Will SEC's Crypto Insider Trading Case Lead to Crypto Ice Age?

Crypto market could be thrown into flux by SEC legal case

While the lawsuits may seem rather routine to an outside observer, the SEC’s case, specifically, could have a profound and even crippling effect on a $1 trillion global crypto market.

What makes the case remarkable is the fact that the crypto market is and remains outside of the SEC’s legal purview—the agency does not currently regulate it….

In short, the lawsuit could settle a key point of disagreement. The SEC is saying that at least some cryptos are securities, and by pursuing charges against individuals for insider trading, it’s making the case that it has the power to regulate them. If it is successful in its prosecutions, too, experts say that the past year’s crypto winter could look more like little more than a snow flurry compared to the potential ice age that could come next.

SEC Cares About Climate Reporting, Not Behavior, Official Says

The SEC is uninterested in changing how companies address climate change, except when it comes to their disclosures, a senior agency official said Tuesday.

The Securities and Exchange Commission is agnostic to companies’ environmental behavior as it finalizes rules that would require companies to report on their greenhouse gas emissions and make other climate disclosures, said Erik Gerding, the incoming head of the agency’s Division of Corporation Finance. The SEC is aiming to adopt climate disclosure rules by April.

“We’re not looking to nudge behavior. We’re a disclosure agency,” Gerding said at a securities regulation conference in Coronado, Calif….

Celsius! – Bloomberg

On the other hand here are some actual quotes from the bankruptcy report!…

In April 2022, Celsius’s Coin Deployment Specialist described Celsius’s practice of “using customer stable coins” and “growing short in customer coins” to buy CEL as “very ponzi like.” A few weeks later when Celsius made another push to prop up the price of CEL, Celsius’s former Vice President of Treasury asked where the cash was coming from to make the CEL purchases and Celsius’s Coin Deployment Specialist replied, “users like always.” This same employee explained that at the time he made this statement, Celsius had “negative equity” and therefore necessarily was using customer funds when it made these purchases.

Aaaaahhhh! You can’t! You can’t send messages like that! If you find yourself messaging your boss to say things like “our business is very Ponzi like” and “we have negative equity so we’re using customer funds to buy worthless coins so our founder can cash out,” no! Stop! If you have written sentences like that, don’t send them to your boss! Print them out and get yourself a lawyer and a whistle-blower deal! My lord. This is not legal advice but what are you even doing?

Fraud Economy: How Current Economic Trends Lead to More Corporate ScamsThis is what happens when cash is harder to find — say, after a sustained decline in the stock market or an enormous increase in the cost of borrowing money. First, there is what Bank of America called “corporate misery” as forward-looking numbers come in lower than projected. (That’s already happening.) Then that misery finds a company run by executives who think that by committing acts of fraud, they can obfuscate their dire financial situation.

The risk of running into companies that have moved from funk to fraud gets higher the longer financial conditions remain tight, Howard Scheck, a former chief accountant of the Securities and Exchange Commission’s Division of Enforcement, told me. Now he’s a partner at the advisory firm StoneTurn, where he leads accounting investigations for corporate clients facing allegations of fraud from regulators — like the people at his old job — or shareholders.

“I think we’re going to be very busy this year,” he said.

US Regulators Set Crypto Enforcement Records in 2022

2022 was a rocky year for cryptocurrency. Prices crashed, Terra collapsed, FTX went bankrupt, and – Solidus research now shows – regulators engaged in more crypto-related enforcement than in any other year in the industry’s history.

In 2022, the four main federal regulators with authority over cryptocurrency – the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Office of Foreign Assets Control (OFAC) – announced a combined 58 crypto-related enforcement actions, a 65% jump over 2021.

SEC Mango Markets Crypto Suit Zeroes in on Governance Tokens

The SEC has set sights on its next crypto enforcement target—”governance token.”

The agency’s Jan. 20 lawsuit accuses a trader of violating federal securities laws by manipulating the price of Mango Markets’ governance token, MNGO. Such tokens, which have become increasingly popular, give the holder the right to vote on changes to a blockchain organization that issued the token.

The case illustrates that governance tokens aren’t immune from the agency’s aggressive efforts to regulate crypto markets. It could also serve as a reference for other crypto projects on how to structure their governance models.

Perella London Banker Suspected in Insider Probe Dies by Suicide

A London-based Perella Weinberg Partners banker died by suicide in the days after the firm’s UK headquarters were searched as part of a German investigation into insider trading, people familiar with the matter said.

The deceased banker was one of the suspects in the probe, the people said, asking not to be identified discussing sensitive information.

With Its Adani Report, Hindenburg Is the Latest Short-Selling Villain

It’s not easy being a short-seller. The odds are stacked against you from the outset. Stocks tend to climb over time, so unlike peers who buy stocks before they sell, you don’t have the tailwind of a rising market. Then you have to navigate a tricky risk-management dynamic: When you’re right, your stocks go down but that diminishes position size and hence your potential return; when you’re wrong, your position grows, heightening your risk. As a short seller, the maximum you can make on a stock is 100%, yet potential losses are uncapped.

If that’s not enough, there’s a stigma to taking the other side in a world where most people cheer for rising prices. In his recently published memoir, John Mack, former chief executive officer of Morgan Stanley, is clear about who he sees as the villains of the global financial crisis: “These short sellers were destroying a storied franchise, built over almost three-quarters of a century of hard work and integrity.”