallen ‘crypto king’ convicted of fraud?
He said he thought Alameda’s borrowing from FTX was allowed and did not realise how large its debts had grown until shortly before both companies collapsed.
“We thought that we might be able to build the best product on the market,” he testified. “It turned out basically the opposite of that.”
Prosecutors had a different view.
“He didn’t bargain for his three loyal deputies taking that stand and telling you the truth: That he was the one with the plan, the motive and the greed to raid FTX customer deposits – billions and billions of dollars – to give himself money, power, influence,” prosecutor Danielle Sassoon told the jury on Thursday.
“He thought the rules did not apply to him. He thought that he could get away with it.”
Former Alameda chief executive Caroline Ellison and former FTX executives Gary Wang and Nishad Singh, testifying for the prosecution after entering guilty pleas, said he directed them to commit crimes, including helping Alameda loot FTX and lying to lenders and investors about the companies’ finances.
The defence argued the three, who have not yet been sentenced, falsely implicated Bankman-Fried in a bid to win leniency at sentencing.
Prosecutors may ask Judge Kaplan to take their cooperation into account in deciding their punishment. NYTIMES, REUTERS

 

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Who is Sam Bankman-Fried, the fallen ‘crypto king’ convicted of fraud?​

Sam Bankman-Fried leaving the Manhattan Federal District court in New York on Feb 9, 2023. PHOTO: NYTIMES

NOV 3, 2023

NEW YORK – A few years after graduating from college, Sam Bankman-Fried grew worried he was not taking enough risks.
So the son of two Stanford Law School professors quit his Wall Street job and in 2017 started a cryptocurrency hedge fund, setting off a sequence of events that culminated on Thursday in his criminal conviction over what prosecutors have called one of the biggest financial frauds in United States history.
Two years after launching Alameda Research, Bankman-Fried founded FTX, an exchange that let users buy and sell digital assets such as Bitcoin.
Cryptocurrency valuations surged over the following two years, propelling Bankman-Fried to a net worth of US$26 billion (S$35 billion), according to Forbes magazine, before he turned 30.
He parlayed his wealth into political clout, becoming one of the biggest donors to Democratic candidates and causes ahead of the 2022 US midterm elections.
Based in the Bahamas, Bankman-Fried became known for his mop of unkempt curly hair and for wearing rumpled shorts, even when entertaining dignitaries like tech billionaire Bill Clinton.
In a cryptocurrency sector plagued by hacks and money laundering, Bankman-Fried hired celebrities including NFL quarterback Tom Brady and comedian Larry David to feature in advertisements portraying FTX as safe.

He publicly backed efforts to regulate crypto.
But prosecutors say his laid-back demeanour combined with his cultivation of a responsible image concealed his years-long embezzlement of customer funds. They contend the theft came to a head in 2022, when crypto prices swooned and he used FTX funds to plug losses at Alameda.
Bankman-Fried pleaded not guilty to seven counts of fraud and conspiracy.

His trial began on Oct 4 in Manhattan federal court.
Three former members of his inner circle, who pleaded guilty and agreed to cooperate with prosecutors, testified against him and painted an unflattering portrait of his character and suggested his quirky persona was mostly an act.
“He said he thought his hair had been very valuable,” said Caroline Ellison, Alameda’s former chief executive and Bankman-Fried’s on-and-off girlfriend.
She said that ever since he started his career on Wall Street, “he thought he had gotten higher bonuses because of his hair and that it was an important part of FTX’s narrative and image”.
Testifying in his own defence, the Massachusetts Institute of Technology (MIT) graduate said he wore shorts and T-shirts because they were “comfortable” and that he did not often get haircuts because he was “busy and lazy”.
The 31-year-old testified that he had made mistakes, such as not implementing a risk management team, that harmed FTX customers and employees.
But he said he never intended to defraud anyone or steal customer money.
Bankman-Fried had little crypto experience before founding Alameda, which initially made money by exploiting differences in prices in digital tokens between the US and Asia.
A physics major at MIT, he told an FTX podcast that he did not apply himself in classes and did not know what to do with his life for most of college.
But he grew interested during those years in a movement known as effective altruism, which encourages talented young people looking to make a mark on the world to focus on earning money and giving it away to worthy causes.
That led him to take a job as a quantitative trader at Jane Street Capital, but he began to doubt whether he was earning all he could.
“If I really think that I should be trying to maximise expected values, that probably implies substantially riskier strategies than what seems intuitively right,” he said in the June 4, 2020, podcast. “I should be careful not to fall prey to trying to choose a comfortable path.” REUTERS

