Third FTX Domino Falls as Former Director of Engineering Pleads Guilty to Fraud

Close Ally of FTX Founder Sam Bankman-Fried Pleads Guilty to Fraud

A third member of FTX founder Sam Bankman-Fried’s inner circle pleaded guilty to fraud charges and agreed to assist federal prosecutors, expanding the pool of cooperating witnesses against the former head of the failed crypto exchange.

Nishad Singh, the company’s former director of engineering, pleaded guilty to six criminal counts, including conspiring to commit securities and commodities fraud, during a hearing Tuesday in federal court in Manhattan.

***

In parallel actions, the Securities and Exchange Commission and Commodity Futures Trading Commission on Tuesday filed civil fraud lawsuits against Mr. Singh.

Mr. Singh created software code that allowed FTX customer funds to be diverted to Alameda, and he knew Mr. Bankman-Fried was improperly using such funds for venture investments and other purposes, according to the SEC. In September and October, despite knowing about the shakiness of FTX and Alameda’s finances, Mr. Singh withdrew about $6 million from FTX for personal use, including the purchase of a house and charitable donations, the SEC alleged in its suit.

CFTC Picks Former Cybercrime Prosecutor as Enforcement Chief

The Commodity Futures Trading Commission hired a former cybercrime prosecutor who oversaw some early federal cases involving cryptocurrencies as its enforcement chief, the latest example of regulators adapting to the risks posed by digital assets and other financial innovations.

In his new post, Ian McGinley oversees a team of 120 civil-enforcement attorneys who investigate fraud and misconduct in futures markets tied to energy and agricultural commodities, as well as the newer world of digital assets that qualify as commodities, CFTC Chairman Rostin Behnam said Monday in an interview.

Oversight of Crypto Auditing: Asking the PCAOB to Go Out of Bounds

The work that some PCAOB-registered accounting firms have performed for clients in the cryptocurrency industry may well have been, at best, questionable and possibly in violation of the standards of the American Institute of Certified Public Accountants that apply to private company audits. But that does not give the PCAOB jurisdiction over their conduct. If Congress wants the Board to become involved in policing audit and other reports that accounting firms provide to crypto participants, it will have to amend the law to give it that power. Alternatively, if the SEC believes these crypto companies should register as broker-dealers (and permits them to do so), their auditors’ work will then fall within the PCAOB’s jurisdiction. Until then, it is pointless to criticize the PCAOB for failing to involve itself in the crypto space.

Grayscale to Argue SEC’s Inconsistency as Bitcoin ETF Dispute Heads Toward CourtGrayscale says it’s preparing to argue in court next week that the Securities and Exchange Commission (SEC) inappropriately treated its bitcoin exchange-traded fund (ETF) bid differently than earlier decisions approving bitcoin futures-based ETFs, according to the company’s legal team.

The digital investment company’s application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF was denied in June, so Grayscale took the SEC to court. On March 7 the sides are set to make their arguments to federal judges of the U.S. Court of Appeals for the District of Columbia Circuit. Grayscale’s team will contend the regulators had a constrained role here and didn’t follow logic in its rejection after having approved several futures ETFs with similar risk profiles. Grayscale is owned by Digital Currency Group, which also owns CoinDesk.

The Top 50 of 2022

In this report, ISS SCAS reviews the securities-related settlements of 2022 and ranks the Top 50 plaintiffs’ securities firms by aggregate settlement amount achieved for shareholders. For the calendar year 2022, ISS Securities Class Action Services (ISS SCAS) recorded 143 approved securities class action settlements within North America. Collectively, 2022 delivered $4.87 billion in settlement funds for distribution, an increase of 37.2 percent from the $3.55 billion recovered in 2021. The top five recorded North American settlements from 2022 were as follows:

--Twitter, Inc. – $809,500,000

--Teva Pharmaceutical Industries Ltd. – $420,000,000

--Luckin Coffee, Inc. – $175,000,000

--BlackBerry Ltd. – $165,000,000

--NovaStar Mortgage, Inc. – $165,000,000

Two shareholder firms have reaped more than $1 billion in fees. Are they overpaid?

The study’s most provocative assertion, in my mind, is that judges may be overpaying shareholder firms in the biggest cases, awarding fees in excess of the risk the firms bear. Choi, Erickson and Pritchard found that judges award a smaller percentage of the class recovery as the size of the settlement increases. But the awards in these big cases, they found, nevertheless represent a higher multiplier on lodestar billings. Or, as the paper phrases the phenomenon: “As the settlements get larger, judges are willing to give plaintiffs’ firms a larger return on the time they invested.”

Moreover, the paper argued, big settlements may not be the result of skillful lawyering but simply a function of a defendant’s market capitalization. And judges rarely delve into factors such as parallel government investigations when they decide how much to award to shareholder firms, even though these considerations often affect defendants’ settlement decisions.

Binance-branded crypto token hit by $6bn outflow after US crackdown

Investors have pulled more than $6bn out of a Binance-branded digital token in the past month, in a sign that a recent US regulatory crackdown on digital assets is putting pressure on the world’s largest crypto exchange.

New York’s financial regulator last month halted new issuance of the stablecoin, known as BUSD, citing “several unresolved issues” relating to Binance’s relationship with Paxos, the company responsible for minting the dollar-pegged token.

Since then holders have rushed to withdraw their cash, causing the BUSD in circulation to fall by more than a third, according to data from blockchain analytics platform Nansen.

Visa, Mastercard pause crypto push in wake of industry meltdown – sources

Both Visa and Mastercard have decided to push back the launch of certain products and services related to crypto until market conditions and the regulatory environment improve, said the people, who asked not to be named as talks were confidential.

“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services,” a spokesperson for Visa, the world’s largest payment processor, said.