Crypto Capital Executive Indicted in NY Court

Crypto Capital executive Oz Yosef has been indicted on three criminal counts by the U.S. Attorney’s Office of the Southern District of New York.

Citing court documents from October 23rd, Oz Yosef has been indicted by the U.S. authorities on three criminal counts, which are conspiracy to commit bank fraud, bank fraud and conspiracy to operate an unlicensed money transmitting business.

It appears that the filing confirmed allegations from cryptocurrency exchange Bitfinex, which has recently claimed to have been a victim of fraud regarding Crypto Capital — its former payments processor. Bitfinex has issued a statement on the matter, saying that it was not involved in money laundering and that it has been lied to by Crypto Capital representatives including its former president and Oz Yosef.

Accordingly, Crypto Capital spread the firm’s funds across multiple bank accounts in several countries, making it difficult to access. The crypto exchange further added that Crypto Capital provided false reassurances regarding its reputation, expertise and operations, which lead to the disappearance of $880 million.

Bitfinex presented itself as the victim of Crypto Capital following the latter’s president arrest by Polish authorities due to money laundering scandals involving the Columbian Cartel. On Thursday, Crypto Capital president Ivan Manuel Molina Lee was extradited by Polish authorities on charges of money laundering, subsequently charged with laundering 1.5 billion zloty ($390 million).

Upon Lee’s arrest, Stuart Hoegner – Bitfinex’s general counsel – released a statement last Friday, on behalf of the exchange, maintaining its claim to be a victim of fraud and will pursue the company in retrieving its lost funds.

Following investigations conducted over this past spring by multiple international authorities, including U.S. authorities, Crypto Capital’s funds have been frozen, out of which $880 million belonged to crypto exchange Bitfinex.

Meanwhile, there have been doubts circulating about both the company’s heads stem from the losses of the $880 million. Previous reports revealed that Tether – a cryptocurrency governed by Bitfinex – had previously stated that the lost funds weren’t actually lost but had been “seized and safeguarded.”

The lost funds triggered an investigation by the New York Attorney’s Office into the relationship between Bitfinex and sister firm Tether. The New York General Attorney has been investigating this case since last year and found damning messages exchanged between a senior Bitfinex executive and a representative of Crypto Capital.

The exchanged messages were centered around the $880 million funds, with the Bitfinex exec urging Crypto Capital to release the money but was told it was seized by the U.S. and Polish authorities. Bitfinex didn’t buy the excuse and said that it fears that Crypto Capital is engaged in fraud, speculation that ultimately landed Lee behind bars.

Telegram Delays Token Sale as the SEC Files for Injunction

Telegram is ready to push back their token sale following an injunction initiated by the US Securities and Exchange Commission over the sale of its Gram tokens.

The SEC ordered Telegram to stop the token sale with an emergency restraining order against Telegram Group, Inc., and TON Issuer, the two issuers of Telegram’s tokens listed in the Regulation D filing with the SEC in February and March 2018.

Telegram is ready to follow the SEC’s order for now and delay the token sale.

“Telegram has agreed to stipulate that it will not make any offers, sales, or deliveries of its expected cryptocurrency, called “Grams,” in order to maintain the status quo until this Court can resolve the legal issues at the heart of the matter,” the document reads.

Last Friday, the SEC filed the emergency action against Telegram to prevent it from distributing its Gram tokens, which the agency deems as unregistered securities. The regulator said Telegram failed to register a securities issuance and “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” — the deadline for TON’s launch.

In a letter to investors following the SEC filed order Telegram said that it has been working with the SEC over the past 18 months and has been surprised to see the lawsuit initiated by the agency. The company also accused the SEC of failing to advise Telegram on its blockchain project and token sale.

By voluntarily stopping the sale and distribution of Gram tokens, Telegram states that the injunction is no longer required, asking the court to deny the SEC‘s motion.

With all the issues around the token sale, it looks like Telegram‘s token launch definitely won’t stick to the schedule.

Following Telegram’s response on October 16, where the company argued that its native crypto is not a security and the preliminary injunction should be denied, the SEC has responded with a new filing in the U.S. District Court on October 17.

In the document, the agency insists that Telegram has actually violated the U.S. securities laws and that a preliminary injunction should be granted to prevent Telegram from further violation, mentioning that the company is likely to violate the law again.

Should the motion pass, this would be a massive blow to Telegram’s efforts who already raised over $1.7 billion in two pre-sale rounds, with major venture funds, including Lightspeed Ventures, Sequoia Capital and Benchmark as investors.

Blockchain Firm Settles Unregistered ICO with the SEC

SimplyVital Health, Inc. – a healthcare- based blockchain firm – has settled with the United States Securities and Exchange Commission (SEC) over an allegedly unregistered $6.3 million initial coin offering (ICO).

According to SEC, the New England-based SimplyVital Health, Inc. planned to create a healthcare-related blockchain ecosystem, dubbed Health Nexus. The firm publicly announced plans to build its platform through the sale of its Health Cash (HLTH) token in 2017. Based on the charges brought by SEC, the commission alleges that the company raised more than $6 million through a pre-sale of its token.

Notably, the pre-sale was offered under a simple agreement for future tokens (SAFTs) arrangement – a model which is designed to simplify the ICO process and reduce the risk of enforcement actions by offering investment contracts rather than tokens. Following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Respectively, SimplyVital made use of the SAFT arrangement that stipulated tokens would not be dispersed to investors until SimplyVital created its platform. However, following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Subsequently, SEC concluded that the blockchain healthcare company had violated provisions of the Securities Act of 1933 and “did not file a registration statement with the Commission or qualify for an exemption from registration before offering and selling HLTH to the public through the SAFTs.”