 

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What investors should learn from the crypto fraud case​

Sam Bankman-Fried’s fate looks sealed, with lengthy jail time likely to be ordered, but this will not be the last crypto fraud, says the author. PHOTO: NYTIMES
Lionel Laurent

NOV 10, 2023

Justice has been served – and swiftly, too. A jury found fallen crypto mogul Sam Bankman-Fried guilty of seven counts of fraud and conspiracy after just five hours of deliberation, markedly less time than it took for jurors to puzzle over Elizabeth Holmes’ Theranos scandal or Raj Rajaratnam’s insider trading at hedge fund Galleon.
And while this is certainly crypto’s biggest case of fraud, it undoubtedly won’t be the last.
If the 31-year-old’s culpability for the “pyramid of deceit” behind FTX’s collapse seemed so obvious, it’s partly because he was prosecutorial gold. You didn’t have to know what a blockchain was to comprehend his former lieutenants saying that the US$8 billion of missing customer funds happened on his watch and with his knowledge.
Nor did you have to grasp GAAP accounting to see that the frizzy-haired wunderkind’s own testimony contradicted his communications and electronic records. Bankman-Fried had no filter, though his lawyers might wish he had.
Having lost a lot of people a ton of money, Bankman-Fried’s lack of empathy and remorse played a big role in this trial. And that matters when committing corporate crimes: If you don’t care about other people, especially your customers, it becomes very easy to exploit them.
Or, as Dan Davies put it on social media, to take a US$10 billion account labeled “Not My Money” and re-label it “My Money.” There was a dangerous mindlessness to Bankman-Fried, once worth more than US$15 billion, who openly played video games while giving interviews or holding meetings.
Bankman-Fried’s fate looks sealed, with lengthy jail time likely to be ordered when he’s sentenced in March, but I don’t believe for a second that this will be the last crypto fraud.

We’ve closed one chapter of Covid-era laser-eyed true believers, yet market prices are stirring once more as TradFi firms see an opening to offer Bitcoin and other products with the potential blessing of regulators. FOMO remains strong.
“One camp of people in my group is saying forget it, the value of crypto is zero, there’s nothing behind it,” Bjoern Jesch, the global chief investment officer of US$900 billion German asset manager DWS Group, said in an interview with Bloomberg News. “And there’s this other group of people saying like, hmm, I mean at least there’s a price of US$35,000 for Bitcoin. Someone is paying US$35,000.”
There are other parts to the story of FTX that explain the incentives beyond the individual. The crypto sub-culture, for example, and its overlap with the aggressive quantitative trading culture where Bankman-Fried cut his teeth.

Few in crypto-land seemed to blink an eye at the huge amounts of leverage offered by FTX, its lack of a chief financial officer or paucity of experience among its senior managers. The exchange’s raciest growth happened offshore while US regulators focused their attention on TradFi (where everything from public-transit tickets to expenses are scrutinized these days).
FTX, along with other market players, even invented its own token, FTT, and used it as cash – Bankman-Fried’s view that “money is fungible anyway” is pure crypto babble, but plenty of people bought into it until the inevitable painful contact with reality.
You only have to read Going Infinite by Michael Lewis to see the cultural overlaps with his earlier book about 1980s Wall Street, Liar’s Poker. While at Jane Street, Bankman-Fried and those he would later hire took full advantage of a culture that encouraged teachable gambling between employees and interns – with a loss limit of US$100 per day per intern – and put a rocket under it at Alameda Research and FTX, exploiting market inefficiencies but also settling scores.
It may have been this score-settling that saw Bankman-Fried double down on misusing customer funds, for example when buying out rival platform Binance’s stake in FTX.

