Launchy Regulatory Roundup #7 - SEC Scrutinizes on Binance's Listing & Asset Promotion

Biden’s Policies on Crypto Banking | Spot Bitcoin ETF Options Approved

Marco Manoppo & Muhammad Reynaldi Ariananda Arkiang
September 22, 2024

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Good Morning.

Welcome to our seventh edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

There are a lot of things happening in the crypto space. Aside from SEC approval of options trading for BlackRock's Spot Bitcoin ETF, the recent development in the Binance vs SEC case shows that it could define regulatory standards for compliance in crypto asset promotion and listing, while Australia and Canada shifted their focus from retail CBDCs.

In Today's Edition:

Headline: SEC on Binance's listing & asset promotion 🔍️
Global Legal Roundup: CBDC, spot Bitcoin ETF options, etc.
Case Study: Biden’s policies on crypto banking 🏦

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HEADLINE

SEC Scrutinizes on Binance's Listing & Asset Promotion

Zach Gibson/Bloomberg

State of play: The SEC filed an amended complaint against Binance, emphasizing its token listing and trading practices after most of the initial charges were allowed to proceed by a judge.

The complaint aims to address the judge's concerns and strengthen allegations regarding 10 digital assets the SEC claims were sold as unregistered securities.
The SEC accuses Binance of promoting these assets as investments, particularly through its listing practices and internal strategies.
Binance also allegedly paid US employees in BNB, framing it similarly to stock options.
The filing accuses Binance of promoting listed tokens by amplifying their promotional statements to attract investors.
The SEC clarified that it does not refer to crypto assets as securities but focuses on the contracts and expectations surrounding their sales.

What’s Next: The SEC continues to allege that Binance operates as an unregistered securities broker by selling tokens and supporting their growth through its platform.

Why it Matters: The SEC's amended complaint intensifies regulatory scrutiny on Binance, potentially setting a precedent for how token listings and crypto platforms are regulated in the US.

Our Take: The SEC’s focus on token listing practices signals its intent to hold exchanges accountable for promoting digital assets as securities. This case could define regulatory standards for compliance in crypto asset promotion and listing.

GLOBAL LEGAL ROUNDUP

🇦🇺 Australia to Focus on Wholesale CBDC Over Retail

The Reserve Bank of Australia (RBA) has decided to prioritize the development of a wholesale central bank digital currency (CBDC) over a retail version.

RBA noted that it hasn't identified a clear public benefit for a retail CBDC, given that the existing retail payments system adequately serves citizens.
RBA is launching a three-year research program on digital money, including Project Acacia, which will explore improvements to wholesale markets through tokenization and new settlement infrastructure.
RBA and Treasury plan to engage the public on retail CBDC considerations in 2025, with a detailed paper on the topic expected in 2027.

🇨🇦 Bank of Canada Halts Retail CBDC Efforts, Shifts Focus to Payments

The Bank of Canada (BOC) has decided to wind down its work on a retail central bank digital currency (CBDC) and will instead concentrate on broader payments system research and policy development.

BOC cited the increasing prominence of other payment issues as the reason for this shift.
While extensive research on CBDCs has been conducted, BOC found limited public interest and identified potential drawbacks for the financial system.
Despite pausing retail CBDC efforts, BOC continues to monitor the situation and maintains that its research will be useful if there is future demand for a digital Canadian dollar.
The bank is also set to enhance supervision of retail payments under the Retail Payment Activities Act.
the Retail Payment Activities Act will require the registration of numerous small payment service providers.

🇩🇪 Germany Seizes 47 Crypto Exchanges Linked to Criminal Activity

German authorities have shut down 47 crypto exchanges, accusing them of facilitating an "underground economy" for cybercriminals, including ransomware operators and black market traders.

The federal criminal police and prosecutors allege these exchanges inadequately implemented AML laws.
While the crackdown targets local operations, many perpetrators may remain unreachable due to their residence in other countries.
Notably, one exchange, Xchange.cash, has processed nearly 1.3M transactions since 2012.

🇺🇲 US Lawmakers Pursue Crypto Legislation Before Year-End

Leading U.S. lawmakers Rep. Patrick McHenry and Sen. Cynthia Lummis are pushing for crypto oversight legislation to advance during the "lame duck" session after the November elections.

Lummis emphasized the urgency, stating that delaying comprehensive regulation could push efforts into late 2025, as Europe progresses ahead.
McHenry noted that a previous digital assets bill had garnered significant bipartisan support in the House.
Lummis also suggested establishing a Bitcoin strategic reserve as part of the long-term strategy for crypto assets.