Following this, SimplyVital, whilst neither admitting nor denying the SEC’s charges, has agreed to comply with SEC’s cease and desist order and will face no further penalty, as the firm had already returned to investors “substantially all of the funds raised during its pre-sale” by April 19th 2019.

According to industry sources, many had reported in 2018 that the SEC was most likely going after SAFT sales. An unnamed source stated at the time:

“The SEC is targeting SAFTs. The new approach of the SEC is to consider tokens as both utility and security at the same time, meaning a token can bring utility to a platform but at the same time can be considered as a security if you sold it to parties that mainly looked for profit on its increase in value.”

After releasing its July 2017 DAO Report of Investigation, which introduced the crypto industry to the Howey Test, the SEC has efficiently followed a consistent pattern of enforcement, which has been laid out over the last two years, and picked off one ICO after another over the unregistered sale of securities.

In public statements, Chairman Jay Clayton has stated that the SEC believes virtually every ICO ever conducted in the United States has violated federal securities laws.

Most recently, it had been reported that a U.S. District Court authorized an emergency freeze to lock up $8 million raised in an ICO by a New York citizen alongside with two of his entities. Seemingly, the SEC claimed that Reginald Middleton, Veritaseum Inc. and Veritaseum LLC had raised the funds in an ICO that was a fraudulent, unregistered securities offering.

Bitfinex and Tether In the Spotlight as the NYAG Alleges Them of Fraud

Crypto exchange Bitfinex has allegedly lost $850 million, and in order to cover the shortfall the exchange used funds from affiliated stablecoin operator Tether, according to court files published on April 26th.

NYAG Starts Court Proceedings

The New York Attorney General, Letitia James, has revealed that the court had received court filing alleging that that iFinex Inc. — the operator of Bitfinex — Tether Limited, and their affiliates were in violation of New York law in connection with fraudulent activities, executed without the knowledge New York-based crypto investors.

According to court filings, the exchange hadn’t revealed the loss to investors, with executives of the exchange and Tether engaged in a series of conflicting corporate transactions where Bitfinex got access to up to $900 million of Tether’s cash reserves. Allegedly, Bitfinex took hundreds of millions of dollars Tether’s reserves and subsequently used them to cover up losses as well as its inability to process clients’ withdrawals.

Attorney General James has released a statement that said:

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

Following this statement, the court has ordered that both affiliates immediately cease the dissipation of the US dollars that back tether tokens and to hand over documents for the investigation process. It further adds that both companies are prohibited from destroying potentially related documents.

Bitfinex and Tether Riposte

Meanwhile, Tether’s statement, which was a joint statement with Bitfinex, asserts that the court filings “were written in bad faith and are riddled with false assertions”, claiming that the $850 million were in fact not lost, but seized and safeguarded. It further states that both companies are currently working on getting those funds released.

Respectively, both Tether and Bitfinex insisted on having fully cooperated with prosecutors and called on the Attorney General’s Office to “focus its efforts on trying to aid and support our recovery efforts.”

Tether had previously faced a controversy in January of 2018, when critics of Tether alleged that the crypto, which had claimed to have $1 in reserve for every unit of stablecoin issued, was in reality operating a fractional reserve and issuing more tokens than it had backing for, which were then sent to the Bitfinex exchange. Subsequently, both exchanges faced a subpoena from U.S. regulators and after being ordered to undergo an unofficial audit, it was found that stablecoin had the appropriate amount of backing dollars.

At present, the Attorney General is seeking an injunction to compel Bitfinex and Tether to continue trading, in order not to harm the customers of both entities.

Lawsuit Between Winklevoss and Shrem Has Been Settled

Cameron and Tyler Winklevoss‘s lawsuit against fellow early Bitcoin entrepreneur Charlie Shrem has been privately settled. The news was revealed via court files on April 16th.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York dismissed the case on April 5th, explaining that both parties notified the court they had reached a settlement. However, at that time both parties had been given 30 days to fully effectuate their agreement with the option of continuing to trial in case it was not fulfilled.

On April 16th, attorneys of both parties have signed a legal document, which states that the civil lawsuit is being voluntarily dismissed with prejudice, concluding that the case will not be reopened. It further states that both parties will pay their own legal fees

However, the terms of the settlement remain confidential.

The twins, who founded crypto exchange Gemini, had previously claimed the entrepreneur had stolen 5,000 bitcoins – worth about $26 million at press time – and using the crypto to buy Maseratis, powerboats and other luxury goods, which Shrem had denied.

Following the case’s dismissal, Charlie Shrem has given out a statement regarding the lawsuit:

“From day one, I’ve maintained the allegations are bogus, and they are of course. After their attorney was sanctioned and they were ordered to pay my legal fees twice, we recently reached a confidential resolution, and I’m dismissed from the case. I’m thankful for Brian Klein and my legal team and pleased to have this behind me.”

As one of the earliest adopters of Bitcoin, Shrem established one of the first prominent Bitcoin businesses within the U.S., called Bitinstant.

As previously reported, a judge had ordered the Winklevoss brothers to pay Shrem $45,000 after the District Court of the Southern District of New York reduced the scope of the twins’ claims.

Attorney Stephen Palley, a partner at Anderson Kill has stated that given the big noise with which the lawsuit has started off “this sure ended with a whimper. “

Respectively, Palley strongly believes that „this was a case that began with the plaintiffs trying to freeze and seize Shrem’s assets before he even knew that he had been sued.”

He further commented on how the case began to get worse for the plaintiff’s lawyers as they had seen the ruling overturned as well as having been sanctioned for deposition misconduct. In his opinion, he believes this to be a huge win for Charlie Shrem.