And then there’s the outer circle of willing enablers. What would Bankman-Fried have been without the long line of venture capitalists throwing more than US$27 billion into crypto during 2021’s pandemic-fueled euphoria, clearly without serious due diligence? Or the institutional investors parking their funds at a trading venue in the Bahamas? Or the accounting firm based in the metaverse appointed to audit FTX?
It’s easy to talk about “missed” red flags, but there was willful blindness here. In late 2021, I warned readers of the huge legal risk of sending funds to Binance and FTX, and in 2022 of the risk of a crypto exchange collapsing. When I asked one of my investing sources why, despite his own misgivings, he continued to use FTX, his answer was: “Because we can’t afford not to.”
There may be deeper reasons why the risk of fraud remains. In his 1993 book Out of Control, Zbigniew Brzezinski warned that a kind of self-indulgent and permissive attitude to capitalism would break people’s moral compass and simply outsource morality to the courts. He called it “procedural morality” – essentially, see what you can get away with until the law says “stop.”
As clear as the trial verdict is, that kind of incentive remains. With every boom-and-bust cycle, standards get lax and exchanges collapse. My own first exposure to crypto was reporting on the 2014 collapse of Mt Gox, helmed by a young geek called Mark Karpeles; he was cleared of embezzlement charges, and SBF’s antics in hindsight make his look positively minor. Even if banks take over more of the industry, I’m not sure the crypto culture around tokens backed by thin air pitched as digital gold will improve.
My other hunch is that FTX’s investment in hotly valued artificial intelligence startup Anthropic, which may play a big role in making some creditors whole, might have symbolic resonance down the line. In the coming years, the next big corporate scandal may very well have “AI” on its perpetrator’s resume. In the meantime, beware of gurus offering the future of money. BLOOMBERG

 

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Privately issued crypto has failed as medium of exchange, store of value, says MAS chief​

Mr Ravi Menon said the prices of cryptocurrencies are volatile and many investors have suffered heavy losses. PHOTO: BLOOMBERG

Claire Huang
Business Correspondent

NOV 16, 2023

SINGAPORE – Cryptocurrencies that are issued privately have failed the test of digital money, Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said on Thursday.
They have performed poorly as a medium of exchange or store of value, he noted.
The prices of cryptocurrencies are volatile and many investors have suffered heavy losses, he added.
Mr Menon made the point in a speech at the Singapore Fintech Festival conference at the Singapore Expo on Thursday, when he outlined the four contenders for digital money.
They are cryptocurrencies, central bank digital currencies (CBDCs) or wholesale CBDCs, tokenised bank liabilities and stablecoins that are well regulated.
Tokenisation involves converting financial instruments or obligations issued by a bank into digital tokens and which can be transferred or recorded on a digital ledger, or blockchain. Examples of bank liabilities are loans and deposits.
The MAS chief, who is retiring on Jan 1, said wholesale CBDCs and tokenised bank liabilities can play the role of digital money and help to achieve atomic settlement, which allows simultaneous and irreversible transfers of assets or funds between parties.

He noted that MAS has conducted many experiments on the use of wholesale CBDCs with other central banks and the financial industry.
The regulator will now further expand testing to the live issuance of wholesale CBDCs to instantaneously settle payments across commercial banks.
MAS will soon partner the local banks to pilot the use of wholesale CBDCs as a common settlement asset in domestic payments.

“Banks will issue tokenised bank liabilities that represent claims on their balance sheets by their retail customers. Retail customers will be able to use these tokenised bank liabilities in transactions with merchants, who can then credit these tokenised bank liabilities with their respective banks,” Mr Menon said.
Outstanding interbank obligations arising from these transactions will be settled via an automatic transfer of wholesale CBDCs.
What this means is that clearing and settlement will be done in a single step, on the same infrastructure. This is unlike the existing process where clearing and settlement take place on different systems, and settlement occurs with a lag.
On stablecoins, Mr Menon said that if well regulated, they can potentially play a useful role as digital money alongside CBDCs and tokenised bank liabilities.
Stablecoins are cryptocurrencies whose value is pegged, or tied, to that of another currency.