🇺🇲 SEC Approves Options Trading for BlackRock's Spot Bitcoin ETF

The SEC has authorized Nasdaq to list and trade options for BlackRock’s iShares Bitcoin Trust (IBIT), marking a significant step for spot Bitcoin ETFs in the US.

The options will be physically settled and subject to standard listing rules.
While this approval represents progress, further endorsements from the OCC and CFTC are needed before official trading can commence.
Market analysts anticipate additional approvals for other spot Bitcoin ETFs may follow soon, reflecting a growing interest in crypto investment vehicles.

🇺🇲 SEC Settles with Rari Capital

The SEC has reached a settlement with DeFi protocol Rari Capital and its co-founders for allegedly misleading investors and engaging in unregistered broker activities related to its Earn and Fuse pools.

The SEC accused Rari of operating like a crypto investment fund, misrepresenting the functionality of its pools, and failing to adequately manage asset rebalancing.
The settlement includes permanent injunctions, civil penalties, and a five-year ban on the co-founders from serving as corporate officers.
Rari Capital, which peaked with over $1B in total value locked, faced significant challenges and hacks before winding down operations.

🇺🇲 CFTC Monitors Polymarket Amid Election Bets

CFTC Chair Rostin Behnam announced that the commission is closely monitoring Polymarket and other offshore crypto betting platforms offering derivatives to US customers.

Behnam warned that entities with a significant US presence must register their contracts to avoid enforcement actions.
Behnam highlighted Polymarket's previous settlement for operating without registration and noted the heightened scrutiny on prediction markets.
Recent legal challenges also saw the CFTC's authority questioned regarding election-related markets.

🇺🇲 Prager Metis to Pay $1.95M to Settle SEC Allegations of Negligence in FTX Audit

International accounting firm Prager Metis has agreed to pay $1.95M to the SEC to settle allegations of negligence related to its audits of FTX before the exchange's collapse in November 2022.

This includes a $745,000 settlement for failing to comply with Generally Accepted Auditing Standards (GAAS) during its audits of FTX in 2021 and 2022.
The settlement includes $1.2M for violating auditor independence rules in audits of over 200 companies from 2017 to 2020.
The settlement also mandates remedial actions, including retaining an independent consultant to assess its auditing practices and restrictions on taking on new audit clients.

🌐 40+ Firms Collaborate to Explore Tokenization in Cross-Border Payments

More than 40 financial firms are joining the Bank for International Settlements (BIS) to explore the use of tokenization in wholesale cross-border payments through Project Agorá.

Launched in April, the project aims to integrate tokenized commercial bank deposits with wholesale central bank money.
This initiative involves seven monetary authorities, including those from the UK, Japan, South Korea, Mexico, Switzerland, the US, and Europe.
The initiative seeks to address structural inefficiencies in cross-border payments, such as varying legal and regulatory requirements.
The project is now entering its design phase.

More Regulatory Updates:

US judge slaps $36M fine on man for 5-year crypto investor fraud.
UK finance & banks see benefits of a Tokenization, CBDC Platform.
Court approves Terraform Labs winding down in bankruptcy hearing.
SEC charges individuals & companies with operating pig butchering scams.
US lawmakers accuse the SEC of ‘enforcement abuse’ against crypto firms.

CASE STUDY

Impact of Biden's Policies on Crypto Banking

Nic Carter

State of play: Nic Carter recently posted a long thread on X highlighting significant concerns about the closure of crypto-focused banks like Silvergate and Signature, referencing recent testimonies that suggest the Biden administration's regulatory changes directly pressured these institutions.

He argues that the public signaling from federal banking regulators indicated a clear intolerance for banks with substantial digital asset concentrations.
Carter asserts that this regulatory push effectively forced Silvergate out of business, countering the narrative that the banks failed due to management errors.
He describes this intervention as blatantly illegal, citing a law firm that previously challenged similar regulatory actions, claiming it violates the Fifth Amendment.
Carter expresses frustration over the prevailing narrative that these banks simply made poor financial decisions, insisting that they were, in fact, targeted by their own regulators.

Carter claims his initial reporting from 2023 has been proven correct, aside from minor inaccuracies regarding the regulatory body involved.

Our Take: Carter's claim that these regulatory actions may violate the Fifth Amendment raises critical questions about federal banking regulators' conduct. Highlighting the need for greater scrutiny of regulatory practices in the crypto space.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our comprehensive database of crypto regulations around the world👇

NOTEWORTHY READS & MEME

Laura Shin’s take on crypto airdrops as securities.
ZachXBT’s investigation into $243M crypto hack.
Rodrigo’s thread on SEC enforcement against NFT projects.

LMFAOOOO Trump is hilarious
— kira 👾 (@kirawontmiss)
8:16 PM • Sep 20, 2024

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