Chinese Police Investigate EtherDelta for Potential Exit-Scam

Chinese police have reportedly initiated an investigation against non-custodial token trading platform EtherDelta after being suspected of participating in an exit scam.

EtherDelta is a DEX that was founded by Zachary Coburn and it is mainly a trading platform for Ethereum tokens (ERC-20). It enables users to trade digital assets by means of an order book and Ethereum blockchain-powered smart contracts.

On Wednesday, August 7th, Dovey Wan – a Founding Partner of blockchain-focused venture investment firm Primitive Ventures, reported in a series of tweets that Chinese police are investigating an alleged exit scam involving a token listed on decentralized exchange (DEX) EtherDelta.

Wan noted through a series of tweets that the alleged exit scam, involving the sale of native exchange asset EtherDelta Token (EDT), took place after EtherDelta had been acquired by unnamed Chinese investors.

“The actual beneficiaries of EtherDelta are all Chinese after ownership transition in 2017 […] Basically [the founder] Zack Coburn sold EtherDelta to a group of Chinese who later issued exchange token $EDT and turned out to be a exit scam. Now furious investors of $EDT whistle blowed to local police the case was recently taking into official investigation process.” 

Respectively, the police was informed by the “furious investors”. Wan further added that the Chinese police shows no mercy in instances when any crypto scam involved large amount of retail capital.

In addition to that, Wan also shared a snapshot of the ownership agreement signed between Coburn and the Chinese buyers. She further alluded that the new owners bought it with the intent to use it as a front to issue their initial coin offering (ICO).

Prior to this, the exchange platform had faced legal challenges when the U.S. Securities and Exchange Commission (SEC) filed charges against EtherDelta founder Zachary Coburn for running a securities exchange without a license.

Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption,” stated the regulator.

At that time Coburn neither admitted nor denied the charges, however consented to the order and agreed to pay $300,000 in unlawful profits plus $13,000 in prejudgment interest as well as a $75,000 penalty.

Earlier in May, crypto analytics startup Coinfirm found that over 500 of the Ether (ETH), which had been stolen from hacked New Zealand-based cryptocurrency exchange Cryptopia and were worth over $125,000 —  had been moved to EtherDelta.

Overstock Announces Dividend Payments in Digital Security Tokens

Online retailer Overstock has announced that it will pay shareholders dividends, but unlike traditional stock dividends, these will be paid in digital securities.

The current company shareholders will receive one digital share for every ten shares of the traditional stock they hold, or 10 shares of voting series B preferred stock, according to a statement released Tuesday.

Approximately 40,000 holders hold ca. 37 million shares of Overstock, which means that – at a 10:1 ratio of common stock to series A-1 shares – approximately 3.7 million digital shares will be distributed, including shares that are held as part of investor’s 401(k) or IRAs.

Shareholders will receive a Series A-1 share that only traded on the PRO Securities alternative trading system. The alternative trading system – PRO Securities – is backed by Overstock-subsidiary tZero and began listing the Overstock security OSTKO in June.

In addition to that, the company has stated that the record date for the dividend is by September 23rd, and will be transferred to the investor’s custodial wallet in mid-November.

Overstock has revealed that the Series A-1 hasn’t been registered under the Securities Act of 1933, and according to the company, it doesn’t need to be. In addition to that, it plans to respect the holding time required by rule 144 and any trading will go through the brokerage account – Dinosaur Financial Group LLC, which meets the compliance standards accordingly. On top of that, Electronic Transaction Clearing will act as a clearinghouse and custodian, and Computershare as transfer agent.

Overstock.com CEO Patrick M. Byrne has claimed that the bundle of legal rights represented by each of these new A-1 shares is similar to the bundle of legal rights embodied in shares of the common stock (OSTK) that trades on NASDAQ.

He further added that he cannot predict these digital assets will trade “in rough approximation” with the firm’s traditional stock, and highlighted the possible arbitrage opportunities between the two types of shares.

According to Jeffrey Bandman, securities law expert and Founder and Principal of Bandman Advisors, it’s perfectly legal and there is also precedent for a public company like Overstock to declare a dividend and pay it in cash or stock.

Nonetheless, he believes that Overstock is innovating the approach by paying out in the form of a crypto asset token. At the moment, Bandman stated there are no red flags with the practice, and the details released at this point are standard. However, Bandman expects more details to be disclosed over time to ensure the process is compliant.

Blockstack is the First SEC-Approved Token Offering Under Reg A+

The United States Securities and Exchange Commission (SEC) has granted blockchain-based startup Blockstack clearance to run a $28 million public token offering under Regulation A+, according to an official blog post from Blockstack.

According to news, Blockstack will launch its token offering online on Thursday, July 11th.  It will be open to any purchaser in the U.S. and globally, who would like to take part in the Blockstack next-generation computing network.

Blockstack is a blockchain builder that has raised $47 million through a previous token offering under Regulation D, which is a different provision that does not require SEC approval but is only limited to accredited investors. In comparison, Regulation A+ is open to all companies and individuals and serves as an initial public offering (IPO) alternative for smaller companies to publicly raise money with less strenuous accounting and disclosure standards than a regular IPO requires.

Although previously companies have taken advantage of Regulation A+ funding, this marks the first time that investors will receive a token, rather than shares in the company. This development has the potential to be a game-changer for other crypto startups that are looking to sell tokens but not equity in their companies whilst also remaining SEC-compliant.