In Singapore, MAS has come up with a regulatory framework for stablecoins and the legislative amendments “will not be ready for at least a year”, he said.
In the interim, the regulator recognises entities whose stablecoins can already demonstrate compliance with the new regulatory framework.
MAS has granted in-principle approval (IPA) under the Payment Services Act to StraitsX and Paxos Digital Singapore, which will issue stablecoins that mostly comply with the new framework.
Paxos will issue stablecoins pegged to the United States dollar on a one-to-one basis.
StraitsX, payment infrastructure for digital assets, said the IPA enables it to issue stablecoins XSGD and XUSD – matched one-to-one with the Singdollar and US dollar respectively.
“XSGD is currently issued out of Xfers and is available for minting and redemption via the StraitsX platform. XUSD will be released publicly in the near future, in compliance with MAS’ upcoming single-currency stablecoin regulatory framework requirements,” StraitsX said.

 

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How crypto investors are picking up the pieces​

A number of crypto exchanges have launched new lending programmes in recent months. PHOTO: REUTERS

NOV 18, 2023

For many who trade cryptocurrencies for a living, the events of a year ago are forever etched in memory. “The worst day of my career, and one of the worst days of my life – the day FTX froze withdrawals,” is how Mr Travis Kling, who runs Ikigai Asset Management, described it.
Sam Bankman-Fried’s exchange then filed for bankruptcy, ushering in arguably the darkest days in crypto’s history.
“The first weeks were incredibly brutal. I didn’t sleep much at all. Feelings of terror, guilt and shame. We laid off most of the team,” Mr Kling said.
A year on, the industry is irrevocably altered – gone are the giddy day traders and the abundant leverage that drove Bitcoin to its November 2021 high at close to US$69,000.
Regulators determined not to get caught off guard again are tightening their grip. And large financial firms like BlackRock are moving in, drawn by the prospect of the US Securities and Exchange Commission giving its first blessing for an exchange-traded fund (ETF) investing directly in Bitcoin.
Perhaps the most tangible indicator that crypto has moved on: Bitcoin has recovered all its losses since the May 2022 implosion of stablecoin TerraUSD, which set in motion the wave of failures that ultimately helped bring down FTX.
Here are some of the ways in which crypto has changed since FTX fell.

The market​

The number of over-the-counter desks has fallen, with mainly the more conservative ones remaining, according to Ms Tegan Kline, co-founder of Edge & Node, which developed a crypto project called The Graph. That, combined with the erosion of leverage, has sapped liquidity.
“Leverage is gone,” Ms Kline said. “A lot of people have pulled money out of the system, or they have money stuck at FTX.”
A number of crypto exchanges have launched new lending programmes in recent months, while several more lending projects are expected to debut shortly, hoping to fill in the gap. Approval of a Bitcoin ETF could help increase liquidity as well.

One of the hardest-hit corners of crypto is non-fungible tokens (NFTs), made famous by collections like Bored Ape Yacht Club’s cartoon primates and CryptoPunks’ pixelated characters. Weekly trading in NFTs has fallen to half of what it was when FTX went bankrupt.

Regulators​

The FTX crash woke governments around the world up to the need for tighter guardrails around crypto. In short order, the US Securities and Exchange Commission and the US Commodity Futures Trading Commission went after top exchanges like Binance, Coinbase Global and Kraken.
The European Union adopted its Markets in Crypto-Assets regulation in May, providing a new legal framework for the industry. Both Hong Kong and Dubai introduced new crypto regulatory regimes over the summer, pledging to clamp down on bad behaviour, while positioning themselves as new hubs for the industry.
At the same time, regulators worldwide kept clamping down on Binance, which exited countries like Canada and the Netherlands under pressure.

