"OFAC Around and Find Out"

OFAC Around and Find Out

The cryptocurrency space has long hoped to emulate the business model of Uber: ignore the regulations until you can grow too big to regulate, a technique called “regulatory escape velocity.” With Uber, the primary tool was simply violating taxi regulations among thousands of independent municipalities and daring the local regulators to do something. With cryptocurrency, the common excuse is to just “write code” that ignores centuries of financial regulation and then let it loose upon the world.

The cryptocurrency ecology has now run into a regulator that thinks nothing is too big to regulate: The Office of Foreign Asset Control (OFAC). On Aug. 8, OFAC announced the addition of virtual currency mixer “Tornado Cash” and all of its wallets to the Specially Designated Nationals and Blocked Persons List (SDN list), of entities that it is illegal for U.S. persons, or really anything that touches the U.S. financial system, to do business with.

The SEC Treats Crypto Like the Rest of the Capital Markets – WSJ

That BlockFi had borrowed crypto wasn’t the issue here. In fact, you could replace “crypto” with any other asset. The issue was what it did with the borrowed assets and what it didn’t do as a firm: provide the required disclosures to investors. Compliance with our laws protects the investing public. Unfortunately, some platforms that offer crypto lending aren’t complying with the applicable requirements.

We can dispense with the idea that crypto lending isn’t subject to regulation. On the contrary, the rules have been around for decades. The platforms aren’t following them. Noncompliance isn’t the inevitable result of the crypto business model or underlying crypto technology. Rather, it is as if these platforms are saying they have a choice—or even worse, saying “Catch us if you can.”

The Sleuths Who Protect Crypto From Hackers Are Raking in Money

With criminals including North Korean hackers increasingly targeting the sprawling software infrastructure underpinning the cryptosphere, firms that sift through code for weaknesses and run bug-hunting sites are finding themselves with more business than they can handle. As mass firings become the norm elsewhere in crypto, they’re boosting hiring, raising prices and taking in fresh funding.

Their rising fortunes underscore how the industry is waking up to the threat of sophisticated hackers who have stolen roughly $2 billion from digital-asset protocols this year, according to researcher Chainalysis, which says such attacks show few signs of slowing.

With so much at stake, crypto security services are moving from the “nice to have” spending category to the “must have” bucket, even for bootstrapping startups and community-driven projects.

Why Monique Winkler Is the Latest in a String of Enforcement Lawyers to Lead the SEC’s SF Regional Office

The way work flows from the regional offices to the commission could also be a reason most regional directors come from the enforcement side. Jerry Hodgkins, a Covington & Burling partner and former associate director for the SEC’s enforcement division, said regional office enforcement staff can get almost weekly interaction with the commission.

“Enforcement actions that are recommended by the staff have to be approved by the commission, and so they have to go directly to the commission for every single action, and that could be as many as 500 a year,” Hodgkins said.

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“About 90% of the commission’s meetings are related to the enforcement program, so I think the reality is that when the commission is doing its business, a lot of it is enforcement work,” he said. “So when they’re thinking of promoting a regional director, they probably are looking for somebody who they can rely on to run an enforcement program and present those cases effectively to the commission.”

Crypto firm FTX receives cease and desist from FDIC about insurance

The FDIC issued letters to five crypto companies, including FTX US. Unlike deposits held at U.S. banks, cryptocurrencies stored with brokerages are not protected by the government.

“Based upon evidence collected by the FDIC, each of these companies made false representations —including on their websites and social media accounts — stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured,” the regulator said in a press release.

Gary Gensler’s gross SEC overreach

Since Howey, Congress has failed to pass any new legislation that would directly involve the regulation of crypto. This should mean that it’s Congress’s intent that crypto’s de facto regulator is the CFTC, which has chosen a lighter touch because it fears stifling an emerging technology that blockchain and their digital assets represent. Yet Gensler has used this perceived lack of clarity to unleash a campaign of regulation by enforcement – stretching Howey beyond recognition. When Gensler looks at crypto, he not only sees an opportunity to regulate how the land and service contracts were sold, but an opportunity to regulate the oranges. As a legal theory, it should frighten everyone well beyond the crypto space.

Finra proposes 3-year pilot program for remote office inspections

The Financial Industry Regulatory Authority Inc. filed a proposal last Friday with the Securities and Exchange Commission that would establish a three-year voluntary pilot program for financial firms that want to continue remote inspections of branch offices and other locations.

The pilot program effectively would extend the online supervision that Finra has allowed since November 2020 in response to the pandemic. Finra eased in-person office inspection requirements in light of social distancing during the pandemic that caused most brokerages to switch to remote operations.

Online Lottery Company Hit with First SPAC-Related Securities Suit Filing Since May

Although the filing of SPAC-related securities lawsuits has been one of the important securities litigation stories so far this year, the filing this past week of yet another SPAC-related securities suit did highlight the fact that it is the first SPAC-related securities suit to be filed since late May. As discussed further below, there may be some reasons for this apparent lull in SPAC-related securities suit filings over the last several months. However, the recently filed suit, as also discussed below, at the same time arguably underscores the fact that it is entirely possible that the apparently lull in filings between May and August was purely coincidental and that we are likely to see continued numbers of SPAC-related securities suit filings as the year progresses.