Blockstack founder Muneeb Ali has shared his enthusiasm, however stated that the process has very long and costly since the SEC had to devise a brand new protocol for token offerings under Reg A+, something the regulator had never done before.

Accordingly, the startup has spent 10 months and approx. $2 million to gain approval from the SEC. Ali apparently said that Blockstack had to develop a protocol for running what is essentially a regulated ICO through Regulation A+ from the ground up.

This is possibly a precedent-setting moment for the crypto space, according to reports. Initial coin offerings (ICOs) have lost much of their appeal ever since they became the target of an SEC crackdown. According to WSJ data, ICOs attracted less than $120 million to their coffers in Q1 2019 in comparison nearly $7 billion in the year-ago period.

Meanwhile, recent poor performances and fraud concerns surrounding some of the Reg A+ IPOs have discouraged Nasdaq and the New York Stock Exchange from Reg A+ listings. Against this backdrop, having the SEC’s approval on a Reg A+ token offering may shed light on a new path for blockchain companies to raise funds under regulation, according to the startup.

Now that Blockstack has successfully created this new path for blockchain companies to raise funds, certainly more companies will now be encouraged to seek SEC approval for their token offerings rather than argue with the regulator that their tokens are not securities.

Goldman Sachs Contemplating Their Entrance Into the Cryptocurrency Industry

Goldman Sachs CEO David Solomon has disclosed in a French newspaper that the company is doing extensive research on tokenization.

In interview with French newspaper Les Echos on June 27th, CEO David Solomon claimed that the group may eventually take part in the crypto disruption of finance.

He further said the bank could absolutely follow JPMorgan Chase in launching a cryptocurrency. Hence the bank’s carrying out extensive research on asset tokenization as well as stablecoins.

When asked about potential involvement with Facebook’s Libra cryptocurrency project, the CEO declined to comment on the matter. However, he said he found the concept rather interesting. He further added that tokenization and stablecoins are the direction in which the payment system will go.

Notably, when asked whether Goldman Sachs will follow JPMorgan Chase in launching its own virtual currency, Solomon stated:

“Assume that all major financial institutions around the world are looking at the potential of tokenization, stablecoins and frictionless payments.”

Nonetheless, he believes it’s too early to say which platform might ultimately win out.

As for crypto regulation, Solomon predicted that regulations will change in response to virtual currencies given that regulators around the world are carefully observing payment flows. However, he doesn’t think new players in the crypto space will cause banks to close. He added:

“Admittedly, they will have to evolve, because the trades linked to the payment flows will become less profitable. But there are many other reasons why banks must remain innovative, otherwise they will disappear.”

Solomon has pointed out as well that tech giants such as Facebook would like to avoid the regulatory constraints that banks face, making it more likely that they would try to enter into partnerships rather than become financial institutions themselves.

Meanwhile, earlier this week reports suggested that JPMorgan Chase is set to begin piloting its own cryptocurrency by the end of this year.

Dubbed the JPM Coin, it will initially run on top of Quorum – the private version of Ethereum the bank developed in conjunction with EthLab – and could be used to settle a fraction of transactions between clients of its wholesale payments business in near real time. The bank revealed earlier that it is currently starting trials of the coin with clients.

Telegram to Hold a Partial Public Sale via Liquid Crypto Exchange

Messaging app giant Telegram’s gram token, previously sold to accredited investors in one of the bigger ICOs of 2018, is finally going on public sale, a press release confirmed on June 11th.

According to the news, a limited sale of the gram token will be hosted by cryptocurrency exchange Liquid from July 10th.

The offering comes before a full public sale planned for October. However no further details about the sale have been disclosed to the public. The sale will ensue via Gram Asia, which claims to be the largest holder of gram tokens.

Prior to this, grams have been sold only to accredited investors in Telegram’s massive two-phase private initial coin offering (ICO) back in February and March of 2018, which subsequently raised  around $1.7 billion for its Telegram Open Network (TON) project and was by far the largest fundraise made via a crypto token offering.

The Telegram Open Network (TON) was an ambitious blockchain project with the goal to decentralize multiple facets of digital communication, varying from file sharing to browsing to transactions.

According to the gram sale page on Liquid’s official website:

TON brings speed and scalability to a multi-blockchain architecture that addresses the need for minimal transaction times and airtight security.”

Liquid CEO Mike Kayamori has stated in the press release that:

“We share the vision for a more secure and open value transfer system in order to enable the mainstream adoption of cryptocurrencies.”

He further added that the TON blockchain infrastructure could help boost Telegram’s current capacity as well as efficiency as a peer to peer network of value, with the launch of their cryptocurrency light wallets for Telegram’s highly engaged user base.

Meanwhile, the sale is open to all investors globally; however it excludes several nations including the U.S. and its territories as well as Japan, most likely due to regulatory reasons that the token could be considered a security within those jurisdictions.

Investors interested in participating in the sale on the Liquid platform can purchase grams with either U.S. dollars or the USDC stablecoin. According to the official website, a full token launch is expected at the end of October.

Notably, any gram tokens sold in the upcoming offering will not be immediately tradeable.

“The tokens being sold will not be released until after TON goes live (mainnet release), in accordance with the delivery schedule. Purchasers will not be able to transfer, withdraw, or trade the Grams before they are released.”

This news comes roughly two weeks after Telegram released a testnet version of the TON client, which itself follows an extensive development process and the Q3 launch date.

As of press time, Telegram has not released any official comments regarding the news.