Venture Capital​

During the heady days of 2021 and early 2022, venture capitalists were the industry’s biggest cheerleaders, pouring billions of dollars into budding start-ups. But the collapse of FTX sparked a hasty retreat, with crypto venture funding tumbling 63 per cent to US$2 billion (S$2.7 billion) in the third quarter from a year earlier.
The venture capitalist (VC) firms that pumped almost US$2 billion into FTX came under heavy fire for not spotting the fraud. Sequoia Capital, Thoma Bravo and Paradigm even face a class-action lawsuit from FTX investors who alleged that these VCs hyped the legitimacy of the exchange.
So investors are now running background checks on company founders and asking for hard data on metrics like revenue and customer growth.
Start-ups themselves have also adapted, increasingly choosing to launch their businesses in places like Singapore, Britain and the EU, which are viewed as more friendly to crypto than the United States.
Ms Kate Laurence, chief executive of Bloccelerate VC, said the “irrational exuberance” that characterised the crypto bull run overshadowed the need for vetting potential investments, but it is now a much different time for VCs. Due diligence is “no longer something that they can choose whether or not to participate in”, she said.

Decentralised finance​

The collapse of FTX, a centralised exchange, has reignited interest in decentralised finance (DeFi), according to Mr Paul Veradittakit, managing partner at crypto VC firm Pantera Capital.
“We see a new breed of DeFi companies around derivatives and structured products, companies hoping to provide separation of custody and clearing, and companies providing more transparency around credit,” he said.
While the total value of cryptocurrencies locked on DeFi applications is still down from a year ago, it has rebounded in recent months.
FTX drove home the peril of keeping your digital assets on a centralised exchange, said Edge & Node’s Ms Kline. Former FTX users are still seeking to recover some US$16 billion of crypto that was trapped on the platform when it went down.
For all the soul-searching and change FTX’s messy demise has wrought, the defunct platform may be about to embark on a second act. Three bidders are competing to buy the remnants of FTX and reboot the exchange in an auction for the assets.
“It’s like, are you kidding me? Have you learnt nothing?” Ms Kline said. BLOOMBERG

 

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Man in Johor Bahru loses nearly $300k in crypto scam​

The scam was tied to purported Bitcoin investments. ST PHOTO ILLUSTRATION: GAVIN FOO

NOV 20, 2023

JOHOR BAHRU – A 42-year-old man in Malaysia lost close to RM1 million (S$289,300) of his savings after falling for a cryptocurrency scam.
Johor Baru South Police Assistant Commissioner Raub Selamat said the victim filed a report on Nov 18.
“The victim alleged he was cheated by a foreigner who offered a cryptocurrency investment using a mobile application,” Mr Raub said in a statement on Nov 20.
“The victim was promised that he would receive a 60 per cent return on his investment within 60 minutes.
“The scammer also claimed that the victim would also receive revenue for every investment transaction made.”
The victim then made 126 transactions totalling RM989,170 for purported Bitcoin investments.
“He only realised that he had been duped after he was unable to withdraw his money using the app, and found his account blocked,” Mr Raub said.

In an unrelated case, a 77-year-old man lost RM207,900 in a phone scam.
“A report was lodged on Nov 16 when the victim received a call from a delivery company. The scammer claimed that the victim sent a parcel containing an ATM card, a passport and an identity card.
“The scammer also told the victim that an arrest warrant had been issued against him,” Mr Raub said.
The victim then made 20 transactions worth RM207,900 to the scammers.
Both cases are being investigated under Section 420 of the Penal Code for cheating.
Said Mr Raub: “Always be vigilant and check the given account number to see if it has been registered as a scam account through Semak Mule, or do research on the company first.”
“Avoid entertaining calls from unknown numbers, especially those that make claims to be from a parcel company,” he added. THE STAR/ASIA NEWS NETWORK

 

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US seeking more than $5.3 billion from crypto exchange Binance to end case​

While the exact details of Binance’s finances are a closely held secret, the company generated at least US$20 billion of revenue during the crypto boom in 2021. PHOTO: AFP

NOV 21, 2023

NEW YORK - Memo to Mr Zhao Changpeng: Crypto markets want you to take the government’s offer.
Binance Coin led a rally in digital asset prices on Nov 20 after Bloomberg reported that the Department of Justice (DOJ) is seeking more than US$4 billion (S$5.3 billion) to end a criminal probe into Mr Zhao and his company Binance, the world’s largest digital asset exchange.
The coin known as BNB rose as much as 8.5 per cent to US$266.42, and Bitcoin climbed as much as 2.1 per cent to US$37,768.
While that penalty would go down as one of the biggest-ever levied against a company by the United States government, traders and analysts are breathing a sigh of relief for the broader market.
There are still questions that need to be answered, including what concessions the government will require of Binance and its leader, but the report provides some clarity that there is a path forward for Binance, said Mr Anil Lulla, co-founder of crypto research firm Delphi Digital.
“It would be great to get this behind us”, he said. “It was an overhang in the industry. And while US$4 billion is not an insignificant number, it’s probably a small price for Binance to pay to move forward from this.”
While the details of Binance’s finances are a closely held secret, the company generated at least US$20 billion of revenue during the crypto boom in 2021, according to a Bloomberg analysis in 2022 of its trading volume and fees.

However, Binance’s combined market share in spot cryptocurrencies and derivatives is on trend to decline for the ninth consecutive month, falling to 43.9 per cent as at Nov 15, according to data compiled by CCData.
Crypto exchange OKX has been the largest beneficiary of Binance’s decline in the derivatives market, with its market share rising from 11.2 per cent to 24.9 per cent since the start of 2023, CCData said.
Negotiations between the DOJ and Binance include the possibility that Mr Zhao could face criminal charges in the US under an agreement to resolve the probe into alleged money laundering, bank fraud and sanctions violations, according to people familiar with the discussions. He is currently residing in the United Arab Emirates, which does not have an extradition treaty with the US. But that does not prevent him from coming voluntarily.
Binance did not respond to e-mails and telephone calls seeking comment. The DOJ declined to comment.
This reaction in the market seems to indicate that the DOJ’s decision is not a systemic risk to the entire industry, said Mr Greg Moritz, co-founder and chief operating officer of crypto hedge fund AltTab Capital.
“Binance isn’t short on capital and monetary fines are often a cost of doing business in an environment where the rules are ambiguous,” he said. “In the long term, this is almost certainly good news as it provides further clarity on what enforcement will look like; and markets love clarity.”
The crypto market has rebounded strongly this year following massive losses in 2022, with Bitcoin more than doubling amid optimism that the Securities and Exchange Commission is poised to approve an exchange-traded fund that invests directly in the oldest and biggest token. BLOOMBERG

 

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US sues crypto exchange Kraken over failure to register with SEC​

Kraken said the lawsuit will not affect its more than 10 million clients. PHOTO: REUTERS

NOV 21, 2023

NEW YORK – Kraken, one of the world’s largest cryptocurrency exchanges, was sued on Nov 20 by the US Securities and Exchange Commission (SEC), which accused it of illegally operating as a securities exchange without first registering with the regulator.
The lawsuit is the latest step in SEC chairman Gary Gensler’s push to bring cryptocurrency under his agency’s purview, by contending that digital assets are investment contracts subject to federal securities laws.
Kraken intends to defend itself, saying that Congress should decide how to regulate cryptocurrency exchanges and calling the SEC view of digital assets “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy”. The San Francisco-based exchange also said the lawsuit will not affect its more than 10 million clients.
In June, the SEC filed similar lawsuits against Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest in the United States. Both are defending against the regulator’s claims.
The SEC said Payward and Payward Ventures, which operate as Kraken, have since 2018 made hundreds of millions of dollars arranging crypto purchases and sales, while turning a “blind eye” to securities laws designed to protect investors.
Kraken is also accused of having deficient internal controls and inadequate record keeping, reflected in part in its commingling customer money with its own and paying operating costs directly from customer accounts.
Failing to register has “resulted in a business model rife with conflicts of interest that placed investors’ funds at risk”, SEC enforcement chief Gurbir Grewal said in a statement. “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.”

Kraken said the SEC complaint concedes that any alleged “commingling” amounted to “no more than Kraken spending fees it has already earned”.
The SEC also accused Binance of commingling customer funds, following a Reuters report describing such conduct. Binance has denied the commingling accusation.
The lawsuit on Nov 20 seeks a civil fine, disgorgement of ill-gotten gains and a halt to acting as an exchange without registering.
Kraken was founded in 2011. It is backed by investors including Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge and Tribe Capital. REUTERS